The Most Important Market Failure

There is only one, but crucial market failure whose existence I acknowledge. The market system has manifestly failed to save the consuming public, their liberty and property from the ubiquitous incursions of the state. In other words, it has failed to deliver an efficient allocation of goods and services by failing to defend the smooth functioning of its allocative procedures against the distortionary infuences of the institutional apparatuses of aggression and coercion. This is not said in jest. This is serious. The question of how to rectify this state of affairs is perhaps the only worthwhile question in market failure theory. More than that, it is perhaps one of the few really worthwhile questions in the social sciences in general. And I am far from sure whether economics is necessarily the main discipline one should look up to for solutions in this context.

Do Moral Dilemmas Tell against the Consistency of a Given Moral System?

In this article I shall look at the issue of moral dilemmas and attempt to analyze its implications for the structure of normative moral systems. My contention is that the phenomenon of moral dilemmas, though real and capable of placing us under two or more jointly unsatisfiable obligations (or duties, moral requirements, etc.), should not be considered a defect of rationality that requires eradication, but, on the contrary, can and should be accepted as an integral part of the application of moral systems, a part oftentimes capable of playing an important corrective role.

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Universal Altruism Equals Universal Egoism

I am no big fan of Ayn Rand - in particular, I believe that her ambiguous analysis of the concept of altruism generated more heat than light - but I appreciate her forceful underscoring of the fact that every voluntary interpersonal interaction is in a fundamental sense a market transaction, although - and this is the important point here - such transactions utilize very different kinds of currency under different circumstances. However, from this it follows that insofar as the supposed "altruist" embraces joyless, painful self-abnegation in exchange for a specific kind of psychological satisfaction, and insofar as altruism is supposed to stand for "not expecting anything in return", genuinely altruistic behaviour appears logically impossible.

But if we conceive altruism to be precisely this - the embrace of joyless, painful self-abnegation, the recognition in the life and individuality of others the kind of moral worth that one denies to one's own life and individuality - and if we combine this with the Kantian injunction that one should act "only according to that maxim whereby one can, at the same time, will that it should become a universal law", then one can only wonder how the resulting mindset of universal self-denial can avoid starting to look like the very epitome of universal egoism - the mindset of nobody having any justifiable reason to do anything for another's sake. And to those who would say that the resulting universal passivity would be neither egoistic nor altruistic - is it not under such circumstances in one's self-interest to recognize the moral worthlessness of any action one might undertake vis-a-vis others and hence spare oneself futile efforts and exertions?

Thus holier-than-thou goody-goodies unwittingly grow horns and hooves (and no, altruism is not Christian charity).

The Great Fiction of Fiat Money Cornucopia

In this day and age of easy and equal access to a practically infinite supply of independent information, a serious economic crisis can potentially have intellectually beneficial consequences. It can make people start questioning the "mainstream consensus" on, say, the nature of central banks, ex nihilio credit expansions and fiat money systems. In the best-case scenario, it can lead to the cleansing of a backlog of logically incoherent technocratic experiments with the economy and their replacement with well-tried, commonsensical principles of the monetary free market (notice that this last term is by no means a tautology).

However, what should make one at best cautiously optimistic about the prospects of the above scenario taking place is the fact - most forcefully and succinctly described by Bastiat - that statism of every kind draws its strength from clientelizing its victims, which always assumes the form of pitting them and their claims against one another. Union leaders, government bond holders, welfare recipients and politically connected bank oligarchs abhor the vision of sovereign debt defaults, so they can be relied on with regard to supporting debt monetization schemes and the resultant unprecedentedly vast inflationary redistribution of fiat monies' purchasing power. Rather than endorsing the commonsensical solution mentioned earlier, which would involve short-term pain for themselves and long-term gain for everyone (except the technocratic coercion wielders), they prefer short-term gain for themselves and long-term pain for everyone. What will be the ultimate nature of this pain - a relatively quick hyperinflationary meltdown or decades of protraced recession interspersed with regularly occurring partial debt defaults of public and private institutions - remains to be seen.

Some say the former would be more desirable insofar as it would vastly speed up the intellectual turnaround necessary to counter the root causes of the current economic woes - i.e., the acceptance of the logically incoherent, inherently unsustainable system of monetary socialism. But then again, did, say, the Germans really learn their Weimar lesson? After all, we should know all too well what the only really infinite thing in this world is.

