With These Solutions, Can We Save the Idea of a Market Economy?

When I first learned the basics of libertarianism and Austrian economic theory, I knew that these provided a more practical, moral, and satisfactory answer to major political and economic questions than any other ideology. For example, the premise of profitability in the Austro-libertarian point of view is that profits are the result of bringing unrealized value to the market. Those who receive profits have contributed more value than they have taken, and so they have a strong moral claim to whatever economic inequality might result from profits.

Austro-libertarian answers are great, but over time I began to feel that many of them are incomplete. Property rights are strongly defined by the homesteading principle and derived from our right to bodily autonomy. It was less clear, however, how far this principle extended into high abstractions of property, where the owner really isn’t doing any labor at all.

The answer would be that the right to property includes the right to sell it, transferring the right, and by argumentation ethics, there is no room for a subjective interpretation of property use that can qualify the objective property right. Maybe the idle landlord’s bodily autonomy has nothing to do with the rent he charges, but to infringe on his property rights would be to deny an objective and consistent interpretation of law. Either the law is absolute, or otherwise political authority is free to ignore it, which means they could also ignore your right to bodily autonomy. This answer is good, but the moral clarity of the homesteading principle becomes muddled.

Another example is how Austrian economics addresses Marx’s crisis of overproduction. In the Austrian concept of real deflation, an oversupply of goods will lower their price, and free up surplus wealth to expand other areas of the economy. The 1880s are an example of when this happened, and quality of life skyrocketed. During today’s various economic crises, capitalism is blamed and Marx is invoked. Certainly, the Austro-libertarian concept invalidates Marx, however, Austrian economics doesn’t provide a clear banking reform that could accommodate deflation.

Eventually, I began to encounter more complete answers to these questions. In studying war and peace, I looked into Murray Rothbard’s incomplete “Praxeology of Force.” I realized that violence is an extension of economics which follows unique rules. The property right is defended with force, at cost, and defense costs relate to property value. In an environment with a strong division of labor, the unique escalatory rules of violence impose prohibitive costs. Instead, law is used to settle disputes. A critical mass of economic participants gain more by following the rule of law than what they might gain even through piracy and anarchy.

Understanding property rights in the context of economics and the cost of violence adds nuance to the fundamental moral question about bodily autonomy. While the moral right to property isn’t disparaged by the pragmatic economic question of how to establish it, the economic question does qualify some legal interpretations of property. For example, the Lockean, Anglo-American concept of property uses the moral right of property to rationalize the wealth and social status of powerful elites. Where the market cannot bear the costs of defending large property holdings for the very wealthy, in turn, the wealthy establish strong states with the power to tax and issue debt. These states protect and preserve established wealth, using the moral right to property as a rationalization for a redistribution of power from the local to the national, to protect the abstract wealth of a few.

Meanwhile, I began to understand that there is a similar relationship between the failure of markets to represent value correctly and the need to create and protect a denomination of wealth that preserves wealth for the state and for the wealthy. Modern capitalism is not a free market, by any means. Uncomfortably, it can be argued that modern capitalism does produce unfair results, which unfortunately gives ammunition to critics of the free market. More importantly, it is less productive than it could be. It inhibits the proper flow of information needed for people to plan and organize the correct response to changing conditions.

With more nuanced answers, I wanted to think about what sort of direction Austro-libertarian thinking should lead. Its core conceit is freedom, primarily freedom of soul and thought. It would be inappropriate to suggest a specific cultural or moral direction. Political directions are dangerous since they exist to make cultural and moral judgments and otherwise restrict freedom. Ultimately, the obvious course would be to consider the economic direction. Taking the free market for granted, what sort of mechanical changes, improvements to business processes, would make markets function more appropriately? Then I considered the social and political implications of these changes.

I cover my thoughts about the mechanics of an improved free market in a series of short essays I have written. I recently graduated from business school and applied the results of my graduate research into business and game theory toward this project.

