[Ed. Note: This is Part II of Ed Bugos' response to Max Keiser and Jason Hamlin on the Regulation of Capitalism]
Before continuing our rebuttal of Jason’s argument let me say that I do not expect to convince anyone of everything in one or two essays. After all, my conviction didn’t come from one essay either. It came from reading many books and essays, and many years of reflection. I started out my life as an anti-communist because the commies chased my family out of my birthplace in Eastern Europe. I became a progressive conservative (oxymoron) in my teens, not knowing any better, and then a libertarian in my late twenties.
I became an anarchist not through Mises, because Mises was a utilitarian and a scientist, but through Rothbard who contributed much in the way of social and political theory. And especially the theory of the state. What it is not; and what it is. The realization that society could thrive without a state came to me in an essay by a Belgian economist named Gustave Molinari. I’ll provide the link at the end of this essay.
To understand our position, nevertheless, it is important to understand,
1) we have nothing against rules, regulations or law –we argue law & order is more just without state
2) what free market capitalism is
3) what the state is
Hopefully you will have a greater understanding of these ideas by the end of it, and can then be in a better position to perceive those phenomena that are caused by the state (the system not the people) and those that are caused by free market capitalism (the system) without getting hung up on WHO is guilty of what.
As we pointed out in Part 1 yesterday, the economic crisis is not a market failure; it is the direct result of market intervention that subsidized and encouraged the high rollers at all our expense. The bankers have a share in the blame, we established; but so do the socialists and the Keynesians and most all economic schools of thought who believe that the government needs to stimulate growth and consumption…that saving is bad for the economy…or the warfare state who needs to pay its bills stomping around the world.
Importantly, however, these interventions could not occur on the free market. Without a central bank monopoly of note issue protected from competition by the state and its legal tender laws the fractional reserve banking system could not inflate to such an extent. The whole apparatus is designed to prevent market checks (uh, competition) from stopping the process earlier. The destructive breed of capitalism hailed by those Harvard students as a danger to society is precisely Keynes’ inflationist doctrine.
But we know this. We keep telling you that our market system is not free…that we have state capitalism, or crony capitalism…we even have fascism before we have free market capitalism.
We may blame specific capitalists; but it is not free market capitalism that caused the crisis.
IS FREE MARKET CAPITALISM REALLY HOSTILE AND PREYS ON THE WEAK?
Generally throughout his essay Jason trumpeted certain themes that painted free market capitalism as an exploitive and hostile system. These themes were persistent. Recall, he used the term “dog eat dog” to describe what would go on in a system based on voluntary exchanges. His reasoning was, as far as I can tell, that the buyer and seller have unequal information. He thinks the state can level the playing field.
We already dealt with that argument in Part 1, but I am bringing it up again because I stumbled into an old entry that Rothbard wrote for an encyclopedia – “The Fortune Encyclopedia of Economics (Time Warner, 1993)” – in defining a free market system: https://www.mises.org/daily/1973/What-Is-the-Free-Market
“A common charge against the free-market society is that it institutes “the law of the jungle,” of “dog eat dog,” that it spurns human cooperation for competition, and that it exalts material success as opposed to spiritual values, philosophy, or leisure activities. On the contrary, the jungle is precisely a society of coercion, theft, and parasitism, a society that demolishes lives and living standards. The peaceful market competition of producers and suppliers is a profoundly cooperative process in which everyone benefits, and where everyone's living standard flourishes (compared to what it would be in an unfree society). And the undoubted material success of free societies provides the general affluence that permits us to enjoy an enormous amount of leisure as compared to other societies, and to pursue matters of the spirit. It is the coercive countries with little or no market activity, notably under communism, where the grind of daily existence not only impoverishes people materially, but deadens their spirit.”
We could add that it is in those very countries where you will find the worst damage done to the environment as well…the most pollution…the most waste. Environmentalists do not like to hear this, but in poor countries the poor are too poor to care about the environment. Their spirit is often sadly dead.
