The Present 'Social Contract'

The Present ‘Social Contract’

            One idea that has been bandied about by political philosophers is the idea of the ‘social contract’, a contract that our ancestors allegedly entered into with the ancestors of modern governments, supposedly binding on future generations, giving their consent to be governed as we are today. Let us, for the moment, take this far-fetched notion seriously, and draft a ‘social contract’ that would be able to justify what modern governments currently do. I will leave it to the reader to judge whether such a contract would be valid according to the normal standards of contract law and even if it were, whether the reader would ever sign such a thing.

The Social Contract

I, Subject A, the undersigned, do hereby agree to the following:

1. Government A may take as much money or property from me as they see fit, as payment for the services that they provide.

2. Government A may compel me to anything they want me to do, or prohibit me from doing anything they do not want me to do.

3. This contract is irrevocable and I agree never to seek to make any other such contract with any other government whatsoever.

4. This contract is binding on all of my future descendants living in the specified geographical area claimed by Government A.

5. If I or my descendants should disobey or resist Government A as it uses the powers given to it in clauses 1 and 2, Government A may punish me or my descendants with fines, imprisonment, or, as a last resort, death.

I, Government A, the undersigned, do hereby agree to the following:

1. I will endeavour to protect Subject A and the property that I have not taken away from him from foreign aggression and aggression by domestic lawbreakers. I offer no guarantees pertaining to my success in these endeavours, but hey, I will do my best, as long as I'm not too busy gathering tribute or cracking down on victimless ‘crimes’.

2. I may, from time to time, use the money I levy from you to provide you with additional ‘services’. Some of these services I may force you to use, I might not allow anyone else to provide these services, and I make no promises about the quality of the services provided.

3. I agree to hold regular elections every 4 years, where Subject A and all of my other subjects can vote, the majority deciding the issue, on who is to fill certain posts in my governing structure. Once voted into office, these personnel will be imbued with the powers given to Government A in clauses 1 and 2 in Subject A’s contractual agreement above, and cannot be recalled until the next election.

(Note: By the way, if you, Subject A, should choose not to sign this contract, I, Government A, will imprison you until you do or I will kill you.)

            I don’t know about you, but I, in my position as a subject, certainly would never voluntarily sign this contract, and I doubt my ancestors would have either. If I was forced to sign it through the threat of imprisonment or death, I would not consider the contract legally or morally binding even for myself, much less for future generations who had no say in the matter whatsoever.

            

           In order to persuade me to sign any ‘social contract’ of this nature, the powers given to Government A in clause 1 and 2 of Subject A’s contractual agreement would have to be severely limited, limits not subject to revision without a full renegotiation of the contract. I would want clause 1 limited to taking, say, only 10%, at most, of each subject’s annual income, and clause 2 limited to only prohibiting things that physically damage other subjects’ persons or private property without their consent.       

   

A Superb Regulatory System

To the esteemed members of the legislatures of the world,

Ladies and Gentlemen, I write to you today to tell you that I have devised a superb system to regulate economic activities in your countries. You revered statesmen have often noted that capitalism and the free-market economy cannot function without proper economic regulation of its actors, and I cannot agree with you more. I thus propose the following system of economic regulations, which I humbly suggest may work even better than the vast array of regulatory measures passed by you, the members of the world’s most distinguished assemblies.

             

           What is the purpose of having economic regulations? I submit that their purpose is to induce the owners of enterprises and factors of production, especially those that are not-so lovingly referred to as ‘capitalists’ in common speech, to obey the dictates of the sovereign people, the ones that will consume their products. My system will prove quite effective in fulfilling this purpose, and here is how. 

           Businessmen will only be granted monetary rewards if they take a combination of factors of production valued at a certain price by the world’s market participants as their input, and with it, turn out an output of products that the world’s consumers, the sovereign people, are willing to buy at a higher price than the combined price of the input’s component factors. By turning out a more highly valued output with a less highly valued series of inputs, the businessmen can be said to be serving the sovereign consumers in an appropriate manner, and thus deserve to be rewarded for their efforts.

   

           But what of the businessmen who do the opposite, who turn more highly valued inputs into less highly valued outputs? They should be punished for the disservice they are doing to the sovereign people, in proportion to their mistake, by making them lose some of their accumulated monetary assets, the amount depending on the magnitude of their error.

               

            But, hold on a moment, for what if a particular businessman finds a good way of turning less highly valued inputs into more highly valued outputs and does so indefinitely, reaping vast monetary rewards for himself? He surely deserves something for his contributions, but perhaps a never-ending stream of monetary income for doing the same thing over and over again is a bit excessive? I agree, but luckily, my regulatory system has a secret weapon to prevent this eventuality, and that works in other beneficial ways as well. I call this aspect of my system: competition. Businessmen will not simply be assigned certain tasks to perform forever that are beneficial to the world’s consumers; rather, each businessman will compete with others in order to find the best way of turning less valued inputs into more valued outputs. If one finds a lucrative opportunity to do so, others may follow his lead and copy his actions in hopes of reaping some rewards for themselves. How will they do so? By trying to bid away the factors of production that constitute less highly valued inputs from other businessmen. But to do so, they will have to pay higher prices than these factors were going at before. In this way, the price of the input-factors will keep rising as more and more businessmen compete to use them to produce valuable output-products, while the price of the output will keep falling as more is produced and offered on the market, tending towards an elimination of the discrepancy in the price of input and output itself! 