In the first essay, I summarize the problems with modern capitalism, and define a mechanical approach to fixing it. The apparent freedom of modern capitalism has come along with concessions to the left-wing prerogatives of the state in creating a uniform society that’s easy to govern and tax, and simultaneously where it is easy to sell to at scale. An improvement could come through innovations to our process of business, specifically learning how to balance private economic cooperation and competition with agility, using market signals. The lack of this agility leaves room for the state to enter.

The second essay summarizes economic principles and considers the moral picture. Participation in society is a compromise that comes with privileges and responsibilities, but one which can be made willingly, in an environment where there ought to be many choices.

The third essay covers how capitalist economics, when functioning properly, are more than anything else a machine for discovering and applying valuable knowledge. The need for freedom to engage in entrepreneurship makes room for wasteful competition which can suppress disruptive innovation. This can be addressed through advanced business processes, but American capitalism has solved it through state intervention instead, creating difficulty in determining the most valuable uses for resources.

The fourth essay looks at how the market expresses demand, and how localist, mutual-aid style social arrangements could move past the state’s uniform consumer class. Better managed demand can assert a preference for putting value into product quality over quantity and price, addressing a common criticism of capitalism. Well managed communities can realize more value out of products and maintain them better than individual households can.

The penultimate essay is a lesson in game theory, including details about the vitally important cooperative game theory. Business strategy is already a mixed game, where the company is a cooperative solution over employees, a competitive solution against rivals, and a cooperative solution among value added supply chain partners. Businesses which frame cooperative and competitive modes more consciously could perform better. The mix of strategies does not need to follow a traditional corporate model.

Finally, the last essay presents the most extreme version of a mixed-game economy based on decentralized financing and blockchain facilitated supply chain management. This science fiction economic model reduces economic functions into core competencies, local workshops which can interact dynamically with many different partners, and the need for monopolistic competition evaporates under the decentralized structure.

A bonus essay to the series speculates about alternative forms of money and banking. In this case, all money is tied to real assets and the relative value of different economic sectors can adjust dynamically, creating local ecosystems. Instead of debt-based money, growth is represented by an unending race for pole position, where changes in the relative value of a currency against another captures the amount of growth. Here, wealth requires financial skill, is never permanent, and massive wealth would be quite difficult to accrue.

There are two conclusions from this series I’d like to highlight.

The first is that the American system of capitalism might be more left-wing than we typically acknowledge. Specifically, in the way that capitalism commodifies life and demands uniformity, assaults family and tradition, and has an interdependency with the state. Some mid-century libertarians have imagined an ideal society that looks like a clean and prosperous New York, albeit one with private law enforcement, minimal regulations and no taxation. This neglects the degree to which American life, epitomized by New York City, has required participation in structured rat race, and created uniform mass culture via a carefully curated set of professional and academic institutions which are well integrated with functions of the state.

Maybe the twentieth century is just not very libertarian. In my opinion, Stalinism is the apotheosis of twentieth century capitalism, and American capitalism is merely less further along. The difference is that American freedom has allowed the market to retard these effects of capitalism due to the influence of middle class wealth, decentralized politics, and strong traditions in some quarters.

Second, if there’s an Austro-libertarian dream, it’s probably one where wealth lies in communities, within large family groups. Where there’s room for different cultures, and even—if you can afford it—an atomized, urban, cosmopolitan life. Where economics are oriented toward family, in holding community equity and tying labor to family rights and responsibilities. Where politics is local, and people focus mainly on defining what sort of boundaries allow for us to live and let live. Where geopolitics is libertarian, because war isn’t affordable, and wouldn’t be worth it. An environment dominated by diplomacy, letters of marque, and decentralized legal norms.

Politics forces us to adopt positions and reject others, out of solidarity with allies and in defense against enemies. I hope to not be interpreted through a political lens. I have been day-dreaming about freedom, and so if something in my day-dream appears useful, please use it freely.

This Is Why I Left The Military ft. Clay Huston Ep. 256

Patrick is joined by Clay Huston to talk about his story of leaving the military as a conscientious objector and transitioning to antiwar activism.

