Time to abolish the State?

The last few centuries were times when men tried to place constitutional and other limits on the State, only to find that such limits, as with all other attempts, have failed. Of all the numerous forms that governments have taken over the centuries, of all the concepts and institutions that have been tried, none has succeeded in keeping the State in check. The problem of the State is evidently as far from solution as ever. Perhaps new paths of inquiry must be explored, if the successful, final solution of the State question is ever to be attained.

... says Rothbard in Anatomy of the State. And he is right. Men have tried to reign in the State with all sorts of methods, but have proven unsuccessful. Perhaps it is time to consider abolishing it altogether? Or just embrace socialism. Many seem to have taken that path.

Worst crisis ever?

The 1920s bust was actually worse than the 2000 dot-com bust. In 1920 unemployment jumped from 4 percent to nearly 12 percent and GNP declined 17 percent; however

1. there was no fiscal stimulus,
2. the budget was cut nearly in half and the national debt was cut by one-third,
3. tax rates were significantly decreased for all groups, and
4. the Federal Reserve did next to nothing.

As a consequence, by 1922 unemployment was down to just under 7 percent and declined to 2.4 percent in 1923. (#)

There you have it. How does a politician fix a crisis? Answer: Do nothing (except cut the government budget and lower taxes).

Keynesianism is fascism

Keynesianism, according to Keynes, is fascism. Says Keynes:

The theory of aggregate production that is the goal of the following book can be much more easily applied to the conditions of a totalitarian state than the theory of the production and distribution of a given output turned out under the conditions of free competition and of a considerable degree of laissez-faire.

(quoted from Hazlitt, The Failure of the “New Economics”, p. 277) (I found this quotation in Hoppe, The Economics and Ethics of Private Property, p. 167) See also: Keynesianism Loves the Total State. And why is this important to remember and consider? Because many of the neo-keynesianists call themselves free market supporters and refuse to accept the socialist-stamp. Well, maybe they should reject the Marxist-socialist stamp, because they are fascist-socialists.

Centralisation of credit in the hands of the state

Who proposed the following "method" to obtain a certain result or the objective that "we shall have an association, in which the free development of each is the condition for the free development of all":

Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.

Was it Keynes? Was it some visionary in the Middle-Ages who saw this as a method to clean up the "chaos" of free money and provide "price stability" where none was before? No. It was Karl Marx in his 1848 Communist Manifesto (chapter 2). And rightly so, since government monopoly on money issue is probably the most effective method for State control of everything else.

Human rights ARE property rights

For not only are property rights also human rights, but in the most profound sense there are no rights but property rights. The only human rights, in short, are property rights.

...says Rothbard in Power and Market (chapter 6). I urge everyone to read the full context of this citation. It is enlightening.

If we consider the problem in terms of property rights instead of the vague and woolly human right of free speech, we see that there is no conflict and no neces­sity of limiting or abridging rights in any way. The rights of the individual are still eternal and absolute; but they are property rights.

...says Rothbard on the same issue in another essay. And I say: How true!

Size of firm

For every capital good, there must be a definite market in which firms buy and sell that good. It is obvious that this economic law sets a definite maximum to the relative size of any particular firm on the free market. Because of this law, firms cannot merge or cartelize for complete vertical integra­tion of stages or products. Because of this law, there can never be One Big Cartel over the whole economy or mergers until One Big Firm owns all the productive assets in the economy.

... says Rothbard in Man, Economy and State (chapter 9).

Many people wonder how "small" companies can compete in price/quality with the big ones. Do the big ones not have a much larger turn-around, which enables them to buy in bulk and save on prices? Do they not have specialized purchasing departments that can optimize stock and bring down prizes?

Sure they do, but this does simply not tell the whole story. Large companies are often integrated units which "buy and sell" to "themselves". This injects calculation chaos into their structure. Badly managed departments are subsidized by the good ones, but no-one pays attention to this. They "sell" or "buy" from themselves on prices that do not reflect customer preferences. Their "internal market" can be coupled away from the final consumer price.

Small companies, with a focused area of operation, can in many cases out-compete in price and quality.

The free market vs. politics

The free market always maximizes ex ante social utility as well. In political action, on the contrary, there is no such mechanism; indeed, the political process inherently tends to delay and thwart the realization of any expected gains.

