The Task of Economists

In my post “The Task of Political Philosophers” I explained the circumstances that give rise to the subject of political philosophy: namely, scarcity and diversity, and therefore the possibility of conflicts over scarce goods.  I explained the solution that humans have evolved to deal with this problem of conflicts: namely, the principle of ownership, property and rights.  I explained that political philosophy is about specifying when coercive actions are acceptable, and when they are not, and that this reduces to specifying a particular set of property assignment principles or rules for determining who owns what.

In my post “Libertarian Property Assignment Rules” I explained the principles that libertarians use to determine who owns what: namely, homesteading and voluntary exchange.  I contrasted the libertarian property assignment rules to the property assignment rules of other political philosophies, which reject homesteading and/or voluntary exchange in favor of some other set of principles for determining ownership.

Naturally, the next question is: Why support libertarian property assignment rules and not the property assignment rules of some other political philosophy?

Many libertarians have given justifications for libertarianism.  They are often categorised as either “deontological” (or “ethical”) or “consequentialist” (or “economic”).  I will set aside the deontological arguments for now to focus on the consequentialist argument.  This argument is based on the claim that a society operating using libertarian property assignment rules will be more prosperous, all other things being equal, than a society using some other property assignment rules.

To understand why this is the case, we need economics.  Economics is defined as the study of the logical consequences of the axiom that humans act (i.e. behave purposefully).  By considering the logical consequences of human action in different situations, economics teaches us the logical consequences of different property assignment rules.

The study of economics starts by considering a single individual – often named Crusoe – living alone on a deserted island and engaging in action (purposeful behavior).  There is a great deal we can learn from considering a lone human actor.  The categories of ends, means, knowledge, time, scarcity, environment, value, goods, choice, uncertainty, risk, desire, costs, benefits, profits, losses, production, consumption, saving, investing, capital, wealth, entrepreneurship, speculation, labor, leisure, supply, marginal utility, efficiency, convertibility, durability, and the structure of production – are all logically implied by the action axiom and apply even to a single individual living alone.

The next step is to bring in additional individuals and consider a simple ‘island society’ of individuals making direct voluntary exchanges with each other.  The categories of exchange, buyer, seller, demand, price, contract, specialisation, cooperation, competition, employment, charity, credit, debt, interest, the division of labor, the division of knowledge and the law of association – all emerge even in a simple society of direct voluntary exchanges between individuals.

Any society of purely direct exchanges will be limited by the well-known problems associated with direct exchange, such as the requirement of a ‘double coincidence of wants’.  If an individual has pears and wants to exchange them for fish, he has to find someone who has fish and wants to exchange them for pears, which he may not be able to because of the cost of searching for such a person.  The solution is for him to use a medium of exchange.  He sees that the fisherman has fish and wants salt, so he finds someone willing to exchange salt for his pears, and then goes back to the fisherman to exchange the salt for fish.  This is an indirect exchange of fish and pears, where salt has functioned as a medium of exchange.   

Some goods are more suitable than others as a medium of exchange.  And once a medium of exchange becomes widely accepted, there is a tendency for it to become generally or even universally accepted.  A good that is a generally accepted medium of exchange is called a money. 

The next step for the economist is to look at the logical consequences of a society where individuals make indirect exchanges, using a money.  Money makes more exchanges possible, so more wealth is generated.  Besides solving the problems associated with direct exchange, money brings many other benefits to society, the most important being that it enables economic calculation.  Individuals are able to directly compare goods through money prices, so they can calculate whether their actions are adding value or destroying value.  Producers can compare the prices of their inputs and the price of their outputs to determine whether they are using resources wisely or wastefully.  Money prices – formed through a society of voluntary indirect exchanges – serve as signals which guide the actions of individuals towards making good use of resources.

Up to this point, the economist has only considered a society of voluntary exchanges.  Such a society may be called a free market.  It is the result of the operation of the principles of libertarianism: homesteading and voluntary exchange.  In order to compare libertarian property assignment rules to other property assignment rules, the economist must begin to consider what happens when coercion is used by some individuals.  Does any form of coercion result in better consequences than those which result from a purely free market voluntary society?  Can targeted, systematic coercion ever increase prosperity?

Not many people believe that coercive acts such as murder, rape, slavery, robbery, theft, assault, fraud, trespass, etc, have good consequences when carried out by ‘ordinary’ individuals.  However, there are many who believe that similar coercive acts committed by individuals acting as States have good consequences.  Coercive actions carried out by individuals acting as States include war, conscription, prohibitions, price controls, product controls, labor controls, monopolisation, taxation, tariffs, subsidies, bailouts, forced wealth redistribution, eminent domain, forestalling, etc. 

 

The task of the economist is to first understand the workings of a voluntary society, and then to examine the logical consequences of coercive actions, to show whether such actions increase or decrease prosperity compared to a society of purely voluntary actions. 

The consequentialist case for libertarianism is based on the economic reasoning that shows that free markets – the form of society that results from libertarian property assignment rules – maximise prosperity.  Austrian School economists such as Ludwig von Mises and Murray Rothbard have shown that coercive actions – even those carried out States – always have negative consequences on the prosperity of a society.

Critique of 'Firing Back' by Ben McLeish

This is an analysis of Ben McLeish’s video here.  Ben is an active member of The Zeitgeist Movement UK.  This is the start of a cross-blog discussion.  Ben's blog is here.

Money and ‘The Monetary System’

Ben begins (at 1:50) by explaining he is going to discuss “unresolvable problems in the monetary-market system, and by-products of money itself”.  These are “systemic issues, not only to capitalism, but to the very entity and organisation of money itself”.  They are “inherent problems that will lead to the collapse of any system in which it appears as a regulating force”.  Ben says that “As a mechanism for cooperation and survival, money has outgrown its usefulness”.