For more reading on what’s wrong with the “Exploitation Theory”, or the “Primacy of Wages” doctrine that it implies, I recommend this classic piece: http://mises.org/etexts/exploitation.asp
And for better elaboration on the fallacy of using the terminology of warfare to describe economic phenomena I would suggest this read by Walter Block: http://mises.org/daily/5587
This terminology is absolutely inappropriate when dealing with the subject matter of voluntary exchanges; people with an anticapitalistic bias use it to imbue the subject matter with a false nature.
But anyone who has ever done any real business could not talk seriously in this manner.
A French physiocrat and one of the members of the 18th century classical liberal tradition, Frederic Bastiat, once said that, “In war, the stronger overcomes the weaker. In business, the stronger imparts strength to the weaker.” We explained yesterday how capitalists raise the living standards of the laborer by investing in physical capital that allows the wage-earner to raise his/her productivity and hence income. Objections to this in this day and age are simply uneducated. There is no longer the need for economic theory to see that the poor are always better off in countries where there is more economic freedom. There are several websites and indexes that prove this empirically now (heritage foundation, wall street journal, the fraser institute all publish their own indexes). You can see it if you just look around. A park bench in central park is a luxury to some poor hapless homeless man in a place like the Congo. Look at the infrastructure all around us. In capitalistic societies the poorest still live in relative luxury vis-à-vis the poor in socialism.
IS FREE MARKET CAPITALISM ATTACKING THE ENVIRONMENT TOO?
“human beings are always last in line in the environmentalist universe, certainly far below wild rice and the fountain darter” Rothbard http://mises.org/daily/5657/Environmentalists-Clobber-Texas
One of the many myths about history that have befallen the current generation of environmentalists is that the American Indian was “transparent in the landscape, living as natural elements of the ecosphere. Their world, the New World of Columbus, was a world of barely perceptible human disturbance” (Smithsonian Institute 1991). The truth is in general they were not great stewards of the environment: “they engaged in slash-and-burn agriculture, destroyed forests and grasslands, and wiped out entire animal populations (on the assumption that animals felled in a hunt would be reanimated in even larger numbers)”, says Thomas E. Woods Jr. in his book, “33 Questions About American History You’re Not Supposed to Ask,” which he promotes in his essay: Were American Indians Really Environmentalists: http://mises.org/daily/2642
The truth is that environmentalism is for children born with a silver spoon. The claims of environmentalists in my opinion are full of hyperbole; they are politically charged (and funded), and full of contradiction.
I deal with Jason’s concerns about the attack of capitalism on the environment head on in response to his question about the dumping of toxic waste lower, but there is an immediate example of contradiction in Jason’s work. On the one hand he gives us the impression that he is a fan of the planet and worries about what humans (or capitalism) are doing to it. However, on the other hand he wonders, without the state, who would build our roadways? Now, the answer to that is obvious. Entrepreneurs and capitalists. Just because we can’t see the solutions does not mean we should just fall back on the state. A libertarian philosopher, Walter Block, recently published a book on how it could happen – “The Privatization of Roads & Highways”.
See the introduction here: http://mises.org/daily/3416/A-Future-of-Private-Roads-and-Highways
In it, he makes a shocking statement of likely truth.
First: “over 40,000 people die on the nation's roadways every year.” But, he notes, “If the highways were now commercial ventures, as once in our history they were, and upward of 40,000 people were killed on them annually, you can bet your bottom dollar that Ted Kennedy and his ilk would be holding Senate hearings on the matter. Blamed would be “capitalism,” “markets,” “greed,” i.e., the usual suspects.”
The question of who would build the roadways if it weren’t for government is dull and disingenuous to us.
However, for Jason it is also a contradiction. It should be obvious to anyone on reflection that if you think that a stateless society would be without roads; well isn’t that what you’d want as an environmentalist?
But this is typical of environmentalists. It’s not just Jason. There are problems with the doctrine itself.
The truth is that technically in this case it is true that humans attack the environment when we mix it with our labor. But in general you will find that the environment is in much better shape in capitalistic societies.
