Kinsella on Liberty Podcast, Episode 157.
The slides for this lecture are appended below; links for“suggested readings” for the course are included in the podcast post for the first lecture, episode 153.
LECTURE 5: ECONOMIC ISSUES AND APPLICATIONS
The Social Theory of Hoppe, Lecture 5: Economic Issues and Applications
Mises Academy, Aug. 8, 2011
STEPHAN KINSELLA: … question about – someone sent me in the class course page. Well, I mean if you’re just asking me my opinion, I mean I don’t think Hoppe has written very much on abortion. I actually did include an abortion question in the questions I submitted to him that hopefully he’ll give us some feedback on it for discussion next week. I believe he is generally pro-choice because I remember he asked me one time about, oh, 12 or 15 years ago to try to come up with an argument to justify it. So I don’t know. I’m not assuming there is a flaw in Rothbard’s argument about abandoning the fetus.
My personal view is that certain actions give rise to positive obligations. So if you harm someone or put them in a position of peril, then – push someone in a lake who can’t swim, you have an obligation to rescue them. And I think there’s a similar argument that, because of the nature, the dependent nature of the child, that you have positive obligations to your children because you brought them into the world. So that’s the basic argument. I mean another could be that the fetus is a human who has a right to life, and there is no reason the parent needs to kill it. It’s not really a threat. Now, there are some people written – there’s a book called Solomon’s Knife by Victor Koman, a libertarian science fiction novel, which posits this trans-option procedure.
And the idea is that medical technology permits any woman who’s pregnant to take the baby out and put it into another host mother. So there’s really no reason anymore to have abortions. If you want the baby out, you give it to another woman. That would change the complexity of the debate. Okay, so let’s get going. So I have a lot of slides here. I don’t think we’re going to cover them all. The ones that we don’t cover we’ll talk about next time. A lot of these topics blend into politics and economics.
So some of these are somewhat political as well, and so it would make sense to cover these in the next week as well. So where we left off, we talked about epistemology, and last week, economic methodology and dualism. Okay, so for the methodology part. Today, I want to continue the end of that lecture and talk about a few more things, and then we’ll get to some economic issues and applications. And you see the suggested readings I have here. For next week’s classes, a lot of smaller topics. A lot of blog posts cover these. I don’t know if I will assign the reading ahead of time, but I will have links in the slides for all the things we talk about.
Okay, so let’s go to slide five. Excuse me a second. Let me close my door. Excuse me. Okay, I mentioned last time in the epistemology discussion, there’s a lot of hostility by Rand and objectivists to Kant. And as I mentioned, that is directed towards an idealistic, subjectivist-type interpretation or construction of what Kant wrote. And to the extent they’re characterizing him correctly, I think a lot of their criticisms make sense.
But there – as I mentioned, there’s a realist tradition of Kant that Hoppe and Mises share, and so actually, there’s a lot more similarity between Hoppe and Mises-style Kantianism and Rand’s own view of epistemology. So for example, Ayn Rand talked about an axiom, if you remember, that is sort of analogous to what Kantians would call a priori statements. And she says it’s a statement. It’s like – it’s a fundamental statement and base of knowledge.
And if you look at the end of this quote in the bold, she says: It’s a proposition that defeats its opponents by the fact that they have to accept it and use it in the process of any attempt to deny it. So this is very similar to some of the basic a priori propositions, which you commit a contradiction if you deny them, including Hoppe’s argumentation ethics. She talks about existing and how, if you grasp that, that implies to corollary axioms or propositions, that something has to exist that you’re perceiving and that you exist as a conscious perceiver.
So basically, just right recognizing that there is something gives you the distinction between an observer, a conscious person who exists, and reality. So that’s another way of proving certain things about the world. And again, she notes here that it’s a contradiction in terms to be a consciousness but you’re conscious of nothing outside of yourself. So you can see how she has a similar argument structure to some of the basic operative propositions of Mises and Hoppe, anyway, the way they interpret Kant.
I prepared this chart some time ago trying to sort this out, trying to show the parallels between the thought of Rand on the one hand and the sort of Misesian or even Rothbardian or maybe a more normal type of terminology. So what Ayn Rand called her philosophy of objectivism, in that philosophy, she does recognize sometimes—she’s not always consistent—that the value of things is relational. It’s a relation between a person who values something. Now, she might go astray on the intellectual property stuff, and they talk about creating values.
But, for the most part, when she talks about objectivism in terms of value, she’s talking a relation. And this is similar to what Mises would refer to as subjectivism, that basically value is from the subject’s point of view. Now, when Rand talks about subjectivism, she means what we would call relativism. Okay, so when she criticizes Kant for being subjective, but she’s saying he’s a relativist or an idealist. In other words, we can’t know anything true or certain about the real nature of the world.
Now, Rand has a formulation that value is something you act to gain or keep, and/or keep, and this is very similar to the Misesian notion of demonstrated preference, that you demonstrate that you value something when you act to achieve it. Now, what Rand calls action in general, that is, just anything humans do, that is what you can think of in Misesian terms as rational action. In other words, they think of all action as rational in that sense. Now, what Rand would call rational action is what Misesians would call efficient or moral action, that is, action that achieves what your goal is. So if you think about how – I have a blog post, by the way. I think there’s a hyperlink in the title.
I think if you click on that Axioms there on the previous page, there’s a blog post I did, which explores this in more detail. Now, as I mentioned before, Rand – her ethics is consequentialist or hypothetical because she’s like, if you choose to live as a man, or you could say, it’s what Roderick Long and others call an assertoric. Let me type it in here, assertoric. An assertoric hypothetical, that is, since you choose to live, then the following results. So her ethics is consequential as is Mises’ utilitarianism. If you want peace and prosperity and harmony and cooperation productivity, then you favor the free market, etc.
Now, as far as terminology Rand and even Rothbard’s terminology is more Aristotelian, whereas Kant’s is – Mises and Hoppe are more Kantian. And finally, when Rand talks about something being intrinsic, Mises would call that objective, but not too important here but interesting nonetheless. Oh, here’s the post here. The top link there has more detail about this for anyone who is interested. There’s a couple of articles that talk about this too, about the compatibility between Austrian economics and objectivism despite the protests to the contrary of the objectivists.
Now, there’s something we – I think I talked about logical positivism in last class. I want to bring up one other related thing here. Some of you may have heard of legal positivism, and for years, I struggled in my mind. I’d think, why are they using the same word? Is there a link between them? Is there a relation? And it’s hard to find anything good on this. I’ve blogged about it a little bit. Here’s how I think about it. So legal positivism is a school of thought in legal theory, which says that – well, it has a couple of parts. First, it says there’s no inherent connection between law and morality. And then another claim is that laws are made, or say, constructed by humans.
So a lot of times, people that advocate natural law are on the other side of this. They think there’s a connection between law and morality. Now, when they say there’s a connection, it’s never clear whether they mean conceptually, whether they’re saying there should be a connection, whether they’re talking about the best way to classify by law. And largely, these discussions are empty because they’re by non-libertarians who don’t have a clear grasp of political theory and reasoning. And so they tend to resort to the second meaning of this. That is, we can’t know what laws there should be, so it’s got to be whatever, sovereign state issues like the legislature, Congress or whatever.
Okay, so in my view, of course laws should have a moral base, but you can still identify a law that exists in a given society as some kind of legally enforced rule or rule that’s given widespread legal enforcement by whatever the enforcement mechanism is in a society. If it’s a society of the state, it’s going to be the rules that the state ends up enforcing, not dead-letter laws that are never enforced anymore but things that generally you can expect to have a good chance of having some kind of serious consequence if you break it.
So I think you can identify laws without saying that they’re moral, so the first part of legal positivism, I think, is perfectly compatible with natural law thinking and with the libertarianism. I can say there is a law against evading income tax. There is. That doesn’t mean I justified it. See, the libertarian has the luxury of saying, just because I identify a law listing doesn’t mean I have to grant that it’s legitimate because we don’t have to resort to whatever the legislature’s done to determine what the law should be because we have a fear of it. We don’t have to resort to what the majority thinks.