           This will, consequently, restrict the monetary rewards of the businessmen performing certain activities, to the extent that more businessmen copy them in doing so. Thus, by forcing the businessmen to compete against each other, they are not allowed to rest on their laurels and earn a steady stream of monetary rewards in this way, but must constantly exert themselves to find new discrepancies between input and output prices in order to keep reaping monetary rewards. Besides this, competition will generally force businessmen to save scarce inputs as much as possible and produce as attractive and as high-quality outputs that the consumers are prepared to buy at suitable prices as possible, or else their competitors will do so and drive the laggards out of their exalted positions in the economy.

           

           I must note, dear legislators, that there is one thing that will undermine my system more surely than anything else, and that is: coercion. If the aforementioned businessmen are able to use violent force themselves, or through devilish tricks are able to convince you honourable members to use the might of government to advance their ends, than the system is placed in great jeopardy. They may use such coercive powers to exact tribute from the citizens of the world which they will receive regardless of how well they serve the sovereign consuming public. These tributes I call subsidies. They may also use their powers to violently prohibit other businessmen from competing with them, which I call monopoly. They may, alternatively, give themselves competitive advantages over other businessmen, which I call special privileges. Or, they may put in place arbitrary barriers such as licensing or operating requirements, not demanded by the consumers through their purchasing decisions, or tariff barriers in order to hinder potential competitors. Coercion used in these ways will diminish the efficacy of my regulatory system, and thus must be prevented.

            

            But I have pontificated enough about the workings and benefits of my system. You, dear lawmakers, must now be wondering: how do we put such a marvellous regulatory system in place? I have the pleasure to tell you that not only will it not cost a penny for the government to implement, but the government will actually save money if they do adopt this system. To implement my system to its best effect, consumers must be allowed to purchase freely and producers must be allowed to compete in whichever line of business they want to in whatever way, provided that when doing so, they do not coerce unwilling consumers or competitors using physical violence. I call my system the Free-Market Profit-and-Loss System, and to implement it, dear legislators, you must: do nothing save use the government’s power to stop private individuals from using coercion to circumvent the desires of the consumers, and you must refrain from using the government’s power to aid, directly or indirectly, certain businessmen at the expense of others. You will then have a regulatory system that is better than any number of government inspectors at ensuring that businessmen are serving the sovereign consumers as efficiently as possible with as little waste as possible, and rewarding and punishing the businessmen accordingly with monetary rewards. If you want to protect the consumers, then preserve a system where the only way the producers can make money is by competing with one another to serve these same consumers in the best way.      

The Dark Side of Historical Prosperity

            As discussed in my previous post, ‘The Ill Gotten Gains Problem’, for the sake of analytical clarity, wealth amassed through serving the world’s consumers and wealth amassed through the use of coercion and political privileges must be mentally isolated, and analyzed separately. This applies to the wealth amassed by individuals, and it also applies to analyzing the wealth or prosperity achieved by different societies in the historical past. We shall apply the analysis to historical societies in this post.   

Throughout history, there have always been two ways of obtaining wealth: the peaceful means of production and exchange, and the violent means of robbery, coercion, and special political privilege. Advancements in the peaceful means of production and exchange will result in a long-run, peaceful rise in the living standards of the whole market society, which currently comprehends the vast majority of the earth’s inhabitants.

Unfortunately, there is another way for individuals and groups of individuals to attain wealth: through violence and coercion. An individual or group of individuals can sabotage the system of production and exchange by interfering in the market order with violence. In the short-run, this violence will redistribute wealth from the coerced to the coercer. In the long-run, this violence, if it becomes a more widespread means to obtain wealth, will result in the impoverishment of the market society as a whole, as the violent means displaces the peaceful means, resulting in less prosperity for all.

            

           One of the reasons why many people continue to consider war and commerce as two aspects of the same thing is that throughout history, people involved in commerce have tried to use violence to give themselves an advantage. Medieval merchant and craft guilds sought to do so by seeking monopoly privileges for themselves and restrictions on potential competitors. The mercantile city-states of Genoa and Venice fought bloody wars in order to control the trade lanes on the Mediterranean and obtain special monopoly privileges from eastern states. Nation-states have sought to develop ‘their’ industries through mercantilism (favouring export industries at the expense of imports and establishing state monopoly companies) and imperialism.