ONLY TWO WAYS TO AQUIRE WEALTH
At this point, it might be helpful to define the difference between the economic phenomena that you see or experience every day that are attributable to free market capitalism and those that are attributable to the rigging of the competitive environment through the use of a coercive apparatus.
German sociologist Franz Oppenheimer (1864-1943), a market socialist no less, nevertheless “contributed a vital distinction by which human beings obtain their needs.” And he phrased the two methods as “fundamentally opposed.” One was “work”, the other “robbery.”
That is, wealth can be acquired by either or both “one's own labor and the forcible appropriation of the labor of others.”
Precisely, he wrote that, “…on account of the need of having, in the further development of this study, terse, clear, sharply opposing terms for these very important contrasts, I propose in the following discussion to call one's own labor and the equivalent exchange of one's own labor for the labor of others, the “economic means” for the satisfaction of needs, while the unrequited appropriation of the labor of others will be called the “political means.””
Libertarians like Albert Jay Knock, Chodorov and Murray Rothbard borrowed from this to contrast the processes of voluntary society with that of political society or as that between free market capitalism and statist coercion. According to an analysis of Knock by Mark Sunwall, “Nock drew a distinction between political & economic means as alternate, and opposing, ways to govern social and productive relations. Whenever a class substituted state power for social power pursuing enrichment at the expense of other classes by the use of tariffs, imposts, embargos, rationing, wage-fixing, etc., the society was governed by political means. In Nock's view all contemporary societies were governed by political means.”
Did you get that last sentence? Because it continues, “A non-exploitative society governed by economic means was to be considered either a hypothetical construct or a dim memory of pre-state societies.”
That is, free market capitalism has never been tried. Sound familiar? We keep complaining about how there is no freedom… that the state has taken over, centralized or heavily burdened almost every industry… and our opponents keep telling us that free market capitalism, which we argue has long ago been squished, is responsible for the financial and economic chaos. The playboy quote which led off this article yesterday resonates with what we and other anarcho-capitalists are saying because it is precisely a rejection of the political means we’d seek and the want of a 100% voluntary private law society based on private property and ownership in the means of production, governed by norms, freedom of association, and the non-aggression axiom.
Maybe Max and Jason think that our argument implies lawlessness but it is not true. In fact, we could argue that it is the state that contributes to lawlessness, but that’s another argument. The “political means” implies coercion, which tends to work against the fabric of society (woven together by the principle of the division of labor). A free market system is a system of cooperation that is built on a latticework of voluntary relationships.
THUS ROTHBARD DEFINES THE STATE AS THE ORGANIZATION OF THE POLITICAL MEANS
“…the State is that organization in society which attempts to maintain a monopoly of the use of force and violence in a given territorial area; in particular, it is the only organization in society that obtains its revenue not by voluntary contribution or payment for services rendered but by coercion…Having used force and violence to obtain its revenue, the State generally goes on to regulate and dictate the other actions of its individual subjects. One would think that simple observation of all States through history and over the globe would be proof enough of this assertion; but the miasma of myth has lain so long over State activity that elaboration is necessary.” Rothbard Anatomy of the State
VIEWS OF CAPITALISM AS EXPLOITIVE AND HOSTILE ARE ROOTED IN ACTIONS OF CAPITALISTS USING THE “REFEREE”
“Morally acting man seeks profit; immorally acting man seeks plunder.” -Jay S. Snelson
The definition of earning an economic rent (which is not the same as apartment rent), after all, is the realization of income over and above what the market would pay in the absence of the coercive legislation or whatever extra-market institution is used. By now you should be able to distinguish between what we mean by free market capitalism and what many of our peers call corporatism, cronyism or state capitalism. Terms like “exploit”, “hostile” takeover, and so on are inappropriate and often used by biased opponents rather than objective analysts.
Specific objections by Jason include (not a full list),
“When does removing all rules and regulations actually benefit the people within any particular system?”
The answer to that is: never.
