Libertarian Anarchy

Economists are united in support of free trade. Free trade brings great benefits: productivity is increased due to greater specialization from division of labor and all participants enjoy gains from trade. Any restrictions on trade move us away from this optimum. To the extent that beneficial trades are foregone, prosperity is sacrificed and waste is promoted. But the logic of the argument applies not only on the level of nations—it also applies with full force on the level of individuals.

The argument for free trade is a simple, logical proof. Trade is defined as voluntary exchange. From this it follows that all trades are mutually beneficial (ex ante). In other words, each party in a trade expects to benefit. If this were not so, then the exchange would not occur. Nobody will make a trade that they believe will leave them worse off. One would only make a disadvantageous exchange if it were involuntary—but this violates our definition of trade as voluntary exchange. Evidently, if all trades are undertaken because both parties expect to benefit, then any restriction of trade can only serve to eliminate gains from trade. Unrestricted free trade maximizes prosperity. This follows directly from the logic of voluntary exchange.

Now, if economists contend that tariffs are bad because they eliminate mutually beneficial exchanges and breed inefficiency, then they must also oppose sales taxes. For what is a sales tax but a tariff on trade between individuals? Sales taxes increase the cost of trades, eliminating mutually beneficial exchanges. They discourage specialization and trade, and encourage inefficient self-sufficient production.

Furthermore, this principle applies to all taxes that add to the marginal cost of production and trade. An income tax, for example, increases the marginal cost of producing for trade (a portion of each additional dollar earned is lost as taxes). This discourages production and reduces prosperity. It also encourages inefficient self-sufficient production (they don’t tax the work you do for yourself… yet). The only tax that wouldn’t harm incentives to produce and trade would be a tax of fixed amount unrelated to income or wealth (also known as a head tax). Of course, taking peoples’s money via taxation harms them, but a head tax wouldn’t do the added damage of reducing the incentive to produce and trade. Needless to say, a head tax would never be implemented in practice, as it would effectively end the welfare state.

In conclusion, if economists are to be consistent in their principled support of free trade, they must also oppose sales taxes on exactly the same grounds. If a tariff is a bad way to raise government revenues, then so is a sales tax. By the same principle, they must also oppose any tax related to income or wealth. These taxes harm the incentives to produce and trade. If economists are not willing to accept these conclusions, then they must also weaken their support for free trade.

The idea that we should “buy local” or that goods should be produced locally is fairly popular, but economically incoherent. There seems to be two main arguments for localism: 1) that long distance transportation is wasteful, and 2) that local spending benefits the local economy and makes people better off. Both arguments are wrong: localism is wasteful and can only impoverish us.

At the most basic level, all goods are produced locally to some people (at least the producers and their neighbors). Why does the location of production matter at all? A head of lettuce moving in a refrigerated truck is the same as a head of lettuce sitting in the refrigerator of the local store. Transportation doesn’t change the nature of the product. Furthermore, “local” is an arbitrary point on a continuum—is local 100 or 1000 miles? Why not 101 or 1001 miles? Taken to its logical conclusion, localism implies that everyone should be a self-sufficient producer and eschew all trade—it doesn’t get any more local than that. To put it bluntly, localism is a bad idea, based on a non-understanding of the economics of trade. Trades are mutually beneficial (else they would not occur) on all levels: from local to global.

Consider an Alaskan and a Colombian trading salmon and coffee. Despite the great distance separating them, this arrangement is the cheapest way of providing the Alaskan with coffee and the Colombian with salmon. If they were to “buy local” they would have to resort to very costly (wasteful) methods of production (such as greenhouses or cold-water tanks) or forgo the product entirely. Needless to say, they are both much worse off without trade.  The general principle I’ve outlined is that cost, not location, is the key factor. Alaskans can produce salmon at a much lower cost than Colombians, who can produce coffee at a much lower cost than Alaskans. If the savings from using efficient production exceed the transportation costs, then they both gain by trading because they can acquire the other product at a lower cost than if it were produced locally. By specializing and trading, they minimize waste and conserve scarce resources. To forgo mutually beneficial trades because of location is to shoot yourself in the foot.