            

           There is much debate about the historical role of these violent interventions in producing the wealth of various regions of the world. Particularly, the policy of mercantilism, or protectionism, is debated hotly. As a specific example, let us take the protectionism of the 17^th century English government. There were heavy duties placed on foreign manufactured products. Also, the Navigation Acts were passed, which required that all imports into England were to be imported on English ships or on the ships of the countries where the imports originally came from, no non-English middlemen (the Dutch, in particular) allowed. The intent of these acts was to help English manufacturing and English shipping develop, protected from the threatening competition of more efficient, foreign manufacturers and shippers (mainly the Dutch).

            

           Before even examining the historical circumstances and results around these policies, let us consult economic theory to ascertain the general effects that protectionism of this kind will produce. They are: 1. The English consumers of the time are injured. In the absence of these restrictions, they would have preferred to buy foreign manufactures and to employ the services of foreign shippers such as the Dutch as middlemen, or else the restrictions would have had no effect whatsoever. 2. The people involved in the protected industries are benefited.  They no longer have to worry about foreign competition as certain segments of the market are reserved for them exclusively, and they can thus afford to operate less efficiently and perhaps reap some monopoly gains, although in this case, domestic competition would still threaten them, making it less egregious for the consumers than a full monopoly grant such as the East India Company possessed. 3. The make-up of industry in the protected country changes. The make-up of industry moves away from that determined by the country’s place in the international division of labour in an open market. Resources are diverted to the protected industries, industries which must grow as the domestic consumers, who were just deprived of the services of foreign countries’ industries of this type, demand the services of these industries. In this case, English manufacturing and shipping in general gets a boost, at the expense of particular English specialities in these two fields and of other fields such as agriculture.

            

            It is this third effect that tends to lead certain people to advocate protectionism. They believe that certain economic activities, such as manufacturing, are superior to other economic activities, such as agriculture. It is thus the duty of governments to employ protectionist policies in order to assure that the superior economic activities become the speciality of their countries in order to raise the living standards of their population. There are several difficulties with this position though. Firstly, what makes one economic activity superior to another? There is a stigma associated with agriculture because of its role in history. Because food is absolutely vital to life and because raw land comes before the production of capital goods, agriculture was the basic economic activity for a very long time. Some people lived off of subsistence agriculture, where people grew enough for themselves and their families to survive and exchanged very little with others. In the European Middle Ages, when agriculture again advanced beyond the subsistence level and more and more produce was exchanged for money, it was the inhabitants of the towns who seemed to be the dynamic force in economic development. Short and long-distance trade, manufacturing, and financial services were the advancing frontiers of the developing economy. It was in the towns where new ideologies and political systems were developed, while the agricultural countryside was still enmeshed in the crippling traditional feudal system. Thus, agriculture came to be seen as the economic activity of economically undeveloped people, while the townsmen seemed to be the ones getting rich. 

           When one thinks about agriculture and resource extraction in general though, rather than their historical manifestations, there is no reason why they can’t be operated like any of the ‘developed’ industries. There is room in agriculture and resource extraction for capital investment, there are benefits from having more skilled practitioners and advanced techniques, and the products can be mass produced and traded to other regions of the world. 

           One objection is that in resource extraction in particular, but also in agriculture due to soil depletion, countries can run out of the resources necessary for these industries and deplete the vital economic force of the country, while in manufacturing and services the country is not extracting its own economic life force in order to prosper but using that of others. In response, I would say that a lot of the problems around resource depletion are due to an insufficient designation of property rights in the resources, not due to the nature of the industries in question. In land, sometimes the owner’s property right in the land is only confined to use, rather than to full ownership of the land and its capital value. Thus, it pays to deplete the resource as quickly as possible, without taking into account its long-term use value or capital value, because the possessor does not own this part of the land. This is rarely a problem in manufacturing, as manufacturers will usually own both the machine/factory and its products, thus taking into account effects of current production levels on the capital value of these things and acting accordingly. Also, even if particular, non-conservable resources such as oil deposits were exhausted, what’s to prevent the people in these countries from moving to others fields once the resource is depleted? Granted, it would be a shame that the specific skills of all those in the oil industry were no longer useful, but the free-market economic system is flexible, and eventually people would move out of this industry and carve out another niche in the international division of labour for that country, they won’t just sit around and bemoan their ‘underdeveloped’ fate.

            

           Besides the dubiousness of whether some industries are inherently superior or more developed than other industries, another serious problem with protectionism is that the consequences of its universalization are disastrous. The 17^th century English government, when it put heavy duties on foreign manufactured products, did not want other countries to do the same to them, far from it. The whole point of developing the manufacturing and shipping industries was so that English manufacturers could be shipped all around the world in English ships and traded for the goods of other countries, thus making England prosperous. If every government adopted the same policies, then impoverishing autarchy, not English prosperity, would have resulted. Just as the division of labour within countries vastly increases their prosperity, the international division of labour, due to the differences in natural conditions and individual skills between countries, vastly increases the prosperity of the whole world. If the English government had adhered to philosopher Immanuel Kant’s categorical imperative, and had acted so that their actions could be the basis for a general, universal rule of conduct, than autarchy and impoverishment, not economic development, would have been the logical result.    