Unfortunately Ben fails to provide a definition of money, or of monetary-market system.  This proves to be a fateful error, because most of the rest of Ben’s talk is one huge fallacy of composition.   He briefly acknowledges the idea of commodity money and commodity-backed money, but does not explain how they work.  For the entire talk, he refers only to the current system, with fiat money, monopolised by a central bank, and with a cartelized banking system engaging in rampant fractional-reserve banking.  Yet he uses his conclusions about this particular money and monetary system to denounce the whole concept of money and ‘monetary systems’.

In order to persuade me that all monetary systems have “systemic, inherent problems”, Ben must first of all provide a definition of money, and then critique the most general form of money.  It may be wise at this point to stop and ask for a definition of money and monetary system, and to see if Ben recognises the fallacy of composition he is making if he continues to argue against all money by attacking fiat money.  But I will continue to comment on his talk, for the sake of discussion.

Fiat Money

Ben explains that (fiat) money gets its value from two things: 1) belief in money’s value (the “mutually shared illusion”) and 2) scarcity of supply. 

First it should be noted that value is subjective, so everything, technically speaking, has value only because people believe it has value.  Second, the plain fact is that fiat money’s value is not an illusion: I really can take my fiat money to the local store and exchange it for goods that satisfy my needs.  People really do value money, and why wouldn’t they, when it is so useful for exchanging for things that will directly satisfy them?  What Ben seems to be referring to is that fiat money is not useful for anything other than exchanging; it cannot be eaten, or used in production of anything, for example.  This is true.  But that’s the very definition of a fiat money!  This point, therefore, clearly does not apply to commodity monies, which are by definition useful for other purposes.  So if this is the sense in which Ben is saying money is an illusion, only fiat money is an illusion, not commodity money.

With regard to his second source of (fiat) money’s value, Ben refers to scarcity.  He fails to provide a definition of scarcity so it is difficult to know what he means by this.

At 5:40 Ben begins to talk about where today’s fiat money comes from.  He starts with the Bank of England and then goes on to give an explanation of fractional-reserve banking.  Possibly for reasons of time, he does not mention the main consequence of fractional-reserve banking: the business cycle of artificial boom, bust, recession and/or depression.  Nor does he mention the redistributive effect of inflation of the money supply: from savers to borrowers; from those on fixed incomes to those on variable incomes; in general from those distant from the point at which the money is created to those closer to the source of the new money: especially the government and the banks.  Nor does he mention that this system is impossible without a central bank monopoly privilege on bank notes and a cartelized banking system.  I recommend this very short video for a clear explanation of fiat money, emphasising the redistributive effects of inflation.  For a full explanation of the methods and effects of money expansion and contraction, and what cartelization of the banking system enables, see chapter 12, section 11 of Man, Economy and State by Murray Rothbard.

Debt and the Money Supply

At 9:00 Ben makes a minor error by saying that there is not enough money in the system to fully pay back the debt, because of the interest which “was never created”.  The error is in assuming that creditors, when the money is paid back to them, will not spend it back into the economy.  Obviously they will, since the creditors want goods and services, not piles of money.  In theory, any amount of physical money can be used to pay back any amount of debt in this way, so even a total debt higher than the total money supply is not “mathematically impossible” to pay off, in the way that Ben implies here.

Interest

At 10:15 Ben makes a further point about interest.  It is not entirely clear whether he is talking merely about interest being charged within this fiat fractional-reserve system, or the general idea of interest.  He mentions with some disdain that a millionaire can earn £50k interest “simply by having money in an account with 5% interest rate”.  He ignores that (in a free market system, at least) the millionaire must have previously produced so much to satisfy the needs of his fellow man that he was able to become rich; that the money is not available to the millionaire during the time it is loaned out; that some risk is involved in lending; and most importantly that debtors voluntarily accept the terms of their loan and therefore expect to benefit from the transaction - the loan is for mutual benefit.  Any third-party using violence to prevent this kind of voluntary exchange would clearly be making both worse off by preventing the gain from trade being realised.

On top of this, Ben overlooks the social / economic function of interest, and the calculational chaos that a price control of zero on the charging of interest (which is the effect of “usury” laws: forbidding the charging of interest) would have on society.  Entrepreneurs – the individuals that make most of the decisions about resource allocation in a free market economy – have ideas about how to change the world for the better, and the incentive to put those ideas into action, but they often need a large amount of savings in order to embark upon their wealth-generating project.  Savers – individuals who saved their income for use later rather than spending it on consumption now – have the funds that the entrepreneur needs.  Interest is what brings them together.  The entrepreneur voluntarily agrees to pay interest because he expects to be better off in the future; the saver agrees to invest their money (rather than hoarding it) because of the expected interest income.  The money becomes inaccessible to the saver for some period of time, while the entrepreneur adds value to the world.  With usury laws, the saver, the borrower, and society as a whole, is worse off than in a free market, because in a free market interest rates serve as a crucial signal and incentive for guiding improvements to economic conditions and more efficient use of resources.  On this point, see my video Economic Coordination and the Business Cycle.

Social Mobility and Inequality

At 11:30 Ben brings up empirical data that appears to show that social mobility has been declining, that life expectancy is inversely related to inequality, and that mental illness is more prevalent where there is higher inequality.  See this blog post for my response to this.  On top of my comments in that post, I would point out that Ben's quoting of facts and statistics about societies today, with today's economic system, and then the using those facts to denounce all monetary systems, would be another example of the fallacy of composition that pervades Ben’s talk.

Downsizing of Banks

At 15:10 Ben moves on to discuss “innovation, pollution, and false positive indicators”.  Ben explains that when Lloyds TSB cut 45,000 jobs, the bank’s share price increased, but does not explain the relevance of this point.  He just got through explaining that our economy is virtually held hostage to big banks.  And yet he presents news that a bank is shrinking in size as a bad thing.  It is unclear why he would apparently prefer that those people still had their unproductive jobs, when they could be doing something more productive.  Does Ben not feel that the banking sector is already too large?  Does he believe that downsizing of the banking system in this country is a bad thing?  The relevance of the Lloyds TSB story is unclear.

