Let's take the neoliberals at their word: neoliberalism is about using markets to achieve maximum productivity and (maybe) some social democratic ends, while using the power of government to regulate markets and provide what markets cannot. As stated, this idea cannot work because markets contradict government. Neoliberalism calls for freedom and regulation, distribution and centrality, elitism and egalitarianism. At best, neoliberalism simply handwaves over these inherent contradictions; at worst, it is just a cover for libertarianism.
Economists understand that markets have inherent problems that stem from the individualistic competitive nature of markets. First, sellers, both firms selling goods and services and households selling their labor power, have a powerful market incentive to create and maintain monopolies, which economists understand are inefficient. Second, absent the police, it is always easier and cheaper to "cheat" rather than "play fair", and again, the individualistic nature of markets embeds an incentive to cheat. Third, a market economy concentrates and refines the class struggle between rentiers (bourgeoisie) and workers (proletariat), always to the detriment of workers. When markets are used everywhere possible, market competition becomes a life-and-death struggle for everyone, bourgeoisie and proletariat; when everyone's life is on the line, the incentive to monopolize, to cheat, to oppress and enslave others, overwhelms any sense of social or civic value.
Opposing these market incentives, the neoliberals vaguely wave their hands and say, "The government will regulate these markets, break up monopolies, punish cheaters, and protect the proletariat from slavery." But how? Whatever neoliberals think they're trying to do to corral markets for social democratic ends does not seem to be working. Yes, neoliberals can say, with perhaps some deserved pride, that a global markets-in-everything economy has doubled the income of the desperately poor, from \$2 per day to \$4. But it's not enough, and helping the desperately poor shouldn't be mutually exclusive with creating a decent society for working people.
There are, I think, two reasons for this. First, government regulation of a market economy is both as practically difficult and ideologically illiberal as a centrally planned communist economy. Neoliberal economists, like central planners and literally everyone else, are never as smart as they think they. And, fundamentally, any government regulation entails coercing individuals for the sake of the collective. Second, people with political power decide government regulation, and a market economy gives political power to those who can successfully accumulate wealth. Why would such people give up their own power? For the sake of abstract "liberal" principles and altruistic public spirit? Grow the fuck up and re-read Machiavelli.
Libertarians understand these tensions, and, while they dissemble (because why not fool people if fooling them is profitable), they understand that libertarianism is just liberalism without the fuzzy-headed sentimentality. The race may not always be to the swift, nor the battle always to the strong, but it often enough is. If we are going to compete, it makes no sense to punish the winners nor reward the losers.
Do neoliberals understand these tensions? Are they merely better than libertarians as dissimulation? Or are they merely more naive? I don't think it even matters. Liberals — classical and neo- — are either fellow travelers or useful idiots for the right. They are not part of the left.
Showing posts with label libertarianism. Show all posts
Showing posts with label libertarianism. Show all posts
Monday, January 06, 2020
Friday, January 03, 2020
Neoliberalism and libertarianism
Noah Smith and Brad DeLong want to distinguish neoliberalism from libertarianism. Smith, as always, comes off as a pompous douchebag, capable of only the most superficial analysis; DeLong thinks a little more deeply and identifies the core problem with neoliberalism, that neoliberalism is just libertarianism with good intentions. And that's not enough, not enough to distinguish neoliberals from libertarians, and not enough to earn neoliberalism a place on the left.
Smith points to DeLong's defense of neoliberalism, summarizing it as an ideology policy program that "protects markets as the basic engine of production [emphasis added]" with a welfare state (somehow) added "on top" of these markets.
DeLong expands Smith's summary, citing John Stuart Mill's and Adam Smith's deep and probably sincere concern with the poor. It's telling, perhaps, that DeLong chooses not to cite anyone in the twentieth century.
In contrast, DeLong argues that libertarianism holds that a market society embodies justice whatever distribution of income exists, whatever poverty people might suffer. DeLong asserts that libertarians hold that today, "poverty is probably your own fault", either your own moral fault or your "bad genes". DeLong fails to cite any sources (bad), but his understanding broadly matches my own: libertarians are reluctant to put their ideology so baldly, but the "I've got mine, Jack, so fuck off, loser" subtext is pretty clear to anyone who looks with any degree of critical thought at libertarianism.
But good intentions is not enough to distinguish neoliberalism from libertarianism. There are, of course, always fine distinctions within any school of thought or policy practice. There are Rothbard anarcho-capitalists, Nozick minarchists, Randians, etc., all of whom could be called libertarians, an all of whom fall on the "right", broadly defined. These fine distinctions are relevant to scholars and political scientists, but for practical leftist political purposes, they're all just slightly different flavors of asshole, and we can leave the fine distinctions to academics.
DeLong admits that neoliberals do not behave very differently from libertarians. There might be a few differences of degree — neoliberals wring their hands most piteously when Trump cuts food stamps (but heaven forbid they should actually, you know, fight back) — but hand-wringing aside, neoliberals are difficult to distinguish from libertarians. I cannot argue the point better than DeLong. DeLong asserts that "'neoliberalism' has gotten itself tied up . . . with using markets for social democratic ends whenever that is appropriate," (an assertion I find dubious), he admits that "neoliberalism" has also
I have nothing but contempt for Noah Smith. DeLong at least has the decency to entertain the idea that the neoliberals have not been as successful as he might have hoped. (We know they just failed miserably, but DeLong isn't going to risk tenure at Berkeley to say that out loud.) But neither of them are on the left, and when world they and their ilk is drowning in its own shit, I won't shed a tear when some psychopath eats them both.
Smith points to DeLong's defense of neoliberalism, summarizing it as an ideology policy program that "protects markets as the basic engine of production [emphasis added]" with a welfare state (somehow) added "on top" of these markets.
DeLong expands Smith's summary, citing John Stuart Mill's and Adam Smith's deep and probably sincere concern with the poor. It's telling, perhaps, that DeLong chooses not to cite anyone in the twentieth century.
In contrast, DeLong argues that libertarianism holds that a market society embodies justice whatever distribution of income exists, whatever poverty people might suffer. DeLong asserts that libertarians hold that today, "poverty is probably your own fault", either your own moral fault or your "bad genes". DeLong fails to cite any sources (bad), but his understanding broadly matches my own: libertarians are reluctant to put their ideology so baldly, but the "I've got mine, Jack, so fuck off, loser" subtext is pretty clear to anyone who looks with any degree of critical thought at libertarianism.
But good intentions is not enough to distinguish neoliberalism from libertarianism. There are, of course, always fine distinctions within any school of thought or policy practice. There are Rothbard anarcho-capitalists, Nozick minarchists, Randians, etc., all of whom could be called libertarians, an all of whom fall on the "right", broadly defined. These fine distinctions are relevant to scholars and political scientists, but for practical leftist political purposes, they're all just slightly different flavors of asshole, and we can leave the fine distinctions to academics.
DeLong admits that neoliberals do not behave very differently from libertarians. There might be a few differences of degree — neoliberals wring their hands most piteously when Trump cuts food stamps (but heaven forbid they should actually, you know, fight back) — but hand-wringing aside, neoliberals are difficult to distinguish from libertarians. I cannot argue the point better than DeLong. DeLong asserts that "'neoliberalism' has gotten itself tied up . . . with using markets for social democratic ends whenever that is appropriate," (an assertion I find dubious), he admits that "neoliberalism" has also
approv[ed] of whatever distribution of income and wealth that market then produces. Neoliberals in power have been—sometimes—willing to soak the rich by raising taxes on them and using the revenues to spend on infrastructure or to strengthen the "safety net" [Do we have to go back to, er, Nixon for that? -LRH], but they have been unwilling to even whisper about raising taxes on the upper middle class. And neoliberals in and out of power have spoken only in whispers about policies that need to be taken to generate a societally-acceptable market distribution of income.Let me add that the neoliberals, at least since Clinton, have done nothing at all to give power to workers, to households, to the bottom 80% of the income distribution. They have destroyed unions, rolled back workers' rights, homeowners' rights, consumers' rights, immigrants' right. They have overseen the mass incarceration and judicial murder of black people. The neoliberal Obama administration gave millions to the libertarian bank owners while allowing millions of working-class Americans to lose their jobs, their pensions, their homes. At best the neoliberals have ensured that the bosses who squeeze every drop of blood from the workers are a little more diverse.
I have nothing but contempt for Noah Smith. DeLong at least has the decency to entertain the idea that the neoliberals have not been as successful as he might have hoped. (We know they just failed miserably, but DeLong isn't going to risk tenure at Berkeley to say that out loud.) But neither of them are on the left, and when world they and their ilk is drowning in its own shit, I won't shed a tear when some psychopath eats them both.
Sunday, December 17, 2017
Friedman on Libertarianism
In his critique of libertarianism [PDF; link fixed], Jeffrey Friedman (1997) argues that libertarianism can be justified either morally or consequentially and that libertarian advocates fail to do either. I don't want to summarize Friedman's argument except to say that he uses almost 60 pages to fault the logical arguments for libertarianism as circular and the empirical arguments as unevidenced. I agree with both of Friedman's points, and I've written on them extensively myself. Rather, I want to examine two essays critical of Friedman's arguments.
Tom G. Palmer (1998) spends several pages establishing that libertarianism must be justified consequentially; he denies that libertarianism is an a priori truth or categorical imperative. However, he does not, as the alert reader might expect, then turn to making an actual consequentialist or utilitarian argument for libertarianism. Palmer asserts (mistakenly, I think) that Friedman demands an impossibly high standard of proof. But in rebuttal, Palmer fails to offer any sort of evidence. If an author argues for an alternative standard of proof — and his standard is reasonable — then I expect evidence meeting the alternative standard. Palmer fails to even cite any empirical justification for libertarianism. I'm not saying such evidence does not exist, but I have degrees in both political science and economics, and I know the empirical case for libertarianism is not common knowledge in these disciplines; if the evidence is there, show me.
Instead, Palmer focuses on Friedman's supposed errors of logic. Palmer first faults Friedman's definition of "freedom". But Palmer does not seem to understand Friedman's argument, that by definition, all rules of behavior coercively take away some rights. Palmer's counterexample does not address Friedman's argument:
Palmer quotes Algernon Sidney's (1990) definition of liberty, which "solely consists of in an independency upon the will of another" (p. 346; emphasis added) and quotes Locke at greater length in the same vein. Even if we are to accept that there is no "natural" right for one person to impose their will on another by violence, for a person to do whatever else they like seems to be identical with being independent of another's will. Alas, Palmer does not make any explicit connection between this rather banal definition to libertarian philosophy. The quoted passage of Locke seems to suborn some degree of interventionism: Locke asserts that disposing of one's property "within the Allowance of those Laws under which he is" (qtd. in Palmer 1998, p. 346) does not compromise liberty. Thus, it is unclear how Palmer would differentiate libertarianism from ordinary liberalism.
Palmer continues with a disquisition on morality in which I can see neither a substantive criticism of Friedman nor illumination of libertarianism, and closes with a few trivial quibbles. Nowhere in his response does he engage with either of Friedman's claims, regarding the circularity of the libertarian moral argument or the lack of evidence for the empirical argument.
J. C. Lester at least admits that many libertarians make deficient a priori arguments. He makes an argument similar to Palmer's for a reasonable empirical standard of evidence. And then, like Palmer, fails to offer any, handwaving vaguely that "libertarians have read of research and economic theory that appear to refute all the assertions that the state is the solution, rather than the problem" (p. 2; emphasis added). Again, this research and economic theory is not common knowledge in academia, and the lack of specifics fails to persuade. (There is evidence and theory that some kinds of state interventions do more harm than good, but there's a lot of evidence and theory that other kinds of state intervention are not only useful but seem indispensable.) And, like Palmer, Lester immediately switches to arguments that are meaningful only in an a priori context.
Lester argues that the true essence of libertarianism is "the absence of proactive impositions," which he claims is "what libertarians intuitively grasp" (p. 3). In addition to the question of whether this absence is morally or empirically justified, Lester's formulation suffers from the defect that not only do I not understand it at all, Lester himself does not understand it clearly: he admits that he cannot say it is "perspicuously clear and without philosophical problems" (p. 3). Indeed.
If you're going to make an a priori case, make it. If a person criticizes the a priori case, it is not enough to simply say they have misunderstood or made a logical error, even if such an assertion is true. You still have to go over the original argument and show me not that the criticism is bad but that the original argument survives the criticism.
As to the evidentiary case, when evidence is common knowledge (as with evolution or anthropogenic climate change), it is not unjustified to say so, and direct readers to the appropriate evidence. But the empirical evidence for libertarianism is not common knowledge, even in academia. So show me. I'm happy to apply an ordinarily scientific interpretation of the evidence: I do not expect perfection, but I insist on good enough.