            

           Some historians have interpreted the historical result of 17^th century English protectionism as paving the way, by changing England’s industrial make-up, for subsequent English economic dominance and the Industrial Revolution starting in England. Some historians, by contrast, argue that 17^th century English protectionism was mostly unenforceable and was constantly evaded by smugglers, as previous English attempts at protectionism had been, and that when it did have effects, these were pernicious and English prosperity and industrialization happened despite, not because of, this protectionism. More extravagantly, some thinkers such as Alexander Hamilton, Frederick List, Ha-Joon Chang, and Erik Reinert, assert that every economically successful country developed under protectionism, and only after their manufacturing industries had reached ‘maturity’ did it make sense to adopt a policy of free-trade. On the other hand, some overzealous libertarians have asserted that protectionism could not be responsible for any kind of prosperity for any country, and that protectionism was always an obstacle to a country’s economic progress. 

           One fact that both sides need to take into account is that the ‘country’ or ‘nation’ is not the subject of economic theory. Economic theory deals with the individual, a grouping of individuals for a common purpose known as a firm or corporation, and the market society (now virtually the whole world) as a whole. The individual is the basic unit of analysis, while the whole world is what economic theory has in mind when it says that freedom  leads to more prosperity than coercion. A ‘country’ or a ‘nation’ is not a meaningful term economically, when they can range from tiny city-states (such as medieval Genoa or modern Singapore) to vast countries covering half a continent (such as the United States). These political groupings are only meaningful when the interventionism of their respective governments and its effects on the international division of labour are considered. If the governments of these countries all adopted a laissez-faire policy, they would again be meaningless economically except for the different qualities of protective services that each country offered.

            

           Keeping that in mind, we can now examine the claims of the two sides of this debate. No libertarian with any sense would deny that through robbery and coercion, an individual or a group of individuals can become more prosperous than they otherwise would have been using peaceful means alone. Likewise, no protectionist of any sense would deny that a world where robbery and coercion are acceptable and are popular means of acquiring wealth will be a less prosperous world than one where robbery and coercion are not acceptable and are rarely used. Thus, when medieval Genoa dominated a certain trade lane, excluding all potential competitors through violence or the threat of it, this action enriched the merchant class of Genoa at the expense of Europe’s consumers, potential competitors, and norms of justice conducive to world prosperity. Whether in the short-run, the citizens of medieval Genoa itself were better or worse off from this action becomes a matter of conjecture and counter-factual history. 

           With 17^th century English protectionism, these policies enriched privileged English shippers and manufacturers at the expense of England’s consumers, potential competitors, and norms of justice conducive to world prosperity. Whether in the short-run, the citizens of 17^th century England itself were better or worse off from this action becomes a matter of conjecture and counter-factual history. As for the changes in the industrial make-up of England brought about by these policies and the possibility that these changes led to future English prosperity and the Industrial Revolution, this again is a matter of conjecture and counter-factual history. One could argue that these changes would have happened anyway without the protectionism, or that something even better would have happened without the protectionism. Suffice it to say that to observe a correlation between previous protectionism and the subsequent shifting of Europe’s trading hub to England and the Industrial Revolution occurring first in England, and then assigning protectionism as the sole cause of these incredibly complex economic and societal changes and advocating for the use of protectionism everywhere as a means of economic development, is an incredibly simplistic view of history.

            

           In general, history is a complex web of cause, effect, and unintended consequences. Adopting the ‘empiricist’ approach to the social sciences and using history as a laboratory to test the effect of certain policies is futile and leads to absurd results. Thus, it is a fairly well-accepted fact that the English privateers that raided Spanish bullion ships and brought the loot back to England contributed to England’s initial large-scale capital accumulation that permitted the development of capital-intensive English manufacturing and trading ventures. Using the crude ‘empiricist’ approach, we would have to conclude that piracy is a good means to kick-start economic development, and a policy to be recommended to all governments. 

           Similarly, some economic historians, not without cause, argue that the Black Death contributed to European economic growth. They argue that its tremendous mortality figures assured higher wages for surviving workers, recapitalized surviving family members from families involved in the financial and trading industries, and prevented European economic development from being stifled by the overpopulation characteristic of the Eastern  countries. Seeing this, the crude ‘empiricist’ would have to argue that killing two-thirds of your country’s population is a good way to ensure the future economic development of your citizenry, and should be adopted by all developing countries. 