The economics lesson here is about scarcity. Since resources are scarce, we must economize their use in order to maximize prosperity. By using the lowest cost methods of production, we minimize the amount of resources that are used up in producing goods. This leaves more resources for the production of other goods, increasing our well-being. In other words, the least cost method is the least wasteful method. So rather than worry about where the product comes from, just look at its price. If local goods happen to be cheaper, then they were produced less wastefully. Same for faraway goods. (Keep in mind, however, that this only holds in a free market, as government distorts prices which hides true costs). A lower price means that less resources were used in bringing the product to you (including the resources used up in transportation). This is why so many goods are produced non-locally: the savings from producing in a more efficient location exceed the costs of transportation. We all benefit from these savings by enjoying more goods at lower prices.

Globalization is often smeared as evil, but in truth, it is one of the greatest triumphs of human civilization. Localism is the real evil as it engenders waste, which can only bring poverty. Global free trade is the engine of worldwide prosperity and continues to be one of the most important solutions in the eradication of world poverty.

The Non-Aggression Principle is the foundation of libertarianism. It forbids aggression, i.e., the initiation of force against others. While there are many different justifications for the NAP, the simplest argument is an appeal to commonsense morality: we should deal with other people through reason and persuasion rather than violence and coercion.

In his article “The Irrelevance of Responsibility,” Roderick Long presents an Aristotelian Golden Mean justification of the NAP. He argues that a flourishing human life requires striking a balance between the subhuman and the superhuman. Since reason is the essential human trait, a truly human life requires relating to others through persuasion. Dealing with others through force is subhuman; but refusing to use force against aggressors is superhuman. Thus the NAP—using force only in defense—represents a Golden Mean between the extremes of subhuman aggression and superhuman pacifism.

What follows is an excerpt from Long’s article (p. 119, 121-124). Keep reading...

I recently created a resources page to list the best material for learning about libertarian anarchism. It will be a pretty exclusive list as I want to keep it short and of highest quality. If you have any suggestions, leave a comment or contact me.

Everybody knows that the minimum wage is a good policy, right? Problem is, they’re all wrong. Economists proved long ago that price controls can’t work—they only create shortages and surpluses. The minimum wage is a price floor: if it is set above the market wage it will create a surplus, leaving some workers unable to sell their labor. The overall popularity of a minimum wage is perhaps the best example of ecognorance, and it can only be corrected through economic education. Some simple reasoning will go a long way towards clearing up the minimum wage confusion.

Consider the following thought experiment: suppose that the minimum wage is raised to $1000/hour. What are the implications? Evidently, most employers can’t pay that much and they’ll go out of business. If that weren’t so, we could all become fantastically wealthy just by decreeing a ridiculously high minimum wage. Now suppose that the minimum wage is lowered to $0.01/hour. Again, employers won’t pay that wage (even though they’d like to) because other firms are bidding for the same workers, and this drives wages up. The reason employers don’t pay the decreed wages is that wages are determined by supply and demand, not government edict. Firms hire workers with the goal of earning profits, while wages are costs. They competitively bid wages up to the point where the wage (cost) equals the benefit or extra profit gained from hiring that worker. So competition for profits practically ensures that workers get paid according to their productivity, according to the value of their labor. (In economics jargon, they get paid their discounted marginal revenue product.)

Now let’s trace out the effects of an increase in the minimum wage on the employers affected (e.g., those hiring unskilled labor). First, the increased labor costs lead some firms to lay off workers and others to shut down, since demand for their goods and hence their prices have not changed. But the downsizing and shutdowns reduce the supply of the goods, increasing their price. This new, higher price justifies the higher wage for those who kept their jobs, since they are now producing a more valuable product. The end result is that some workers lose their jobs, while the rest enjoy the higher wage. Consumers lose because prices are now higher.