References
Friedman, Jeffrey (1997). What's wrong with libertarianism. Critical Review 11.3: 407-467. doi: 10.1080/08913819708443469
Lester. J. C. (2012). What's wrong with "What's wrong with libertarianism": A reply to Jeffrey Friedman. Academia.edu
Palmer, Tom G. (1998). What's not wrong with libertarianism: Reply to Friedman. Critical Review 12.3: 337-358. doi: 10.1080/08913819808443507
Tom G. Palmer (1998) spends several pages establishing that libertarianism must be justified consequentially; he denies that libertarianism is an a priori truth or categorical imperative. However, he does not, as the alert reader might expect, then turn to making an actual consequentialist or utilitarian argument for libertarianism. Palmer asserts (mistakenly, I think) that Friedman demands an impossibly high standard of proof. But in rebuttal, Palmer fails to offer any sort of evidence. If an author argues for an alternative standard of proof — and his standard is reasonable — then I expect evidence meeting the alternative standard. Palmer fails to even cite any empirical justification for libertarianism. I'm not saying such evidence does not exist, but I have degrees in both political science and economics, and I know the empirical case for libertarianism is not common knowledge in these disciplines; if the evidence is there, show me.
Instead, Palmer focuses on Friedman's supposed errors of logic. Palmer first faults Friedman's definition of "freedom". But Palmer does not seem to understand Friedman's argument, that by definition, all rules of behavior coercively take away some rights. Palmer's counterexample does not address Friedman's argument:
If that were true, then using force to prevent another person from having sexual congress with yourself . . . would be just as much a use of force as is using force to have sexual congress with another person. Therefore there must be no difference between the two, at least with respect to whether one approach is more or less coercive or free than the other.But this is true. Both rape and resisting (or punishing) rape are equally coercive. It is just that socially, we have constructed the standard that coercion is justified in the former case and not justified in the second case. I will reiterate the point I've made many times before: the libertarian's moral case always seems to be that coercion for things they don't like is wrong because it is coercive, and coercion for things they do like is not coercion because it is for what they like.
Palmer quotes Algernon Sidney's (1990) definition of liberty, which "solely consists of in an independency upon the will of another" (p. 346; emphasis added) and quotes Locke at greater length in the same vein. Even if we are to accept that there is no "natural" right for one person to impose their will on another by violence, for a person to do whatever else they like seems to be identical with being independent of another's will. Alas, Palmer does not make any explicit connection between this rather banal definition to libertarian philosophy. The quoted passage of Locke seems to suborn some degree of interventionism: Locke asserts that disposing of one's property "within the Allowance of those Laws under which he is" (qtd. in Palmer 1998, p. 346) does not compromise liberty. Thus, it is unclear how Palmer would differentiate libertarianism from ordinary liberalism.
Palmer continues with a disquisition on morality in which I can see neither a substantive criticism of Friedman nor illumination of libertarianism, and closes with a few trivial quibbles. Nowhere in his response does he engage with either of Friedman's claims, regarding the circularity of the libertarian moral argument or the lack of evidence for the empirical argument.
J. C. Lester at least admits that many libertarians make deficient a priori arguments. He makes an argument similar to Palmer's for a reasonable empirical standard of evidence. And then, like Palmer, fails to offer any, handwaving vaguely that "libertarians have read of research and economic theory that appear to refute all the assertions that the state is the solution, rather than the problem" (p. 2; emphasis added). Again, this research and economic theory is not common knowledge in academia, and the lack of specifics fails to persuade. (There is evidence and theory that some kinds of state interventions do more harm than good, but there's a lot of evidence and theory that other kinds of state intervention are not only useful but seem indispensable.) And, like Palmer, Lester immediately switches to arguments that are meaningful only in an a priori context.
Lester argues that the true essence of libertarianism is "the absence of proactive impositions," which he claims is "what libertarians intuitively grasp" (p. 3). In addition to the question of whether this absence is morally or empirically justified, Lester's formulation suffers from the defect that not only do I not understand it at all, Lester himself does not understand it clearly: he admits that he cannot say it is "perspicuously clear and without philosophical problems" (p. 3). Indeed.
If you're going to make an a priori case, make it. If a person criticizes the a priori case, it is not enough to simply say they have misunderstood or made a logical error, even if such an assertion is true. You still have to go over the original argument and show me not that the criticism is bad but that the original argument survives the criticism.
As to the evidentiary case, when evidence is common knowledge (as with evolution or anthropogenic climate change), it is not unjustified to say so, and direct readers to the appropriate evidence. But the empirical evidence for libertarianism is not common knowledge, even in academia. So show me. I'm happy to apply an ordinarily scientific interpretation of the evidence: I do not expect perfection, but I insist on good enough.
References
Friedman, Jeffrey (1997). What's wrong with libertarianism. Critical Review 11.3: 407-467. doi: 10.1080/08913819708443469
Lester. J. C. (2012). What's wrong with "What's wrong with libertarianism": A reply to Jeffrey Friedman. Academia.edu
Palmer, Tom G. (1998). What's not wrong with libertarianism: Reply to Friedman. Critical Review 12.3: 337-358. doi: 10.1080/08913819808443507
Monday, August 15, 2016
Quiggin on Locke: Against freedom
According to John Quiggin's 2015 article, John Locke Against Freedom, John Locke’s classical liberalism isn’t a doctrine of freedom. It’s a defense of "expropriation and enslavement."
In fine deconstructionist form, Quiggin (2015) argues that Locke's specific historical situation informs a reading of his works, especially the Second Treatise on Government and Letters on Toleration. Quiggin (2015) claims that it widely known that Locke justifies slavery and denies property right to indigenous people, but that these elements are peripheral to the main themes of Locke's writing, but Quiggin (2015) argues these themes are central. Quiggin (2015) reports that Locke "was intimately involved with American affairs," drafting the constitution of the Carolinas, serving on American trading boards, and, most importantly, was "a major investor in the English slave trade." Quiggin (2015) argues that an interpretation of the latter in light of his supposed advocacy of liberty as mere hypocrisy is "too charitable." Instead, Quiggin (2015) argues that the contradictions between liberty and slavery finds its way into Locke's work: they
Quiggin (2015) observes that Locke's argument for religious toleration in Letters on Toleration excludes "both Catholics and atheists"; Locke does not argue for toleration per se, but rather for tolerating only good ideas, i.e. his own. Similarly, given Locke's deep involvement in the colonization of North America and expropriation from the indigenous people, Quiggin (2015) argues that Locke's theory of "original acquisition" is not just a benign historical fiction but an active justification of expropriation: a property right lies not just in temporal priority, but in best economic use. Quiggin (2015) compares the idea that agriculture is a superior economic use to hunting-gathering, justifying American colonial expropriation, and Kelo v. City of New London, where superior commercial use justified the exercise of eminent domain over Ms. Kelo merely temporal priority. Locke does not stake out truly universal standards; he simply universalizes his own specific interests.
Quiggin (2015) reinterprets Locke's "oft-quoted statement": “SLAVERY is so vile and miserable an estate of man, and so directly opposite to the generous temper and courage of our nation; that it is hardly to be conceived, that an Englishman, much less a gentleman, should plead for it” (Locke, 1821, book 1, ch. 1. § 1). Quiggin (2015) denies that Locke does not categorically condemn slavery; instead, Locke condemns slavery only for Englishmen, and only the "slavery" of submission to an absolute monarch. Locke approves of "the perfect condition of slavery, which is nothing else, but the state of war continued, between a lawful conqueror and a captive [emphasis original]" (Locke, 1821. book 2, ch. 4. § 24). Alexander Mosely (N.d.) describes Locke's extension of this argument to enslaved Africans as "defending, if somewhat naively, colonial slavery," but Quiggin (2015) rejects the apologia of naivete. Quiggin (2015) argues that all these positions fit a consistent pattern: rights, freedom, liberty are only for people like Locke, with his particular interests situated in his particular historical context.
(I hope soon to summarize the next two installments in Quiggin's polemic: John Locke’s Road to Serfdom and Locke’s Folly, with Quiggin's summary.)
References
Locke, John. 1821. Two treatises on government. Bartleby.com. Retrieved August 15, 2016 from http://www.bartleby.com/169.
Moseley, Alexander. N.d. John Locke: Political philosophy. Internet Encyclopedia of Philosophy. Retrieved August 15, 2016 from http://www.iep.utm.edu/locke-po/
Quiggen, John. 2015. John Locke against freedom. Jacobin. Retrieved August 15, 2016 from https://www.jacobinmag.com/2015/06/locke-treatise-slavery-private-property/
In fine deconstructionist form, Quiggin (2015) argues that Locke's specific historical situation informs a reading of his works, especially the Second Treatise on Government and Letters on Toleration. Quiggin (2015) claims that it widely known that Locke justifies slavery and denies property right to indigenous people, but that these elements are peripheral to the main themes of Locke's writing, but Quiggin (2015) argues these themes are central. Quiggin (2015) reports that Locke "was intimately involved with American affairs," drafting the constitution of the Carolinas, serving on American trading boards, and, most importantly, was "a major investor in the English slave trade." Quiggin (2015) argues that an interpretation of the latter in light of his supposed advocacy of liberty as mere hypocrisy is "too charitable." Instead, Quiggin (2015) argues that the contradictions between liberty and slavery finds its way into Locke's work: they
are designed to fit his political positions both in England, where he supported resistance to the absolutist pretensions of the Catholic James II, and in America, where he was part of the slave-owning ruling class (albeit from afar).
Quiggin (2015) observes that Locke's argument for religious toleration in Letters on Toleration excludes "both Catholics and atheists"; Locke does not argue for toleration per se, but rather for tolerating only good ideas, i.e. his own. Similarly, given Locke's deep involvement in the colonization of North America and expropriation from the indigenous people, Quiggin (2015) argues that Locke's theory of "original acquisition" is not just a benign historical fiction but an active justification of expropriation: a property right lies not just in temporal priority, but in best economic use. Quiggin (2015) compares the idea that agriculture is a superior economic use to hunting-gathering, justifying American colonial expropriation, and Kelo v. City of New London, where superior commercial use justified the exercise of eminent domain over Ms. Kelo merely temporal priority. Locke does not stake out truly universal standards; he simply universalizes his own specific interests.
Quiggin (2015) reinterprets Locke's "oft-quoted statement": “SLAVERY is so vile and miserable an estate of man, and so directly opposite to the generous temper and courage of our nation; that it is hardly to be conceived, that an Englishman, much less a gentleman, should plead for it” (Locke, 1821, book 1, ch. 1. § 1). Quiggin (2015) denies that Locke does not categorically condemn slavery; instead, Locke condemns slavery only for Englishmen, and only the "slavery" of submission to an absolute monarch. Locke approves of "the perfect condition of slavery, which is nothing else, but the state of war continued, between a lawful conqueror and a captive [emphasis original]" (Locke, 1821. book 2, ch. 4. § 24). Alexander Mosely (N.d.) describes Locke's extension of this argument to enslaved Africans as "defending, if somewhat naively, colonial slavery," but Quiggin (2015) rejects the apologia of naivete. Quiggin (2015) argues that all these positions fit a consistent pattern: rights, freedom, liberty are only for people like Locke, with his particular interests situated in his particular historical context.
(I hope soon to summarize the next two installments in Quiggin's polemic: John Locke’s Road to Serfdom and Locke’s Folly, with Quiggin's summary.)
References
Locke, John. 1821. Two treatises on government. Bartleby.com. Retrieved August 15, 2016 from http://www.bartleby.com/169.
Moseley, Alexander. N.d. John Locke: Political philosophy. Internet Encyclopedia of Philosophy. Retrieved August 15, 2016 from http://www.iep.utm.edu/locke-po/
Quiggen, John. 2015. John Locke against freedom. Jacobin. Retrieved August 15, 2016 from https://www.jacobinmag.com/2015/06/locke-treatise-slavery-private-property/
Saturday, February 21, 2015
Dark Leviathan
Dark Leviathan [link fixed]: The Silk Road might have started as a libertarian experiment, but it was doomed to end as a fiefdom run by pirate kings.
Ulbricht built the Silk Road marketplace from nothing, pursuing both a political dream and his own self-interest. However, in making a market he found himself building a micro-state, with increasing levels of bureaucracy and rule‑enforcement and, eventually, the threat of violence against the most dangerous rule‑breakers. Trying to build Galt’s Gulch, he ended up reconstructing Hobbes’s Leviathan; he became the very thing he was trying to escape. But this should not have been a surprise.
Sunday, November 10, 2013
Hayek's theological epistemology
Had Friedrich Hayek simply stated that economics and the social sciences in general have the most complicated subject matter so far known, i.e. human society, and that we should formulate social policy with extreme caution because the scientific knowledge we can gain about our society is limited, he would have been correct. And he might also have been profound: it is perhaps the case that economists are too confident about their scientific knowledge. But in his Nobel Prize speech, The Pretence of Knowledge, Hayek makes a much stronger claim. Economists, Hayek argues, have made serious policy errors because they have aped the forms of science in a field where science itself does not and cannot apply. Hayek first establishes that there is a problem, the "serious threat of accelerating inflation." Hayek attributes this problem proximately to "scientism," the idea of a "simple positive correlation" between employment and aggregate demand; Hayek asserts that economists accept this idea because they employ a "mechanical and uncritical application of habits of thought to fields different from those in which they have been formed."* Hayek does not believe that this correlation between employment and aggregate demand is unscientific; he admits that it that is is the only theory for which "strong quantitative evidence can be adduced." However, Hayek believes it is "fundamentally false" and "harmful" to use to guide public policy.
*Hayek quotes himself here, from "Scientism and the Study of Society, " reprinted in The Counter-Revolution of Science.