GDP and ‘Growth’

He quickly moves on to criticise the idea that wealth is measured by GDP.  Ben correctly points out that many activities (oil spills, wars, epidemics, etc) that clearly decrease wealth actually increase GDP.  This point is the tip-of-the-iceberg of the problems associated with the concept of GDP.  Austrian economists have explained the uselessness and pointlessness of GDP and most other “economic indicators”.  Austrian economists recognise that economic wealth cannot be measured due to the subjective, ordinal nature of value.

At 17:40, Ben seems to make the error of thinking that GDP actually is a good measure of wealth, a position he well refuted a few moments ago.  He denounces “growth”.  Unfortunately he does not define this term explicitly; it generally means an increase in wealth or productivity, but Ben seems to define it as an increase in GDP!  Of course, due to the aforementioned Austrian critique of GDP, Ben is right that “growth” by this definition isn’t always good!  But when growth is given the more useful and common definition (an increase in wealth), then the only people who ought to be opposed to growth are primitivists, who actually desire a society of poverty.

Patents

At 18:45 Ben shifts to the subject of innovation and immediately brings up patents and the large amounts of money spent on patent trolling and patent defense.  Patents are a government-granted monopoly privilege, and therefore any critique of the patent system does not apply to the free market.  At 21:10 he says “This [patent wars] is implicit to the monetary system itself”.  This is obviously false, and a fallacy of composition again.  Patent wars can clearly only happen in societies which have patent laws.  There can exist monetary systems with or without patent laws; and there can exist non-monetary systems with or without patent laws.

Planned Obsolescence

At 21:35, Ben says “Every company in a monetary system is forced, by cost efficiency to… make items that are manufactured poorly”.  He gives the example of mobile phones being “calibrated” to break down within a specific timeframe set by the manufacturer; so-called “planned obsolescence”.  Planned obsolescence is a myth in the sense that ultimately (at least in free markets) manufacturers, and all producers, are beholden to consumers’ desires, so the longevity of any product will be optimal given the values of the people in society.  Longevity of a product has to be weighed against other attributes.  If products break after some “short” period of time (short in the arbitrary opinion of the person speaking) it must be because the costs of making the product last longer outweigh the benefits, from the point of view of consumers.

It would therefore be a decrease of wealth if any third-party were to use violence to prevent manufacturers making decisions about their products based on cost-efficiency, for example by imposing arbitrary legal minimum standards with regard to longevity of different types of products.  In a free market, if a producer engages in so-called “planned obsolescence” (meaning he manufactures goods that don’t last as long as the speaker arbitrarily feels they should) and there is a real detriment to consumers, then that producer will soon be out-competed, ceteris paribus, by a firm which makes their products last longer and satisfies consumers better.

The Ghost of Keynes

At 23:10 Ben says that “One overriding economic point will make our way of life impossible… ‘Technological unemployment’”.  He defines this term, by referring to the discredited economist John Maynard Keynes, as “Unemployment due to our discovery of means of economizing the use of labor, outrunning the pace at which we can find new uses for labor”.  This one sentence sums up one of the major errors of Keynesianism remarkably well: the idea that “we” need to “find new uses for labor”. 

Keynes was a central planner who believed in work-for-work-sake, even so far as recommending to the U.S. government that they pay people to bury money in bottles deep underground, so that people can be employed in the task of digging for them, just to keep them busy.  He said that if no more useful for work can be found for them to do, it would actually be a net economic benefit for the government to spend taxpayers’ money in this absurd way.  One would have thought, when his economic understanding led him to this ridiculous conclusion, Keynes might have re-thought his framework.  But alas, Keynesianism still dominates in Universities today and policy is still made based on Keynesian recommendations.  Sound Austrian economic ideas remain a small minority in academia, but the ideas are spreading very quickly due to the rise of the internet and the beginning of the collapse of the Keynes-inspired economic system in 2008, which many Austrian economists predicted.

Keynes put the cart before the horse.  Humans engage in labor because we want to produce something, which we can then enjoy by consuming, or exchanging for something we can consume.  By definition, we do not enjoy labor for its own sake (for then it would be leisure).  Every individual could choose to live a life of complete leisure, and just sit in a yen-like state contemplating the world.  But we’d quickly get hungry, so we find that we need to engage in labor (combining our skills and energy with elements of nature) in order to satisfy our desire to not feel hungry.  We need to produce food, and other things to satisfy our desires.  That is why we labor.

Automation

Prior to the Agricultural Revolution, this food production consisted of hunting and gathering.  Both hunting and gathering were done with the help of technology: spears, arrows, nets, traps, bowls, vessels and long pointy sticks.  Why did men use these technologies?  Because it enabled them to be more efficient, meaning they could produce more for less.  With a bow-and-arrows, if hunting becomes 4 times as efficient (meaning it takes only a quarter of the time to hunt for the same game with the technology than without) then an individual with a bow-and-arrows can either have 4 times as much food, or he can devote three-quarters of the time he previously spent hunting doing something else - maybe producing something else, or just sitting back and relaxing with more leisure time, or some combination of these options.

The Agricultural Revolution dramatically increased food production, enabling the human population to increase considerably while at the same time each individual had more food.  As food productivity continued to increase, through savings and investment in agricultural technology, as well as technological advancement itself, less labor was needed to produce enough food for everyone, even as the human population continued to grow.  This increased productivity freed up men’s time to devote to other activities besides agriculture.  With the intensification and extensification of the division of labor and knowledge, and increasing trade between individuals and across larger distances, some men did not have to work in agriculture at all; they could specialize in other productive activities and exchange with other people for their food needs. 