Now, the second part of it, I think, is objectionable. Law should not be thought of as being made. That is, legitimate law just should be principles that can be shown to be justified and compatible with justice and individual rights, libertarian property rights, basically. So that’s legal positivism. It has to do with how we can recognize what a law is, even if it’s not a just or a fair law or a moral law and with where laws come from.
Slide nine. Now – okay, so I’ve already talked about this part. So let’s go to slide ten. This is also a type of legal realism, so let’s skip that for now. You guys can read up on this later if you’re interested. Now, logical positivism, as I mentioned, is this monist view, empirical view, scientistic view, the idea that we have to test things to know if they’re legitimate.
Okay, so we’ve talked about that already. So what could the possible link be between them? Now this is just kind of my tentative thoughts on this. Maybe someday I or someone can write a longer article about it, but this is what I’m thinking. Both of them share an antipathy for what’s called metaphysics in the derogatory term. They’re both monist and empiricist. Okay, and here’s why. Well, I’ve already talked about why logical positivism is, but if you say a law – if we say a law is unjust or just, the legal positivist would say that’s an unscientific metaphysical claim. It doesn’t have any teeth to it. It doesn’t have a legislature or decree. It doesn’t have the vote of the majority, something sort of non-normative they can sink their teeth into.
So basically, the legal positivist in the bad sense doesn’t see any reality to a normative realm. This is why they’re like monists. So it’s sort of like the empiricists or the logical positivists because you see things as – like only count them as real if they have some kind of direct or physical consequences. So in the realm of logical positivism, that means that your theory is testable somehow. You have to have some data to it. The only count things as real if there’s data. Otherwise, they dismiss it as merely analytic statements or what they sometimes call metaphysics.
Likewise, the legal positivist says that a law is real only if it’s enforced or issued by some authority. So I think that’s sort of a link between those two types of thought, and they’re both flawed in a way. So it leads the legal positivists to dismiss more reasoning, like we would have – say that’s just mere word play or it’s babble. So this is why they resort to – I believe they resort to legalisms and wealth, law and economics, so they come up with welfare criteria where we try to maximize utility.
They try to give it a scientific veneer to make it seem like they’re not interjecting metaphysical, moral reasoning. And I have an example here. I mean I used to listen, in law school to Rush Limbaugh, and he would always say – someone would say, why shouldn’t – if alcohol is legal, why shouldn’t marijuana be illegal? He would say, well, it’s illegal. So in other words, he took that as a sort of fundamental given.
Okay, so you start having your principled opposition to positive law that’s bad eroded because you don’t really have a sound, normative, or moral reasoning to oppose it. And so then you start thinking of legislation, like in the civil law as the supreme source of law. Okay, so that’s just a link I’ve seen here. Now, let’s – we’re past the issues from last class, so let’s go on to talk about some economic and some political issues. A lot of these are sort of interrelated, but all I can do is take what I thought were some interesting and provocative illustrative areas of Hoppe’s thought.
Now, we’ve already talked about his economics in the earlier lectures in different ways, talked about his classification or his taxonomy of types of socialism, his views about the source of wealth, property and scarcity views, things like this, and also his epistemology, which is part of his economic methodology. We talked a little bit about his economic views in the banking and nations states article discussion as well. So let’s take now some concrete areas. So one issue that I’ve always found very helpful, one of Hoppe’s formulations, I found it useful in the – all the discussions about intellectual property and getting it sorted in my own mind.
What is the sort of central mistake that’s made behind a lot of socialistic-type argument, and quite often, the mistake they made is believing in a property right in value. Okay. Now, as I mentioned, even Ayn Rand seemed to do this sometimes when she talks about people being creators of values. We are producers of values, and as producers or creators, you own what you create. You create a value. You own that value. But of course, this is very sloppy thinking, sloppy terminology, and it’s not rigorous thinking.
If you go back to the original, sort of foundational concepts that Rothbard and Hoppe lay out in their beginning of their political theory and their economic theory, it’s very rigorous and clean and crisp. And Hoppe is very clear: property ownership is the exclusive control over a specific physical object in space. And so then an invasion would mean the uninvited physical damage or control of these things without the permission of the owner.
So basically, property rights are in the right to control economic goods or scarce resources, and so invasion would be the invasion of the border of that thing or the use of that thing without the permission of the owner. Okay, so as Hoppe notes here, a widely held view holds that the damage or diminution of the value of someone’s property is also a punishable offense. So the problem with this, and this view infuses a lot of the reasoning we have, a lot of the reasoning behind people when they advocate socialist laws and things like this.
The problem with it, as Hoppe notes, if you have a proper understanding of the subjective nature of value, you realize that value is not a thing you can own. Value is a relationship, and it’s subjective. That’s between the subject or the person valuing something. It’s how he regards the thing. It sort of informs what he would do or what he wants to do with that resource. So you can’t own the relationship. You can own the thing. You can [indiscernible_00:19:08] control the thing.
If you allow property rights and value, the problem is almost every action any individual can ever reform could alter the value of someone else’s property. So for example, if Person A enters the market for the marriage market or another market, it can change someone else’s value. And if A changes his own valuations of beer and bread or decides to become a brewer, that changes the value of the property of other brewers and bakers. In other words, if someone moves in across the street from you and starts competing with you, then the value of your business may go down.
But you don’t have a right to the property in your business. That’s because that would mean you have a right to what other people think about your property. That would mean you have a right to their bodies in a sense, their head or their evaluations, which is, of course, un-libertarian. Okay, and this is actually the logic behind protectionism in mercantilism. When the government protects people from competition, it’s because the competition hurts the value of their business or their property. Okay, but as Hoppe notes, while a person has control over whether or not his actions will change the physical properties of another’s property, so you can choose to be a trespasser or not.
You can choose to respect the borders of actual physical property owned by people. You have no control over whether your actions affect the value of another person’s property because that’s what’s determined by other people’s actions. So how could you be responsible for changing the value of other people’s property? You have really no control over that. And again, I’ve mentioned this before, but there’s only – well, there’s two fundamental ways to acquire wealth. Number one, the private way, which would be either homesteading, production, which remember means transforming your own property into a more valuable configuration, or contractual exchange, so either exchange, production, or homesteading or by expropriating and exploiting homesteaders, producers, or contractual exchangers. There’s no other ways. Exactly. That is Oppenheimer, Jock.
So – but you have to think here. You have to recognize this. Production is a way of gaining wealth, but it’s not an independent source of ownership. Okay. So you can make your property more valuable by transforming it, but you don’t acquire new property rights when you do that because you had to own the thing already. You had to own the resource already in order to transform it. So production doesn’t create new titles. Homesteading is the only way to create a new property title. Contractual exchange is a way of acquiring a previously owned thing as a transfer the title, and production is the reworking of something that you have title to already.
Okay, so how does this play? What kind of implications of this do you have? So as I mentioned, it plays into mistaken views on IP and property theory and on defamation law, which is reputation rights. So Rothbard saw this already. As Rothbard explained, if you had a right to reputation – see that’s similar to what we’ve been talking about, the idea that you have a reputation in the market, which has a certain value. That’s how the Randians would see this. So you own that value. You created your reputation through your hard work, let’s say.
You’ve built up this reputation, and so, therefore, you own it. And therefore, you can stop someone from invading that reputation, from damaging the value of your reputation. So this is the danger of believing in property rights and values. As Rothbard saw, you can’t have a property right to the knowledge in someone else’s head, which is what you would have to have to have a reputation because you would have to be able to tell other people what they can think about you.
On intellectual property, Lysander Spooner, who’s good on so many things, but on this one area he will go off the rails. He even wrote: So absolute is an author’s right of dominion over his ideas that he may forbid their being communicated even by human voice if he so pleases. So he believes that you create this intellectual work, which has value, and therefore you own it, and you can even use that to stop someone from – like if they remember it. They memorize a poem you wrote. You could actually physically stop them from saying the words out loud with your own body. Okay. Let’s change topics now.