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Show Notes:

Clay Huston on Twitter

Clay’s website

Clay on the Why I Am Antiwar podcast

Clay on the How I Embraced the Suck Podcast

A Response to My Memorial Day Critics

My article against Memorial Day drew a lot of ire and attention. This should not have been surprising; I was making a controversial statement. What did surprise me, however, was that many critics were self-described libertarians or former libertarians. There were many rebukes, but few dealt with the content of my article, either saying that it was just simply wrong or attacking my character, neither of which were sufficient. I stand by my article, but I think that in light of the criticism, the argument needs to be stated one more time with feeling.

It is not honorable to sacrifice yourself for the state. Likewise, we should not honor those sacrifices. To dance around that fact is to accept a minimal state or reject libertarianism entirely. A consistent libertarian will be against a holiday which honors these sacrifices as well as being against federal holidays in general.

As noted in the article, the way Memorial Day started was spontaneous and as a day of prayer for peace. War was shown for what it was, an evil, whereas today, Memorial Day has been co-opted.

Critics replied that it’s a time to honor those that gave the “ultimate sacrifice.” The ultimate sacrifice for what? Sacrificing to the state, to special interests, to pointless wars, and to the whims of bureaucrats, is not honorable, whether they knew what they were doing or not. Unfortunately, many say that the soldiers died protecting our freedom and liberty. Every libertarian should recognize this is just not the case.

The “ultimate sacrifice,” whether done in good faith or not, is vicious. Attacking Memorial Day is not about attacking the soldiers who were tricked, but about attacking the culture that led to these soldiers laying down their lives.

Not honoring them may be painful, but it will be worse for the military state. Anger over the dead will be less satiated. Anger can be directed at the state instead of being transformed into solemnity or redirected at those enemies of the U.S. who dare attack our values.

Furthermore, the young men who become enchanted by patriotic events during Memorial Day and other militaristic traditions will be discouraged from enlisting. The horrors of war may be emphasized at events, but the nobility of those that suffered those horrors are pronounced even more.

That is one reason why I said that it is “like Valhalla” (notice how I used “like” because I did not mean Memorial Day was literally Valhalla; some people didn’t understand that). Traditions like Memorial Day immortalize and reward the fallen soldier. Ironically, those who criticized the use of “Valhalla” would be mortified to see that “Valhalla” was explicitly and frequently referenced on Memorial Day posts on Twitter. Check for yourself if you don’t believe me.

There are definitely good Memorial Day events. Libertarians have done much to salvage this holiday which has given opportunities to emphasize the death and destruction that follows war-making. I fully acknowledge that, but to think that libertarians are controlling the narrative during this national holiday is delusional. The vast majority of Americans make it about honorable sacrifice and protecting American values of freedom and democracy.

I am not against showing sympathy for the fallen; however, I am against honoring the kind of sacrifice that Memorial Day celebrates and praises, a vicious sacrifice. To pretend otherwise is to be blind to the reality that is in your face every Memorial Day. The sacrifice that Memorial Day celebrates should not be honored or encouraged in any way.

TGIF: Immigration and Liberty

Forbidding freedom of movement to aspiring migrants strikes at the liberty not only of those individuals but also of citizens and legal residents of the United States. That’s the way it is with immigration. Indeed, that’s the way it is with freedom. The government can’t violate the freedom of some peaceful people without also violating the freedom of others.

Ilya Somin, who teaches law at George Mason University and is a constitutional scholar with the Cato Institute, makes this point in “Three Constitutional Issues Libertarians Should Make Their Own.” (The other two issues his title refers to are zoning and racial profiling.) Somin also wrote the book Free to Move: Foot Voting, Migration, and Political Freedom.

“Immigration restrictions,” he writes, “massively restrict liberty and degrade human welfare. By barring entry to hundreds of thousands of people who seek freedom and opportunity in the United States, the federal government massively restricts the liberty of would‐​be immigrants and American citizens alike.”