At 24:30, Ben relates the wonderful statistic that by 1860, 40% of the human population were in the enviable position of being able to do things besides just labor to produce food – a remarkable achievement given that even just a hundred years earlier, almost everyone still worked in agriculture!  And today, less than 1% of people work in agriculture; over 99% of people do not have to work in agriculture!  99% of the population has been freed up to produce other things!  These facts should be marvelled at, but Ben seems to think the trend is something to be feared, and that perhaps we should look back in fondness to the days when most people spent all day laboring just for food for survival.

At 27:00, Ben gives another wonderful statistic: “iPhones are selling for £25, and they are 1000x more powerful than the MIT supercomputer in the 1970s, and that cost $11 million.”  Incredibly, once again, Ben seems to be highly concerned, rather than celebratory, about this remarkable fact about the increasing standard of living: the ease with which we can create things today. 

‘Technological Unemployment’

At 27:10, Ben says, sounding just like Keynes, that “This is a big trend and it affects everything.  It means that ultimately automation is going to be much cheaper than human labor, even if you think you’re special, even if you think your job isn’t technical.  And even if it was: what are you, 10, 20, 30%?  What if it’s 50%?  How are you going to deal with 50% unemployment?”

In 1945, Keynes and his followers supported the continuation of the war on the basis that if the troops were brought home, and if weapons and tanks and warplanes were not made, there would be mass unemployment.  They predicted an economic depression.  As they saw it, there were simply no jobs for all these people to do, so there would be a disaster.  Contrary to the Keynesian predictions, after the war ended the U.S. economy went into a massive boom, which is exactly as Austrian economics predicts.  The U.S. economy had a relatively free labor market, so it quickly adjusted to the influx of labor, and through the market process of adjustments, jobs became available for everyone that wanted one.  So long as human needs and wants remain unfulfilled, jobs can be done satisfying these desires.

Keynesians still use this old debunked framework and still make predictions of disaster relating to the loss of jobs, or their creation.  Paul Krugman said that the 9/11 attacks “could do some economic good”, because of all the jobs that were stimulated by the rebuilding effort.  Larry Summers said that the 2011 tsunami “may provide a jolt” to the Japanese economy.  These mistakes are an example of the broken window fallacy, and are the logical consequence of Keynes' flawed framework.  See The Parable of the Broken Window.

Take this hypothetical.  Suppose someone invents a machine which overnight makes the role of doctor obsolete.  Some sort of amazing self-diagnosis / auto-treatment machine, which works as well as any doctor and is far more convenient and cheaper too.  All doctors would be put out of work!  That is a lot of people that are now suddenly unemployed!  What will happen to them?  Shall we, like the Keynesians, predict that this mass unemployment will be a disaster unless the government uses taxpayers’ money to pay them to do something (like digging up buried bottles of money)?  Should we fear this amazing new machine for this reason?

The Austrians point out that the economy will simply adjust, if individuals are free to do so.  Those doctors will simply do something else, and what those doctors produce when they are doing that ‘something else’ represents a large part of the real value to society of the diagnosis machine.  Before the machine came along, thousands of people were doing something that can now be automated, so they are freed up to do something more useful, something that people want which can’t (yet) be automated.  This diagnosis machine should be welcomed and recognised as a great advancement – not feared!

This hypothetical is not at all difficult to imagine, because history is filled with examples of it.  The effect of a new technology, which makes many jobs obsolete, is the same as the effect mentioned above of the sudden influx of labor into the U.S. after the war.  It gives rise to an economic boom, by freeing up labor.  In fact, the whole of human history could be described in terms of technological improvements automating certain laborious tasks, and in so doing freeing up human labor to be spent on other productive activities and thereby adding wealth to society.

Pick any technological improvement, say, the printing press.  A lot of scribes were made unemployed when their laborious job of copying old texts by hand could be automated.  Within a short space of time, the whole scribe industry, a major sector of the economy, had vanished.  Was this a bad thing?  Would we be better off if the printing press never existed, so that people could be employed to this day as scribes?  I doubt Ben would try to claim this.

Was there a disaster at the time the printing press was invented?  Not at all; why would there be?  The job of being a scribe disappeared and was replaced by new jobs, as any Austrian would predict.  Many of the former scribes became creators of new texts; others became printing press operators; others went into different fields entirely.  The printing press benefited society not just by making books cheap and widely available, but also by freeing up the time of a large number of scribes to produce other things.  Just as we benefit by having less people in agriculture today than at any time in our past, we benefit by not having people spending their time copying books by hand today.  The exact same story can be told for every kind of new technology. 

The objection will no doubt be the canard that something is different this time.  Ben will have to explain why this time is different if he is going to go down this road.  He will have to point to some qualitative change that has taken place in recent history which makes this time different to all the other times throughout history when technology has taken over tasks previously performed by labor.

The Ghost of Marx

At 27:30, at the end of this first part of his talk, Ben makes a howler that comes straight from the writings of Karl Marx, when he says: “technology follows its own scientifically self-evident trend, irrespective of the system surrounding it.”  I cannot believe Ben really believes this to be true.  Does he really think that whether a man is free or a slave makes no difference to whether he decides to develop a new technology?  That the impersonal “material forces of production” (Marx’s term) carry on independent of human actions and choices, constantly propelling our species forward?  That there is no such thing as “incentives”?  As this was a mere passing remark, perhaps he did not mean to say what he did.

Problems of ‘The Monetary System’

At 27:50, Ben summarises the “problems” that he attributes to ‘The Monetary System’ (which he has still not defined): “Our core resources are expiring; our economy needs to economize (a complete reversal of what it does now); money (both [sic] in its present form of fiat-based debt and unpayable interest) not only divides and impoverishes people but negatively impacts innovation, takes the place of what is really important… and will fail by design”. 