There is – this is a fairly narrow topic here. Hoppe’s got a good passage in that banking/nation states article where he talks about and gives an explanation about why it is that America and the Western countries tend to be more imperialistic in some ways. Now, this was something Rothbard believed, and he was really strongly criticized by objectivists for this. They hated him for that because the Randians sort of view America as the almost-perfect country, the quasi-libertarian or objectivist country. And any strong criticism like that drives them nuts. So when Rothbard wrote about how the Soviet Union was a lot less aggressive and imperialistic than the US had been, it just drove them bonkers.
But what’s his reasoning for that? What Hoppe explains is that when you have a country like the US, which has a relatively liberal, in the European sense, internal free market basically, then it’s going to have a lot of wealth that’s generated. So the countries that tend to be more – let’s say, more free market or more libertarian are going to tend to have a richer private sector. A lot more wealth is generated. But then, assuming you have a state that is in control, that state is able to feed off of that excess wealth through taxes.
So the states that are states in control of freer-market economies have a lot more wealth at their disposal, and of course, these states aren’t really any better than the more totalitarian states. And they will follow the natural logic of states to try to use the resources they have at hand to dominate other nations and to exercise their power. So states that tend to have a free market on the internal, tend to be more aggressive militarily. So that’s – I think that’s a really good insight.
This plays, by the way, into what we’re going to talk at the end of this lecture or the end of the slides next lecture on Malthusianism. And this also plays into – Rothbard has, in Power and Market, the second part of the combined Man, Economy, State/Power and Market volume. He’s got an analysis of the types of taxation, and I think he calls them binary intervention and triangular intervention, different types of state regulations and taxation. And Hoppe is drawing on this here. He said that the states like, say, the Soviet Union are the ones that don’t have – so look at this bottom quote here on slide 21. Regulations have a peculiar characteristic of requiring the state’s control to become enforceable without simultaneously increasing the resources at its disposal.
So it’s – from the state’s point of view, it’s a waste. To have a regulation that just tells A and B what not to do doesn’t really give the state wealth they can use. But if you simply allow a free market and tax it, you can take a lot of the gains from it that way. So as Hoppe describes this kind of regulatory state, it requires the state’s command over taxes, but they don’t produce any monetary income from the state. They satisfy pure power lust, as when A prohibits B and C from engaging in trade, so when you stop the free market, but taxation does help the state. Since these are sort of discrete topics, if anyone wants to ask any questions along the way, I can break for questions. So let me see here what Stephen is writing.
Oh, so Danny says, this would explain the imperialism of ancient Greece and Rome, which had better legal order than other nations. I think it probably does go a long way to explain that. Stephen: Plus the better that people in such states perceive their lives to be, the more ardently they are apt to support a war effort. Yeah, because they don’t have economic – I think that’s right. They may be more – they think they’re the best country in the world., and so we must be doing something right, etc. I think that’s a good point. Now, here’s a – there’s a really interesting paper Hoppe has called “Marxism and Austrian Class Analysis” or “Marxist and Austrian Class Analysis.”
In this paper – so what Hoppe argues is that he’s going to present the basic claims of the Marxist theory of history, their class analysis. And he’s going to argue that they’re all correct but that they come from a false starting point and to show how to give a correct spin on this. So let’s go to the main tenets of the Marxist belief system. So number one, and remember, Hoppe agrees with all these. He thinks the Marxists are right. He says, well, first of all, the history of mankind is the history of class struggles. We agree with that. It’s the history of struggles between a small ruling class and a large class of people who are exploited.
And the primary form of this exploitation is economic. That is, the ruling class, whoever they are, expropriates the productive output of the exploited. Or as the Marxists say, it appropriates a social surplus product and uses it for its own consumptive purposes. Okay. Now, we’ll see that we disagree on some other applications of this, but the Austrian, Misesian, libertarian, Hoppian system would agree that this is the history of mankind.
And number two, the ruling class is unified by its common interest in upholding its exploitative position and maximizing the surplus product that it’s exploiting. It doesn’t deliberately give up its power or its income. If it loses it, it’s got to be wrested away from it through struggles. And that ultimately depends upon the class consciousness of the people being exploited, that is, whether they’re really aware of their status as being exploited. And finally – or not finally, number three, the class rule manifests itself in certain arrangements regarding how you assign property rights.
Okay, and so when the ruling class, to protect these arrangements, gets in command of this, it forms. It gets in command of the state apparatus to control this arrangement. So it sets up and administers a system of class justice, and it helps create an ideological superstructure designed to lend legitimacy to the existence of class rule, in other words, propaganda. So basically, it takes control of property, sets up the state to do this, and propagandize the people so that they’re not even aware that they are in a different class or that they’re exploited.
Okay. And then finally, because if you have competition within this ruling class, you have – you tend to have concentration and centralization. Okay, so then you have a smaller and smaller exploiting class and a larger amount of people that are exploited. And then this leads to wars, imperialist wars and territorial expansion because this group in control wants to seek power outside their own region as well.
Okay, so that’s the main tenants of the Marxists, and then the final one would be, as they get bigger and bigger, trying to dominate the entire world, the class rule is going to stifle economic development so much you’re going to have economic stagnation and crises. And that would give rise to the potential conditions of the emergence of class consciousness, a revolutionary class consciousness. So this is the idea of how this class control is unstable, and finally results in the classes or, sorry, the exploiting class realizing their status, having a class conscious, and then overthrowing the state. Okay, so those are the main parts of the Marxist belief system.
So what Hoppe says is you can justify all these things, but Marxism cannot because they derive these tenets from an absurd exploitation theory. So basically, their view is this. The pre-capitalist social systems like slavery and feudalism are characterized by exploitation. That is correct, and we would agree with him on that. Okay, so they’d have that correct insight. But then where they go wrong is they believe that basically nothing has changed in terms of exploitation under capitalism. If the slave becomes a free laborer, they think that’s the same thing, or if the peasant starts farming land that was homesteaded and pays rent to someone in a voluntary free market. So this is what Hoppe and libertarians would disagree with.
Dante, I see your question here. I’m not sure if I understand it. David Gordon said, told you to ask Hoppe. Is Hoppe doing praxeological historicism since he’s predicting what’s going to happen? My understanding is when Hoppe talks about predictions, and we have some at the end of this class here, he said it’s not praxeological. It’s not a priori. But I really – I’m not sure what praxeological historicism is to be honest. I can try to ask him, but I’ve already sent him the questions. It may be too late to get them in. If anyone else knows, feel free to chime in. I don’t know what praxeological historicism would be. Or do you mean possibly – well, I have heard the expression among Mises that the entrepreneur is the historian of the future. Is that what you mean?
So in other words, what an entrepreneur does in trying to predict what the future will be when he’s deciding what projects to engage in, what prices he forecasts there will be, he’s trying to understand human purposes and motives and figure out what they’re going to do, similar to what a historian does when he analyzes historical facts to try to understand the reasons and motives of the actors on the scene at the time. But that’s not praxeological I don’t think to try to forecast the future. That’s entrepreneurship. Maybe missing your question. I don’t know what else praxeological historicism would be.
Okay, so according to Hoppe – so Marx does point to the role of plunder, enclosure, and conquest, and there he’s correct to label feudalism as a type of exploitation. But then he has an equivocation here because he is against capitalism even when it doesn’t have those features. In other words, Marx points out that existing capitalist systems of his time did have a history in plunder and conquest. Okay. So then he acts like that tarnishes capitalism, so he’s against capitalism, per se. Capitalism, per se, leads to exploitation.
But he would say that even about what Hans calls clean capitalism, capitalism that is not based in these things. So there will be no plunder there for Marx to put his hat onto here. So as Hoppe writes, yet one should be aware of the fact that, here Marx is engaged in a trick. I think it’s like a type of equivocation. And engaging in historical investigations and arousing the reader’s indignation regarding the brutalities underlying the formation of many capitalist fortunes, he actually sidesteps the issue at hand. Okay, so his thesis is now really a different one. Even if we were to have clean capitalism where the original appropriation of capital was the result of nothing else but homesteading, work, and savings, then Marx would say he’s still engaged in exploitation.