According to Hayek, economics (and presumably all social sciences) cannot productively use the scientific method. The data necessary to construct good scientific theories are "necessarily limited" and important information may not be available. In contrast, Hayek asserts that in the physical sciences, all important information is "directly observable and measurable." Because of the limitations on the availability of data, instead of observing what is important, social scientists declare that only what is observable is important. This tendency "quite arbitrarily limits the facts which are to be admitted as possible causes of the events which occur in the real world. . . . We know . . . a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information." Because these facts cannot be confirmed by quantitative measurement, they are excluded from consideration in mainstream economics. Thus, Hayek asserts, scientism causes economists to accept false theories with good scientific support, such as the causal connection between employment and aggregate demand, and reject true theories without scientific support, such as Hayek's alternative explanation of structural unemployment. Although Hayek is correct in identifying the society as the most complex object of study, his analysis is otherwise completely incorrect, and his alternative is utterly without any intellectual support.
Hayek first mischaracterizes the scientific method. Although he mentions Popper approvingly, he deprecates the notion of falsifiability and instead imputes to science a requirement of behaviorism, also known as positivism. Taken from psychology, behaviorism specifically asserts that because we cannot directly observe what is in a person's mind, the mind has no physical; at best we can merely talk about correlations between observable inputs and observable behavior. More generally, as proposed in philosophy by the Vienna Circle, positivism asserts that only that which is directly measurable has any physical meaning. The Vienna Circle, including Carnap, Popper's primary intellectual opponent, quickly realized positivism's untenability and abandoned the concept. So far as I know, no philosopher today holds that positivism is a foundational concept in the philosophy of science. Had Hayek criticized economists and social scientists for positivism, his critique would have been correct and perspicacious.
But Hayek believes that science itself requires positivism. Positivism, according to Hayek, is a routine, unobjectionable element of the physical sciences: "[I]n the physical sciences it is generally assumed, probably with good reason, that any important factor which determines the observed events will itself be directly observable and measurable." This is simply not true of any science, not even physics. In 1946, Albert Einstein criticized Ernst Mach's positivism, saying,
*Quoted in Einstein's Philosophy of Science, by Don A. Howard.
Curiously, Hayek opens his speech with a purely scientific critique of a simplistic correlation between employment and aggregate demand. Assuming such this simplistic correlation really is fundamental to economic theory at the time, it is falsified by the directly observable experience of inflation: a simplistic correlation would predict that increasing the money supply when there is above-normal unemployment will not cause inflation. Under Popperian falsification, Hayek's criticism is dispositive: we have directly observed events which contradict predictions of the theory, therefore, there is something incorrect or missing from the theory. However, the phenomenon of observations contradicting theory is routine in science; that a theory has been contradicted by observation does not in any sense invalidate a discipline as unscientific or "scientistic."
Hayek, however, does not conclude that the simplistic correlation between employment and aggregate demand is incomplete; he makes the much stronger assertion that it is "fundamentally false [emphasis added]." He must mean that there is no actual causal relationship whatsoever between aggregate demand; that all the observed correlations, which he admits, are either spurious or indicative of parallel or indirect causation. Hayek, however, concludes that any correlation between employment and aggregate demand is incorrect because it is measurable, and because it admits of only what proponents "regard as scientific evidence."
Hayek's alternative is that all unemployment (other than routine frictional unemployment) is fundamentally structural. Without apparent qualification, Hayek asserts that "the chief actual cause of extensive unemployment . . . [is] the existence of discrepancies between the distribution of demand among the different goods and services and the allocation of labour and other resources among the production of those outputs." Hayek, however, cannot actually prove this theory. Hayek admits he cannot offer quantitative evidence in support of his theory: "[W]hen we are asked for quantitative evidence for the particular structure of prices and wages that would be required in order to assure a smooth continuous sale of the products and services offered, we must admit that we have no such information." Hayek continues, "[W]e can never produce statistical information which would show how much the prevailing prices and wages deviate from those which would secure a continuous sale of the current supply of labour [emphasis original]." His single attempt is to declare the theory would be proven false "if, with a constant money supply, a general increase of wages did not lead to unemployment." This account, however, is obviously inadequate either to support his own theory or to challenge an account linking aggregate demand to employment, because by a "constant money supply," Hayek is holding demand constant a priori. Where Hayek does not misunderstand science, he directly rejects it.
Hayek's only "intellectual" support for both his criticism of the scientific method as used by economics and the social sciences is not just an assertion of "a mistaken conception of the proper scientific procedure"; it is essentially "theological," in that it relies explicitly on revealed truths that cannot be contradicted by experience. Hayek asserts, "We know: of course, with regard to the market and similar social structures, a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information." This assertion makes no sense: if have only "imprecise and general information," then we can know these supposed facts only by revelation, not by any sort of scientific inquiry. Indeed, Hayek admits that "the effects of these facts in any particular instance cannot be confirmed by quantitative evidence." These supposed facts cannot be observed directly, their effects cannot be observed directly, and yet they are still, according to Hayek, actual facts. Hayek's justification of his own theory is thin to the point of nonexistence: "few . . . will question the validity of the factual assumptions [!], or the logical correctness of the conclusions drawn from them." Hayek engages here in a wholesale repudiation not just of positivism, but of scientific knowledge in general.
Everything about Hayek's reasoning directly mimics the arguments of creationists and pseudoscientists. Who are you going to trust, Hayek asks, your preconceptions and prejudices, or your lying eyes? That Hayek received a Nobel Prize in cconomics is as absurd as it would be to award the Nobel Prize in physics to Deepak Chopra; that Hayek is even mentioned in a university curriculum about economics is a disgrace to the discipline, not because of his ideology (everything is ideological) but because of his contempt and dismissal of the scientific method.
*Hayek quotes himself here, from "Scientism and the Study of Society, " reprinted in The Counter-Revolution of Science.
According to Hayek, economics (and presumably all social sciences) cannot productively use the scientific method. The data necessary to construct good scientific theories are "necessarily limited" and important information may not be available. In contrast, Hayek asserts that in the physical sciences, all important information is "directly observable and measurable." Because of the limitations on the availability of data, instead of observing what is important, social scientists declare that only what is observable is important. This tendency "quite arbitrarily limits the facts which are to be admitted as possible causes of the events which occur in the real world. . . . We know . . . a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information." Because these facts cannot be confirmed by quantitative measurement, they are excluded from consideration in mainstream economics. Thus, Hayek asserts, scientism causes economists to accept false theories with good scientific support, such as the causal connection between employment and aggregate demand, and reject true theories without scientific support, such as Hayek's alternative explanation of structural unemployment. Although Hayek is correct in identifying the society as the most complex object of study, his analysis is otherwise completely incorrect, and his alternative is utterly without any intellectual support.
Hayek first mischaracterizes the scientific method. Although he mentions Popper approvingly, he deprecates the notion of falsifiability and instead imputes to science a requirement of behaviorism, also known as positivism. Taken from psychology, behaviorism specifically asserts that because we cannot directly observe what is in a person's mind, the mind has no physical; at best we can merely talk about correlations between observable inputs and observable behavior. More generally, as proposed in philosophy by the Vienna Circle, positivism asserts that only that which is directly measurable has any physical meaning. The Vienna Circle, including Carnap, Popper's primary intellectual opponent, quickly realized positivism's untenability and abandoned the concept. So far as I know, no philosopher today holds that positivism is a foundational concept in the philosophy of science. Had Hayek criticized economists and social scientists for positivism, his critique would have been correct and perspicacious.
But Hayek believes that science itself requires positivism. Positivism, according to Hayek, is a routine, unobjectionable element of the physical sciences: "[I]n the physical sciences it is generally assumed, probably with good reason, that any important factor which determines the observed events will itself be directly observable and measurable." This is simply not true of any science, not even physics. In 1946, Albert Einstein criticized Ernst Mach's positivism, saying,
[Mach] did not place in the correct light the essentially constructive and speculative nature of all thinking and more especially of scientific thinking; in consequence, he condemned theory precisely at those points where its constructive-speculative character comes to light unmistakably, such as in the kinetic theory of atoms.*Hayek's attribution of naive positivism to science is simply mistaken.
*Quoted in Einstein's Philosophy of Science, by Don A. Howard.
Curiously, Hayek opens his speech with a purely scientific critique of a simplistic correlation between employment and aggregate demand. Assuming such this simplistic correlation really is fundamental to economic theory at the time, it is falsified by the directly observable experience of inflation: a simplistic correlation would predict that increasing the money supply when there is above-normal unemployment will not cause inflation. Under Popperian falsification, Hayek's criticism is dispositive: we have directly observed events which contradict predictions of the theory, therefore, there is something incorrect or missing from the theory. However, the phenomenon of observations contradicting theory is routine in science; that a theory has been contradicted by observation does not in any sense invalidate a discipline as unscientific or "scientistic."
Hayek, however, does not conclude that the simplistic correlation between employment and aggregate demand is incomplete; he makes the much stronger assertion that it is "fundamentally false [emphasis added]." He must mean that there is no actual causal relationship whatsoever between aggregate demand; that all the observed correlations, which he admits, are either spurious or indicative of parallel or indirect causation. Hayek, however, concludes that any correlation between employment and aggregate demand is incorrect because it is measurable, and because it admits of only what proponents "regard as scientific evidence."
Hayek's alternative is that all unemployment (other than routine frictional unemployment) is fundamentally structural. Without apparent qualification, Hayek asserts that "the chief actual cause of extensive unemployment . . . [is] the existence of discrepancies between the distribution of demand among the different goods and services and the allocation of labour and other resources among the production of those outputs." Hayek, however, cannot actually prove this theory. Hayek admits he cannot offer quantitative evidence in support of his theory: "[W]hen we are asked for quantitative evidence for the particular structure of prices and wages that would be required in order to assure a smooth continuous sale of the products and services offered, we must admit that we have no such information." Hayek continues, "[W]e can never produce statistical information which would show how much the prevailing prices and wages deviate from those which would secure a continuous sale of the current supply of labour [emphasis original]." His single attempt is to declare the theory would be proven false "if, with a constant money supply, a general increase of wages did not lead to unemployment." This account, however, is obviously inadequate either to support his own theory or to challenge an account linking aggregate demand to employment, because by a "constant money supply," Hayek is holding demand constant a priori. Where Hayek does not misunderstand science, he directly rejects it.
Hayek's only "intellectual" support for both his criticism of the scientific method as used by economics and the social sciences is not just an assertion of "a mistaken conception of the proper scientific procedure"; it is essentially "theological," in that it relies explicitly on revealed truths that cannot be contradicted by experience. Hayek asserts, "We know: of course, with regard to the market and similar social structures, a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information." This assertion makes no sense: if have only "imprecise and general information," then we can know these supposed facts only by revelation, not by any sort of scientific inquiry. Indeed, Hayek admits that "the effects of these facts in any particular instance cannot be confirmed by quantitative evidence." These supposed facts cannot be observed directly, their effects cannot be observed directly, and yet they are still, according to Hayek, actual facts. Hayek's justification of his own theory is thin to the point of nonexistence: "few . . . will question the validity of the factual assumptions [!], or the logical correctness of the conclusions drawn from them." Hayek engages here in a wholesale repudiation not just of positivism, but of scientific knowledge in general.
Everything about Hayek's reasoning directly mimics the arguments of creationists and pseudoscientists. Who are you going to trust, Hayek asks, your preconceptions and prejudices, or your lying eyes? That Hayek received a Nobel Prize in cconomics is as absurd as it would be to award the Nobel Prize in physics to Deepak Chopra; that Hayek is even mentioned in a university curriculum about economics is a disgrace to the discipline, not because of his ideology (everything is ideological) but because of his contempt and dismissal of the scientific method.
Wednesday, February 06, 2013
Libertarian mugged by reality
Libertarian Mugged by Reality
Thanks, Scott!
Alex Beinstein was, like many other a fidgety and overconfident undergraduate who’d sought my company in this way, considerably to the right of center—a libertarian, he told me. . . . Later, as these kids sometimes do, he got back in touch. But something had happened in the interim. That something, in fact, seems to be happening a lot: kids I knew who were conservatives when they lived in the ivory tower were now liberals. The real world has made them that way.
Thanks, Scott!
Sunday, January 20, 2013
The inconsistentcy of Libertarian arguments
My objections to Libertarianism does not rest on the claim that Libertarian ideology is incoherent or internally inconsistent. Their ideology is as coherent and internally consistent as it needs to be. Unjustified coercion consists of the use of force without a specific, individual agreement permitting that use. Ownership of property is absolute, and its acquisition and transfer is (with a few easily patched exceptions) well defined. Fundamentally, Libertarians (as well as most left-anarchists) believe that social, collective decision-making must be restricted to privileging Libertarianism (or left-anarchism) as a system of individual rights, privileges, and obligations. No other collective decision-making is valid or legitimate. Libertarians want a specific socio-political system, and there's nothing wrong with wanting a socio-political system, and there's nothing wrong with advocating a system because that's the system the advocate wants.
I object to Libertarianism on two bases. First, it's not the sort of system I want, because I believe that because I don't own much property, I would a virtual slave. Libertarianism seems like a very thinly disguised oligarchical plutocracy. I don't think it's a system that most people want.