            I bring up these seemingly absurd examples because similar reasoning is used in the advocating of protectionism based on its historical record. So protectionism may have contributed to the economic prosperity of certain regions of Europe at certain times such as some medieval Italian city-states and pre-modern England, so what? It injured more efficient competitors, hurt consumers, disrupted the international division of labour, and, if universalized, would have led to norms of justice not consonant with world prosperity, but ones leading to autarchy and impoverishment. And in fact, this really happened in the 20^th century. The protectionism, nationalism, imperialism, and socialism of the late 19^th and early 20^th century contributed to the European belligerence resulting in the First and Second World Wars. Nazi Germany and other expansionist powers had just taken the logic of the English protectionists to its logical conclusion: we should not have to depend on foreign countries for anything but should be self-sufficient (ie. autarchic), but to do so we need more resources and Lebensraum (living space), thus we must conquer, there is no other choice.

            

            For too long, the historian has contributed to nationalism. Many historians portray history as some sort of competition between different political groupings of men for wealth and power, and call policies that advance the wealth and power of the political grouping in question “successful” and those that don’t “failures”. Rare is the historian who concerns himself with the fate of the whole world, and concerns himself with the effect of historical actions on the development of ideologies/norms of justice that either lead to world prosperity and peace or world impoverishment and war. Any violent intervention in the market order leads to less prosperity for the consumers of the world, not more, and leads to perverse ideologies which in turn lead to even less prosperity and even more misery. How widely the benefits of coercion are spread is a complex question that will depend on the specific circumstances, but widespread coercion will never lead to an augmentation of world prosperity or an ideology more suited to world prosperity than freedom, and these are the vital issues which more historians should consider.                                     

The Real Political Spectrum

            Now, as always, if you listen to most people, the fundamental division in politics is between ‘Left’ and ‘Right’. But, if you ask someone to define what principles these leftists and rightists stand for, you will not receive a clear answer. This is because the meaning of these terms keeps shifting. Being the world’s most important democracy, usually the United States’ political groupings are used as a general frame of reference in defining Left and Right. The Democrats, supporters of the welfare state but more liberal on social issues, are the Left, while the Republicans, moderately more free market-oriented but with a corporatist and warmongering bent, and restrictionist on social issues based on ‘Christian morality’, are the Right. But these are just lists of measures that two political parties, in a particular political climate, tend to support. When it gets down to fundamental political principles, one would be hard pressed to find a clear difference between the two.

            

            The real political spectrum, by contrast, consists of two general principles: freedom on one side, coercion on the other. It is possible to split the goals for employing coercion into two principles: elitism and egalitarianism. The most important political issue is: should individuals be free to pursue their own ends and engage in voluntary exchanges with others, thus generating what is known as the free-market? Or, should individuals be controlled by the government and be subordinate to its ends, thus imposing the social structure which, when taken to its logical conclusion, results in socialism/communism, or total government control of the means of production? To ascertain where someone stands on this linear spectrum is simple: how much government intervention in the economy and the lives of individuals do they advocate? One complication is that, the more government intervention a political commentator advocates, the more he has to specify of what that government intervention will consist. Will the government coercively support Christianity? Islam? Poor People? Established Corporations? The Military? Environmentalists? Farmers? Urban Workers? A combination of two or more of the above? While the combinations are virtually endless the more interventionist a government is, two general motives for interfering can be separated: elitism and egalitarianism.

           

            Elitism is when a coercive intervention is undertaken in order to grant a political/coercive privilege to a particular group, for reasons other than pursuing socio-economic equality. Thus, a subsidy to Christian churches is Christian elitism, a subsidy to established corporations is corporate elitism, the recognition of coercive labour unions is labour union elitism (as labour unions benefit the unionised workers at the expense of other workers in that industry and consumers in general). 

            Egalitarianism is when a coercive intervention is undertaken in order to grant a privilege to a particular group, with the proclaimed goal of making the material conditions of the population under the government’s control more equal. Progressive income taxation in order to support welfare payments is a form of egalitarianism, as are public schooling and public healthcare.

           In reality, most governments and political parties mix elitism and egalitarianism into their arsenal of interventionism. Thus, the Democrats under Barack Obama bailed out corporations, continued the government’s robust support of the inflationary central bank system which benefits the banking system, and subsidized inefficient green energy companies, all forms of elitism. They have also sought to subsidize poorer, uninsured people at the expense of insured people in their healthcare legislation, and have sought to pay the government’s debts mainly through taxing richer people, all forms of egalitarianism. It is easy to see why this is the case: political parties all rely both on high level support from rich, established organizations (for campaign contributions, access to media, etc…) and on grass roots support from the voting public in order to secure the actual popular vote. Crony ‘Intellectuals’ are incentivized by wielders of political power to convince the public that the elitist programs are not just subsidies to established interests, but are necessary, beneficial measures for the public weal, and to sell egalitarian programs as just taking from the undeserving rich to give to the deserving poor, something that every ‘compassionate’ society must do. 

            The Republicans are not very different, appealing to the moralist fanaticism of their Christian base with a sprinkling of rhetoric about freedom, while working to grant vast corporate privileges and expand the military capabilities of the government at the expense of the taxpayer.