Since workers are paid according to their productivity (like all factors of production), all the minimum wage does is to make it illegal to buy or sell labor beneath the price floor. The government is essentially saying: “You must be this productive to legally work in our country.” This is most harmful to the least skilled of workers, the ones we want to help most. They will be the first to be fired, and will be cut off from the chance to gain the work experience and job skills needed to earn a legal wage. Allowing such people to work for lower than minimum wages gives them a chance to work their way to a better life. To deny them the freedom to negotiate their own wages and to leave them legally prohibited from working is a moral outrage.

Some clever economists might argue that the minimum wage can increase the total wages paid to all workers. This could happen if the amount of workers unemployed was more than offset by the increased wage. But what is this except human sacrifice?! They would knowingly unemploy the most needy in order to increase the aggregate income of workers. This position is morally bankrupt and an insult to those who genuinely want to help the less fortunate.

In sum, the minimum wage harms the very people it intends to help. It’s a moral outrage that ought to be instantly abolished. Freedom is the best policy to help the poor.

Recommended learning:

• Gene Callahan’s excellent analogy, in which he compares the minimum wage with a hypothetical “minimum stock price”. Find it in his book, Economics for Real People (free online), pages 189-194.
• Roger Garrison’s Mises University lecture. You can follow along by downloading his powerpoint.
• Mary Ruwart, Healing Our World (free online). A great book for leftists, Ruwart shows how government restrictions hurt the poorest to the benefit of the wealthy and politically connected.

“Capitalism is the best. It’s free enterprise. Barter. Gimbels, if I get really rank with the clerk, ‘Well I don’t like this’, how I can resolve it? If it really gets ridiculous, I go, ‘Frig it, man, I walk.’ What can this guy do at Gimbels, even if he was the president of Gimbels? He can always reject me from that store, but I can always go to Macy’s. He can’t really hurt me. Communism is like one big phone company. Government control, man. And if I get too rank with that phone company, where can I go? I’ll end up like a schmuck with a dixie cup on a thread.” —Lenny Bruce

A common refrain among people unfamiliar with libertarian theory is that corporations are the problem and government is the solution—that government needs to tightly regulate private business to rein in corporate greed. This view is fundamentally confused. It entails that private business—which derives its means by voluntary exchange—is the problem, while government—which derives its means through violence—is the solution.

First, greed is a universal feature of human nature that’s here to stay. Businessmen have always been and will always be greedy. And the rest of us are greedy too, in the sense of being self-interested. That includes the agents of the government. Since government can use violence to achieve its ends, we should be much more worried about predation by greedy politicians and bureaucrats.

Of course, businessmen are not angels. Like all people, they can be jerks and criminals. Adam Smith’s great insight was that businessmen benefit others not out of benevolence, but by their own greedy pursuits in a free market. Under the institution of free market competition, private predation can be minimized and the social benefits of greed can be maximized. But this cannot be achieved with a government in existence.

Greedy businessmen don’t passively submit to regulations, they lobby and do whatever they can to gain control of the regulatory body. Once they have access to the political means, they use it as a tool to hinder their competition, to the detriment of everybody else. Gabriel Kolko has shown that even the Progressive Era regulations were pushed through by big business to restrict competition. Where there is government, businesses will fight to control it for their benefit. Under government, the corporation becomes an exploiter.

In fact, free market competition is the best kind of “regulation”. Where there is competition, people have choice and can avoid businesses they don’t like. And businesses have incentives to publicize the misbehavior of their competitors. Competition is simply the best check on private predation. Furthermore, it can be supplemented by other voluntary measures, like boycotts, to seal any cracks. There is no reason to introduce legalized violence in the form of a government.