... says Rothbard in Power and Market (chapter 2). This is why the libertarian is more interested in advocating the free market, than he is in advocating any particular political system (such as democracy). It is through increased economic freedom that people become better off, not through any one type of political system or another.

Gold standard come-back?

The way to prevent a de­pression, then, is simple: avoid starting a boom. And to avoid starting a boom all that is necessary is to pursue a truly free-mar­ket policy in money, i.e., a policy of 100-percent specie reserves for banks and governments.

... says Rothbard in Man, Economy and State (chapter 12). And is time ripe for a gold standard resurrection? Many believe so, including Steve Forbes (of Forbes magazine), but not because of a political census suddenly appearing for the gold standard, but because of an economic crises and hyperinflation. Peter Schiff - the man who predicted the bust of 2008 for the right reasons, has also pointed to signs of at least a mini-gold standard appearing here and there (calling it "the institutional gold rush"). Peter Schiff says:

We may be on the cusp of a smart-money gold rush. If so, it could drive gold to a record in real terms, even before retail investors join in.

Now you know.

The boom and the bust

[T]he boom begins to peter out from an injection of credit expansion, the banks inject a further dose. In short, the only way to avert the onset of the depression-adjustment process is to continue inflating money and credit. For only continual doses of new money on the credit market will keep the boom going and the new stages profit­able. Furthermore, only ever increasing doses can step up the boom, can lower interest rates further, and expand the produc­tion structure, for as the prices rise, more and more money will be needed to perform the same amount of work. Once the credit expansion stops, the market ratios are re-established, and the seem­ingly glorious new investments turn out to be malinvestments, built on a foundation of sand.

... says Rothbard in Man, Economy and State (chapter 12). Here, the key phrase is "ever increasing" doses of credit expansion. We see this in the USA today, with two doses of the so-called "quantitative easing" already out there, with perhaps the third on the way.

Bank credit expansion and capital investment

Clearly, bank credit expansion cannot increase capital investment by one iota. Investment can still come only from savings.

... says Rothbard in Man, Economy and State (chapter 12). Also, and furthermore,

The dis­tortion caused by credit expansion deceives businessmen into be­lieving that more savings are available and causes them to malinvest—to invest in projects that will turn out to be unprofitable when consumers have a chance to reassert their true preferences. This reassertion takes place fairly quickly—as soon as owners of factors receive their increased incomes and spend them.

This important truth is deliberately ignored by today's "mainstream" economists, who wish to maintain their great influence in the political sphere. But I hope time is now ripe for a new way of thinking. The endless manipulation of politicians and central bankers with our medium of exchange, money, must end. Keynes, Krugman and other preachers of modern economic "science" must be thrown into the dustbin of economic history.

Interference leads to decreased utility

In sum, the free market always benefits every participant, and it maximizes social utility ex ante; it also tends to do so ex post, for it contains an efficient mechanism for speedily converting anticipations into realizations. With intervention, one group gains directly at the expense of another, and therefore social utility is not maximized or even increased; there is no mechanism for speedy translation of anticipation into fruition, but indeed the opposite[.]

... says Rothbard in Man, Economy and State (chapter 12). This is a very important thing to understand. Interference with the free market can only decrease utility, both expected utility of actions, and realized utility.

Welfare economics

Since all State actions rest on the fundamental binary intervention of taxation, it follows that no State action can increase social utility, i.e., can increase the utility of all affected individuals.

... says Rothbard in Man, Economy and State (chapter 12), defining "binary intervention" as an intervention where

the intervener may compel an exchange between the individual subject and himself or coerce a “gift” from the subject

and which is

exempli­fied in taxation, conscription, and compulsory jury service. Slavery is another example of binary, coerced exchange between master and slave.

For a more detailed analysis, Rothbard refers to his own Toward a Reconstruction of Utility and Welfare Economics, which I call a must-read for all those interested in the philosophy of State coercion. It ends with the following lines:

Economics by itself and standing alone cannot establish an ethical system, and we must grant this regardless of what philosophy of ethics we hold. The fact that the free market maximizes social utility, or that State action cannot be considered voluntary, or that the laissez-faire economists were better welfare analysts than they are given credit for, in itself implies no plea for laissez-faire or for any other social system. What welfare economics does is to present these conclusions to the framer of ethical judgments as part of the data for his ethical system. To the person who scorns social utility or admires coercion, our analysis might furnish powerful arguments for a policy of thoroughgoing Statism.

