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.

Socialism, efficiency and the One Big Cartel

In the production sphere, socialism is equivalent to One Big Cartel, compulsorily organized and controlled by the State. Those who advocate socialist “central planning” as the more ef­ficient method of production for consumer wants must answer the question: If this central planning is really more efficient, why has it not been established by profit-seeking individuals on the free market? The fact that One Big Cartel has never been formed voluntarily and that it needs the coercive might of the State to be formed demonstrates that it could not possibly be the most efficient method of satisfying consumer desires.

...says Rothbard in Man, Economy and State (chapter 10). The socialist will never attempt to answer the question raised by Rothbard, because he can't. Actually, socialists don't highlight their "efficiency" argument so much anymore. Now they say: "Well, socialism isn't really that efficient, but we will impose it anyway in the name of "justice", so that everyone can suffer equally under the inefficiency of socialism."

Weakness and strength of the State

The weakness of the State lies in the fact that it is but an aggregate of humans; its strength derives from the general ignorance of this truism.

... says here. This is something I should keep in mind more often. Sometimes I feel that it is a hopeless cause to fight the State. However, when I simply keep in mind that the State is just an aggregate of humans, and that the strength of the state lies in the the ignorance and submission of the general public, I regain my confidence and will to fight. The mission is clear: Educate the public. The goal: Free society.

Socialism, private cartels and economic calculation

The reason for the impossibility of calculation under socialism is that one agent owns or directs the use of all the resources in the economy. It should be clear that it does not make any difference whether that one agent is the State or one private individual or private cartel. Whichever oc­curs, there is no possibility of calculation anywhere in the pro­duction structure, since production processes would be only internal and without markets. There could be no calculation, and therefore complete economic irrationality and chaos would pre­vail, whether the single owner is the State or private persons.

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

The difference between the State and the private case is that our economic law debars people from ever establishing such a system in a free-market society. Far lesser evils prevent entrepre­neurs from establishing even islands of incalculability, let alone infinitely compounding such errors by eliminating calculability altogether. But the State does not and cannot follow such guides of profit and loss; its officials are not held back by fear of losses from setting up all-embracing cartels for one or more vertically integrated products. The State is free to embark upon socialism without considering such matters. While there is therefore no possibility of a one-firm economy or even a one-firm vertically integrated product, there is much danger in an attempt at so­cialism by the State.

So what does this mean? It means that a private "monopoly" is unlikely to ever come into existence (without aid from the State), and even thought it would, it would quickly run into economic chaos because it does not have a market to make reference to when calculating the cost of its operation. However, a State "monopoly" can simply drain the economy for blood until it has to default on its debt and obligations - a process that could take decades and will kill all life in its reach in the process.

Full employment on the free market

The “full employment” provided by the free market is em­ployment to the extent that workers wish to be employed. If they refuse to be employed except at places, in occupations, or at wage rates they would like to receive, then they are likely to be choos­ing unemployment for substantial periods.

... says Rothbard in Man, Economy and State (chapter 9). This is often forgotten. People talk about "unemployment" of men who want to work but simply cannot find any work! Rothbard explains why these men are out of work. Either they demand too much pay, or the government has made it too expensive for anyone to hire them (e.g. because of extensive benefits and taxes that follow each employee).

Productivity of labor

That each man receives his marginal value product means that each man is paid what he is worth in producing for con­sumers. But this does not mean that increases in his worth over the years are necessarily caused by his own improvement. On the contrary, as we have seen, the rise is primarily due to the increas­ing abundance of capital goods provided by the capitalists.

...says Rothbard in Man, Economy and State (chapter 9). This is often forgotten. Why does a man, with no education and only minimal training, in general, earn a lot more in Europe than in Africa? Because in Europe, this man is given access to tools and equipment which the capitalist bought in order to improve the worth and value creation of his employee. Unions would do well to remember this. They tend to focus their efforts on consumption of existing capital, but forget that it is mainly increase in capital that really gives rise to an increase on the pay-check of the worker.

Technology or capital?

It is logically obvious that while cap­ital cannot engage in production beyond the limits of existing available knowledge, knowledge can and does exist without the capital necessary to put it to use. Technology and its improve­ment, therefore, play no direct role in the investment and pro­duction process; technology, while important, must always work through an investment of capital. As was stated above, even the most dramatic capital-saving invention, such as oil-drilling, can be put to use only by saving and investing capital.

...says Rothbard in Man, Economy and State (chapter 8). And what does this mean? It means that in order to take advantage of new or improved technology, you need capital. Therefore, it is not possible to say that someone became rich because he has the latest and greatest technology. The latest and greatest technology could not have been obtained (purchased or developed) without capital.

Too little consumer spending?