He did not previously mention resource depletion, so it is difficult to know what evidence he has for his claim that “our core resources are expiring”, or what the relevance of it is.  Of course, fear-mongers have always said that resources are running out, usually as a way of increasing the price, or getting people to support State intervention to try and preserve resources.  For example, in 1882 it was estimated that 95 million barrels of oil remain (so will run out within 4 years!).  In 1920 it was estimated that 6.7 billion barrels of oil remain; in 1932, it was estimated that 10 billion barrels of oil remain; in 1944 it was estimated that 20 billion barrels of oil remain; in 1950 it was estimated that 100 billion barrels of oil remain; in 1980 it was estimated that 648 billion barrels of oil remain; in 1993 it was estimated that 999 billion barrels of oil remain; in 2000 it was estimated that 1016 billion barrels of oil remain.  At some point, given these historical predictions (listed here), you would think that people who predict that oil is about to run out would re-think their methodology.  But alas, we continue to be told that we are on the brink of disaster and something must be done (using violence, no doubt).

Ben does not acknowledge the free market mechanism for adjusting to dwindling supplies: namely an increase in price, stimulating preservation, more efficient use of supply, more exploration, and a search for substitutes.  Ben unfortunately falls for propaganda that resources are running out and only State intervention – global management of resources – can prevent disaster.

Ben has still not defined money, but if we assume he is using the standard definition – a general medium of exchange – then his statement that “money divides and impoverishes people” is obviously false.  People use a general medium of exchange because they expect to benefit from it, so it helps them achieve their goals and brings them out of poverty.  Money does literally the opposite of divide people; it brings them together, enabling exchanges that could not take place directly due to the limitations of barter; it enables a greater degree of social cooperation and coordination than is possible without a general medium of exchange.

Ben’s Plan

“So what do we do?” he says.  “We need to manage our global household”.  It is not clear at this point who “we” refers to, but he later implies that he means some group of enlightened technicians need to manage the world’s resources.  It is not clear whether Ben considers himself to be among this enlightened group.  As the first Zeitgeist film shows, the global elites have been pushing this view for a long time: that the planet needs to be managed by scientific dictators running a global government.  Ben even repeats the slogan of the New World Order at 28:48: “We need to consider global solutions to global problems”.  This slogan may be familiar from global elitists like George Bush (talking about terrorism), Al Gore (talking about environmentalism) and Gordon Brown (talking about economic regulation).  It is ironic that Ben’s proposal and rhetoric resembles so closely the proposal and rhetoric of the very people that are identified as ‘the enemy’ in the final third of the first Zeitgeist movie.

Ownership

At 29:59, Ben explains that “We need to move from a general method of consumption known as ownership to one of availability provided when needed”.  Ben unfortunately does not define either consumption or ownership.  Frankly, I cannot fathom what he means by ownership being “a general method of consumption”.  What is a ‘method’ of consumption?  As we have seen, humans need to consume food, at least, and this requires food to be produced.  Ownership usually refers to an association or link between an individual or group of individuals and a particular scarce resource.  The individual, the ‘owner’, is the individual with ultimate decision-making jurisdiction over the scarce resource, the ‘property’.  Without some principles of ownership, conflicts over scarce resources are unavoidable.  I will give Ben the benefit of the doubt and assume he means not “We need to move away from ownership” but “We need to move away from X principles for determining ownership and towards Y principles for determining ownership”.  For more on this point see this post, which Ben responded to by saying “Good post.  I agree.”

Communism?

At 30:08, Ben asks rhetorically “Who here owns a shopping trolley?” and tells anyone who answers no that they are Communists!  Is Ben implying that he thinks rental agreements are somehow Communist in nature?!  He has misunderstood libertarianism if he thinks that the relationship between a renter of a shopping trolley and the lender of a shopping trolley is somehow ‘unlibertarian’.  It is a voluntary exchange, so is completely compatible with libertarianism.

He says rental agreements are “systems which have in them the seeds of a social design.”  This gives us a glimpse of the kind of world Ben is imagining: one in which all the world’s resources are owned by some enlightened central planners, who then rent out these resources to people “as they are needed”.  Society is to be “designed” by this group of social engineers.  Ben’s ideal system is literally communism, re-packaged and thinly veiled.  Centralised ownership of resources is the definition of communism, and here Ben all but says that he wants to live in a designed communist society, where everything is owned and controlled centrally and rented out “if available” “as needed”.

Road Management

Ben goes on to discuss cars and roads.  He is trying to imply that a system of car rentals similar to the current system of trolley rentals would be a superior form of social organisation.  What he seems to miss is that people are free right now to either buy or rent cars, and to either buy or rent shopping trolleys.  That most people choose to rent shopping trolleys but buy cars shows us that people prefer owning cars and renting trolleys.  Therefore if a third-party were to use violence to prevent the purchasing of cars (or prevent renting of shopping trolleys) clearly car users (trolley users) would be made worse off.  They would be prevented from making a trade they really want to make, and forced to make a trade they consider less satisfactory.

Ben criticises the management of the roads in society today, and he has good reason to do so.  Roads are currently managed by a monopoly; we can expect a free market in roads to deliver a far superior service.  State monopoly ownership of roads is the cause of the problems of road pollution, congestion and regular crashes.  A road owner operating in a free market would have the information (price signals) and incentives to find the right balance between reducing pollution, improving safety, preventing traffic jams and the price of the service.  This is the same fallacy of composition once again, where Ben assumes that the problems of road management are due to ‘the monetary system’, when they are actually a symptom of a particular type of ownership – namely monopolistic ownership of roads by State central planners.

Adoption of New Technology

Ben claims to have devised, or at least recognised, a ‘superior’ system of road management: based on rentals of cars that apparently drive themselves.  The question that Ben fails to ask is what would be the cost of implementing such a system?  If the costs exceed the benefits, then by definition it is a waste of resources (the value of the inputs exceed the value of the output).  If the benefits exceed the costs then it is good use of resources (since it would be value adding).  Why hasn’t it been done yet?  Presumably it has so far not been considered profitable for someone to do.  So either 1) its not profitable and would be a waste of resources, or 2) its not profitable but actually is a good use of resources, in which case it must be that the present system (monopolized management of roads) is distorting price signals in such a way that it prevents the scheme from being profitable.  If the latter, Ben should join the libertarian call for freeing the road management industry from the grip of State monopoly.  If the former, I hope Ben would agree that it should not be done at all (yet).