Now, why is this? It’s the essential Marxist confusion. It’s the idea that factor prices, which is the wages paid to laborers by the capitalists, if they’re lower than the output price, that is, if there’s a profit that the capitalist makes that he doesn’t give back to the workers, he’s exploiting this surplus value. Now, of course, this is – yes, Lucas mentions the labor theory of value. I agree. And actually, in another class I did, I mentioned how this mistake was present even back in Locke, Locke’s idea of when he mixed – the idea of labor as part of his labor mixing – the labor-mixing part of his homesteading idea, and then also that idea was used by Adam Smith in economics, and then later it was taken over by Marx. So they all have this bad idea that you can own value, or that labor is some ownable thing, and this is the fundamental mistake, and I think it is mixed up with the labor theory of value.
Danny: Hoppe isn’t proposing laws of history. He’s deducing praxeological insights into the nature of institutions based on assumptions used to conceive of those institutions. Well said. I think that makes sense. Karl, hold on. Let’s get a page or two down and let’s see if we address that in Hans’ analysis. If not, remind me.
Okay. So but in Hoppe’s view, the reason an employer in a clean capitalist or in a free market would make you become an employee is because time preference and risk. I mean he wants the money now. He doesn’t have to wait for it, and also he doesn’t want to take the risk that he might not get paid. The entrepreneur takes that risk and takes the role of waiting, and therefore, gets rewarded for it. Okay. So basically, if you look at the Austrian theory of exploitation, then this makes sense out of this class theory of history.
Okay. By the way, I agree with what Danny’s typing here is that predicting history is not the same thing as positing laws of history. And I don’t think it’s praxeological to predict history. It’s just an attempt to forecast. If you remember and I think it’s – I may have it repeated down here in a minute, but Hoppe believes that knowing praxeology can help you, everything being equal, be a better forecaster of the future because they kind of eliminate certain things that are possible, but it doesn’t make you infallible. So basically Hoppe, what he does is he says, look, what’s some key differences between our class theory or his and the Marxist theory?
Okay. So he says, well, they’re right that there does indeed exist something like an exploitation and a ruling class, or like exploitation done by a ruling class. So Marx was correct that exploitation did characterize the relationship between the slave and the slave master and the serf in the feudal war. But not in clean capitalism, and why not? The difference is, in clean capitalism – sorry, under feudalism, let’s say, there is no recognition of the homesteading principle and self-ownership. Okay, so what happens is the serf doesn’t get full ownership of his body and his property that he might have homesteaded.
He’s exploited because he’s robbed, but if you homestead unowned goods, if you transform them into wealth by production, or if you make contracts with others, you are not exploiting them. This is actually the generation of wealth. It’s not exploitation. So in Hoppe’s view – Karl, I’ve never heard the term clean capitalism before except in this book, so if it’s someone else’s term, I don’t know it. I’m assuming it’s Hoppe’s term. Karl asks about whether clean capitalism is Hoppe’s phrase or a Marxist phrase, and I like it. It’s, I think, what the left libertarians now who don’t like the word capitalism – it’s what they mean by the free market I think.
When they say capitalism, they mean necessarily dirty capitalism or crony capitalism or corporatism. Hoppe defines exploitation as the expropriation of homesteaders, producers, and savers by people who – late-comers, he calls them, late coming. That’s someone who comes after the fact and takes you stuff from you, late-coming, non-homesteaders. So basically, as I mentioned earlier, there are two ways to acquire wealth: homesteading, production and contracting, or expropriating those or exploiting those people. Okay, so the ruling class initially consists of the members of what Hoppe calls an exploitation firm, like a proto state, a little kingdom or fiefdom or the feudal lords. So that’s what they are. That is what the ruling class is. It’s the ones that exploit people by basically being aggressors.
Now, here’s another thing the Austrians – oh, Karl, I don’t know if Marx ever had a word for clean capitalism. I don’t even know if he had a concept for it because he views capitalism as inherently exploitative because the workers don’t get the surplus value. Yeah, I think Jock is right. He wouldn’t recognize the concept. So history is essentially the history of victories and defeats of the rulers in their attempt to maximize exploitatively appropriated income and of the rules in their attempts to resist and to reverse this tendency.
Now, Hoppe thinks that basically – so I’m about to get to that, Antonio, about the class struggle, and when we realize – I mean Hoppe basically used that the state exists because of a mistake, a mistake on the part of the exploitive class that believes a state’s propaganda that the state is legitimate and necessary. And therefore, they sort of are confused by the nature of their exploitation. It’s hard to say you’re being exploited if you believe that the exploitation is somehow justified or necessary.
Also, as Hoppe notes, with the rise of democracy since World War I basically, the state co-opts people into thinking they’re part of the state. They have the right to vote. We are the state. We are the government. And so if they draw the line between the ruling class and the exploited victims, and so that makes it even harder for people to resist.
Okay, now Hoppe notes that ever since World War I, which is when democracy started becoming – taking over, exploitation has been on the rise. And he says Marxism has to take much of the blame for this because they misdirected attention from the correct exploitation model, which is the homesteader-producer-saver-contractor versus the non-homesteader-producer-saver-contractor to the fallacious model of the wage earner versus the capitalist, and so they muddled things all up.
Okay, so contrary to what Marxists stay, the state is not exploitative because it protects capitalists’ property rights. But it’s exploitative because it makes itself exempt from having to acquire for property productively and contractually. It sets up two different rules: a rule for itself as the ruling class and a rule for the exploited people. They can only acquire property legitimately. The state can acquire property by taking it from them, so they set up two rules. So what Hoppe believes is the class consciousness that we need to raise is the awareness of this nature of the state as the exploiter. Okay, so this is what basically the goal of libertarianism is. It’s to make people aware of the true nature of the state.
So back to the questions earlier, he has more in that article on this – excuse me – about how he thinks it could unfold and what hope there could be for a revolution. Now, he talks about this a lot. But the basic goal is to try to make people aware, to try to educate people about the nature of the state. But if you are trying to educate them about why they’re being exploited by their boss when they’re living in a world of increasing riches all the time, going to vacation at Disney World, it’s hard to persuade people of this because it’s just not true.
So we need to get off the sidetrack that Marxism put us on, stop worrying about surplus value and the labor theory of value, and focus on the nature of the state as the fundamental ruling class that exploits the people. Any questions before we go on? Did I address the earlier questions if not?
Okay, let’s go on. So now we’re going to talk about monopoly a little bit here. This is not too extensive of a discussion, but basically Hoppe here talks about – well, first of all, the standard view in economics, of course, is that you could have monopolies arise in the free market. And the government’s got to come in and regulate these monopolies with all – the variety of federal antitrust law, the Sherman Antitrust Act, the Clayton – get the names of them all. That’s one of my least fun experiences in law school was taking the antitrust class. I hated it. It was horrible for a number of reasons.
Now, Rothbard and Walter Block and Hoppe are really good on this. Mises, I believe, was less so. He had a few remnants of the older approach, but Rothbard was more radical. So the idea – the libertarian idea is that, of course, as long as you’re not committing aggression, then no monopoly that forms voluntarily on the free market or peacefully should be prohibited. It doesn’t violate anyone’s rights. So if two manufacturers want to collude and set prices, they have every right to try to do that.
People want from a cartel they can do that. If they want to have vertical price restraints, price fixing, all that’s fine. I mean this is part of the free market. But – and so the real view is the only real monopoly is the state. The state is a genuine monopoly, and of course, when you have the state as a monopoly, having a monopoly over law and justice, you’re going to get what the traditional classical economists have said about free market monopolies, which is you’re going to have higher prices and lower-quality services. That means the monopolist has little interest to not sit on its monopoly and just rake the money in.
Hoppe’s view is there is absolutely no tendency toward the increased monopoly under an unhampered market system. Now, he talks about two periods, about how, after the Civil War in the US, 1867 or so to about World War I, the US – that was a period of extremely unregulated market activity, much more free market than we have now. Ever since World War I, the government has become a lot more interventionist. So according to the classical theory, you would expect to see monopolies forming on the free market in that first period.