Some Libertarians are pretty much upfront that most people would not want Libertarianism (or anarcho-capitalism). For example, as Andrew Dittmer interprets Hans-Hermann Hoppe, Libertarianism considers the preferences of the "dull and indolent" masses to be irrelevant and their satisfaction would lead to degeneracy*. However, what torques me up about Libertarians is that there's a strain of pervasive intellectual dishonesty among Libertarians, at about the same level as the intellectual dishonesty of Christian apologists. To a certain extent, neither can avoid such dishonesty: it is difficult to convince people to legitimize social, political, cultural, and economic systems such as Christianity or Libertarianism that are not in their material interest, and all social systems require popular legitimacy.
Hoppe, Hans-Herman. Democracy: The God That Failed, 2001. p. 288. qtd. in Dittmer
The intellectual dishonesty is not in the underlying ideology; the dishonesty resides in the justification for the ideology. Every Libertarian I've ever met starts off trying to leverage our dislike of other people forcing us to do things. So the argument always begins with the use of force. Jeff Orok, State Chair of the Libertarian Party of Colorado used this sort of argument when he was speaking at the Humanists of Colorado meeting: paraphrasing from memory, he said that if it is wrong for someone to take your watch at gunpoint, then it is wrong for the State to take your money at gunpoint. Because this argument is not otherwise qualified, the implication is that the "taking stuff at gunpoint" is what is wrong. Similarly, when I debated Jon Adams at the University of Colorado, Denver, he said (again paraphrasing from memory) that taxation is wrong because taxation entails that men with guns will shoot you if you don't pay. Again, without additional qualification, the clear implication is that what is wrong is that men with guns must collect it. But of course any sort of absentee property ownership requires that the owner be able to take stuff at gunpoint. The argument then changes to whether or not the force is coercive, i.e. whether or not the person subject to force has agreed to be subject to force. This move is problematic in two ways.
First, the notion of legitimizing force by agreement confuses the subjective with the objective. Because Libertarianism is not popularly appealing, one Libertarian claim is that Libertarianism is objectively true: regardless of what anyone or everyone believes or prefers, the set of rights, privileges, and obligations that Libertarianism describes are true, in the same sense that regardless of what anyone or everyone believes or prefers, when you slap a few kilograms of plutonium together, you get a very large explosion. But agreements are inherently subjective; we cannot even talk about agreements except by discovering what people actually believe and prefer. Agreements cannot be "objective," and it is difficult to see how an inherently subjective phenomenon can be regulated objectively. Once we talk about agreements legitimizing force, we have decisively moved to the realm of the subjective.
The second problem emerges from the first: what constitutes a legitimate agreement? Why should we consider one system of legitimizing agreements, Libertarianism, superior to other systems, such as liberal democratic republican capitalism, democratic socialism, democratic communism, state communism, or fascism? Why should we demand individuated agreements exclusively and consider collective agreements, such as taxation, to be categorically illegitimate? The appeal to natural law has to fail. In the first sense of natural law as objective, how can there be a mind-independent law that regulates mind-dependent things? In the second sense of natural law as what the vast majority of people want, independently of their power or positions, the vast majority of people do in fact legitimize collective agreements, so Libertarianism manifestly contradicts natural law in this sense. Indeed, collective agreements are manifestly more efficient where externalities, information asymmetry, finite buyers and sellers, barriers to entry, always-declining marginal costs, sunk costs*, and other factors render markets inefficient.
*Sunk cost is especially important, because capital is always a sunk cost. In an industrial economy, the cost of capital is a substantial fraction of the total cost of most goods and services. Pure free markets push the price of a good to the marginal cost of the last item produced; the cost of capital is entirely contained in the marginal cost of the first item produced. Without some collective agreement protecting capital costs, an industrial economy will collapse.
If the natural law argument fails, then Libertarians have to make a pragmatic argument. When they do so, they fall to the level of pure lies and bullshit shown by Christian apologists. Market-based healthcare is more efficient than socialized healthcare! Well, no. purely privatized healthcare very obviously less efficient that socialized healthcare for most ordinary, commonsense definitions of efficiency. Voucherized education is more efficient than socialized education! The facts are now coming in, and no, it's again obviously not efficient. Latvia's incredible growth shows the economic efficacy of Libertarian policies adopted after the 2008 global financial collapse! But Latvia hasn't grown incredibly; it's still worse off both in GDP and employment than it was before the collapse. (And even if it had, Latvia? Good grief.) The bullshit is just as thick: every partial success that happens is attributed to Libertarianism; every partial failure is the result of the Libertarianism not being sufficiently complete. (Every "miraculous" survival is the hand of God; every tragic death happens despite God's concern.) When they're not just lying about the facts, they're creating patently unfalsifiable standards.
As I said in the beginning, Libertarian ideology is consistent, at least as consistent as it needs to be. Internal consistency is not a high bar: if the Christians can manage it, and they can, the Libertarians should not have much a challenge. The problem is the justification: the justification is equivocal, inconsistent, disingenuous, unfounded, lying, and riddled with bullshit. I can see no other explanation but that Libertarians want an oligarchic plutocracy, and for obvious reasons, they cannot be forthright, so they must cloak their ideology of slavery in the language of liberty. It is unfortunate that so many who would be slaves in a Libertarian society advocate Libertarianism so fanatically, but anyone who has studied Christian apologetics will understand that the tendency of slaves to fanatically advocate the part of their masters is not a Libertarian but a thoroughly human characteristic.
I object to Libertarianism on two bases. First, it's not the sort of system I want, because I believe that because I don't own much property, I would a virtual slave. Libertarianism seems like a very thinly disguised oligarchical plutocracy. I don't think it's a system that most people want.
Some Libertarians are pretty much upfront that most people would not want Libertarianism (or anarcho-capitalism). For example, as Andrew Dittmer interprets Hans-Hermann Hoppe, Libertarianism considers the preferences of the "dull and indolent" masses to be irrelevant and their satisfaction would lead to degeneracy*. However, what torques me up about Libertarians is that there's a strain of pervasive intellectual dishonesty among Libertarians, at about the same level as the intellectual dishonesty of Christian apologists. To a certain extent, neither can avoid such dishonesty: it is difficult to convince people to legitimize social, political, cultural, and economic systems such as Christianity or Libertarianism that are not in their material interest, and all social systems require popular legitimacy.
Hoppe, Hans-Herman. Democracy: The God That Failed, 2001. p. 288. qtd. in Dittmer
The intellectual dishonesty is not in the underlying ideology; the dishonesty resides in the justification for the ideology. Every Libertarian I've ever met starts off trying to leverage our dislike of other people forcing us to do things. So the argument always begins with the use of force. Jeff Orok, State Chair of the Libertarian Party of Colorado used this sort of argument when he was speaking at the Humanists of Colorado meeting: paraphrasing from memory, he said that if it is wrong for someone to take your watch at gunpoint, then it is wrong for the State to take your money at gunpoint. Because this argument is not otherwise qualified, the implication is that the "taking stuff at gunpoint" is what is wrong. Similarly, when I debated Jon Adams at the University of Colorado, Denver, he said (again paraphrasing from memory) that taxation is wrong because taxation entails that men with guns will shoot you if you don't pay. Again, without additional qualification, the clear implication is that what is wrong is that men with guns must collect it. But of course any sort of absentee property ownership requires that the owner be able to take stuff at gunpoint. The argument then changes to whether or not the force is coercive, i.e. whether or not the person subject to force has agreed to be subject to force. This move is problematic in two ways.
First, the notion of legitimizing force by agreement confuses the subjective with the objective. Because Libertarianism is not popularly appealing, one Libertarian claim is that Libertarianism is objectively true: regardless of what anyone or everyone believes or prefers, the set of rights, privileges, and obligations that Libertarianism describes are true, in the same sense that regardless of what anyone or everyone believes or prefers, when you slap a few kilograms of plutonium together, you get a very large explosion. But agreements are inherently subjective; we cannot even talk about agreements except by discovering what people actually believe and prefer. Agreements cannot be "objective," and it is difficult to see how an inherently subjective phenomenon can be regulated objectively. Once we talk about agreements legitimizing force, we have decisively moved to the realm of the subjective.
The second problem emerges from the first: what constitutes a legitimate agreement? Why should we consider one system of legitimizing agreements, Libertarianism, superior to other systems, such as liberal democratic republican capitalism, democratic socialism, democratic communism, state communism, or fascism? Why should we demand individuated agreements exclusively and consider collective agreements, such as taxation, to be categorically illegitimate? The appeal to natural law has to fail. In the first sense of natural law as objective, how can there be a mind-independent law that regulates mind-dependent things? In the second sense of natural law as what the vast majority of people want, independently of their power or positions, the vast majority of people do in fact legitimize collective agreements, so Libertarianism manifestly contradicts natural law in this sense. Indeed, collective agreements are manifestly more efficient where externalities, information asymmetry, finite buyers and sellers, barriers to entry, always-declining marginal costs, sunk costs*, and other factors render markets inefficient.
*Sunk cost is especially important, because capital is always a sunk cost. In an industrial economy, the cost of capital is a substantial fraction of the total cost of most goods and services. Pure free markets push the price of a good to the marginal cost of the last item produced; the cost of capital is entirely contained in the marginal cost of the first item produced. Without some collective agreement protecting capital costs, an industrial economy will collapse.
If the natural law argument fails, then Libertarians have to make a pragmatic argument. When they do so, they fall to the level of pure lies and bullshit shown by Christian apologists. Market-based healthcare is more efficient than socialized healthcare! Well, no. purely privatized healthcare very obviously less efficient that socialized healthcare for most ordinary, commonsense definitions of efficiency. Voucherized education is more efficient than socialized education! The facts are now coming in, and no, it's again obviously not efficient. Latvia's incredible growth shows the economic efficacy of Libertarian policies adopted after the 2008 global financial collapse! But Latvia hasn't grown incredibly; it's still worse off both in GDP and employment than it was before the collapse. (And even if it had, Latvia? Good grief.) The bullshit is just as thick: every partial success that happens is attributed to Libertarianism; every partial failure is the result of the Libertarianism not being sufficiently complete. (Every "miraculous" survival is the hand of God; every tragic death happens despite God's concern.) When they're not just lying about the facts, they're creating patently unfalsifiable standards.
As I said in the beginning, Libertarian ideology is consistent, at least as consistent as it needs to be. Internal consistency is not a high bar: if the Christians can manage it, and they can, the Libertarians should not have much a challenge. The problem is the justification: the justification is equivocal, inconsistent, disingenuous, unfounded, lying, and riddled with bullshit. I can see no other explanation but that Libertarians want an oligarchic plutocracy, and for obvious reasons, they cannot be forthright, so they must cloak their ideology of slavery in the language of liberty. It is unfortunate that so many who would be slaves in a Libertarian society advocate Libertarianism so fanatically, but anyone who has studied Christian apologetics will understand that the tendency of slaves to fanatically advocate the part of their masters is not a Libertarian but a thoroughly human characteristic.
Wednesday, January 16, 2013
Quantity and quality of money
In his comment, Ralph Benko, editor of the website The Gold Standard Now, defends the gold standard, or at least alludes to defenses. One argument is that, historically, use of the gold standard correlates to economic growth. Benko and his unnamed advocates "suspect, with good reason, that there is more than a coincidental correlation." Benko also asserts that my criticism of the gold standard as limiting economic growth "conflates quantity and quality theory of money." Benko compares the gold standard to abstract units of measure, and implies that holding money to a gold standard does not affect economic growth any more than holding the definition of a yard constant affects the production of yardsticks. These defenses, however, are facially thin.
A suspicion of causation is not very impressive. Correlation is evidence of causation, but it is at best only preliminary evidence, and tells us nothing about the direction of causation. For example, if changing economic conditions caused the gold standard to begin to limit economic growth, or if some underlying change in economic conditions caused both slower economic growth and the inefficiency of the gold standard, then we would expect to see the same correlation: declining economic growth at the same time the gold standard was being eroded. Benko suggests that the correlation might have something to do with Total Factor Productivity, but I can't seen any plausible connection. Benko admits this defense is just a suspicion, so I think it's justified to not take it too seriously.
The more substantive objection is that I'm conflating quality with quality. But this objection at least needs more elaboration. Money is not an abstract unit of measure, it's a reified social construction that we pretend has actual existence; we actually pretend to store and move money in time and space like we move physical objects in space. There's nothing wrong with that pretense; pretending to store and move money around is just a way of modeling and representing the storage and movement of real goods and services.
In one sense, the quantity of money doesn't matter to money as a representation of transactions of real goods and services, only its quality. If we could move money arbitrarily quickly, then one unit of money would suffice, so long as that unit had a consistent representation. "Wealthy" or "poor" people would just be those through whose hands the unit of money passed relatively more or less often. But money cannot move arbitrarily quickly, for two reasons. First is just physics: it takes time, energy, and effort to move money, even by computer; doubling the actual units of money in use halves that effort, because moving two units in one transaction has about the same cost as moving one unit.
The second reason is because of money's other use: as a liquid store of value. We don't just move money around to represent the movement of goods and services, we store money to virtually transfer consumption in time (by actually transferring it in space between different people: my saving must be your excess spending, and vice versa).