Indeed!

The visible hand

The fact that each man, in pursuing his own self-interest, fur­thers the interest of everyone else, is a conclusion of economic analysis, not an assumption on which the analysis is grounded.

... says Rothbard in Man, Economy and State (chapter 12). Many people think that the reverse is true, that economics assume that the interest of "everyone else" should be furthered by allowing economic freedom. It is the other way around. We should allow economic freedom on its own merits - a study of economics shows that this will also lead to the greatest possible prosperity for everyone. Adam Smith's "invisible hand" is not a prerequisite for a free market, but created by it. This is worth remembering.

Two libertarian camps, why?

Rothbard is on fire in his article, Do You Hate the State?, where is urges libertarians to join forces in their fight against the State:

Many people have wondered: Why should there be any important political disputes between anarcho-capitalists and minarchists now? In this world of statism, where there is so much common ground, why can’t the two groups work in complete harmony until we shall have reached a Cobdenite world, after which we can air our disagreements? Why quarrel over courts, etc. now? The answer to this excellent question is that we could and would march hand-in-hand in this way if the minarchists were radicals, as they were from the birth of classical liberalism down to the 1940s. Give us back the antistatist radicals, and harmony would indeed reign triumphant within the movement.

By "radical", Rothbard means the following:

To the radical libertarian, we must take any and every opportunity to chop away at the State, whether it’s to reduce or abolish a tax, a budget appropriation, or a regulatory power. And the radical libertarian is insatiable in this appetite until the State has been abolished, or – for minarchists – dwindled down to a tiny, laissez-faire role.

I urge all libertarians to think about this. We have a lot of common ground, whether we are anarchists or minarchists. Let us join forces. A final remark: "If libertarians refuse to hold aloft the banner of the pure principle, of the ultimate goal, who will? The answer is no one, hence another major source of defection from the ranks in recent years has been the erroneous path of opportunism." (Rothbard, The Case for Radical Idealism)

Central bank fallacy

At the heart of the stabilizationist ideal is a misunderstanding of the nature of money. Money is considered either a mere numeraire or a grandiose measure of values. Forgotten is the truth that money is desired and demanded as a useful commodity, even when this use is only as a medium of exchange. When a man holds money in his cash balance, he is deriving utility from it. Those who neglect this fact scoff at the gold standard as a primi­tive anachronism and fail to realize that “hoarding” performs a useful social function.

... says Rothbard in Man, Economy and State (chapter 11). Now you know.

Unions: An economic evil

Consequently, at best, a union can achieve a higher, restric­tionist wage rate for its members only at the expense of lower­ing the wage rates of all other workers in the economy. Produc­tion efforts in the economy are also distorted. But, in addition, the wider the scope of union activity and restrictionism in the economy, the more difficult it will be for workers to shift their locations and occupations to find nonunionized havens in which to work. And more and more the tendency will be for the dis­placed workers to remain permanently or quasi-permanently un­employed, eager to work but unable to find nonrestricted op­portunities for employment. The greater the scope of unionism, the more a permanent mass of unemployment will tend to develop.

... says Rothbard in Man, Economy and State (chapter 10). Now you know.

Socialism social-democratic style

[C]ontrary to the impression which socialism social-democratic style is intended to generate among the public, the difference between [socialism social-democratic style and traditional Marxist-style socialism] is not of a categorical nature. Rather, it is only a matter of degree.

... says Hans-Hermann Hoppe in Theory of Socialism and Capitalism (page 62). Remember this, next time you argue with a "social-democrat" about the difference between the "welfare state" and the Soviet Union. The two are of the same category, differing only in a matter of degree of socialism.

Money, what is it good for?

An increase in the supply of a producers’ good increases, ceteris paribus, the supply of a consumers’ good. An increase in the supply of a consumers’ good (when there has been no decrease in the supply of another good) is demonstrably a clear social benefit; for someone’s “real income” has increased and no one’s has decreased.

Money, on the contrary, is solely useful for exchange purposes. Money, per se, cannot be consumed and cannot be used directly as a producers’ good in the productive process. Money per se is therefore unproductive; it is dead stock and produces nothing. Land or capital is always in the form of some specific good, some specific productive instrument. Money always remains in some­one’s cash balance.