But historically what we saw, there was insane, intense competition, and prices were continually falling. Okay, so in fact, what actually happened was we started having monopolization in industries only when the leading businessmen became successful at persuading the government, the state to interfere with the fierce system of competition like in that first phase and start passing regulations to make competition more orderly, to protect firms with what they call cutthroat competition.
What Ayn Rand called in Atlas Shrugged the dog-eat – I think the anti-dog-eat-dog rule. And as I’ve noted in another context, a lot of the people that support IP law say they’re against unbridled competition. In other words, there’s just too much competition. So basically, under the free market, we see that there’s a lot of competition, and that competition starts going down, and monopolies start to rise when these businesses get in bed with the government, and we have crony capitalism.
And the government starts passing laws, regulations that help these guys. Now, this is agreed to by some leftists like Gabriel Kolko, a famous historian. He said: It was not the existence of monopoly which caused the government to intervene in the economy but the lack of it. He sees this more clearly than a lot of conservative economists would see it. If you look at this post I have here, I have a lot of examples from Rothbard and Kolko and others about how law – the federal government, for example, in the US has passed lots of laws that, ostensibly on paper, most people are used to thinking of as hurting big business.
They think of the minimum wage and pro-union legislation and environmental laws and the FDA as harming big business. But the truth is actually the opposite. Big businesses almost all wanted these regulations because they can afford to pay the regulation tax, but they knew that the small upstarts couldn’t. So it’s a way of basically putting a wall up around your market and protecting yourself from competition. So monopoly doesn’t rise on the free market. Monopoly rises from the interventions of the state.
Antonio says, if you take away – oh, Danny says Mises considered monopolies to be harmless. I actually – I meant to look this up, but I forgot. I didn’t have time. I forgot exactly in what way Rothbard thought he had corrected Mises. I mean I know what Rothbard’s view is, but I forgot what Mises would have disagreed with him on. But if I recall, Mises didn’t go quite so far as Rothbard on the monopoly question, but you may be right.
Antonio Lopez: If you take away the ownership of value, this conception of monopoly is easier to understand. Anti-monopoly advocates try to defend the value of the customer. There may be something to that. In fact, I think this ownership of value and the labor idea is pernicious and pervasive. It really corrupts and infects a lot of reasoning on the market: reputation rights, intellectual property, Marxism, some of Adam Smith’s economic missteps, etc. So it’s a big thing to clear up. Danny is saying that Mises recognized the fleeting and minor instances of monopoly prices are possible on the market. He never said the state would be able to know. Okay, I think that sounds right. He didn’t think it was a big problem, but I think he recognized theoretically the possibility of monopoly price.
Yes. Danny says Rothbard denied the existence of anything that could be identified as a monopoly price as opposed to – I’m actually going to cover that in just a second here. That’s Hoppe’s view as well. But, by the way, you see how this ties into Hoppe’s other view we talked about earlier about Marxist class analysis because his view is the only monopoly comes from the state. Just like that’s where exploitation comes from.
Okay, so this is basically similar Rothbard’s view as well. Maybe I don’t have a slide on here. So you’re right, Danny. This plays a role in the public goods issue too, which we’re about to turn to. But yeah, you’re right. There’s no way to distinguish between a monopoly price and a non-monopoly price on the free market. The only way to do it would be to actually bring in a coercive invasion, and that ties into Rothbard’s value theory, his idea that we know that people are better off if they exchange. They’re both better off after a voluntary exchange, but because value is not numerical, not cardinal, the utility is subjective. And you can’t compare it interpersonally. You can never say that if A takes something by force from B that everyone is better off on net because on net has no meaning.
All we know is that someone is worse off, that is, the coerced party. So you see that Rothbard’s utility and welfare economics ties into this idea too. The only way we can say there’s a non-monopoly price corresponds to the idea that the only time we can say that someone is harmed is when they’re coerced. Otherwise, if they voluntarily trade, we have to assume they’re better off. That’s why monopoly prices cannot exist unless there’s coercion or aggression actually.
All right, let’s turn to a related discussion. This comes in the chapter right after this one, actually. Well, there’s two chapters. There’s one in – by the way, I think in the class notes I had the wrong chapter. I had chapter 10 as the monopoly chapter, but as you can tell, it’s chapter nine. Chapter 10 is on public goods, which is not completely unrelated. So the idea of public goods – well, when I say not unrelated, what I mean is the fallacy of the public goods idea is similar to the fallacy of the monopoly idea, in that there is no way to distinguish between a monopoly and a non-monopoly price if there’s no aggression involved. And there’s also no way to distinguish between a public good and a non-public good.
But the theory is that there are some goods and services that are special, and basically, there’s a free-rider problem because you cannot restrict the enjoyment of this good or service to people who pay for it. Like defense, if you have defense that covers a whole nation, then everyone benefits from it. So if someone’s able to get out of paying, then they’re benefiting without paying, and that would lead to a free-rider problem, and it be under-produced or not produced at all. So the idea is that the free-rider problem, this public goods problem causes certain public goods to be under-produced.
And then the second part of the theory is, well, and therefore, the state should form to provide these public goods and to tax people to pay for them. Okay. But now, the problem here is, number one, the public goods idea is said to justify the state, but almost everything the state does has nothing to do with even these alleged public goods. I mean the government produces railroads and roads and telephone services and postal services. These are all not public goods because you can restrict every one of these to people who are willing to pay for it. Charge people to use the postal service. Charge people to use the telephone. Charge people to use the railroad or the road.
So why does the government do these kinds of things? These aren’t justified by this. And furthermore, there’s free riding of even private goods, and so Hoppe gives a rose garden example, which, by the way, he gives also – I think he uses this example in his discussion of ownership of value. If you own a rose garden, your neighbor might benefit from seeing that beautiful rose garden, so the value of his house might be higher because he’d have a rose garden, or he might have some subjective value that’s higher.
Well, if I chopped down my rose garden, now I’ve reduced the value of his property. If he has a right to – a property right to the value of his property, he could stop me from chopping my rose garden down. So you can see how assigning property rights and value would actually lead to undermining property rights, which is exactly what intellectual property does, by the way. It gives someone the right to stop you from using your property how you see fit based upon this fallacious notion of ownership of value.
The same is true with reputation rights. In any case, Hoppe gives an example of a rose garden. So your neighbor doesn’t pay for you to upkeep and build and construct this rose garden, yet he benefits off it. He’s a free rider. Now, so in other words, clearly, even by the arguments of the public goods advocates, not every private good should be produced by the state just because there’s free riders. So where’s the line? Now, and Hoppe also explains that history can show that all of the so-called public goods states provide have, at some time in the past, actually been provided privately, or even today are provided in some country, postal service, lighthouses, help to the poor like charity, police, arbitration.
If you remember from the banking/nation states article, Hoppe argues that this is exactly what the government does to seize power. They gradually take control of these institutions in society that already existed: transportation, roads, money, banking. And they, over time, are seen as the natural source of these things even though they didn’t originate with the state. So as Hoppe argues: A clear-cut dichotomy between private and public goods does not exist. This is similar to the point that you couldn’t distinguish a monopoly from a non-monopoly price on a free market, as I have noted here.
As he notes – now, this is where the Austrian focus on the subjective nature of value comes in. By the way, we’re going to take a break in a few minutes, but just let me finish this little section up, and then we’ll take a break. As he notes, under Austrianism, we view goods as subjective – or sorry, value is subjective. So all goods are more or less private or public, and they can change with respect to their degree of privateness or publicness as people’s values and evaluations change. They change dynamically. They change all the time. They change from person to person. So all goods have some public aspect and some private aspect, different blends.
It just depends upon how able you would be to charge someone else to benefit from it and how much free riding is going on because for something to be a good, it has to be recognized and treated as scarce by someone. Nothing is a good as such. Goods are only goods in the eye of the beholder. This is the Austrian approach.