Because money must be stored, the quantity of money is directly related to its quality. Indeed, as we know, Y * P = M * V: real GDP (Y) times the price level (P) is, by definition, equal to the quantity of money (M) times the average velocity of money (V). Everything else being equal*, increasing the quantity of money increases the price level in the short term, as more M is chasing the same amount of Y. But the price level is the "quality" of money. Thus (under ordinary circumstances) there is a direct relationship between the quantity and quality of money.
*Which is sometimes not the case: when interest rates are near the zero lower bound, for example, the velocity of money just decreases when the money supply increases, without changing GDP or the price level.
There is, however, a third issue: socially constructed agreements directly denominated in money, i.e. purely financial agreements. When I borrow money, I both borrow and agree to repay only money, not any actual goods and services that money represents. Financial agreements must involve positive nominal interest rates: no one would ever loan money at a zero or negative rate; they would just hold the cash. This means that if the price level decreases, people who owe money would owe more goods and services than they originally borrowed. Since interest rates cannot be negative, there is no easy way to reflect expectations of future deflation in interest rates. This is why real economists fear deflation more than (modest) inflation: deflation — or even just the expectation of deflation — causes money to stop moving, and the way our system is presently set up, money in motion is economic activity. Deflation causes a decline in real GDP. Because inflation can be easily reflected in interest rates, modest inflation does not affect real GDP in as dramatic a way as does even the smallest deflation.
What does all this have to do with the gold standard? Under the gold standard, M is the physical quantity of processed gold in the hands of the government and private individuals, and its increase (or decrease) cannot be socially constructed. (If Benko means something else by a gold standard, he will have to explicitly describe it.) Assuming the velocity (V) doesn't change (under ordinary circumstances it doesn't), the quantity of gold (M) must represent all the real goods and services we're capable of producing (divided by a constant V) plus all the real goods and services people want to store. Given that there's no particular reason to believe that real GDP will increase at the same rate that the quantity of gold increases, then either P or Y must change. But P, the price level, is the "quality" of money. It is how much goods and services a unit of currency will produce. So, if we let price levels float, the quality of gold will vary just as does the quality of a fiat currency; it's not fixed objectively. Alternatively, if we demand price stability, then we must match real GDP to increases in the money supply, which is just having the tail wag the dog. Either gold doesn't actually do anything macroeconomically significant, or it does exactly the wrong thing.
Not only does a gold standard have zero or negative macroeconomic effects, it also cannot limit government spending. The government can effectively create a monopoly on gold, simply by demanding whatever taxes it wants in gold, and paying for goods and services in gold. By changing the ratio of the two, the government can set the price level to whatever it wants: an ounce of gold is "worth" whatever the government will pay an ounce of gold for, which people will provide because they need the gold to pay their taxes.
So, demanding a gold standard seems as weird and arbitrary as demanding that all legal documents should change to using the Courier font for all legal documents or declaring that a court does not have jurisdiction because the flag in the room has a fringe. It really doesn't matter if our price levels are arbitrarily denominated in ounces of gold or simply fiat dollars. The demand for a gold standard, therefore, is disingenuous. It has nothing to do with "sound" money, since gold is just a slightly less efficient way of doing what fiat currency already does. It is, instead, aimed at delegitimizing the democratic republic, in favor of placing political power in the hands of the people who happen to own a lot of gold right now.
A suspicion of causation is not very impressive. Correlation is evidence of causation, but it is at best only preliminary evidence, and tells us nothing about the direction of causation. For example, if changing economic conditions caused the gold standard to begin to limit economic growth, or if some underlying change in economic conditions caused both slower economic growth and the inefficiency of the gold standard, then we would expect to see the same correlation: declining economic growth at the same time the gold standard was being eroded. Benko suggests that the correlation might have something to do with Total Factor Productivity, but I can't seen any plausible connection. Benko admits this defense is just a suspicion, so I think it's justified to not take it too seriously.
The more substantive objection is that I'm conflating quality with quality. But this objection at least needs more elaboration. Money is not an abstract unit of measure, it's a reified social construction that we pretend has actual existence; we actually pretend to store and move money in time and space like we move physical objects in space. There's nothing wrong with that pretense; pretending to store and move money around is just a way of modeling and representing the storage and movement of real goods and services.
In one sense, the quantity of money doesn't matter to money as a representation of transactions of real goods and services, only its quality. If we could move money arbitrarily quickly, then one unit of money would suffice, so long as that unit had a consistent representation. "Wealthy" or "poor" people would just be those through whose hands the unit of money passed relatively more or less often. But money cannot move arbitrarily quickly, for two reasons. First is just physics: it takes time, energy, and effort to move money, even by computer; doubling the actual units of money in use halves that effort, because moving two units in one transaction has about the same cost as moving one unit.
The second reason is because of money's other use: as a liquid store of value. We don't just move money around to represent the movement of goods and services, we store money to virtually transfer consumption in time (by actually transferring it in space between different people: my saving must be your excess spending, and vice versa).
Because money must be stored, the quantity of money is directly related to its quality. Indeed, as we know, Y * P = M * V: real GDP (Y) times the price level (P) is, by definition, equal to the quantity of money (M) times the average velocity of money (V). Everything else being equal*, increasing the quantity of money increases the price level in the short term, as more M is chasing the same amount of Y. But the price level is the "quality" of money. Thus (under ordinary circumstances) there is a direct relationship between the quantity and quality of money.
*Which is sometimes not the case: when interest rates are near the zero lower bound, for example, the velocity of money just decreases when the money supply increases, without changing GDP or the price level.
There is, however, a third issue: socially constructed agreements directly denominated in money, i.e. purely financial agreements. When I borrow money, I both borrow and agree to repay only money, not any actual goods and services that money represents. Financial agreements must involve positive nominal interest rates: no one would ever loan money at a zero or negative rate; they would just hold the cash. This means that if the price level decreases, people who owe money would owe more goods and services than they originally borrowed. Since interest rates cannot be negative, there is no easy way to reflect expectations of future deflation in interest rates. This is why real economists fear deflation more than (modest) inflation: deflation — or even just the expectation of deflation — causes money to stop moving, and the way our system is presently set up, money in motion is economic activity. Deflation causes a decline in real GDP. Because inflation can be easily reflected in interest rates, modest inflation does not affect real GDP in as dramatic a way as does even the smallest deflation.
What does all this have to do with the gold standard? Under the gold standard, M is the physical quantity of processed gold in the hands of the government and private individuals, and its increase (or decrease) cannot be socially constructed. (If Benko means something else by a gold standard, he will have to explicitly describe it.) Assuming the velocity (V) doesn't change (under ordinary circumstances it doesn't), the quantity of gold (M) must represent all the real goods and services we're capable of producing (divided by a constant V) plus all the real goods and services people want to store. Given that there's no particular reason to believe that real GDP will increase at the same rate that the quantity of gold increases, then either P or Y must change. But P, the price level, is the "quality" of money. It is how much goods and services a unit of currency will produce. So, if we let price levels float, the quality of gold will vary just as does the quality of a fiat currency; it's not fixed objectively. Alternatively, if we demand price stability, then we must match real GDP to increases in the money supply, which is just having the tail wag the dog. Either gold doesn't actually do anything macroeconomically significant, or it does exactly the wrong thing.
Not only does a gold standard have zero or negative macroeconomic effects, it also cannot limit government spending. The government can effectively create a monopoly on gold, simply by demanding whatever taxes it wants in gold, and paying for goods and services in gold. By changing the ratio of the two, the government can set the price level to whatever it wants: an ounce of gold is "worth" whatever the government will pay an ounce of gold for, which people will provide because they need the gold to pay their taxes.
So, demanding a gold standard seems as weird and arbitrary as demanding that all legal documents should change to using the Courier font for all legal documents or declaring that a court does not have jurisdiction because the flag in the room has a fringe. It really doesn't matter if our price levels are arbitrarily denominated in ounces of gold or simply fiat dollars. The demand for a gold standard, therefore, is disingenuous. It has nothing to do with "sound" money, since gold is just a slightly less efficient way of doing what fiat currency already does. It is, instead, aimed at delegitimizing the democratic republic, in favor of placing political power in the hands of the people who happen to own a lot of gold right now.
Tuesday, January 15, 2013
Absentee ownership
I don't particularly like reddit, and I have my statistics counter set to not report (but still record) inbound links from there. However, every once in a while I'll get a spike in traffic, look around, and see my work discussed on some reddit thread. (The actual spike is from a different reddit thread.)
Thus, I stumbled upon MaunaLoona's commentary on my post, "The Libertarian argument." As is usually the case with Libertarians, the commenter pretty much completely misses the point, but inadvertently brings up some topics that deserve more analysis.
Commenter saint1947 adds:
To reiterate: I am not absolutely against absentee ownership, contracts, the use of physical force, nor am I absolutely against making social constructs to manage and enforce these social relationships. But social constructs are, well, social; what I object to is Libertarians claiming some sort of privilege for their own preferred forms of social constructs, and using poor arguments to justify them.
Thus, I stumbled upon MaunaLoona's commentary on my post, "The Libertarian argument." As is usually the case with Libertarians, the commenter pretty much completely misses the point, but inadvertently brings up some topics that deserve more analysis.
There are a number of issues here. First, yes, leaving your car locked on the side of the road is one form of absentee ownership. And, we do in fact have to make social constructions, such as laws, courts, and police, to define and protect individuals' interest in retaining possession of objects, such as cars, they are not presently using, or even that they loan to others. A misconception here seems to be that I am absolutely against absentee ownership. I'm not. I just argue that all absentee ownership is socially constructed; there are no objective physical facts that define absentee ownership. The argument is against the justification, which MaunaLoona will talk about below.I define absentee ownership here as the situation where the objectively determinable direct use of physical coercion against the person of the owner is not required to deprive him or her of its objectively determinable use.By his definition leaving a car parked on the road is absentee ownership.
But this is precisely my point: what does "coercion" actually mean? Does it mean what it does when Libertarians are arguing against coercion: taxation is obviously coercive because if you don't pay your taxes, men and women with guns will come to kill you. Or does it mean what it does when Libertarians are arguing for rent: if you don't pay your rent, although men and women with guns will come to kill you, that's not coercion because it's justified by an agreement. Again, MaunaLoona will develop this point below.For example, the occupant of a rented house is already in physical possession of the house; if the renter arbitrarily decides not to pay the rent, no objectively determinable coercion against the person of the owner is necessary. Indeed, it is the owner who must, in a objectively determinable sense, initiate coercion against the possessor to exert meaningful ownership.The owner of the house is using force to remove an invader. You can call it "initiating coercion" all you want, just as long as we're clear what you mean by that phrase. Words have meaning. They don't mean what you want them to mean.
Here, MaunaLoona just changes the justification from the use of coercion to socially constructed idea of "voluntary." OK, a socially constructed "voluntary agreement" can potentially justify objective, physical coercion, but this is a different argument than that objective, physical coercion is itself unjustified. The argument then becomes how to construct "voluntary agreement" to exclude taxation but include rent. It is perhaps possible to construct "voluntary agreement" to exclude taxation but include rent, but the construction becomes so convoluted that it loses its obvious linguistic meaning. And even if we could create a coherent, consistent construction, why should we accept that particular construction as authoritative?One response is that coercion to enforce absentee ownership is socially constructed to be legitimate, even though the absentee owner does not possess the property. However, if social construction can legitimatize coercion to maintain absentee ownership, then social construction can legitimatize coercion to collect taxes. Remember, the argument against taxation above must be in some sense that because it is coercive, taxation is unjust regardless of any social constructions that legitimatize it.Taxation is not voluntary. Entering into a rental agreement is. If there is any doubt about who the owner of the rented property is, the contract will say "the owner retains ownership of the property and will kick you out if you fail to pay rent".
Seems like equivocation and strawman are typical leftist tactics. The above argument is similar to:Well, we don't come up with something new precisely because Libertarians keep using the same contradictory, equivocal justification, which I discuss in this post. Again, I am not claiming that Libertarian ideology is inconsistent or incoherent; if Christian theologians can consistently reconcile the character of Yahweh with an omnibenevolent deity, we can reconcile anything, including Libertarian ideology. Instead, I am arguing that their justification for their ideology is incoherent, inconsistent, and equivocal.
a. Libertarians claims taxation is immoral because of coercion
I don't think I'm exaggerating when I say I've heard this argument a hundred times before. I wish they would come up with something new.
b. Defending your property is coercion
c. Property ownership is immoral. Checkmate, libertarians!
Commenter saint1947 adds:
The obvious stupidity of this comment probably deserves a The Stupid! It Burns! tag. A contract (including all the social institutions necessary to interpret and enforce it) is a social construct, in just the same sense that a statute mandating payment of taxes is a social construct.Taxation is not voluntary. Entering into a rental agreement is.
Exactly! It is not a social construct that allows a property-owner to "initiate force" to remove a renter who refuses to pay. It is the terms of the contract that that specific individual renter signed.
To reiterate: I am not absolutely against absentee ownership, contracts, the use of physical force, nor am I absolutely against making social constructs to manage and enforce these social relationships. But social constructs are, well, social; what I object to is Libertarians claiming some sort of privilege for their own preferred forms of social constructs, and using poor arguments to justify them.
Friday, January 11, 2013
What is a voluntary agreement?
