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.