So at least one person has to subjectively identify something as a good. You can’t do a test on it to see if it’s a good. It’s something that’s regarded as a good by a person. So they can never be private or public goods as such. It’s not a quality inherent in the good. So the private and public character depends upon how many people—how few people or how many people—consider them to be goods. That’s what determines if their classification is public or private.
Okay, now, Hoppe makes another good point. Even if the distinction made sense, even if we can identify some public goods, well, this first of all doesn’t provide a good reason for why they should be produced. Just because it’s a public good doesn’t mean it should be produced or why the state should do it. Okay, and there’s no end to this reasoning, and you just say, well, unless the state comes in and produces this good, then it won’t be produced, or unless we force people to pay for it.
And then a lot of people will benefit from it that wouldn’t have been able to benefit from it if we didn’t produce it. Well, but there’s no end to this reasoning. I mean you could dream up things all day long that you want the state to just tax people to pay for and make, and you can make the whole country into parks. Okay. Why should we do that? In fact, you have to rob people of their resource, a form of taxation, to pay for these public goods.
Now, they’re not able to purchase some private good they otherwise could have purchased. Why is it better to produce the public good than the private goods? You cannot know that this public good use is a better use than the private use. This, again, ties into this Rothbard view of utility and welfare economics, the view that we can only know for sure that something is of value to someone, if they act to gain and/or keep – I’m sorry; that’s the Randian terminology – if they demonstrate it in action, which means they voluntarily do it. It’s a voluntary exchange on the market. That’s the only way we can know, so you can never know that this is a better use of private funds because you’re robbing them from – you’re robbing the money from the taxpayers. And you’re forcing them to support some public good.
You can never know that they prefer that. In fact, they evidently don’t prefer it because they have to be forced. Hoppe gives another example that – I mean look. You need a lot of things for a market to exist. You need a legal system. You need a common language. Does that mean the government has to provide and police the language? And I have no French friends here because you know the government polices the French language. But of course it’s ridiculous. You don’t need these things to be done by the government just because they’re essential to the market.
Okay, now, he does have an extensive discussion about how this plays into the production of security. And that’s more of a political topic, so I’m going to leave that for the next class. So what I will do is – it’s four past the hour. Let’s take about a six-minute break, so at ten past let’s start again, and I’ll cover a few more of the slides and take questions as well. So see you in six.
Anyway, okay. It’s ten past so all right. Before we go on, is there anything anyone would like to discuss or go on? Rick asked about property taxes in the US. I think there are some states that don’t have property taxes, and there are some that don’t have sales taxes and some that have no income tax. I don’t think there’s any that have – that have none of all three. I think there’s a couple that have only one like maybe New Hampshire only has maybe property tax. Any questions? Anything? I’m curious. What did David Friedman give a lecture on last year? Was it about monopolies, or what was it about? Texas has no income tax, so that’s good. Oh okay. I got you. Hold on just a second. Okay, sorry. Oh, market failure, okay, okay. Yeah, I just don’t know. I mean Friedman is such a utilitarian on the law and economics stuff.
I don’t know how he would oppose in principle every single possible law that you could imagine being passed to stop some of these problems, but he’s an anarchist at least. Let’s talk about something, the role of uncertainty. I mentioned this earlier. So the Misesian view is that what explains why someone is a good forecaster. That’s what entrepreneurs do. They have to forecast the future, predict the future. They have to try to guess what the future is going to be like and how that will affect the price array.
And then they can compare future projects. You can say, well, I’ve got three projects I can do. I forecast this will happen here, here, and here. And so the one that gives you the greater forecasted profit may be the one you want to engage in. So he says it’s an unteachable art. You cannot teach someone how to forecast, and it’s just called verstehen, or the understanding, the [indiscernible_01:08:27] or the ability to grasp what’s going to be in the future.
Now, of course, you can never predict the future perfectly, but we’re not completely ignorant either. And some people are better than others at it, and the ones that are better, tend to make more money, make more profit. But anyway, as Hoppe points out, basically, praxeological knowledge has very limited predictive utility. That’s why – I wasn’t clear about earlier the praxeological historicism stuff.
Now, let’s switch to another discussion about uncertainty. So Hoppe explains in this article, it’s called “Time Preference, Government, and the Process of De-Civilization.” I don’t think I had that on the reading list. I discussed it a little bit in an article I wrote in ‘95 as well, which I have linked here on slide 44. So Hoppe explains when you have democratic-made law, legislation basically, that causes uncertainty. Why is this? Well, I mean some of you may have heard the – seen the little bumper sticker or the sign that says, no man’s life, liberty, or property is safe when the Congress is in session.
Well, I mean the idea that if law is not a private body of law that’s developed slowly and gradually over a long period of time and has some stability, if law is seen in this legal positivist way as whatever the government decrees. And gradually, that’s how people think of law. I mean 200 years ago, 500 years ago, people didn’t think of law, as whatever the parliament said. They thought of law as a body of rules in place to serve justice. But nowadays, when people say there ought to be a law, they’re talking about a statute. They almost think of law as equivalent or equated with statutory law, legislation.
So we tend to adopt this positivist mentality, legal positivist mentality where we think of the government at the source of law, and we think of law as something malleable, that can be changed from day to day, and in fact, it is. When law, when legislation becomes the dominant mode of making law, then the character of the population changes. The character of law changes. People realize that the law can change at any time. I mean right now in the US, I mean who knows what kind of new budget is going to pass and what changes to the political action system will come out of that?
Who knows what the taxes are going to be in a few years? We’re always in a state of uncertainty. Or put it this way: The level of uncertainty is greater. Some people – I know people myself that are afraid of going into medicine right now in the US because of uncertainty about how Obamacare may affect them or what new regulations are going to happen down the road. So some people, because of uncertainty, just stay out of whole areas. So in other words, legislation, just the mere fact of having a legislative system in place in society as a primary way of making law—that causes uncertainty.
Now, uncertainty increases time preference, and when you have higher time for – now, why is this? It’s because, if the future is uncertain, it’s that things you could expect to get in the future are relatively less certain, so the present value of that goes down. So people always have a certain degree of time preference, and the lower time preference, the better off we are overall because we have a longer structure of production.
People – this is how we have productivity in the free market, why people have a lower time preference, be willing to invest in the future. Well, if you’re choosing between some current present gratification and a future one, if the value of the future one goes down because the future is now more uncertain, then the differential is smaller. So you might want to choose the present value. I think I’ve got them backwards. The present value has this much value, and if you have time preference.
Anyway, the point is it’s clearly the phenomena that the higher your time preference is, and it will go up if there’s more uncertainty, then the lower our productivity is. And crime increases as well. So as Hoppe writes: The mere fact of legislation—of democratic law-making—increases uncertainty. So rather than law being immutable and predictable, it becomes increasingly flexible and unpredictable. So what’s right and wrong today may not be so tomorrow, so the future is more haphazard.
So all-around time preferences will rise, and consumption and short-term orientation will be stimulated. And at the same time, respect for all laws will be undermined, and crime would be promoted because if there’s no immutable standard of right and wrong, there’s no firm definition of crime. I mean we’re all lawbreakers, everyone on this lecture, everyone that you know because there’s so many laws. So if you know you’re breaking a law, it’s because there’s now a separation between what law used to be and it’s just an arbitrary whim of the government. People don’t respect law much, and that means they don’t even respect the good parts of the law, like the parts that are libertarian.
Okay. So as Hoppe notes, look, here’s how it works in the free market. You have to work for a while before you get paid. You have to wait. You have to be patient. But specific criminal activities like murder and assault, robbery and theft don’t require that kind of discipline. So the reward for the aggressor is tangible and immediate, where the sacrifice, the possible punishment lies in the future, and the future is now more uncertain, so you have more crime. And Hoppe cites studies by E.C. Banfield like Unheavenly City Revisited and others in this article about the analysis of how increased uncertainty and lowered – and increased time preference generate more crime.