The harm to aspiring migrants is obvious. People seeking to escape crushing poverty and/or oppression are denied the freedom to move to a safer and more productive place. They are condemned to deprivation, misery, and pain at the hands of the government and gangs. (The U.S. war on drug makers and merchants in Latin America is the big reason for this.) By what right are they condemned? “Legal” immigration is more of a theoretical fiction than a real thing. Somin writes:

In theory, they can join the “line” and wait to enter legally. But for most, that line is either decades‐​long or nonexistent. And for the most part, these exclusions are based on arbitrary circumstances of parentage and place of birth, of a kind libertarians and others in the liberal political tradition consistently reject in other contexts.

He goes on: “Less widely appreciated, even by many libertarians, is the massive negative effect of immigration restrictions on the liberty of current American citizens.” We don’t usually think of immigration this way. (Political philosopher Chandran Kukathas does.) But every person represents an American’s opportunity for gains from trade, friendship, and more intimate relationships, all the things that promote flourishing. Immigration controls control Americans too. As Somin writes:

Immigration restrictions bar millions of Americans from engaging in economic and social transactions with potential immigrants. It closes off Americans from hiring immigrant workers, getting jobs at businesses founded by immigrants (who establish such enterprises at higher rates than native-born citizens), renting property to immigrants, and benefiting from scientific and economic innovations to which immigrants also contribute at higher rates than natives.

Those who lament the government-made mess at the border have never understood that constructive responses to the new potential employees, buyers, tenants, etc. would privately and spontaneously arise if border crossing was legal.

Somin adds that “No other current U.S. government policy restricts liberty more than immigration exclusion does—and that’s true even if we focus solely on the liberty of native‐​born citizens, especially economic freedoms.”

The prevention of gains from trade has profound and negative consequences for the production of wealth. Somin: “Economists estimate that free migration throughout the world would double global domestic product. That’s an enormous chunk of lost wealth for immigrants and native‐​born citizens alike.”

Think of the abundance of goods, the new things, and the low prices that we’re all missing out on! (See Bryan Caplan’s Open Borders for details.)

Somin also sees constitutional problems with the restrictions that he laments has been neglected by even most libertarian legal scholars (including himself), not to mention others, such as conservatives, who claim to be staunch constitutionalists. “It’s far from clear,” he writes, “that the original meaning of the Constitution even gives the federal government a general power to restrict immigration in the first place.”

Nothing in the text specifically grants Congress or the president such authority, and leading Founding Fathers—including James Madison—argued that no such power existed. It took more than a century for the Supreme Court to rule—in the 1889 Chinese Exclusion Case—that the federal government does in fact have this unenumerated power. And that decision is based on highly dubious reasoning and tinged with racism.

Somin does not foresee an imminent overturning of the ruling, but he would like to see assaults on “extensions of that ruling that have largely immunized immigration restrictions from constitutional constraints that apply to virtually every type of government policy.” For example:

Immigration detention and deportation proceed with far weaker due process protections than other severe deprivations of liberty. Due process is so lacking in the system that Immigration and Customs Enforcement and other agencies have detained and sometimes even deported thousands of American citizens before they figured out their error. Such detention with little or no due process would not be tolerated elsewhere.

But do “illegal” immigrants have rights supposedly protected by the Constitution? Somin replies: “A few constitutional rights are explicitly confined to U.S. citizens. But the vast majority are phrased as general constraints on government power, and protect citizens and noncitizens alike.” Thus, “[t]he exemption of immigration restrictions from many normal constitutional constraints on government power has no basis in the text or original meaning of the Constitution.”

So he wants an end to the many double standards. That “would curtail many of the worst abuses of the current migration regime, and perhaps set the stage for further progress. Even incremental improvement could make the difference between freedom and oppression for many thousands of people.”

Hear, hear!

TGIF: The Knowledge that Only Free Markets Disclose

As a follow-up to my recent article about F. A. Hayek’s classic article “The Use of Knowledge in Society” (1945), I thought it worth extending Hayek’s exploration of this area of social theory. In 1968 the Nobel laureate-economist delivered a lecture in German known in English as “Competition as a Discovery Procedure.” It’s an alluring title, and anyone concerned with what makes for a good and prosperous society should be familiar with Hayek’s basic point.