“What about no regulations for the pharmaceutical companies? Just put out a drug if you think it will be profitable and see what happens? No regulations to test the side effects before selling it? Would that be good?”
In the end I don't shop at Safeway because i think my government is making sure the food is good quality, I shop there because I know they stand behind what they stock on the shelf – because I know they want me to come back! Safeway does not have much interest in killing its customers. I have more confidence in Safeway then the FDA. Nevertheless, there is lots of literature that criticizes the FDA and shows how private market solutions for standard setting bodies work better in many industries. Here are some.
What Keeps Us Safe: http://mises.org/freemarket_detail.aspx?control=193
Dangers of Food Safety: http://mises.org/freemarket_detail.aspx?control=56
Again, our argument is that a regulatory body is inefficient and unaccountable. When a private company makes a mistake that costs lives, it is likely to go out of business, or at least lose a lot of money. When government makes mistakes it gets more funding. But in the end that funding comes from the industry it is supposed to regulate.
Jason correctly notes the relationship between these regulatory bodies and private enterprise, which he claims hires people that had previously worked for those regulatory agencies. Of course, I doubt that is as wide spread as he thinks only because most regulators are bureaucrats. The only reason you hire one is to keep your business safe from DC.
Jason, you need to understand that the free market system is under attack by the politicos. You have it the other way around. You think that private interests have corrupted what otherwise could have been used for good. But this is exactly the progressive liberal's delusion. The state was never used for good. Ever. Only in the 20th century did your post modern liberal predecessors come out with a program to use the state for good. But it hasn't worked. It never could. The state cannot be a fair referee.
Hamlin continues, “How about no regulations on where and how oil companies can drill or requiring safeguards when transporting that oil in our oceans? Does anyone really think that would produce positive results?”
Again, no one said anything about lawlessness. But if someone actually owned those shipping lanes and parts of the ocean, which were ‘mixed with our labor', like we suggest to privatize roadways on land, the same principles would hold true here. If you damage someone's lawn by trampling on it they can sue you for it, and we don't need an absolute power to appoint a referee to enable litigation and facilitate the judicial process.
HOW ABOUT THE STOCK MARKET?
Hamlin continues with his “already answered by the libertarian community countless times” list of questions with, “Insider trading and front running are fine? No need to disclose positions or conflicts of interest? No need for fiduciary duty, just trust the investment professionals and hope that competition sorts it all out?”
At the moment, only the elite can do inside trade – I'm looking at you Martha Stewart! It's how the politicians get paid off, Jason. The laugh is that most inside information isn't worth a dime. I can tell you that first hand. But it is naive to think that by outlawing inside information you are leveling the playing field. I get frustrated often because as an analyst I should be out there digging up information that isn't known and making it public. I should be incentivized by this. I should get paid for it too. I should be able to buy first.
As it stands, when I find information that isn't public, I can't tell you.
Conflicts of interest? Why is he accusing us of being cheats and behaving immorally? We are in the habit of constantly disclosing conflicts.
DUMPING TOXIC WASTE
Hamlin yet, continues on, “What about an instance where a chemical company decides to dump toxic byproduct into a creek that flows through a small town. Over the course of several years, residents start getting sick, contracting cancer and dying. Under Jeff’s desired system, there would be no regulations to prevent the chemical company from dumping and no referee to address the injustice until it is too late. How exactly would the free-markets regulate themselves in this case? Would competition provide the necessary referee as Jeff states? Jeff might say that private property rights would allow the family to sue the company, but this is introducing the referee that Jeff says we don’t need. The last time I checked, the judicial system was one of the three branches of government. Or maybe Libertarians would argue it could be a trial by peers, but this would both be inefficient and completely impotent without the force of government behind it. Who would make sure the corporations show up at court or pay the penalty?”
Here Jason is using the referee in a different context; not as a regulator of free exchanges, but as an intermediary – an arbiter of disputes. There is lots of literature on how the judicial system could be privatized. Again, Jason accuses us of aiming for lawlessness in society. Without a referee, my goodness, who would provide security and who'd make laws??