A common fallacy, fostered directly by the net-income ap­proach, holds that the important category of expenditures in the production system is consumers’ spending. Many writers have gone so far as to relate business prosperity directly to consumers’ spending, and depressions of business to declines in consumers’ spending. “Business cycle” considerations will be deferred to later chapters, but it is clear that there is little or no relationship between prosperity and consumers’ spending; indeed almost the reverse is true. For business prosperity, the important considera­tion is the price spreads between the various stages—i.e., the rate of interest return earned. It is this rate of interest that induces capitalists to save and invest present goods in productive factors. The rate of interest, as we have been demonstrating, is set by the configurations of the time preferences of individuals in the society. It is not the total quantity of money spent on consump­tion that is relevant to capitalists’ returns, but the margins, the spreads, between the product prices and the sum of factor prices at the various stages—spreads which tend to be proportionately equal throughout the economy.

...says Rothbard in Man, Economy and State (chapter 6). Those (economists) who focus on "consumer spending" (or spending in general) as an indication of the health of the economy are missing the point.

Function and income of the capitalist

Thus, capitalists advance present goods to owners of factors in return for future goods; then, later, they sell the goods which have matured to become present or less distantly future goods in ex­change for present goods (money). They have advanced present goods to owners of factors and, in return, wait while these factors, which are future goods, are transformed into goods that are more nearly present than before. The capitalists’ function is thus a time function, and their income is precisely an income represent­ing the agio of present as compared to future goods. This interest income, then, is not derived from the concrete, heterogeneous capital goods, but from the generalized investment of time. It comes from a willingness to sacrifice present goods for the pur­chase of future goods (the factor services). As a result of the pur­chases, the owners of factors obtain their money in the present for a product that matures only in the future.

... says Rothbard in Man, Economy and State (chapter 6). This truth has been bent and manipulated by many. The socialist propaganda says that the capitalist is exploiting the worker, because the capitalist "only" pays his workers e.g. 95% of the sales revenue and pockets 5% himself. The fact, however, is that the capitalist is paying the worker from his own savings, so that the worker can carry out consumption immediately after work, while the capitalist has to wait until the product is sold at a later time. The "fee" for this waiting is the income of the capitalist.

Price determines costs

Factor payments are the result of sales to consumers and do not determine the latter in advance. Costs of production, then, are at the mercy of final price, and not the other way around.

... says Rothbard in Man, Economy and State (chapter 5). This important economic fact is mostly misunderstood by economists and the public in general. Most people think that prices are determined by costs of production (and I do admit, that this sounds logical). This is not true. Rothbard explains that in detail. So be aware!

Capitalists and income

If the owners of land and labor factors receive all the income (e.g., 100 ounces) when they own the product jointly, why do their owners consent to sell their services for a total of five ounces less than their “full worth”? Is this not some form of “exploitation” by the capitalists? The answer again is that the capitalists do not earn income from their possession of capital goods or because capital goods generate any sort of monetary income. The capi­talists earn income in their capacity as purchasers of future goods in exchange for supplying present goods to owners of factors. It is this time element, the result of the various individuals’ time preferences, and not the alleged independent productivity of capital goods, from which the interest rate and interest income arise.

...says Rothbard, in Man, Economy and State (chapter 5). This is a very useful quote since it addresses the whole socialist-agenda of "capitalist exploitation" of workers. Are workers getting less than they deserve if they, combined, earn less than the price paid for the products they worked on and made? No. Why not? See above quotation.

That which is not 'for sale'

There are many possible examples of grading exchangeable and nonexchangeable goods on one’s value scale. Suppose that a man owns a piece of land containing an historic monument, which he prizes on aesthetic grounds. Suppose also that he has an offer for sale of the property for a certain sum of money, knowing that the purchaser intends to destroy the monument and use it for other purposes. To decide whether or not to sell the property, he must weigh the value to him of keeping the monument in­tact as against the value to him of the consumers’ goods that he could eventually buy with the money. Which will take precedence depends on the constitution of the individual’s value scale at that particular time. But it is evident that a greater abundance of consumers’ goods already at his disposal will tend to raise the value of the (unexchangeable) aesthetic good to him as compared with the given sum of money. Contrary, therefore, to the com­mon accusation that the establishment of a money economy tends to lead men to slight the importance of nonexchangeable goods, the effect is precisely the reverse. A destitute person is far less likely to prefer the nonexchangeable to the exchangeable than one whose “standard of living” in terms of the latter is high.

..says Rothbard in Man, Economy and State (chapter 3). And how true! Who cared about things of beauty or historical significance when everyone was poor? It is only when the people become rich that they can afford to preserve, protect and preserve things of beauty and historical significance (as judged by someone). So do you want preserve the wildlife in Africa or the Buddha-statues in the Middle-East? Then preach capitalism for those regions!

Market failure or lack of understanding?

Once one chases down the rabbit trails of "utility maximization" and the esoteric notions of "market failure," it is doubtful that one is going to understand simple opportunity cost.

Exactly! More on this here: Krugman's Straw-Man Market System. Do you want to learn about economics? Then don't study economics in school.