In any case, Bastiat's most famous assertion needs to be expanded: it is not only the state in general, but fiat money in particular that is "the great fiction through which everybody endeavors to live at the expense of everybody else". Fiction in the most literal and insidious way imaginable.

Our Modern Barbarism and Its Preconceptions

As long as there exists a widespread presumption of honesty and goodwill on the part of politicians, bureaucrats and the military - i.e., non-productive, monopolistic wielders of coercion - and a widespread presumption of deceit and inconsiderate selfishness on the part of businessmen and entrepreneurs - i.e., non-coercive producers and suppliers of all the goods humankind needs for its survival and development - it cannot be said that we, as a species, have successfully shed our primeval heritage of tribal barbarism. For the time being, the widespread belief that it is the duty of those belonging to the former category to control those belonging to the latter by means of coercive violence and threats thereof is a sobering testimony to the amount of distance that we still need to traverse to get beyond the savage stage.

Quotes on Statist Hypocrisy and Doublethink

How is it possible to sanction, under the law of equal liberty, the confiscation of a man's earnings to pay for protection which he has not sought and does not desire? And, if this is an outrage, what name shall we give to such confiscation when the victim is given, instead of bread, a stone, instead of protection, oppression? To force a man to pay for the violation of his own liberty is indeed an addition of insult to injury.
- Benjamin Tucker, "Address to Unitarian Ministers"

A man who would consider himself a bandit if, pistol in hand, he prevented me from carrying out a transaction that was in conformity with my interests has no scruples in working and voting for a law that replaces his private force with the public force and subjects me, at my own expense, to the same unjust restrictions.
- Frederic Bastiat, "Economic Harmonies"

When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.
- Frederic Bastiat, "Economic Sophisms"

They'll all be roving the land looking for chances to make the rich poor, to remedy the irremediable, to succor the unsuccorable, to unscramble the unscrambleable, to dephlogisticate the undephlogisticable. They will all be curing warts by saying words over them, and paying off the national debt with money that no one will have to earn. (...) The winner will be whoever promises the most with the least probability of delivering anything.
- H. L. Mencken, "A Mencken Chrestomathy"

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.
- H. L. Mencken, "In Defense of Women"

The highwayman takes solely upon himself the responsibility, danger, and crime of his own act. He does not pretend that he has any rightful claim to your money, or that he intends to use it for your own benefit. (...) He has not acquired impudence enough to profess to be merely a "protector," and that he takes men's money against their will, merely to enable him to "protect" those infatuated travellers, who feel perfectly able to protect themselves, or do not appreciate his peculiar system of protection. (...) Furthermore, having taken your money, (...) he does not persist in following you on the road, against your will; assuming to be your rightful "sovereign," on account of the "protection" he affords you. He does not keep "protecting" you, by commanding you to bow down and serve him; by requiring you to do this, and forbidding you to do that; by robbing you of more money as often as he finds it for his interest or pleasure to do so; and by branding you as a rebel, a traitor, and an enemy to your country, and shooting you down without mercy, if you dispute his authority, or resist his demands. (...) In short, he does not, in addition to robbing you, attempt to make you either his dupe or his slave.
- Lysander Spooner, "No Treason: The Constitution of No Authority"

If "we are the government," then anything a government does to an individual is not only just and untyrannical but also "voluntary" on the part of the individual concerned. If the government has incurred a huge public debt which must be paid by taxing one group for the benefit of another, this reality of burden is obscured by saying that "we owe it to ourselves"; if the government conscripts a man, or throws him into jail for dissident opinion, then he is "doing it to himself" and, therefore, nothing untoward has occurred. Under this reasoning, any Jews murdered by the Nazi government were not murdered; instead, they must have "committed suicide," since they were the government (which was democratically chosen), and, therefore, anything the government did to them was voluntary on their part.
- Murray Rothbard, "Anatomy of the State"

In brief, the [statist] ideologists must explain that, while theft by one or more persons or groups is bad and criminal, that when the State engages in such acts, it is not theft but the legitimate and even sanctified act called "taxation." The ideologists must explain that murder by one or more persons or groups is bad and must be punished, but that when the State kills it is not murder but an exalted act known as "war" or "repression of internal subversion." They must explain that while kidnapping or slavery is bad and must be outlawed when done by private individuals or groups, that when the State commits such acts it is not kidnapping or slavery but "conscription" – an act necessary to the public weal and even to the requirements of morality itself. The function of the statist ideologists is to weave the false set of Emperor's clothes, to convince the public of a massive double standard: that when the State commits the gravest of high crimes it is really not doing so, but doing something else that is necessary, proper, vital, and even – in former ages – by divine command.
- Murray Rothbard, "The Ethics of Liberty"