Hayek gets right to it. He notes that standard macroeconomists are guilty of having “investigated competition primarily under assumptions which, if they were actually true, would make competition completely useless and uninteresting.” By that, he meant, “If anyone actually knew everything that economic theory designated as ‘data,’ competition would indeed be a highly wasteful method of securing adjustment to these facts.”

In other words, if all the “data” were actually accessible data, solving society’s scarcity problem would be a piece of cake, at least if the government’s computer was powerful enough. (I’m led to understand that, fortunately, many economists have advanced since he gave this lecture, probably in part because of his challenge.)

“Hence,” Hayek went on,

it is also not surprising that some authors have concluded that we can either completely renounce the market, or that its outcomes are to be considered at most a first step toward creating a social product that we can then manipulate, correct, or redistribute in any way we please.

Unfortunately, lots of such people are still around today.

Hayek (like his teacher Ludwig von Mises) knew that he needed to show that Adam Smith’s “system of natural liberty” performed a critical service to mankind that could not be otherwise performed: the production of knowledge that is needed in a changing world of scarcity in which each individual must make plans but also be ready to adjust his or her plans in light of what other free individuals are doing. And that’s what Hayek did, building on Mises and others. Hayek made contributions to the economic, or “practical,” case for freedom that have been woefully unappreciated. The Austrian school of economics that Hayek was part of needs to be discussed more than ever.

Just as any sort of contest would be pointless if we infallibly knew the outcome in advance, Hayek wrote, so would marketplace competition. He considered “competition systematically as a procedure for discovering facts which, if the procedure did not exist, would remain unknown or at least would not be used.” (Emphasis added.)

(Although, Hayek’s German title, Der Wettbewerb als Entdeckungsverfahrenh, has been translated as “competition as a discovery procedure.” I regard the word process as more appropriate because, unlike procedure, it suggests improvisation, spontaneity, and serendipity. Hayek’s work overflows with an understanding of what he called spontaneous, or unplanned, order.)

Hayek reiterated his theme from “The Use of Knowledge in Society” even as he extended it. He wanted to know how can we even identify goods apart from what the market discloses over time through free producer and consumer action.

Which goods are scarce, however, or which things are goods, or how scarce or valuable they are, is precisely one of the conditions that competition should discover: in each case it is the preliminary outcomes of the market process that inform individuals where it is worthwhile to search. Utilizing the widely diffused knowledge in a society with an advanced division of labor cannot be based on the condition that individuals know all the concrete uses that can be made of the objects in their environment. Their attention will be directed by the prices the market offers for various goods and services.

Bottom line: government administrators may be able to give orders, but they cannot benefit the population. The Soviet Union no doubt used up resources making things that few people wanted. Hayek went on:

This means, among other things, that each individual’s particular combination of skills and abilities—which in many regards is always unique—will not only (and not even primarily) be skills that the person in question can recite in detail or report to a government agency. Rather, the knowledge of which I am speaking consists to a great extent of the ability to detect certain conditions—an ability that individuals can use effectively only when the market tells them what kinds of goods and services are demanded, and how urgently.

It’s not magic that produces the knowledge that makes abundance possible for everyone. It’s freedom of action, contract, and private property in a legal-political environment in which people peacefully and cooperatively pursue their happiness. The discoveries Hayek was talking about can take place only when people can 1) freely produce and offer products and services to others and 2) freely buy or not buy according to their own judgment. This includes labor services. Without that freedom, which is limited if not precluded by central planning and less-comprehensive regulation, an economy cannot be expected to benefit a large population.

The full case for a free society obviously has a rights-based, or justice-based, component, We are reasoning social beings who seek happiness. And the also has an important epistemic component, which Mises, Hayek, and others have laid out. We want justice for all individuals, and we want them to flourish. In a world of scarcity and dispersed and tacit knowledge, the free market is required. The moral is also practical.


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