The general economic fallacy that Ben is making here is a failure to recognize the costs involved in upgrading technology.  Take a hypothetical.  Someone invents a new type of X-ray machine, which produces an image just slightly sharper than images from current X-rays (this example is inspired by the movie The Pursuit of Happiness).  This new machine costs twice as much to produce as the old X-ray machines.  You are a central planner: should you dictate the immediate replacement of the old machines by the new throughout your domain?  Is it worth it?  Think of all those old X-ray machines that will be made obsolete by the new ones – they will go to waste.  As always, the central planner is utterly clueless about whether replacing the old machines is a wise or wasteful use of resources.  He has no price signals to guide him.

On a free market, on the other hand, whether a new technology is adopted, and how quickly, is ultimately determined by the consumer, and the price signals that emerge from a system of voluntary trades.  If the consumer is willing to pay twice the price for a slightly better X-ray image, then owners of X-ray machines will upgrade them; if the consumers are not willing to pay this much, the owners of X-ray machines won’t upgrade them (yet).  This ensures that resources are neither 1) wasted through continual replacement every time there is a small upgrade, nor 2) wasted through not being replaced when valuable upgrades are available.  As always, the free market finds the optimal balance between these two considerations.  Unfortunately Ben seems to think his supposedly ‘enlightened’ opinion is more important than the opinions of individuals in society as a whole; he wants to speed up the pace of technological change and upgrade technologies to the maximum, apparently without any consideration of the costs involved. 

Automation (Again)

At 32:40, Ben says “We need to make an effort to embrace automation”.  This is an odd statement to make considering the evidence he previously prevented showing that automation is already happening very quickly, and has been happening since time immemorial.  He was worried about so-called “technological unemployment” and even spoke of a coming “singularity” concerning the pace of technological development.  Ben appears to be worried about these trends, but wants to accelerate them nonetheless, apparently.

He goes on to say that “It is socially irresponsible not to employ the best, most safe, clean and efficient forms of production.”  Unfortunately he does not define the term ‘socially irresponsible’.  If he means that it is a waste of resources to employ anything but “the best, most safe, clean and efficient forms of production,” then that is clearly false.  As explained above, it is not always the best use of resources to embrace every small technological improvement and continually upgrade machinery and methods.  It is often better for producers to stick to old machines for a while before upgrading, and then possibly upgrade later when it is most efficient overall for them to do so.

Jobs

Ben continues “The jobs aren’t coming back – stop chanting in the streets – and nor would we want them to.”  I applaud this statement for abandoning the Keynesian view presented earlier that jobs-for-jobs-sake is a good thing.  But it is still misleading.  If the current system does not change (for example, if the minimum wage is not abolished soon) then people will indeed remain unemployed and requiring handouts.  On the other hand if free markets were to emerge, then people would be able to find jobs.  Although it would be nice for everyone to be able to live without a job at all, as we have seen, we need to eat, at least, and this requires production, and production always involves some element of human labor – even if it is limited to the design, construction, maintenance or oversight of machines, as many jobs already are.

Thankfully, due to the relative freedom of the past two or three centuries (relative to what went before it), food and other basic goods are so incredibly cheap today (despite rampant State interventionism returning in the 20th century) that it is possible for most people to live a life mostly of leisure.  A lot of people spend their entire evenings and weekends at leisure: a fact which should be celebrated, after millennia of everyone have to spend all day 7-days-a-week toiling producing food.  And with increasing wealth in the future (provided freedom can emerge from the coming breakdown of the State interventionist system), we can expect men to be able to labor less and less going forward and still maintain a good standard of living.  Of course, many individuals do and probably always will choose to labor long hours, so that they can have an even higher standard of living.

The fact of scarcity – and the need to eat – dictates that everyone must spend some time producing something, either for him to consume directly, or to exchange with others for things he wants to consume.  Anyone who does not produce something of value can necessarily only survive on handouts from others, by the nature of things.  The idea that people can live entirely without laboring is utopian in that it assumes away the problem of scarcity, which is what makes conflict possible, ownership principles necessary, and the idea of “economizing” resources meaningful, in the first place.  The promise of a world without scarcity – where no one needs to work – is centuries old, having been promised by many central planners and wannabe central planners throughout the centuries.  Such a world can never be achieved, due to the scarce nature of material things.

Decision-Making

At 33:10 he moves on to ask “how do we make decisions?”  I am glad he acknowledges the importance of this question, since it is the fundamental question of political philosophy.  At one extreme “we” could have a highly centralised system of ownership, where a small group of central planners control all of the planet’s resources – known as communism or totalitarianism.  At the other extreme “we” could have a highly decentralised system of ownership, where each individual is free to make decisions about resources and the structure of ownership is determined voluntarily – known as libertarianism or voluntarism.  What does Ben favor?

“So far we seem to vote for things, and we believe that that is a decision, somehow.  This needs to change as well… We need to begin arriving at decisions, rather than making them… We vote in personalities who are not qualified for any scientific understanding of social operation.” 

As a libertarian, I won’t be defending democratic decision-making within a monopoly system, but I note that Ben assumes without argument that the people being voted in ideally ought to have a scientific understanding of social operation.  It’s unclear what he means by this.  He gives the example of Ron Paul (who is arguably is most learned man in politics in terms of the depth and breadth of understanding of philosophy, economics and history) as a man is who does not meet his requirement for scientific understanding of social operation.  Ben points out that before Paul entered politics he delivered babies as his specialization.  Ben does not name any individuals who do meet his requirements, or even specify what his requirements are.  A specialization like Ron Paul’s, plus great knowledge of philosophy, economics and history, is apparently not enough to qualify.