Government is not the solution, it is the root problem. Government brings with it the problem of public predation, and creates the avenues for systematic private predation. Advocating more government as the solution to private predation is like trying to put out a fire by dousing it with gasoline. Without government, private predation can be restrained through market competition. In other words, government is the ultimate cause and corporations are the proximate cause of the problems. Don’t be a branch-striker. Strike the root.

[Further reading: Roderick Long, Can We Escape the Ruling Class]

Despite incredible advances in knowledge and technology over the past few decades, living standards have actually declined (also see here and here). [edit Aug 2010: In retrospect this statement was too strong, living standards are certainly higher today. It would be more accurate to say that the rate of increase has fallen.] Taken alone, this makes no sense—comparable advances in the past, such as the industrial revolution, have sparked enormous increases in prosperity. On top of falling living standards, civilization is crumbling: war, poverty, crime, debt, disease, social dysfunction, family breakdown, hedonism, etc. Why are so many things going wrong, despite unparalleled advances in knowledge and technology? This is the great unanswered question of our time. Keep reading...

A constitutionally limited government provides the services of security and justice. To accomplish this, it establishes a system of national defense, police and courts—these are the means of production of security and justice. By definition then, limited government is socialist (i.e., state ownership of the means of production.) It’s also socialist in the sense that the provision of security and justice is socialized: the costs and benefits are collectively shared. Furthermore, these services are funded through involuntary taxation and private citizens are coercively prohibited from competing in their provision. Government is inherently a coercive socialist monopoly. Therefore, constitutionalists are socialists, as they support limited government. (To be precise, constitutionalists are coercive socialists—I have nothing against voluntary socialism, which is perfectly legitimate.)

The thing is, they also consider the principles of liberty to be important. Constitutionalists believe that markets are better than central planning, but that government is necessary to protect liberty—that government is a necessary evil. This contradictory position mainly exists because they lack the understanding of the logical conclusion of the principles of liberty: the stateless society. But rather than just rejecting them as statists, we should reach out to them as potential libertarians in the spirit of gain orientation. Fortunately, an open mind and a little education are all that’s needed to arrive at a consistent pro-liberty position. Keep reading...

Good morning and welcome to the February, 2009 edition of the Market Anarchist Blog Carnival.

David Gross presents Like the withered stalk of a cattail posted at The Picket Line. David argues that there is growing awareness of the corruption in the central institutions of authority — government, economy, media, etc.

Andrew Q presents A Libertarian Defense of Property Redistribution posted at Capital Goods. He discusses Carson and Rothbard’s arguments on land theft and property redistribution.

Andrew Q also presents A Critique of Agorism posted at Capital Goods. Agorism is a novel strategy and merits further debate and discussion.

Scott Hughes presents What Freedom Means to Me posted at Philosophy Forums.

Francois Tremblay presents History is written by the idiots posted at Check Your Premises. He discusses the teaching of history and cautions anarchists in their choice of media.

John Petrie presents Toy lead-content regulations hurt small toy makers posted at Blagnet.net. Unsurprisingly, government regulations benefit big business while screwing the little guy.

John Petrie also  presents Saving is good, not bad, for American economy posted at Blagnet.net. John discusses the ecognorance of Keynesian pump-priming and the vilification of saving.

David Z presents Legalize ALL Drugs posted at No Third Solution.

Continuing with drug prohibition, see my article The Case Against Drug Prohibition. Not only is prohibition ineffective, but it causes crime, corruption, and increases the risk of overdosing.

That’s all for this edition, which will be the last due to a lack of interest. Thanks to everyone who submitted.

I will be hosting the February edition of the Market Anarchist Blog Carnival.  The Carnival is designed to promote  pro-market or anti-state ideas by collecting articles from Market Anarchist blogs.

Check out the January edition, hosted at Democracy Sucks.

Send your submissions here before Feb. 28.  Pro-market or anti-state viewpoints only.

This is going to be the last edition, due to a lack of interest, so send in your best writing. Let’s make this the greatest Market Anarchist Carnival of them all!