            

           The tragedy of the supposed Left-Right divide is that people are led to believe that while one complex of statist measures advocated by the other party is bad, the complex of statist measures advocated by ‘their’ party will be good. Few question the basic principles of both parties, or venture to question the measures that have been agreed upon by both parties. Thus, in the US, the desirability of central banking and inflation, the maintenance of the American empire through vast expenditures, the maintenance of a vast welfare and regulatory apparatus, are rarely questioned, while emotional issues such as abortion, gay marriage, and the relative tax proportions of Warren Buffett and his secretary become polarizing issues. The one who benefits from this is the government establishment, irrespective of party affiliation. The bureaucrats, the generals, and the politicians go on their merry way, without any significant changes being made when one party or the other is in charge. The reality of this can be shown by pointing out that no politician, of either party, except for Ron Paul who is a libertarian, in the post-WWII period, has ever advocated for a return to the relatively laissez-faire policies of the US government throughout the 19^th century, the most economically dynamic century of American history. Debates have been about the desirability of particular statist measures versus other statist measures, never on the desirability of statism itself. Elitism and Egalitarianism, Corporatism/Militarism and Welfarism/Socialism, advanced in the 20^th century under both parties, while freedom was never even considered (including under Reagan, who amassed more debt and increased military spending more than anyone).

            

               Thus, rather than taking a stand on the phony political spectrum of Left versus Right, study up on the merits of freedom versus coercion in all areas of human endeavour, and once you have educated yourself in this manner, take a principled stand on the real political spectrum of libertarianism versus statism in all of its varieties, whether it be elitist or egalitarian.   

Morality and Utility

(Note: I recommend that you read my previous post, ‘Reconciling Natural Law and Utilitarianism’, before reading this one.)

           The relationship between morality and individual utility is a complicated one. First, we will lay out our conclusions, and then go on to explain them:

1. At its root, any good moral code must be based on some kind of utilitarianism.

2. The moral code that, if followed consistently by many people in a society, results in the greatest facilitation of peace and increasing material prosperity, is the one that is objectively good, except when judged by murder-loving psychopaths or total ascetics.

3. Though the root of a good moral code is ultimately utilitarianism, the only way that a good moral code can have desirable utilitarian effects is when it is treated not just as a means to greater utility, but as an end in and of itself by individual actors. This works with human psychology, in that it seems that humans feel a need for some kind of moral code so that by following it, they can think of themselves as ‘good’, as ‘righteous’, or as ‘heroes’. The job of the social thinker is to make sure that a moral code with positive utilitarian effects fulfils this role rather than one with negative utilitarian effects.

            Conclusion #1 and #2 follow because if we are faced with a choice between adopting one of two moral codes, by what other standard could we judge the two then by their likely utilitarian effects if adopted consistently by most members of society? Let us say we are faced with the choice between a property rights-based moral code (thou shall not kill, thou shall not steal, no fraud, reward through contribution and ability, etc…) and an egalitarianism-based moral code (economic equality is the most important good to be pursued, reward based on needs rather than contribution and ability, etc…). Economic theory tells us that a society where something closer to a property rights-based moral code prevails will tend to be more peaceful and prosperous than a society where something closer to an egalitarianism-based moral code prevails. Thus, the former class of moral codes can be said to be objectively better for the vast majority of people than the latter class of moral codes.

            

              Complications pop up when it comes time to nail down the real particulars of a moral code though: will any exceptions to following it with consistency be tolerated? For example, if a society adopts a property rights-based moral code, would it be considered morally acceptable for a poor person on the actual edge of starvation to steal some food, or to institutionalize this behaviour through a minimal, government-provided social safety net? Would it be considered morally acceptable for a government to violate people’s property rights and levy taxes, if the purpose of the taxes was to better protect those property rights from domestic criminals and foreign governments? What happens if we conclude (which I think we potentially could) that allowing these limited exceptions would tend to result in more utility for individual members of society overall?

            

           Here, we have a problem. The whole point of having a moral code is to induce people to act, consistently, in a certain way that will ultimately lead to a greater ability for all individuals to enhance their individual utilities. As such, it must have a certain degree of rigidity to it. A moral code ceases to have any utilitarian benefits if people are allowed to riddle holes in it merely because they think that these constant modifications they make will actually lead to more utilitarian benefits than the original code. Also, one of the merits of a property rights-based moral code is that it assures people that certain individual rights and property rights will be respected, which allows them to plan for the future and improve their properties and minds without fear of a ‘moral revolution’, knowing that their rights will still be respected then. People who just take it upon themselves to constantly ‘modify’ moral codes for allegedly utilitarian purposes undermine the security of everyone in society, whose rights and properties are constantly being threatened by these modifications.