Is Ben looking for a superman – or group of supermen – to run the world?  An enlightened bunch who can solve not only the economic calculation problem faced by monopolies (see Mises), but also the tacit knowledge problem faced by monopolies (see Hayek)?  Ben seems to be unaware of the importance of the division of knowledge (which is just as important as the division of labor); it is impossible for any one individual or small group of individuals to know all the relevant information they need to know in order to make wise decisions about how resources are used.  This is precisely why decentralised ownership has better consequences than centralised ownership, and makes better use of resources, no matter how ‘enlightened’ or ‘scientific’ the central planners consider themselves to be.

When Ben asks how “we” make decisions in a ‘resource-based economy’, it seems as though he does not mean all of us individually.  He is referring to a subset of enlightened technicians, of which Ben himself may or may not be a part, who will make the decisions on behalf of everyone, based on 'scientific understanding'.  I invite Ben to take a step back and ask not how some undefined group (“we”) make decisions, but who ought to be making decisions about what, i.e. step back and consider what type of ownership works best, before making statements about how owners should make decisions (i.e. ‘scientifically’).

It is particularly ironic that Ben would single out Ron Paul, because he is just about the only politician who consistently tells us that he does not want to run our lives, does not know how to run our lives, and does not have the authority or moral right to run our lives, as President.  Paul actually agrees with Ben that he lacks the knowledge necessary to ‘run the economy’ and to centrally plan resource-usage.  That is his main point: no one has the necessary knowledge.  Mises and Hayek explained why this must always be the case.  As Lew Rockwell said: “I'm cheering on Ron Paul because he is exposing the nature of the whole system. He is not running for president. He is running against the presidency as it is currently understood.”

Designed Cities

At 34:45 Ben talks about new cities designed ‘scientifically’, along the lines of The Venus Project, and renewable energy.  Just like with his cars that drive themselves, Ben ignores the cost side of the equation.  He sees only the benefits from achieving the goal, not the costs involved to get there (this is the error Bastiat described in his essay What is Seen and What is Not Seen).  If it really is a good use of resources to build new cities from scratch, or produce energy from renewable sources – and it may well be – then it would be profitable to do so, so it would be done, unless such projects are prevented due to State intervention.  So once again, it is not ‘the monetary system’ that is preventing such visions being made into reality.  It is either the State, or these visions just don’t (yet) represent a good use of resources, as determined by society as a whole demonstrating their preferences through making voluntary trades.

Conclusion

Ben’s video is described as “The case against money, and the case for a resource-based economic system.”  Unfortunately, Ben does not define money, and spends most the time criticising a particular form of ‘monetary system,’ a term he also leaves undefined.  Ben criticises the current system of fiat money, fractional reserve banking and rampant State interventionism and monopolisation, and assumes that his conclusions also hold true of all other ‘monetary systems,’ even free markets, where there is no fiat money, no fractional reserve banking, no State interventionism and no State monopolisation!

Ben’s goal is to move towards a situation of increased central planning by an enlightened group of men with ‘scientific understanding of social operations’.  The goals and methods of the Zeitgeist Project are remarkably similar to the goals and methods of the global elites identified in the first Zeitgeist film: global governance of resources, scientifically managed by an ‘enlightened’ group on behalf of everyone else, with the promise of abundance for all.

To echo what Ben said at the end of his talk (40:12) about the ideas in the Zeitgeist films, I consider myself lucky to have been exposed to Austrian economic ideas and libertarian principles, and I humbly offer these ideas to Ben in the hope that he and others will explore them further – a good start would be Henry Hazlitt’s Economics in One Lesson and Murray Rothbard’s For a New Liberty.  Central planning does not and cannot work, and should be rejected and consigned once-and-for-all to the scrap heap of history.

I invite Ben to respond to my critique and hope that my comments move the great global conversation forward.

Libertarian Property Assignment Rules

This post is a continuation of my previous post The Task of Political Philosophers.

Before explaining what property assignment rules libertarianism promotes, it is first necessary to clarify some terms, including coercion and aggression.

Coercion 

Ownership makes interpersonal exchange possible. Exchange is when ownership of a scarce object is transferred from one individual to another. There are two types of exchange: voluntary and coercive. A voluntary exchange is one that both parties consent to. By consenting to the exchange, both parties demonstrate that they expect to benefit from it. Voluntary exchanges do not involve conflict; the necessary condition for conflict, a difference of ideas / interests is absent; there is a harmony of interests in all voluntary exchanges.

In a coercive exchange, one party, the coerced, does not consent. He would rather walk away from the exchange; he expects to be made worse off by it. The only reason this type of exchange takes place is because the coercer uses violence or threats of violence to make it happen. The coercer leaves the coerced without the option of walking away, but facing only the options of making the exchange that he does not consent to, or being coerced into making a still worse exchange.

Aggression 

The term aggression is sometimes defined as “an unethical use of coercion”. We could describe the task of a judge as offering an opinion about whether aggression took place, i.e. whether coercion was used unethically. We could describe the task of the political philosopher as “explaining when coercion is unethical” or “explaining what constitutes aggression”. In this case, coercion that is not aggression, i.e. ethical coercion, could be termed defense, or defensive action.

An equivalent definition of aggression would be “a violation of property boundaries”. The judge must decide if property boundaries have been violated; the political philosopher must devise a set of principles for determining property rights and therefore what constitutes a violation of property boundaries. Defensive action would then be any coercive action that was not a violation of property boundaries.

The first criterion for the libertarian, when deciding whether or not a particular use of coercion is aggression, is to ask who initiated the coercion. Libertarians have historically emphasised the primacy of the “Non-Aggression Principle” (NAP) in libertarian philosophy, which forbids any initiation of coercion.