This is why many anarcho-capitalists are turning to the phrase “private law” society: to avoid the criticism that they are against law and regulation. They are merely against centrally and politically provided law and regulation. They are merely against the political means.
Hamlin continues, “How about a bank that takes extremely risky leveraged bets with depositor money and loses it all? Jeff would like a system with no regulations to prevent this and thinks the markets would magically sort it out through competition. Sure, the banks would go under and people would no longer bank there in the future, but what about those that lost their life savings. Tough luck? Jeff says, “there would be no investment banks that were massive and highly leveraged without the “referee” protecting them from competition and offering them the backstop to cover their losses when they do ultimately collapse. But this is nothing more than speculation.”
Not so. This is typical socialist nonsense. First of all, the point is that a competitive environment would discourage any single bank from inflating. Thus people would not lose their life savings in the normal course of events, unless like in 1907 the Morgan's et al knew that they would simply get the government to socialize their losses by creating the Federal Reserve. This is a priori truth. It is not speculation. It is an economic fact. A reality. Jason says he has read Rothbard and Mises but if that were true he would know that you cannot rely on observation or empirical data to prove or disprove an economic theory.
The statements of economics proper are true apodictically. The reason that there is “no historic precedent or proof that the markets can regulate themselves effectively” is that free market capitalism has never been tried. So Jason is confirming that we do not live in this kind of system today. But it does not take empirical proof, for instance, to know that more competition will lower prices – all else equal.
If we lived in a society that never experienced free market competition this would be analogous to Jason complaining that there is no proof that prices would fall under competition and that this idea is therefore nothing but speculation.
Jason says he wants to “focus on the ideas being proposed and explanations of why I believe some of the ideas are far superior”; but he is not giving us much to chew on except for simple assertions like, I don't believe you. It is not speculation that the state subsidizes robber barrons… that without the state they could not do any of their evil.
Hamlin continues, “Would it be wise to remove all regulations in the logging industry and allow the clear-cutting of entire forests for short-term profit gain?”
Yes. This is just the kind of fear mongering we’d expect from the state. The fact of the matter is that we have more forest than ever, and it is because there is demand for lumber. If there were private property in this industry, as opposed to the granting of a right to log an area, none of the problems associated with clear cutting would occur. We can apply the simple axiom here that property owners would want to realize the most value out of their holdings.
Hamlin states, “Should we sit back and watch entire species go extinct, as the industry disrupts nature’s food chain and threatens our future food supply and entire ecosystem?”
Arguments like this have been dealt with extensively. Industry is what makes food plentiful. Even the whales themselves are proof of this. Whales would be extinct right now if it were not for capitalism as the whales were being slaughtered for their oil for heating and lighting until kerosene was created by the free market system.
The charges against capitalism by the environmentalists (who are mostly old communists trying a new tact) are groundless. But we shall dismiss them here because it would unnecessarily hamper our focus. There is an extensive library of work by libertarians and economists on dealing with the environmental issue. Generally Jason's claims here are without precedent. It is doubtful that any species has ever gone instinct because of industry. It may be true. But I've read many more instances where it is a fabrication.
Suffice it to say we can categorize this objection as a premise for more regulation by stating it as follows: without an omniscient overseer to regulate capitalism our planet will be in peril. Our rebuttal is to privatize everything.
In the end it doesn't matter if capitalists are to blame for the misuse of the state. In many instances, like in Greece, it is the socialists that are to blame. The bottom line is that the state exists to be misused… to exploit! Life is not a game where someone loses and someone wins. In life, free exchanges are the only way to ensure that both sides win. Only the naive believe that it can be made into a fair referee, especially if it is the only bully on the block who can have a gun.
Indeed, we are living the legacy of the minarchist failure…of the failure of the state as a night watchman, and of the confirmation of Higg's ratchet effect. Whether it is the left or right in power they both will seize the opportunity to ratchet up the size of the state, even though the pretext (usually a crisis) was caused by its own policies, and never reduce it when the crisis passes.