Today, a rather stupid anonymous commenter left this message in response to my post, The Libertarian Argument:
But this comment, while completely stupid, does suggest a more interesting question: what is an agreement? What do agreements mean? When is an agreement voluntary? The Libertarian position is straightforward: Agreements are what Libertarians want them to be, they mean what Libertarians want them to mean, and they're voluntary when Libertarians like them (and involuntary when they don't like them). Libertarians interpret "voluntary agreement" like Christians interpret the Bible.
But there are more subtle issues (more subtle than a Libertarian is like shorter than Manute Bol) about agreements.
What is a voluntary agreement and what does it mean? Well, first of all, an agreement has to provide mutual benefit: all parties to an agreement have to be better off overall than if the agreement did not happen. Second, all parties to a voluntary agreement must be able to forego the agreement without harm. Finally, an agreement cannot be fully explicit: there must be a social process to interpret the meanings of agreements. But even with this definition, there are still notable controversies.
First, although an agreement has to provide mutual benefit, there's no determinist how that mutual benefit is allocated among the parties. The allocation of the "surplus benefit" is a matter of bargaining power, not logic, which then raises the question: what are legitimate and illegitimate ways of obtaining and exercising bargaining power? Is possession of money legitimate bargaining power? How about votes? How about violence, threatened or actual? People have any number of positions on these issues, but there's no single rationally correct answer; they're political questions.
Second, what constitutes "harm"? It's relatively uncontroversial that getting killed or beaten constitutes harm, so that giving my wallet to a mugger who points a gun at me is not a voluntary agreement. But what about natural harms? Does freezing or starving to death constitute a harm that renders an agreement involuntary? How about becoming stateless, ejected from the protection of a society? Is it harm to lose some portion of the mutual benefit of an agreement because of a change in bargaining power. No one is self-sufficient; we all need to rely on others for our physical survival. Does our mutual dependence entail at least some obligation on the part of others to assist the survival of others? Again, these are not rational but political questions.
Third, how do we resolve disagreements between parties to an agreement about what a particular agreement actually means? What, precisely, have the parties agreed to? What do we do about these disputes? Again, how to interpret an agreement is as much a matter of not rationality but politics.
It's not enough to lay out just a consistent set of answers to these questions, because there are a very large number (perhaps infinite) number of consistent answer sets. Why should I prefer your set of answers to another?
One problem (out of many) with not only Libertarianism (right-anarchists) but also left-anarchism is that anarchists simply push all the interesting political questions to "voluntary agreements" and assume all these problematic questions are thereby solved at a stroke. I think this position is at best naive, and at worst dishonest.
How can you not see the difference between a lease, which was signed by the tenant, and a decree that was forced upon a citizen by the majority? One is a voluntary agreement, the other is force.The commenter makes a number of rather obvious errors, most notably that that Libertarian argument does not usually consist of how to justify the initiation of coercion, but rather that the initiation of coercion is intrinsically unjustifiable. Of course, as I discuss in the post, the Libertarian argument is fundamentally in bad faith: agreements they don't like are unjustifiable because they entail the initiation of coercion; agreements they like aren't the initiation of coercion because they are justified. I find this "argument" as tedious and stupid as Divine Command Theory.
But this comment, while completely stupid, does suggest a more interesting question: what is an agreement? What do agreements mean? When is an agreement voluntary? The Libertarian position is straightforward: Agreements are what Libertarians want them to be, they mean what Libertarians want them to mean, and they're voluntary when Libertarians like them (and involuntary when they don't like them). Libertarians interpret "voluntary agreement" like Christians interpret the Bible.
But there are more subtle issues (more subtle than a Libertarian is like shorter than Manute Bol) about agreements.
What is a voluntary agreement and what does it mean? Well, first of all, an agreement has to provide mutual benefit: all parties to an agreement have to be better off overall than if the agreement did not happen. Second, all parties to a voluntary agreement must be able to forego the agreement without harm. Finally, an agreement cannot be fully explicit: there must be a social process to interpret the meanings of agreements. But even with this definition, there are still notable controversies.
First, although an agreement has to provide mutual benefit, there's no determinist how that mutual benefit is allocated among the parties. The allocation of the "surplus benefit" is a matter of bargaining power, not logic, which then raises the question: what are legitimate and illegitimate ways of obtaining and exercising bargaining power? Is possession of money legitimate bargaining power? How about votes? How about violence, threatened or actual? People have any number of positions on these issues, but there's no single rationally correct answer; they're political questions.
Second, what constitutes "harm"? It's relatively uncontroversial that getting killed or beaten constitutes harm, so that giving my wallet to a mugger who points a gun at me is not a voluntary agreement. But what about natural harms? Does freezing or starving to death constitute a harm that renders an agreement involuntary? How about becoming stateless, ejected from the protection of a society? Is it harm to lose some portion of the mutual benefit of an agreement because of a change in bargaining power. No one is self-sufficient; we all need to rely on others for our physical survival. Does our mutual dependence entail at least some obligation on the part of others to assist the survival of others? Again, these are not rational but political questions.
Third, how do we resolve disagreements between parties to an agreement about what a particular agreement actually means? What, precisely, have the parties agreed to? What do we do about these disputes? Again, how to interpret an agreement is as much a matter of not rationality but politics.
It's not enough to lay out just a consistent set of answers to these questions, because there are a very large number (perhaps infinite) number of consistent answer sets. Why should I prefer your set of answers to another?
One problem (out of many) with not only Libertarianism (right-anarchists) but also left-anarchism is that anarchists simply push all the interesting political questions to "voluntary agreements" and assume all these problematic questions are thereby solved at a stroke. I think this position is at best naive, and at worst dishonest.
Sunday, January 06, 2013
Economic growth and the gold standard
Assuming a gold standard were possible (i.e. that people wouldn't just create fiat money around it), it doesn't seem possible that we could get optimal economic growth under a gold standard.
In market/capitalist economics, Y * P = M * V: Real gross domestic product (Y, the total production of final goods and services) times the price level (P) equals the quantity of money (M) times the velocity of money (V, the number of times, on average, a unit of money is used in a transaction for final goods and services). We can also say Y = (M * V) / P. We can choose our units so that P = 1; therefore Y = M * V.
Remember that V in this case is not just the number of transactions using a particular unit of money, it is the number of times the unit of money crosses the production/consumption boundary. Alice's employer pays her; that's one transaction. Alice buys food at the store; that's two transactions. The store uses the money to buy food from a wholesaler. That's not a transaction that counts towards V, because the store and the wholesaler are both on the production side. Similarly, when the wholesaler pays the processor, or the processor pays the farmer, or when the farmer pays his mortgage, those are not transactions that count in the velocity of money. It's only when the store, wholesaler, processor, farmer, or banker, pays an employee, investor, or landlord does the money cross the producer/consumer boundary and V increases. It seems clear, therefore, that V is physically limited. No matter how an ounce of gold is represented, whether it's a physical coin, an ingot, or an entry in a database that corresponds to some physical gold, money can move only so quickly.
The point of a gold standard is to physically limit M, to create a quantity of money whose increase is physically limited. Since V is already physically limited, that means the quantity of money in motion, M * V, is physically limited. If we have price stability, then P is constant. Therefore, an increase in real gross domestic product is limited to the limit of the increase in the physical quantity of gold. But there is no particular reason to believe that the limit on the increase on the physical quantity of gold is the optimal increase in real gross domestic product. And that's absolute GDP; there's no reason to believe that the increased quantity of gold even match even population growth.
Furthermore, what is the value of a specific quantity of gold? Gold has very little intrinsic value, outside of electronics and jewelry: you can't eat or drink it, nor does it keep you warm or dry. Gold does, however, have a physical cost: the marginal socially necessary abstract labor time to produce the "last" unit quantity of gold. Expressed in money, the marginal cost of one unit quantity of gold is one unit quantity of gold. In other words, all the economic growth would go to the gold producers. There really isn't a world with an industrial economy in which a gold standard is a good idea.
There are, of course, any number of people that support a gold standard who have just not thought through the economics. But there must be gold standard advocates who have thought through the economics. Some of them, I suppose, really would limit real economic growth, but I've never seen a gold standard advocate say explicitly endorse limiting economic growth to the increase in the supply of gold. The others, however, realize that some sort of fiat currency is necessary for economic growth in an industrial economy. The question, then, is who gets to control economic growth, and, more importantly, who gets to distribute the benefits of economic growth. It is fairly obvious, then, that such control would go to the people that own most of the gold.
Economic power, control over the means of production, is political power. One does not imply the other; they are the same thing. In an advanced industrial economy, the means of production is not ownership of factories or land, but ownership of money itself. By definition, the government is the set of institutions and their members that own the money. Thus there can be no such thing as "private" ownership of money: the fundamental owners of money are, by definition, the government. So the question is not whether we should have government ownership of money, but rather what kinds of institutions, with what kinds of members, should constitute the governmental ownership of money.
I'm not a big fan of republican democracy, but a republic is, at least to some extent, accountable to all the people. Putting the government in the hands of people who say proudly and explicitly that they recognize no accountability except to their own well-being seems like a Very Bad Idea.
In market/capitalist economics, Y * P = M * V: Real gross domestic product (Y, the total production of final goods and services) times the price level (P) equals the quantity of money (M) times the velocity of money (V, the number of times, on average, a unit of money is used in a transaction for final goods and services). We can also say Y = (M * V) / P. We can choose our units so that P = 1; therefore Y = M * V.
Remember that V in this case is not just the number of transactions using a particular unit of money, it is the number of times the unit of money crosses the production/consumption boundary. Alice's employer pays her; that's one transaction. Alice buys food at the store; that's two transactions. The store uses the money to buy food from a wholesaler. That's not a transaction that counts towards V, because the store and the wholesaler are both on the production side. Similarly, when the wholesaler pays the processor, or the processor pays the farmer, or when the farmer pays his mortgage, those are not transactions that count in the velocity of money. It's only when the store, wholesaler, processor, farmer, or banker, pays an employee, investor, or landlord does the money cross the producer/consumer boundary and V increases. It seems clear, therefore, that V is physically limited. No matter how an ounce of gold is represented, whether it's a physical coin, an ingot, or an entry in a database that corresponds to some physical gold, money can move only so quickly.
The point of a gold standard is to physically limit M, to create a quantity of money whose increase is physically limited. Since V is already physically limited, that means the quantity of money in motion, M * V, is physically limited. If we have price stability, then P is constant. Therefore, an increase in real gross domestic product is limited to the limit of the increase in the physical quantity of gold. But there is no particular reason to believe that the limit on the increase on the physical quantity of gold is the optimal increase in real gross domestic product. And that's absolute GDP; there's no reason to believe that the increased quantity of gold even match even population growth.
Furthermore, what is the value of a specific quantity of gold? Gold has very little intrinsic value, outside of electronics and jewelry: you can't eat or drink it, nor does it keep you warm or dry. Gold does, however, have a physical cost: the marginal socially necessary abstract labor time to produce the "last" unit quantity of gold. Expressed in money, the marginal cost of one unit quantity of gold is one unit quantity of gold. In other words, all the economic growth would go to the gold producers. There really isn't a world with an industrial economy in which a gold standard is a good idea.
There are, of course, any number of people that support a gold standard who have just not thought through the economics. But there must be gold standard advocates who have thought through the economics. Some of them, I suppose, really would limit real economic growth, but I've never seen a gold standard advocate say explicitly endorse limiting economic growth to the increase in the supply of gold. The others, however, realize that some sort of fiat currency is necessary for economic growth in an industrial economy. The question, then, is who gets to control economic growth, and, more importantly, who gets to distribute the benefits of economic growth. It is fairly obvious, then, that such control would go to the people that own most of the gold.
Economic power, control over the means of production, is political power. One does not imply the other; they are the same thing. In an advanced industrial economy, the means of production is not ownership of factories or land, but ownership of money itself. By definition, the government is the set of institutions and their members that own the money. Thus there can be no such thing as "private" ownership of money: the fundamental owners of money are, by definition, the government. So the question is not whether we should have government ownership of money, but rather what kinds of institutions, with what kinds of members, should constitute the governmental ownership of money.
I'm not a big fan of republican democracy, but a republic is, at least to some extent, accountable to all the people. Putting the government in the hands of people who say proudly and explicitly that they recognize no accountability except to their own well-being seems like a Very Bad Idea.
Friday, January 04, 2013
Day 9: Godwin's law
Hitler's Economics, by Llewellyn H. Rockwell, Jr.
Day 9 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: An unproductive critique
Next: We're done.
I'll skip Day 8, Murray Rothbard's opaque and seemingly pointless Taxation Methods Evaluated, where he seems to say that taxes are bad because they cannot be made more palatable, and when they can be made more palatable, they are thereby worse; they are bad because they cannot adjust incentives, and when they can adjust incentives, they are thereby worse. Yeah, we get it, you don't like taxes.
In day 9, however, Llewellyn H. Rockwell, Jr. explicitly invokes Godwin's Law. Yes, the title of the piece really is Hitler's Economics. Yes, according to Rockwell, Keynesians are Nazis.
I think we're done here. According to this Libertarian canon, which prominently features Llewellyn H. Rockwell, Jr., Ron Paul's campaign manager, Libertarians really are batshit crazy.
Day 9 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: An unproductive critique
Next: We're done.