            

           The answer lies in the consistent following of a good moral code being turned into an end to be pursued for its own sake, rather than just a means to the end of increasing utility in other ways. Luckily, human psychology, judging from the observation of history, would seem to offer a way to do this. It would seem that humans generally feel a need for some kind of moral code so that by following it, they can think of themselves as ‘good’, as ‘just’, as ‘righteous’, or as ‘heroes’. Given this psychology, following a moral code becomes not just a societal means of satisfying other ends the individual may hold (such as having a car, eating ice cream, having a nice house, etc…) but becomes an end in its own right, setting itself up on people’s value scales alongside things like houses and cars. The job of the social thinker is to make sure that a moral code with positive utilitarian effects fulfils this role rather than one with negative utilitarian effects.

           

           If this is done then, for instance, the starving poor person alluded to earlier may still steal the food to survive, but the moral code he has hopefully adopted along with most of the other members of society will make him feel that this action is morally wrong, albeit perhaps necessary. The same applies for the government. It may perhaps be conceded that allowing a minimal government to do certain things through the use of force would be beneficial in a utilitarian sense, but that would have to be counterbalanced by the violations of the generally-accepted, property rights-based moral code that such coercive actions would entail. This attitude would go a long way towards checking any of the excessive bloating of government that happened in the past, where this bloating coincided with a gradual weakening of property rights-based moral codes and a gradual strengthening of egalitarianism-based ones.                 

            

Reconciling Natural Law and Utilitarianism

            When it comes to the foundations of human morality and justice, there are three major foundations suggested: divine revelation, natural law, and utilitarianism. Divine revelationists believe in an omniscient and omnipotent deity that can communicate his codes of morality and justice to humans through revelation. These ‘revealed’ codes then become the basis on which human codes of morality and justice should be based. However, because I don’t believe in such a deity, I will not elaborate on this foundation, which for that reason is not convincing to me. Natural law theorists, whether theist or atheist, believe that there is a set of rules of justice that, because they are suited to the 'nature' of humans, should be followed by humans. These general rules must be ‘discovered’ by the use of human reason. Because they are ‘natural’ to humans, they will also appear reasonable to the human mind. Once discovered, these general principles should be used as the foundations of more complex and situation-specific codes of justice and morality. Natural law theorists point to the striking similarity of basic legal principles across different civilizations, such as injunctions not to murder without cause or steal property, as evidence that the natural law exists, and that these basic principles are part of it. Of course, the natural law theorist does not argue that all law codes adhere to the natural law, and these law codes are criticized when they diverge from the natural law discovered by reason.

            

            Utilitarians, since Jeremy Bentham called the natural law “nonsense on stilts”, have tended to set themselves in opposition to natural law theorists. Benthamite utilitarians argue that any political measure is to be praised if it results in the “greatest happiness for the greatest number”, and derided if it does not. To render their principles more ‘scientific’, they tried in vain to find a way to measure happiness, or ‘utility’, so as to render their dictum more operational. A more refined version of utilitarianism has been dubbed ‘rule utilitism’ by Henry Hazlitt. Rule utilitists such as Hazlitt and Ludwig von Mises argue that since utility cannot be measured or compared across different people, the Benthamite dictum is liable to be used for all kinds of wild plans. They suggest that what is necessary is for general rules to be formulated that human reason suggests would lead to a situation in which, in the long-term, the most people’s utilities can be optimized. The preservation of society through recognizing self-ownership and private property as general rules are put forward as such by Mises and Hazlitt, because without a society based on private property, it is evident through the use of reason that less people could achieve their respective ends, both material and psychic.

            

           However, formulated this way, the rule utilitist version of utilitarianism and natural law, to my eyes at least, do not seem so far apart after all. Both say that there are general rules that must be formulated (or ‘discovered’, same thing in practice) by the use of human reason that will result in the social order that is most expedient for the pursuit of the various ends that humans hold. Bentham’s and Mises’s objection to natural law was that it was being used to justify all kinds of divergent political schemes. No one could agree on what the natural law was, and hence they just claimed that their views of justice accorded with the natural law, and everyone else was an impostor, thus introducing dogma and fundamentalism into political philosophy. But the natural law theorist could just argue that divergent natural laws came about because some were better at logical reasoning than others, and that there was still one natural law that could be revealed as the correct one through proper logical reasoning. Also, they could turn it back on the utilitarians, and point out that utilitarians had vastly divergent views themselves on what would bring “the greatest happiness for the greatest number”. Murray Rothbard, a natural law theorist, criticized utilitarianism on the ground that since utilities are subjective and cannot be measured interpersonally, the utilitarian cannot possibly know what measures, or even general rules, would maximize utility. Thus, if someone did not care about the preservation of society in the long-run and just wanted to loot and kill people in the short-run, there is nothing the utilitarian can say, without making illegitimate interpersonal comparisons of utility and value judgements about what time horizons humans should hold, that would condemn this valuation and acting on this valuation. But, this objection could be turned around on the natural law theorist. For what if the same person rejected the natural law theorist’s argument that ‘reason’ and ‘nature’ proscribed a particular course, when the ‘nature’ of this particular person was to brutally massacre people and his ‘reason’ told him that he did not care about the long-term consequences? 