... says Rothbard in Man, Economy and State (chapter 11). Also, earlier in the same chapter:

At any one time there is a given total stock of the money com­modity. This stock will, at any time, be owned by someone. It is therefore dangerously misleading to adopt the custom of Amer­ican economists since Irving Fisher’s day of treating money as somehow “circulating,” or worse still, as divided into “circulat­ing money” and “idle money.” This concept conjures up the image of the former as moving somewhere at all times, while the latter sits idly in “hoards.” This is a grave error. There is, actually, no such thing as “circulation,” and there is no mysterious arena where money “moves.” At any one time all the money is owned by someone, i.e., rests in someone’s cash balance. Whatever the stock of money, therefore, people’s actions must bring it into accord with the total demand for money to hold, i.e., the total demand for money that we have just discussed. For even pre­-income money acquired in exchange must be held at least momentarily in one’s cash balance before being transferred to some­one else’s balance.

There are many things in "modern" economics which are basically wrong or false or misleading. Rothbard cuts through the fat and brings us the meat.

Patents: An unwanted State coercion

The most popular argument for patents among economists is the utilitarian one that a patent for a certain number of years is necessary to encourage a sufficient amount of research expen­diture for inventions and innovations in processes and products. This is a curious argument, because the question immediately arises: By what standard do you judge that research expenditures are “too much,” “too little,” or just about enough? This is a problem faced by every governmental intervention in the mar­ket’s production. Resources—the better lands, laborers, capital goods, time—in society are limited, and they may be used for countless alternative ends. By what standard does someone assert that certain uses are “excessive,” that certain uses are “insuffi­cient,” etc.?

Also:

Many advocates of patents believe that the ordinary competi­tive conditions of the market do not sufficiently encourage the adoption of new processes and that therefore innovations must be coercively promoted by the government. But the market de­cides on the rate of introduction of new processes just as it decides on the rate of industrialization of a new geographic area. In fact, this argument for patents is very similar to the infant-industry argument for tariffs—that market processes are not suf­ficient to permit the introduction of worthwhile new processes. And the answer to both these arguments is the same: that peo­ple must balance the superior productivity of the new processes against the cost of installing them, i.e., against the advantage pos­sessed by the old process in being already built and in existence. Coercively privileging innovation would needlessly scrap valuable plants already in existence and impose an excessive burden upon consumers. For consumers’ desires would not be satisfied in the most economic manner.

Both quotes from Rothbard in Man, Economy and State (chapter 10: Monopoly and Competition). The entire chapter is very interesting, especially for those of us who are raised up to believe such ideas that the State can "prevent monopolies" and "protect consumers" from "cartels" and other such monsters. "Anti-trust" laws are anti-market laws. That about sums it up.

Libertarianism and economics - a relation?

Many from the Left think that libertarians are "obsessed with money" and think only of "material values" and leave out the "human values". The Left is fascinated with spending (other peoples) money, and Leftists don't really care where the money comes from. For them, State spending on whatever is simply less spending for the "rich" on some "selfish" consumption. But libertarians are not "obsessed with money". However, they understand that freedom and economic prosperity are linked. Says Rothbard (in Man, Economy and State, chapter 12):

Di­rectly, voluntary action—free exchange—leads to the mutual ben­efit of both parties to the exchange. Indirectly, as our investiga­tions have shown, the network of these free exchanges in so­ciety—known as the “free market”—creates a delicate and even awe-inspiring mechanism of harmony, adjustment, and precision in allocating productive resources, deciding upon prices, and gently but swiftly guiding the economic system toward the great­est possible satisfaction of the desires of all the consumers. In short, not only does the free market directly benefit all parties and leave them free and uncoerced; it also creates a mighty and efficient instrument of social order. Proudhon, indeed, wrote bet­ter than he knew when he called “Liberty, the Mother, not the Daughter, of Order.”

Ludwig von Mises was also on point when he said:

Economic knowledge necessarily leads to liberalism.

Also, the following can be said:

Since liberalism is based on the recognition of the self-regulating capacity of civil society (i.e., the social order minus the state), any social theory that centers on that capacity furnishes powerful support to the liberal position.

Libertarians are "obsessed" with freedom from coercion. By understanding economics, this "obsession" is strengthened (since freedom and economic prosperity are strongly linked). And that is why many libertarians are also very interested in economic policy, protest taxation, defend property rights, advocate freedom of choice, etc.