I'll skip Day 8, Murray Rothbard's opaque and seemingly pointless Taxation Methods Evaluated, where he seems to say that taxes are bad because they cannot be made more palatable, and when they can be made more palatable, they are thereby worse; they are bad because they cannot adjust incentives, and when they can adjust incentives, they are thereby worse. Yeah, we get it, you don't like taxes.
In day 9, however, Llewellyn H. Rockwell, Jr. explicitly invokes Godwin's Law. Yes, the title of the piece really is Hitler's Economics. Yes, according to Rockwell, Keynesians are Nazis.
I think we're done here. According to this Libertarian canon, which prominently features Llewellyn H. Rockwell, Jr., Ron Paul's campaign manager, Libertarians really are batshit crazy.
Tuesday, January 01, 2013
Day 7: An unproductive critique
Is Greater Productivity a Danger?, David Gordon
Day 7 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: The cause of, and solution to, all the world's problems (summary) (response)
Next: (soon)
There's really no point in reading David Gordon's more-or-less accurate summary of Tim Jackson's article, "Let’s Be Less Productive or Gordon's trivial response. Jackson's article isn't that informative: I really don't know whether or not we might no longer be able to increase labor productivity. Furthemore, while Jackson offers an ontological definition of productivity, he doesn't talk about how to measure it.
The only point I can see in in Gordon's summary and response (and Wenzel's inclusion) seems to be to accuse those crazy liberals of arguing against productivity, which Jackson manifestly doesn't do.
Day 7 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: The cause of, and solution to, all the world's problems (summary) (response)
Next: (soon)
There's really no point in reading David Gordon's more-or-less accurate summary of Tim Jackson's article, "Let’s Be Less Productive or Gordon's trivial response. Jackson's article isn't that informative: I really don't know whether or not we might no longer be able to increase labor productivity. Furthemore, while Jackson offers an ontological definition of productivity, he doesn't talk about how to measure it.
The only point I can see in in Gordon's summary and response (and Wenzel's inclusion) seems to be to accuse those crazy liberals of arguing against productivity, which Jackson manifestly doesn't do.
Sunday, December 30, 2012
Day 6: The cause of, and solution to, all the world's problems (response)
Economic Depressions: Their Cause and Cure, by Murray N. Rothbard, originally published as a minibook by the Constitutional Alliance of Lansing, Michigan, 1969. (summary)
Day 6 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: A socialized straw man
Next: An unproductive critique
Murry Rothbard is, on the whole, correct in his exposition of the proximate causes of the booms and busts of the business cycle. Excess credit causes overinvestment, and since capital investment leads, not lags, consumer spending, the downturn starts with the capital industries. As deleveraging occurs, capital contracts as factories are left idle, worn-out machines are not replaced, workers lose skills and tenure, and new workers are not trained to replace those who die or retire. Eventually, debts fall far enough and the capital base becomes small enough that it starts to pay again to build capital, and another boom starts anew. The problem, of course, with Rothbard's diagnosis is that he doesn't tell the whole story, and his diagnosis, while couched in more neutral and academic language, is just as infantile and nihilistic as Llewellyn Rockwell's anarchism.
If I recall correctly (and I'm no historian), one of the biggest problems the early aeronautical engineers had with their aircraft was control. The amount of lift a wing gives is dependent on the angle of attack, which is a combination of the pitch of the aircraft and the shape of the wing, controlled by the ailerons. Unfortunately, increasing the angle of attack by changing the ailerons also causes aerodynamic forces to increase the pitch of the aircraft, further increasing the angle of attack. So, if the pilot makes a small increase to the angle of attack, the aircraft will pitch up uncontrollably until it stalls, at which point the aircraft will pitch down until it gets enough airspeed and angle of attack to generate lift again. Engineers solved the problem by adding the tail. The elevators on the tail are angled such that in normal flight they generate negative lift. Thus the tail acts to give negative feedback: when the aircraft increases its angle of attack, the pitch increases, which causes aerodynamic forces on the tail to decrease the pitch, providing dynamic stability.
In a capitalist economy, fiat money generated by private banks using fractional reserve banking act like the wings, generating lift; the government (should) act like the tail, providing negative feedback and dynamic stability. Rothbard is right: without the government acting like the tail, capitalist economic growth would be obviously impossible. And Rothbard is also right: when the government does not act correctly to provide its negative feedback effect, positive feedback causes wide swings in the cycle. But having dynamic stability does not make an aircraft trivially easy to fly, and even more so having dynamic stability does not make a multi-trillion person-hour international economy trivially easy to control.
But Rothbard's "solution" is to simply not fly. There are no problems with aerodynamic instability on ground vehicles, and there are no problems with economic instability if we abandon all fiat credit. But of course cars can't fly, and an economy without fiat credit grows very slowly, if it grows at all; it can even contract when the marginal cost of producing gold falls, reducing the overall economic value of the world's gold stock. Abandoning fiat money means abandoning capitalism itself.
Day 6 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: A socialized straw man
Next: An unproductive critique
Murry Rothbard is, on the whole, correct in his exposition of the proximate causes of the booms and busts of the business cycle. Excess credit causes overinvestment, and since capital investment leads, not lags, consumer spending, the downturn starts with the capital industries. As deleveraging occurs, capital contracts as factories are left idle, worn-out machines are not replaced, workers lose skills and tenure, and new workers are not trained to replace those who die or retire. Eventually, debts fall far enough and the capital base becomes small enough that it starts to pay again to build capital, and another boom starts anew. The problem, of course, with Rothbard's diagnosis is that he doesn't tell the whole story, and his diagnosis, while couched in more neutral and academic language, is just as infantile and nihilistic as Llewellyn Rockwell's anarchism.
If I recall correctly (and I'm no historian), one of the biggest problems the early aeronautical engineers had with their aircraft was control. The amount of lift a wing gives is dependent on the angle of attack, which is a combination of the pitch of the aircraft and the shape of the wing, controlled by the ailerons. Unfortunately, increasing the angle of attack by changing the ailerons also causes aerodynamic forces to increase the pitch of the aircraft, further increasing the angle of attack. So, if the pilot makes a small increase to the angle of attack, the aircraft will pitch up uncontrollably until it stalls, at which point the aircraft will pitch down until it gets enough airspeed and angle of attack to generate lift again. Engineers solved the problem by adding the tail. The elevators on the tail are angled such that in normal flight they generate negative lift. Thus the tail acts to give negative feedback: when the aircraft increases its angle of attack, the pitch increases, which causes aerodynamic forces on the tail to decrease the pitch, providing dynamic stability.
In a capitalist economy, fiat money generated by private banks using fractional reserve banking act like the wings, generating lift; the government (should) act like the tail, providing negative feedback and dynamic stability. Rothbard is right: without the government acting like the tail, capitalist economic growth would be obviously impossible. And Rothbard is also right: when the government does not act correctly to provide its negative feedback effect, positive feedback causes wide swings in the cycle. But having dynamic stability does not make an aircraft trivially easy to fly, and even more so having dynamic stability does not make a multi-trillion person-hour international economy trivially easy to control.
But Rothbard's "solution" is to simply not fly. There are no problems with aerodynamic instability on ground vehicles, and there are no problems with economic instability if we abandon all fiat credit. But of course cars can't fly, and an economy without fiat credit grows very slowly, if it grows at all; it can even contract when the marginal cost of producing gold falls, reducing the overall economic value of the world's gold stock. Abandoning fiat money means abandoning capitalism itself.
Saturday, December 29, 2012
Day 6: The cause of, and solution to, all the world's problems (summary)
Economic Depressions: Their Cause and Cure, by Murray N. Rothbard, originally published as a minibook by the Constitutional Alliance of Lansing, Michigan, 1969. (response)
Day 6 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: A socialized straw man
Next: (soon)
In Economic Depressions: Their Cause and Cure, Murray N. Rothbard argues that the Keynesian theory of demand-driven depressions is falsified by experience. Instead, Rothbard attributes the negative consequences of the business cycle exclusively to government intervention. Rothbard's cure is simple: the government should simply stop intervening in the economy and act essentially like a household with an exogenously limited budget.
Rothbard notes a number of flaws in Keynesian economic theory. First, Rothbard asserts that Keynesian theory fails to explain why businesses, normally very good at predicting the economic future, suddenly become curiously inept at doing so, which triggers the depression. Moreover if depressions were caused by underconsumption, then Rothbard asks why depressions typically feature a fall in capital spending before a fall in consumer spending. If depressions were caused by consumers not spending enough, then we would expect to see consumer spending fall first, and then retail providers scaling back their capital spending. Keynesian theory just doesn't seem to fit the facts.
Rothbard offers an alternative theory. He argues that the proximate cause of inflationary and recessionary gaps is bank credit created by private fractional reserve banking. When the bank loans money it doesn't have, i.e. creates more demand notes presumptively redeemable in gold (or silver) than it actually has. This private fiat money lowers the interest rate from its natural equilibrium, leading to excess capital investment. As more money flows into the national economy, inflation rises, causing domestic goods to become relatively more expensive than foreign goods, which leads to increased imports. But foreign governments don't want to hold domestic bank notes, so they demand redemption in gold. The banks' gold reserves fall relative to notes outstanding, until the fraction of gold reserved falls below safe levels. Furthermore, workers are receiving higher real wages (because excess capital investment causes a shortage of labor), but because they still have the same time preference for consumer goods now rather than later, and because the interest rate is artificially low, they do not save and invest their higher real wages, so bank reserves do not increase domestically. Banks then deleverage: they refuse to extend more credit and reduce existing credit, leading to deficient capital investment and a depression. Eventually, deleveraging runs its course, the banks have adequate gold reserves, and they begin the cycle anew. Although the banks are private, Rothbard claims this boom and bust cycle could not happen without a government-supported central bank. Without the central bank, banks would just start runs on competitors' banks, demolishing the fractional reserve system. The central bank, by acting as a lender of last resort, allows all domestic banks to extend excess credit in tandem, until international pressure finally collapses the whole system.
Rothbard's cure is simple: the government should not support banks or currency at all. Without the support of the central bank, fractional reserve banking will collapse. There may be considerable pain as the economy recovers a true equilibrium based on sound money, but when the lingering aftereffects of government intervention finally wither away, the economy, because all the signals are purely reality-based, will proceed without the boom and bust cycles caused by government supported credit.
Day 6 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: A socialized straw man
Next: (soon)
In Economic Depressions: Their Cause and Cure, Murray N. Rothbard argues that the Keynesian theory of demand-driven depressions is falsified by experience. Instead, Rothbard attributes the negative consequences of the business cycle exclusively to government intervention. Rothbard's cure is simple: the government should simply stop intervening in the economy and act essentially like a household with an exogenously limited budget.
Rothbard notes a number of flaws in Keynesian economic theory. First, Rothbard asserts that Keynesian theory fails to explain why businesses, normally very good at predicting the economic future, suddenly become curiously inept at doing so, which triggers the depression. Moreover if depressions were caused by underconsumption, then Rothbard asks why depressions typically feature a fall in capital spending before a fall in consumer spending. If depressions were caused by consumers not spending enough, then we would expect to see consumer spending fall first, and then retail providers scaling back their capital spending. Keynesian theory just doesn't seem to fit the facts.
Rothbard offers an alternative theory. He argues that the proximate cause of inflationary and recessionary gaps is bank credit created by private fractional reserve banking. When the bank loans money it doesn't have, i.e. creates more demand notes presumptively redeemable in gold (or silver) than it actually has. This private fiat money lowers the interest rate from its natural equilibrium, leading to excess capital investment. As more money flows into the national economy, inflation rises, causing domestic goods to become relatively more expensive than foreign goods, which leads to increased imports. But foreign governments don't want to hold domestic bank notes, so they demand redemption in gold. The banks' gold reserves fall relative to notes outstanding, until the fraction of gold reserved falls below safe levels. Furthermore, workers are receiving higher real wages (because excess capital investment causes a shortage of labor), but because they still have the same time preference for consumer goods now rather than later, and because the interest rate is artificially low, they do not save and invest their higher real wages, so bank reserves do not increase domestically. Banks then deleverage: they refuse to extend more credit and reduce existing credit, leading to deficient capital investment and a depression. Eventually, deleveraging runs its course, the banks have adequate gold reserves, and they begin the cycle anew. Although the banks are private, Rothbard claims this boom and bust cycle could not happen without a government-supported central bank. Without the central bank, banks would just start runs on competitors' banks, demolishing the fractional reserve system. The central bank, by acting as a lender of last resort, allows all domestic banks to extend excess credit in tandem, until international pressure finally collapses the whole system.
Rothbard's cure is simple: the government should not support banks or currency at all. Without the support of the central bank, fractional reserve banking will collapse. There may be considerable pain as the economy recovers a true equilibrium based on sound money, but when the lingering aftereffects of government intervention finally wither away, the economy, because all the signals are purely reality-based, will proceed without the boom and bust cycles caused by government supported credit.
Day 5: A socialized straw man
What Soviet Medicine Teaches Us, by Yuri N. Maltsev.
Day 5 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: Economics as theology
Next: The cause of, and solution to, all the world's problems (summary) (response)
There really isn't anything that we can learn from medical care decades ago in the Soviet Union. There are too many confounding factors, including cultural, political and economic history, and the persistent violent hostility of the West, including three brutal wars and the threat of nuclear annihilation.