But this criterion of initiation cannot be a defining principle of libertarianism, because any political philosophy can reasonably claim to be opposed to the initiation of coercion. For example, suppose we are stranded on a desert island and you find an apple tree and pick an apple, but then I use coercion to take it from you. Which one of us initiated the coercion here? You could reasonably say that I did, but then I could reply that actually you initiated coercion against me, on the basis that it was my apple to begin with because it was my apple tree and I did not give you consent to pick from it. My use of coercion was therefore retaliatory; I was merely defending my own property.

Libertarianism cannot be uniquely defined by referring to initiation as a standard to distinguish between aggressive and defensive coercive acts, because the concept of initiation relies on a more fundamental idea about who ought to own which objects in the first place.

Property Assignment Rules 

The real difference between libertarianism and other political philosophies, then, is not criterion of initiation, but the particular property assignment rules being used. The libertarian says that you were the rightful owner of the apple, because you picked it, and I did not. My claim in this scenario (that I originally owned the apple, despite having no objective link to the apple or the apple tree) is rejected by the libertarian in favor of your claim, which is based on an objective link: you picked it.

This is an application of the homesteading principle, which describes the principle used by libertarians to determine who ought to be the first owner of a rivalrous object. It says that the first user ought to be the first owner, that is, the individual who first established an objective and intersubjectively ascertainable link between himself and the object.

Other philosophies reject this “first user-first owner” principle. For example, according to some political philosophies, certain herbs are first owned not by the first user but by a specific group of individuals called the State. According to this philosophy, any individual found in possession of one of these herbs is guilty of aggression against the State; the State is considered the rightful owner of the herb, so is justified in using coercion against anyone they are able to catch in possession of it.

Libertarianism is the philosophy that consistently supports the homesteading principle for determining first owners of scarce objects. Ownership of objects, according to libertarianism, can only be legitimately transferred to another person through voluntary exchange, or through abandonment; and such exchanges are always legitimate.

Other philosophies consider certain voluntary exchanges to be inherently illegitimate and thus justifying coercive action in response to them. For example, according to some political philosophies, a voluntary exchange between an employee and an employer may be illegitimate, such as when the employer offers less than some “minimum wage”. Employment at less than this minimum wage is said to justify a third-party (again, the group of the individuals called the State) using coercion (fines, or prison) against the parties making the voluntary exchange, and using threats against anyone who might dare try to make a similar voluntary exchange. (This philosophical view is held despite the fact that if an individual is engaging in a voluntary exchange, it must be because he expects to benefit more by making the exchange than by not making it, so using coercion to take that option away from him will always make him worse off).

Libertarians consider each individual to be the owner of the rivalrous objects he homesteads, produces or acquires through voluntary exchanges: his body and the fruits of his labor.  No one is allowed to commit aggression to take these legitimately acquired scarce objects away from him. There are no exceptions to this rule: it applies to people of all races, religions, classes and occupations, even the group of people who call themselves the State.

Social Mobility and Inequality

I'm told that empirical data shows that social mobility has been declining, that life expectancy is inversely related to inequality, and that mental illness is more prevalent where there is higher inequality. I do not know whether these statistics are true or not.

Empirical evidence itself is of no use for understanding the effects of different norms relating to how resources are used – for that we need economics, and economics is a strictly axiomatic-deductive, i.e. non-empirical, science, as explained by Austrian economists such as Ludwig von Mises, Murray Rothbard and Hans Hoppe.

With regard to social mobility, we know from economic analysis that social mobility is maximised in a free market system, since any socialist or interventionist policies can only prevent people with less wealth from becoming someone with relatively high wealth. In a voluntary system, if a relatively poor person can successfully add value to society and satisfy the needs of his fellow man, there is nothing to stop him becoming a wealthy person.

As for inequality, it is difficult to see what the problem is. For most of human history, humans led lives that were poor, nasty, brutish and short. No one was wealthy; there was a great deal of equality. Then some individuals started breaking this situation of high equality by saving and implementing good new ideas – like creating wheelbarrows, ploughs and pots, which enabled them to produce more with less effort. Individuals with wheelbarrows were now wealthier than the “have-nots” who didn’t have them. The consistent opponent of inequality would have to denounce this improvement to the material conditions of man on account that it creates a two-class society and breaks the condition of high equality.

Yes, there is a high level of inequality in the world. The life of the poorest in Africa is not much different to the condition that once prevailed upon all humanity. But most people on Earth do not live in such conditions anymore, thanks to continued saving, and continued implementation of good new ideas: like cars, computers and iPods. It is a testament to the great strides we have made as a species that some individuals now have these “luxury” goods; production of basic necessities like food is so efficient that most people in the world - billions of us - do not need to worry about starving to death, which preoccupied almost all of the time of all humans throughout almost all of history.

Being concerned with inequality usually means being concerned about the existence of many people who unfortunately today who are poor by the standards of the average in developed societies. The implicit assumption – the critical error made by enemies of inequality – is that the only way to elevate the poorest in society to a decent standard of living is by the wealthiest in society giving up their high standard of living. This is plainly not the case, since if it were, no humans would ever have risen above the poverty our ancestors lived under.

Take the following hypothetical. We have two choices for what kind of society we want. 1) Everyone in the world has the same standard of living as the average American today. 2) Everyone in the world has at least the same standard of living as the average American today, with many people having a considerably higher standard of living than the average American today. The consistent opponent of inequality would have to prefer the first option, which is clearly barbaric in that it is supporting the lowering of the standard of living of a large number of people.

The goal of raising the standard of living of the poorest in society is a noble one. Praxeologically and empirically it can be shown that this is best achieved by free markets. If the restrictions on capital accumulation and investment in Africa were removed, productivity would increase and the poorest in society will be lifted to a higher standard of living. As a consequence of this, like all voluntary trades, the people who are already at a high standard of living benefit from an even higher standard of living. Any attempt to prevent such voluntary trade on the basis that it increases inequality harms both parties and prevents the mutual benefits of trade from being realised.