We live in a world of curious moral thresholds, where gathering a sufficiently large clientele turns robbery into "provision of social welfare", Ponzi scheming into "provision of social security", and counterfeiting into "provision of financial stability".
- Myself, "Fixing an Upside-Down World"

When the king asked the man what he thought he was doing infesting the sea, the man replied with free-spoken insolence, The same as you infesting the earth. But because I do it with a little ship, I am called a robber; and because you do it with a big fleet, you are called an emperor.
- St. Augustine, "City of God"

Why Do "1-Percenters" Exist?

Provided that there is no political favouritism involved, why should it be considered bad (morally offensive) that in a given nation there exist 400 people who are wealthier than some other 150000000 members of that nation?

It does not seem to be entirely implausible to suggest that the 400 most skillful writers who have ever lived created more literary value that the rest of the people who have ever taken up writing. It does not seem improbable that the 400 most creative inventors or scientists who have ever lived changed the world and our understanding thereof to a greater extent than the rest of the people who have ever dabbled in tinkering or science.

Likewise, it does not appear inconceivable that the 400 most shrewd entrepreneurs living today are responsible for creating more market value (i.e., more useful goods and services) than the rest of the world population, let alone 150000000 members of a single nation. That is how unequal we are, and although it might hurt our misconceived self-esteem to acknowledge this fact, rebelling against it can most plausibly be construed as motivated by a deplorable dog-in-the-manger sentiment.

Of course, in actual practice extreme wealth disproportions almost always come about as a result of political collusion and bureaucratic favouritism. But then the proper course of action is to work towards eliminating the phenomena just mentioned, rather than towards expropriating those who know how to utilize them.

And finally, if one is looking for a truly extreme numerical disproportion in the area of human affairs, how about thinking through the idea of 7 people bureaucratically determining the prices that crucially affect the world economy composed of 7 billion individuals?

True to the Truth, Reasonable as Reason Permits

To the extent that it has turned its back on the pursuit of Truth (yes, capital T), science and scholarship has declared itself as sophistry and idle verbosity. To profess a willingness to search for Truth is not intellectual pomposity, but simply an expression of a belief that thinking beings can advance beyond the condition of pure ignorance, and that science and scholarship are not just weasel words for the ramblings of the particularly loquacious ignoramuses.

Mises and Hayek - Same Origins, Same Initial Environment, Very Different Worldviews

The more I read of Mises and Hayek, the more I become solidly convinced that their visions of the market, social order and economic exchange are fundamentally different.

Mises is an intransigent rationalist, apriorist, logical deductivist, and methodological dualist. Hayek tries to combine soft rationalism with soft empiricism, wed soft apriorism with soft positivism, and displays some implicit sympathy for methodological monism. For Mises the market order is a composition of innumerably many individual, dovetailing conscious plans and designs. For Hayek the market order emerges from the interaction of unplanned, undirected, evolutionary forces. For Mises it is crucial to consciously understand how the market works if it is to be saved from destruction by collectivist demagogues. For Hayek it is crucial to understand that we do not fully understand how the market works if the same task is to be accomplished. For Mises the reason for the impossibility of a rational centrally planned economy is logical, conceptual, and qualitative, independent of the contingencies of skills and technologies at the disposal of the would-be central planners. For Hayek it is empirical, practical, and quantitative, rooted in the communicational and cognitive shortcomings of humanity as it has been up to now and will likely be for the foreseeable future. For Mises any analogies between biology and economics are misleading. For Hayek they are instructive and illuminating. For Mises the collectivist economic doctrines and the central planning mentality are outgrowths of irrationalism. For Hayek they are outgrowths of hyperrationalism. Further differences between the two could be multiplied ad infinitum.

Though in the abovementioned respects I consider myself a Misesian, I deeply respect Hayek's scholarly output and consider him one of the champions of the Austrian School, albeit of a different strand of it than that advanced by Mises. Plus, I remain cautiously optimistic about the prospects for the further cross-fertilization of their respective bodies of thought.

However, for the same reason I would advise anyone interested in studying, developing, and/or promoting the Austrian tradition against speaking of the Mises-Hayek paradigm or the Mises-Hayek approach. As shown above, there is simply no such thing, and there is certainly nothing wrong about it. Quite the opposite - varietas delectat.