THE 20TH CENTURY WAS THE EPOCH OF SOCIALISM
We are entering a new era now. Witness the death of religion and the state. Witness the anger at those of us telling it like it is. This is the nub of our argument.
Unfettered competition is a better check than the referee.
Hamlin states, there is “no historic precedent or proof that the markets can regulate themselves effectively.”
Completely correct, Jason. We keep telling you it hasn't been tried. But we know a priori that they can. We know this by means of deduction… the unique method of economics discussed in the early part of this essay. It is logical. Hamlin states that it is a “dose of blind faith to believe that free market capitalism can regulate itself,” but it doesn't. It is logical by definition. We aren't talking about regulating crime here. We are talking about regulating voluntary exchanges between people. We know that the market is better at this than the state. There's over 100 years of work to prove this using logical and indisputable arguments I might add.
IN CLOSING
Whether you agree or not, the fact is that far too many people have never heard many of the arguments that we have presented here. And, we'd like to thank Jason for posing all the questions for us to rebuke… your average anti-free-marketeer would never do such a thing as they know there are answers to all their questions.
Jason’s resistance to the idea of a stateless society is not new at all. Murray Rothbard first noted it in the reaction to an 1849 essay written by Gustav Molinari (1819-1912) called “The Production of Security”. When Molinari later published his book, based on this essay, which Rothbard dubbed “the first presentation anywhere in human history of what is now called “anarcho-capitalism” or “free market anarchism””, it caused a “storm of contention” by his peers who devoted a meeting to it.
The nub of Molinari’s argument was not morally based. He wasn’t arguing that the state is bad, but rather, he effectively asked, “If the free market can and should supply all other goods and services, why not also the services of protection?” Another way to put it is if we wouldn’t trust the government with the provision of our basic goods and services why do we entrust it to our highest needs: security, education, and healthcare?? Rothbard saw Molinari as simply consistent.
At the aforementioned special meeting of the minds in 1849, Rothbard notes that,
“Charles Coquelin opined that justice needs a “supreme authority,” and that no competition in any area can exist without the supreme authority of the State. In a similarly unsupported and a priori fulmination, Frédéric Bastiat declared that justice and security can only be guaranteed by force, and that force can only be the attribute of a “supreme power,” the State. Neither commentator bothered to engage in a critique of Molinari’s arguments. Only Charles Dunoyer did so, complaining that Molinari had been carried away by the “illusions of logic,” and maintaining that “competition between governmental companies is chimerical, because it leads to violent battles.” Dunoyer, instead, chose to rely on the “competition” of political parties within representative government – hardly a satisfactory libertarian solution to the problem of social conflict! He also opined that it was most prudent to leave force in the hands of the State, “where civilization has put it”.
The conquest theory of the state is the theory that the state never formed by consent, but rather, it simply asserted its position of authority and demanded tribute from day one. Consent is a ruse.
The point being that Rothbard noted their objection came down to this: he was just too consistent.
What’s more, one of the reasons that classical liberalism was replaced by the progressive liberalism that we see running rampant today is this very contradiction. Modern day liberals are right to question the libertarians about their consistency. Why do they entrust the state to the most important needs of society when they argue that the state can’t calculate and is inefficient?
We would add that minarchist libertarians (modern day classical liberals like Ron Paul who still hold on to the night watchman theory of the state) haven’t yet acknowledged their inconsistency, and the fact that we are in many ways living their legacy. As Spooner, and later Robert Higgs, could have told them: the state is going to grow no matter how many pieces of paper or political structures we invent to restrict it. And this growth is not just fueled by the socialist element.
Yet, with an ever growing and largely irrefutable body of work promoting true free markets it is always the socialists, minarchists and statists who state that we are impractical utopians.
Murray Rothbard said it best when he retorted, ““It is the conservative laissez- fairist, the man who puts all the guns and all the decision-making power into the hands of the central government and then says, ‘Limit yourself’; it is he who is truly the impractical utopian.”