Environmental scare tactics

It is important to recognize the behavioral pattern of governments, NGOs, and scientists by looking at similar scares, such as acid rain, Y2K, mad-cow disease, H1N1, and now climate change and terrorism. Fear and guilt are the usual tools used to rob citizens of their liberty and money. These scares foster the centralized masterminding of our choices and allow ever-greater transfers of power and wealth toward the government.

The Ozone Scare: A Retrospective - a valuable reminder of the tactics of the environmental movement (not to be confused with people actually concerned about the environment, without a socialist agenda).

The 'inevitability' of planning

The movement for planning owes its present strength largely to the fact that, while planning is in the main still an ambition, it unites almost all the single-minded idealists, all the men and women who have devoted their lives to a single task. The hopes they place in planning, however, are not the result of a comprehensive view of society, but rather of a very limited view, and often the result of a great exaggeration of the importance of the ends they place foremost.

..says Hayek, in Chapter 4 in his great classic, The Road to Serfdom. And how true!

Health experts want the State to "plan" cigarettes out of society of law-abiding citizens. Architects want cities demolished and rebuilt after their drawings (Icelandic example). Farmers demand State protection and subsidies to protect their current way of life and keep harsh competition away. Economists preach the need for powerful State central banks and data gathering institutions so they can play with interest rates (the price of money) and see how the real life reacts compared to sophisticated computer models.

The list is endless. Everywhere, "experts" and "specialists" in various studies talk about the need for some great State plan on their favorite subject, with themselves in control (of course). The inevitable result: A central command economy of some sort. Is that what we want?

Market Prices Versus “Make It So”

The free market is not an ideology or a creed or something we’re supposed to take on faith, it’s a measurement. It’s a bathroom scale. I may hate what I see when I step on the bathroom scale, but I can’t pass a law saying I weigh 160 pounds. Authoritarian governments think they can pass that law—a law to change the measurement of things.

Quote taken from here (which took it from here). And how true it is!

Liberty, Freedom or just plain Tolerance?

Says Hayek in Road to Serfdom (page 14):

"Freedom" and "liberty" are now words so worn with use and abuse that one must hesitate to employ them to express the ideals for which they stood during that period [the Renaissance]. Tolerance is, perhaps, the only word which still preserves the full meaning of the principle which during the whole of this period was in the ascendant and which only in recent times has again been in decline, to disapper completely with the rise of the totalitarian state.

Perhaps something to keep in mind in todays political climate where "freedom" has begun to mean "slavery" and vice versa? Tolerance for the free activities of men is on huge decline. Everywhere, some planner has an idea on how to "revise" the free actions of humans, to obtain some socialist ends (e.g. equal distribution of wealth or equal access of all to the property of few).

Why both fascism and socialism lead to tyranny

Many socialists consider their ideals to be somewhat "just" or "fair", and that they have nothing in common with the terrors of Nazism of Fascism. But there is a strong resemblance. Hayek explains:

"Planning", therefore, is wanted by all those who demand that "production for use" be subsituted for production for profit. But such planning is no less indispensable if the distribution of incomes is to be regulated in a way which to us appears to be the opposite of just. Whether we should wish that more of the good things of this world should go to some racial élite, the Nordic men, or the members of a party or an aristocracy, the methods which we shall have to employ are the same as those which could ensure an equalitarian distribution.

...says Hayek in his Road to Serfdom (pages 34-35 in this edition).

Stimulators vs. Austerians

In a commentary about a month ago, I described how the economic world seemed to be drifting into two opposing camps: the Washington-based "Stimulators," who insist that more government debt is the best means to end the financial crisis, and the Berlin- and London-based "Austerians," who argue that debt is the crisis itself. If recent economic data and currency movements can be considered votes of confidence, then the Stimulators should be sweating. Moreover, these recent signals should provide economic analysts and investors with a road map for the future.

...says Peter Schiff. Something to remember when one "camp" spirals down to an inflationary depression, and the other one maintains and perhaps a little more.

Libertarian suckers?

Says Rothbard in A Stragedy for the Right:

The left-liberal vision, then, of good conservatives is as follows: first, left-liberals, in power, make a Great Leap Forward toward collectivism; then, when, in the course of the political cycle, four or eight years later, conservatives come to power, they of course are horrified at the very idea of repealing anything; they simply slow down the rate of growth of statism, consolidating the previous gains of the Left, and providing a bit of R&R for the next liberal Great Leap Forward. And if you think about it, you will see that this is precisely what every Republican administration has done since the New Deal. Conservatives have readily played the desired Santa Claus role in the liberal vision of history.

I would like to ask: How long are we going to keep being suckers? How long will we keep playing our appointed roles in the scenario of the Left? When are we going to stop playing their game, and start throwing over the table?

Good question! Are libertarians just suckers when it comes to stragedy?

A favorite Rothbard-quote of mine:

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.

More inspiration in The Case for Radical Idealism - an article I strongly recommend for the libertarian who wonders why he isn't being heard.