Okay, Hoppe’s got an article called “The Ethics and Economics of Private Property,” kind of a confusing title because it’s similar to the title of his book The Economics and Ethics of Private Property. But this is a separate article, and in that article, there’s a section on Chicago diversions where he does a nice takedown of the Chicago mentality of these legal and – legal theorists and economists like Coase and Demsetz and Richard Posner who is a judge now, a federal judge. This is the law and economics crowd and Chicago-ites. So for Rothbardians, for Hoppe, for libertarians, for Austro-libertarians, private property rights and ethics logically precede economics because how the economic analysis – it takes for granted certain assumptions like what type of legal system is in place, what property rights are, what contract rights are, etc.
But for the Chicago school, these things, property ethics, are subordinate to economics and economic considerations. And according to, say, Posner, he says, whatever increases social wealth is just. In other words, he defines justice as that which increases wealth. So they give a classic example. So imagine you have a railroad next to a farm, so the train passes by. Let’s assume this is all private, private railroad, private farm, and the engine emits a spark, and it damages – it causes a fire, burns down part of the farmer’s crop.
So what is to be done? Now, the classic answer would just be property rights. It would be well – the classic answer is property rights. And that question, certainly the law or nuisance or homesteading of easements, things like this, and the idea would be, well, if the farmer was there first and then the railroad came up later, then they should be liable because they damaged his property. If the railroad was already there, then you could say, well, maybe they homesteaded a certain spark-emitting easement because that’s part of the nature of running a railroad. And if a farmer planted his crop next to the railroad after, he came to the nuisance we would sit in the law. And he can’t complain about the railroad harming his property because he took that risk. He assumed the risk. So basically, it’s just a property analysis. It’s just a justice analysis.
Now, the Chicago answer would be this. He says first of all, it doesn’t matter how you allocate property as long as you allocate them in some kind of way. What he’s saying is it doesn’t matter if you give it to the farmer or to the railroad if you let them win. It doesn’t really matter if transaction costs are zero, so this is what Coase is famous for his talk about transaction costs. But transaction costs in the real world are not zero, so it could matter, but let’s assume transaction costs are zero.
That means the ability to negotiate deals and to get an optimal deal done. So he says, suppose – he takes an example. Suppose the crop loss is $1,000 to A, but to make – to install a spark apprehension device on the railroad or on the train, an S-A-D, a SAD, is $750. So if that’s the case, now, if you find B liable, that is, the railroad, then they’re going to have to put a $750.spark arrester on. But if B is not found liable, that is, the farmer has no cause of action, then he will be willing to pay somewhere between $750 and $1,000, maybe up to $1,000 to the railroad to install this, so we’re assuming those transaction costs that the railroad wouldn’t object. As long as he pays them, they’ll do it. So he pays them, let’s say $800 to put it on. That’s worth it to him because his crops are worth $1,000, so he still benefits.
So basically, in this situation, in both cases, no matter who you find liable, a SAD will be put on the railroad. Now, if you assume the numbers are reversed, the crop loss is $750 and the SAD is $1,000, so if B is found liable—that’s the railroad—you’ll pay A $750. But he won’t install the SAD because that would cost $1,000. He’ll just give B $750, which makes up for the lost crop. And if B is not found liable, A wouldn’t have enough money. He couldn’t justify paying $1,000 to the railroad to save a $750 crop, so in both cases, the result would be the same.
So Coase uses this to argue that in both cases, whether the value is this way or that way on the SAD price and farms, in both cases, no matter who you choose to win the case, the same result would happen. Okay. In the first case, there would be an SAD installed no matter who wins the lawsuit. In the second case, there would not be an SAD installed no matter who wins a lawsuit. So he’s saying it doesn’t make any difference. And then there’s a second claim of the Chicago school here that they think what courts should do is use this idea and they should assign property rights.
When you have a contest like this, like the railroad versus the farmer, they should give it to the person to maximize wealth. Okay, now they do this in part, I think, because they believe those are transaction costs, so they want to assign it the right way. But now, here’s how Hoppe responds. Okay, number one, it does matter who wins. It matters to the farmer because either he’s got to pay or the railroad has got to pay. So it does matter to some people, real people in the real world.
And it also matters for social production because the property owned by the farmer, the property owned by the railroad, are the result of previous acts of homesteading and contracting and production. So if you don’t recognize there are property rights in these things, you reduce wealth and production. So if you don’t get it right then you would reduce overall wealth. In other words, if we had a rule in society that you couldn’t be sure you would get to keep some unowned land that you homesteaded, why would you bother homesteading it? Or you have a smaller incentive to homestead it, so you’d have less homesteading, less wealth being created.
Furthermore, Hoppe explains that Coase wrong that it doesn’t matter how you do it because he gives an example. See, if you don’t treat value as cardinal and objective and intrinsic, if you treat value the way Austrians do, as subjective and non-cardinal, then you could have a case that matters. So he gets – Hoppe says, let’s say he doesn’t have a garden worth $1,000 on the market. He has a flower garden that he subjectively values at $1,000. Well, if he loses the lawsuit, in the first case we gave earlier, he wouldn’t be able to justify spending $750 to the railroad because he has no surplus. He has no crop money. It’s not a crop. It’s not a money-producing crop. It’s a subjective value-producing garden. So he actually – it would make a difference in that case. So actually, because they have the wrong view of value, the Coasians get it wrong.
Finally, Hoppe points out, if you understand value is subjective, and not interpersonally comparable, this entire idea that the courts should make a decision about maximizing value is completely incoherent. Number one, you cannot scientifically compare. You can’t do these cost-benefit comparisons. Value is not measured in utiles or numbers. Okay, so number one, it ignores psychic costs. If you just look at the money price as a proxy for value in the case I just gave, you would ignore the value of the garden because we can’t know how much it’s really worth to the farmer.
It doesn’t have a fair market value. It also makes the assumption that money is valued the same by people across time and between people, and of course that’s not true either. So it’s a completely unscientific enterprise. This entire idea that the government court should look at the situation and make a decision about what’s the best way to rule based upon how we maximize wealth in society. And again, this contradicts Rothbard’s utility and welfare economics.
Danny says, the question isn’t whether a particular instance leads to greater general welfare. It’s whether the rule, which a particular instance is an instance of, is liable to lead to greater general welfare. Well, I think that’s correct. You not only have that problem. I mean when I was in law school and we had torts class, we had similar discussions. And my teacher was – did this all the time. He was repeating the line, Posner’s and all these other guys’ lines that if you want to decide if someone was negligent, you need to look at the total cost.
But to what, of putting this rule? In other words, it depends on how you draw the line around things. I mean what if the rule is governments have to be in power and have a lot of control over the economy just to have the system in place in the first place? I mean there’s no end to the consequences. There’s no objective way to say what rule is being decided here. I think I agree with what you’re saying, Danny. The other problem is, so the courts are supposed to make this cost-benefit analysis, but you’ve got to use data, market data.
Of course, you’ve got to use the current market data. You’re not going to use future market data. It doesn’t exist, and you’re not going to use data that’s ten years old. You’re going to use the current data. Well, data changes from time to time. So on day one, a court might decide in the farmer’s favor. But two years from now in a similar lawsuit, the court might decide in the railroad’s favor. In fact, it might be the same party. So as Hoppe says, different circumstances will lead to a redistribution of property titles.
No one can ever be sure of his property. Legal uncertainty is made permanent. This is neither just nor economical. And anyway, who in their right mind would ever turn to a court? He’s talking about a private system I think, that announced that it might reallocate property titles in the course of time, depending upon changing market conditions. Property needs to be owned by the owner until he gets rid of it. It doesn’t just shift back and forth at the changing whim of a panel of experts.
I think we can stop here, good stopping point. We’ll pick up the rest next week and turn to some political issues and hopefully go over Hoppe’s answers to some of these questions if he has time to do it. We’ve gone 90 minutes. I’d be happy to go further and answer any questions or talk about anything else. Any questions? The floor is open.
By the way, I have a new class coming out set next month called Libertarian Controversies, a five-week class. So some of you might be interested in that. I think Hoppe is not working on a book anymore. He was working on a book about – it was the same topic that he did a ten-lecture series at the Mises Institute.