If you want to study the pros and cons of socialized medicine, look at how it's practiced today in all the industrialized Western nations except the United States. Michael Moore's documentary, Sicko, is a good place to start.
Day 5 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: Economics as theology
Next: The cause of, and solution to, all the world's problems (summary) (response)
There really isn't anything that we can learn from medical care decades ago in the Soviet Union. There are too many confounding factors, including cultural, political and economic history, and the persistent violent hostility of the West, including three brutal wars and the threat of nuclear annihilation.
If you want to study the pros and cons of socialized medicine, look at how it's practiced today in all the industrialized Western nations except the United States. Michael Moore's documentary, Sicko, is a good place to start.
Thursday, December 27, 2012
Day 4: Economics as theology
"The Peculiar and Unique Position of Economics", by Ludwig von Mises.
Excerpted from Human Action, (1949), chapter 37, "The Nondescript Character of Economics."
Day 4 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: The sophisticated theology of the market (summary) (response)
Next: A socialized straw man
In "The Peculiar and Unique Position of Economics," Ludwig von Mises argues that economics is outside the realm of empirical inquiry. Although von Mises believes that economics is real — a good economic theory will produce the intended outcome; a bad theory will not — he asserts that economics, like history, is simply too complex for observable events to prove or disprove any particular theory. Hence economics is in the realm of "praxeological knowledge": we must evaluate economic theories according to dictates of reason without reference to experience. von Mises argues that unlike a good technological theory, which can be proven by events, the praxeological character of economics requires that a good economic theory requires that proponents marshal public opinion in its support before its value can be realized. Hence, unlike technology and scientific progress, the project of social progress requires two forces, the creation of sound praxeological knowledge, and the ability to persuade the public to accept those theories.
I have to correct myself. In my previous response, I called Wilhelm Röpke's article, "Free Economy and Social Order," sophisticated theology. It is not: it is naive theology that simply takes its premises for granted. Sophisticated theology entails that the theology be explicitly placed beyond the bounds of empirical inquiry.
In this article, von Mises places economics firmly in the realm of sophisticated theology, and like religion, links his economic theology to the necessity of evangelism. The notion of praxeological knowledge is, of course, just as vacuous in economics as it is in religion. There is simply no way to compare theories on the basis of pure knowledge. Praxeology is just a dodge, long perfected by Christian theologians, to place their ideology outside the bounds of rational criticism, to "socialize" its failures to the complexity of society in general but "privatize" and take individual credit for its successes. Had Popper known about von Mises economics, he might well have placed it in the same category as Freudian psychoanalysis and Marxian historical theory.
Curiously von Mises explicitly contradicts himself. On the one hand, the real consists of that which preference cannot change: "'Real' is, in the eyes of man, all that he cannot alter and to whose existence he must adjust his actions if he wants to attain his ends," that which "wishful thinking cannot alter." On the other hand, praxeological economic requires that people in some sense wish for it for it to be effective: "the practical utilization of the teachings of economics presupposes their endorsement by public opinion." Either economics is not real, or reality is something that wishful thinking at a large enough scale can alter.
Four days, and the parallels of Wenzel's presentation of Libertarianism is looking more and more like borrowed Christianity.
Excerpted from Human Action, (1949), chapter 37, "The Nondescript Character of Economics."
Day 4 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: The sophisticated theology of the market (summary) (response)
Next: A socialized straw man
In "The Peculiar and Unique Position of Economics," Ludwig von Mises argues that economics is outside the realm of empirical inquiry. Although von Mises believes that economics is real — a good economic theory will produce the intended outcome; a bad theory will not — he asserts that economics, like history, is simply too complex for observable events to prove or disprove any particular theory. Hence economics is in the realm of "praxeological knowledge": we must evaluate economic theories according to dictates of reason without reference to experience. von Mises argues that unlike a good technological theory, which can be proven by events, the praxeological character of economics requires that a good economic theory requires that proponents marshal public opinion in its support before its value can be realized. Hence, unlike technology and scientific progress, the project of social progress requires two forces, the creation of sound praxeological knowledge, and the ability to persuade the public to accept those theories.
I have to correct myself. In my previous response, I called Wilhelm Röpke's article, "Free Economy and Social Order," sophisticated theology. It is not: it is naive theology that simply takes its premises for granted. Sophisticated theology entails that the theology be explicitly placed beyond the bounds of empirical inquiry.
In this article, von Mises places economics firmly in the realm of sophisticated theology, and like religion, links his economic theology to the necessity of evangelism. The notion of praxeological knowledge is, of course, just as vacuous in economics as it is in religion. There is simply no way to compare theories on the basis of pure knowledge. Praxeology is just a dodge, long perfected by Christian theologians, to place their ideology outside the bounds of rational criticism, to "socialize" its failures to the complexity of society in general but "privatize" and take individual credit for its successes. Had Popper known about von Mises economics, he might well have placed it in the same category as Freudian psychoanalysis and Marxian historical theory.
Curiously von Mises explicitly contradicts himself. On the one hand, the real consists of that which preference cannot change: "'Real' is, in the eyes of man, all that he cannot alter and to whose existence he must adjust his actions if he wants to attain his ends," that which "wishful thinking cannot alter." On the other hand, praxeological economic requires that people in some sense wish for it for it to be effective: "the practical utilization of the teachings of economics presupposes their endorsement by public opinion." Either economics is not real, or reality is something that wishful thinking at a large enough scale can alter.
Four days, and the parallels of Wenzel's presentation of Libertarianism is looking more and more like borrowed Christianity.
Wednesday, December 26, 2012
Day 3: The sophisticated theology of the market (response)
Free Economy and Social Order by Wilhelm Röpke. Originally published on January 11, 1954. (summary) (response)
Day 3 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: Jackbooted thugs (summary) (response)
Next: Economics as theology
"Free Economy and Social Order" is Wilhelm Röpke's foray into sophisticated Libertarian theology. (Reader's of Jerry Coyne's blog, Why Evolution is True, will get the reference.) Like Christian theologians who simply assume God shares their personal preferences, Röpke simply assumes that a market economy must necessarily rest on hisbourgeois buergerliche social foundations. Like Christian theologians who simply assume that secular morality expropriates the superstructure of Christian morality without the sustenance of its divine foundation, so too does Röpke simply assume that the establishment of markets in the "proletarianized" society is a hollow caricature without the sustenance of buergerliche social values. Röpke employs two obvious fallacies here: First, the post hoc fallacy: the buergerliche society uses markets; therefore, the former is a necessary precondition for latter. Second is the reverse genetic fallacy: the market economy is assumed to be inherently good; its source, therefore, must be inherently good. But there is no actual argument here. Why can the market economy not be simply a toolbox "of prices, of markets, of supply and demand, of competition, of wage rates, of interest rates, of exchange rates, and whatnot"? Why must it rest on some arbitrary set of social values? As a Christian theologian cannot tell us how ordinary human morality cannot be anything but the work of God, Röpke cannot tell us why a market economy (even granting the value Röpke assumes of markets) cannot rest on anything but his "narrow-minded and 'reactionary'" petit-bourgeois society.
What is more interesting, however, is how Röpke describes his necessary social foundations of individual liberty. What Röpke makes absolutely explicit is that Libertarianism is not about the society of peacefully coexisting autonomous individuals. Instead, his buergerliche society rests on "a solid and necessarily hierarchical structure." And this is the essence of individual liberty: not freedom from coercion, but the freedom of the superior individual to coerce the inferior masses. All of Röpke fundamental values require coercion, but to preserve the illusion of liberty, the coercion is placed behind the pillars of property and money. Indeed, these structure are indeed absolutely necessary to maintain the illusion that the superior individual is not coercing the inferior, but rather to protect the objective value of property. The parallels with Christian theology are again apparent: coercion is not used to impose the will of clergy and nobility on the masses, but simply to guide sinners to God's graces.
Day 3 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: Jackbooted thugs (summary) (response)
Next: Economics as theology
"Free Economy and Social Order" is Wilhelm Röpke's foray into sophisticated Libertarian theology. (Reader's of Jerry Coyne's blog, Why Evolution is True, will get the reference.) Like Christian theologians who simply assume God shares their personal preferences, Röpke simply assumes that a market economy must necessarily rest on his
What is more interesting, however, is how Röpke describes his necessary social foundations of individual liberty. What Röpke makes absolutely explicit is that Libertarianism is not about the society of peacefully coexisting autonomous individuals. Instead, his buergerliche society rests on "a solid and necessarily hierarchical structure." And this is the essence of individual liberty: not freedom from coercion, but the freedom of the superior individual to coerce the inferior masses. All of Röpke fundamental values require coercion, but to preserve the illusion of liberty, the coercion is placed behind the pillars of property and money. Indeed, these structure are indeed absolutely necessary to maintain the illusion that the superior individual is not coercing the inferior, but rather to protect the objective value of property. The parallels with Christian theology are again apparent: coercion is not used to impose the will of clergy and nobility on the masses, but simply to guide sinners to God's graces.
Day 3: The sophisticated theology of the market (summary)
Free Economy and Social Order by Wilhelm Röpke. Originally published on January 11, 1954. (summary) (response)
Day 3 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: Jackbooted thugs (summary) (response)
Next: Economics as theology
In "Free Economy and Social Order," Wilhelm Röpke sets underlying Libertarian social values as the necessary foundation for the market economy. Röpke asserts that because explicitly socialist and communist societies lack this foundation in Libertarian values, their use of market economies can be at best a mere "gadget." More importantly, Welfare-State capitalists, who consider the fundamental Libertarian values to be "contemptible and reeking of narrow-mindedness and 'reaction'" should, Röpke says, explain their own underlying social values or be seen as simply borrowing ideas from communism. Röpke sets up a fundamental binary distinction: the Libertarian, buergerliche social order, founded on private property as well as
Even in 1954, Röpke believes that the Western democracies are already well down the road to the "proletarianized" society. One chief culprit is Keynesian economics, which abandons private property, savings, and thrift, and embraces "the Bohemian spirit," extolling subsistence, debt, and profligacy, leading to nothing less than the abandonment of the very idea of civilization, the civil society.
Fundamentally, all these notions of civilization rest on the sacred nature of money. Röpke illustrates the proper regard to money by noting two episodes from France's revolutionary period of the late 19th century. In the first, the Bank of France rebuffs Gambetta's (presumably Léon Gambetta, republican champion of petit bourgeois and later Prime Minister) request to print money to finance the republican revolution; Gambetta, although presumably empowered to demand the money, is, according to Röpke, so ashamed of his request that he does not insist. Later, the even the leaders of the Paris Commune do not, because of their respect for the sanctity of money, do not expropriate the gold and printing presses of the Bank which is at least physically under their control. Even the communists show a reverence for money that today's modern so-called "capitalist" leaders dismiss; therefore modern "civilization" is clearly no civilization at all.
Day 3 of Robert Wenzel's 30 Day Reading List on Libertarianism
Day 0: The Libertarian catechism
Previous: Jackbooted thugs (summary) (response)
Next: Economics as theology
In "Free Economy and Social Order," Wilhelm Röpke sets underlying Libertarian social values as the necessary foundation for the market economy. Röpke asserts that because explicitly socialist and communist societies lack this foundation in Libertarian values, their use of market economies can be at best a mere "gadget." More importantly, Welfare-State capitalists, who consider the fundamental Libertarian values to be "contemptible and reeking of narrow-mindedness and 'reaction'" should, Röpke says, explain their own underlying social values or be seen as simply borrowing ideas from communism. Röpke sets up a fundamental binary distinction: the Libertarian, buergerliche social order, founded on private property as well as
individual responsibility; respect of certain indisputable norms; the individual's honest and serious struggle to get ahead and develop his faculties; independence anchored in property; responsible planning of one's own life and that of one's family; thriftiness; enterprise; assuming well calculated risks; the sense of workmanship; the right relation to nature and the community; the sense of continuity and tradition; the courage to brave the uncertainties of life on one's own account; the sense of the natural order of things.In contrast, the "proletarianized" society lacks "a solid and necessarily hierarchical structure," without which the buergerliche society cannot exist, and the market economy that can emerge only from the buergerliche cannot be effective. There is no middle ground between these two ideas, no compromise, only the Good and the Evil.
Even in 1954, Röpke believes that the Western democracies are already well down the road to the "proletarianized" society. One chief culprit is Keynesian economics, which abandons private property, savings, and thrift, and embraces "the Bohemian spirit," extolling subsistence, debt, and profligacy, leading to nothing less than the abandonment of the very idea of civilization, the civil society.
Fundamentally, all these notions of civilization rest on the sacred nature of money. Röpke illustrates the proper regard to money by noting two episodes from France's revolutionary period of the late 19th century. In the first, the Bank of France rebuffs Gambetta's (presumably Léon Gambetta, republican champion of petit bourgeois and later Prime Minister) request to print money to finance the republican revolution; Gambetta, although presumably empowered to demand the money, is, according to Röpke, so ashamed of his request that he does not insist. Later, the even the leaders of the Paris Commune do not, because of their respect for the sanctity of money, do not expropriate the gold and printing presses of the Bank which is at least physically under their control. Even the communists show a reverence for money that today's modern so-called "capitalist" leaders dismiss; therefore modern "civilization" is clearly no civilization at all.
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