It’s about history and sociology and sort of the whole history of mankind, not as a history but as a reframing of it. But I think he gave up because he thinks it’s just too empirical, and it takes way too much digesting of historical research, and he gave up on it. He’s got some other ideas he’s working on I think. The lectures will be at the same time as this, Jock, the same time as this, 7 p.m. Eastern Time on Monday nights for five weeks starting in mid-to-late September. I think it is September 19 to October 23 if I recall.
Edward asks about Hoppe and IQ. I’m actually – I’m going to talk about that at the end of this set of slides next class, his Malthusian stuff. So if you heard his lecture, you’re going to have heard most of what I’m going to say about it. I don’t think it was too much about IQ itself. It was more about intelligence, the role of intelligence in productivity, human productivity. Well, I guess everyone understands everything perfectly that we went over tonight, so that’s good, no question, or maybe there’s nothing controversial. Okay, guys – oh no, Dante asks, I don’t think Hoppe will take a course. Good night, Jock.
Random question from Stephen: Are there any criticisms of a private law society that have any merit? Do you see any potential problems with the private law society with competing insurance agencies? I’ve heard Hoppe say the worst thing that can happen is we end up with a state again. I never heard him say that, but that’s – I think that’s a good point. I’m going to try to find time to discuss this next class but – thank you, Antonio.
I think that there are no serious criticisms of it. I mean the biggest criticism is maybe a – you know the problem where bad laws get passed because there’s always a special interest group to lobby for it because they get a lot of benefit from it. But the costs of it are diffused and spread over a lot of people who don’t have an interest in fighting it. I guess – I wonder if in an anarchist society whether a determined group of people could form a state again, but similar reasons. But if so, then we have a state again, like Hoppe says.
Someone asks which weeks the midterm covers. Weeks one, two, and three, and we’ll do a final at the end that covers all six weeks, but primarily the last three weeks.
All stateless societies had been conquered. How is that problem to be avoided? Yeah, that’s a tough one when you have murderous empires with nuclear weapons. I’m not aware of all stateless societies being conquered, but who knows? Maybe we move to the oceans. Maybe we move to outer space. Maybe someone invents private – some new private weapons that will scare even states and make them leave them alone. But the fact that it might be impossible to defend yourself against states doesn’t justify states.
Does Hoppe have a stand on free cities? If you mean that project in – where is it? Is it Guatemala or somewhere? Honduras. I think at the Property and Freedom Society last May – this May – where Hoppe – where I attended it and Hoppe was there, one of the participants came up to me and was talking to me about it. I don’t know if he talked to Hoppe about it, but I’m sure he’d be in favor of it. He asked a question in front of the audience, and Hoppe was there. I assume he’s in favor of it.
Stephen Davis asked me are there – the area being Zonia. Stateless societies—are there any now? And I familiar with James Scott’s work? No, I’m not familiar with James Scott’s work. And I don’t know what Zonia is. I think some people say Somalia is sort of stateless right now, but whether that’s really true I don’t know. I’ve heard there’s a relatively stateless little enclave in India that’s doing really well.
Chris says, on IP, he’s heard some people suggest that, in a free market, entrepreneurs could start a patent and copyright firm where people register their ideas and the firm would enforce them, presumably with police. I think you’re thinking of the Tannehills. Morris and Linda Tannehill on The Market for Liberty arguing for a free society tried to explain how different things we’re used to could be done privately. And they make a weak attempt to show about IP, but I don’t think they think it should be enforced by police. J. Neil Schulman thinks something similar, by the way. I would imagine there would be a demand for this service from inefficient businessmen.
But aside from the moral and economic problems, do you see any way this would be profitable? No, I don’t. I think it would be like these groups now that claim to own the stars and the moon, and you put your name in a registry and claim ownership of Alpha Centauri. It’s a joke. I don’t think anyone would listen to this. I don’t think anyone ruling in a court following libertarian principles would award the land to the guy claiming IP because they would recognize he’s someone who wants physical control over someone else’s resources when he’s not the homesteader. Having an idea about how to use your property is not homesteading someone else’s property.
Do I think statelessness is identical with anarcho-capitalism? Do I think anti-capitalist customers can exist in a stateless society? Yeah, I think stateless could be a broader term than anarcho-capitalist. It could refer to any society with no state. And that could include a chaotic situation where there’s massive crime and poverty, but I think to the extent you have – if you have no state and you have some kind of society, that is, an economy, division of labor, cooperation, prosperity, societal customs, then it’s pretty much got to be anarcho-capitalist. Well, it doesn’t have to be anarcho-capitalist. It could be pre-capitalist. It could a primitive barter-type society.
But we can expect that wealth would increase, people would start accumulating capital, and eventually become capitalist. I don’t really think anti-capitalist customs could exist in any kind of prosperous, civilized, stateless society if by capitalist you mean the private ownership of means of production. So if you mean by anti-capitalist hostility towards employers, and a propensity of people to want to have localized production, decentralized control, and looking down on bossism, I suspect that that could exist with it. I don’t think it’s very likely, but I think it could.
Do I – does Hoppe know about Holcombe? It has come to me twice regarding the free-state world. You mean Randall Holcombe? I think he’s got an article where he is sort of arguing for, if I remember, why a state would always have to exist or something like that. I’m not sure. David Gilmartin: How do I compare Hoppe with Gary North or Walter Block on the Coase theorem? I don’t think I’m familiar with exactly what Gary North has written on it, but I believe it’s pretty compatible with what Walter Block has written on it, on Coase.
Danny says, what if capital accumulation was considered wrong, and extended family members felt justified in confiscating any unseemly excess held by a prosperous family member? Well, I don’t think a society would be very advanced number one. We wouldn’t have a wealthy advanced society be kind of a primitive-type society. And if they felt justified in taking it, then I would say to that extent it’s not anarcho-capitalist because that’s a type of private crime they’re committing. They’re just stealing. So it would be private crime. It wouldn’t be institutionalized, but if that view was widely held, it’s hard to see why that wouldn’t be institutionalized, and a state would arise again. That’s interesting, Stephen, about small societies comprising about 100 million people in relatively stateless groups around the world. Could be, could be.
David Stone—he found it curious Hoppe lives in Turkey. What’s the reason why? Well, so Hoppe married about five, six years ago a woman who is Turkish, and she is an Austrian actually. She’s a wealthy businessman over there, and her family has hotels and other things that were there, and so when he married her, he moved there.
I think he lives in Austria part of the year too where his family has a home I believe. So he moved there to live with his wife, and he did it right around the time he retired from UNLV, and I think he’s had it with the US and wanted to go back to Europe. Is the place free-ish? Yeah, it’s great. I’ve been there several times. It’s wonderful. Turfs are great. There are some issues there. There’s issues everywhere, but he actually – it’s nice. I like it. Istanbul, of course, is wonderful, but so is Bodrum where he lives some of the time, Bodrum, which is a coastal town. Is the PFS hard to get into? I don’t know. I know you have to apply, and there’s a procedure.
But I’m actually not sure how the decision gets made. If you want to email me offline, if you want, I’ll talk to you about the best way to look into it. Yeah, ask Dante actually. Dante was there last May, and Dante, maybe has an idea how to get in. Oh, Stephen Davis: Some Austrians think Hoppe and others are too critical of Coase, Friedman and think they help our cause. What do you think? Well, not on his economic stuff I don’t think they’re too critical. I think it’s important to get economics right. On liberty, I don’t think Hoppe is too critical of Friedman. He’s got his deviations, but we acknowledge Friedman as an important figure. Coase has some good stuff too, I think. I think all the transaction costs stuff is all right, and there’s something else he’s done that was all right.
But on this policy stuff and the long economic stuff, I think it’s horrible. I mean I think the leftists are almost better than these Chicago-ites in some ways. The leftists have a sounder view of the nature of the state and of exploitation. Anyway, all right, well, why don’t we call it a night? And I will see everyone next Monday. Have a good week.