           Thus, it would seem that both natural law theorists and utilitarians just have to recognize that most people care about material prosperity and freedom to pursue their own ends, and that while agreeing on general rules of self-ownership and private property in order to preserve a social arrangement that makes these goods possible and imposing this agreement on crazies who just want to rob and kill people for the fun of it is a tiny bit majoritarian, this little, reasonable bit of majoritarianism is worth it and is necessary.  

            

           Thus, rightly understood, natural law and rule utilitist utilitarianism are really quite similar, both enjoining using human reason to come up with general rules that will underpin a social arrangement that will maximize humans’ ability to pursue their own ends, material and psychic. The objections levied against one can be levied against the other as well, and both must recognize that a tiny, eminently reasonable bit of majoritarian compulsion is necessary to enforce these general rules against unreasonable, destructive people. Thus, let the controversy end, and let efforts to elucidate, elaborate, and disseminate the relevant general rules necessary for a peaceful and prosperous society be redoubled, whether you call yourself a natural law theorist or a utilitarian.                                

The Ill Gotten Gains Problem

           One thing that statists (opponents of the free-market, supporters of relatively extensive government intervention) typically are eager to deny is that rich people have earned/deserve their money. This is because libertarian defences of the right of rich people to collect and keep their fortunes assumes that the riches in question were earned by serving society’s consumers (everyone, for all intents and purposes). The more effective one has served the consumers, the more money one makes. A problem that arises when examining the fortunes of current rich people in the real world where a pure free-market order is not in operation is that a lesser or greater part of many of these fortunes were acquired through political privileges, not purely on consumer-serving ability.

            

           Most libertarians do not deny this fact; some even emphasize it in order to show how government interventions in the free-market order allow certain politically well-connected businessmen to gain at the expense of less well-connected businessmen and consumers. Many statists seize on this fact too though, and try to use it to make an argument that goes something like this: ‘Rich people have only acquired their fortunes through graft, political privileges, and other sorts of villainy. Also, even if they seem honest now, the only reason why they were able to amass their fortune was through the nefarious deeds of their ancestors, who robbed the land and possessions of poor people in the past. As such, when we propose that the rich pay a higher percentage of their income as tax, we only intend for society to take back what these rich scoundrels and their ancestors have taken out of society to begin with. Thus, our taxation policy is in accordance with justice.”

            

           There are several serious problems with this argument, which the majority of this post will be focused on exposing. First, while some fortunes have been acquired primarily through political privileges and other anti-social means, to assert that this is so for all fortunes is extravagant and inaccurate. The best way to think about this is to abstract away from the real world and its complications for a moment and think in terms of ideal-types. This is what the libertarian writer Ayn Rand does in her famous, controversial novel/philosophical dialogue, Atlas Shrugged. In it, the two main protagonists are Dagny Taggart, an efficient, competent, and energetic female rail-road executive, and Hank Rearden, a man who started small and rose to own the most successful steel company in the world and even invented a new, superior kind of industrial metal alloy. Both of them are intent upon accumulating money, but they are intent on earning it through making their respective products the best they possibly can be, and then selling them on the open market to willing buyers. Both of them despise political gamesmanship, do not seek any political privileges for their businesses, and despise those who receive such privileges. On the other hand, two of the antagonists in the novel are James Taggart, Dagny’s Brother, and Orren Boyle, Hank’s competitor in the steel industry. They are not very efficient or competent businessmen, but they have good connections in Washington, which allows them to get special privileges for their respective businesses. They despise Dagny and Hank for being selfish, materialistic, and overly competitive.

           

           With these ideal-types in place, Rand can then comment, without contradiction, on the respective value systems and societal worth of the protagonists and the antagonists. According to Rand, Dagny and Hank deserve their money and their success because they achieved it by making a product which advanced the well-being of their customers, while James and Orren do not because they achieved it through mulcting the consumers and their more efficient competitors. When libertarians and free-market advocates praise rich people as having contributed a lot to society, they are referring to those like Dagny and Hank, not those like James and Orren who would not have made any money in a truly free-market order, they only made it through subverting that order for their own narrow, short-term benefits. When examining the income of current rich people in the real world, more often than not it represents a combination of the tactics of the ‘good’ businessmen, mixed with the tactics of the ‘bad’ businessmen. While this will affect most libertarians’ evaluation of individual businessmen, isolating the two methods of making money shows that it is possible that, with the right institutional conditions, the people receiving high incomes will have earned those high incomes by serving the consumers of society.

Empirically, there is a significant qualitative difference between how the rich in the pre-industrial era made their money and how the rich in the industrial era did. The populace was rarely benefited,  and often hurt by, the activities of rich medieval noblemen, who acquired their wealth largely through political privileges and violence. On the other hand, the consumers of an industrial society certainly receive important benefits from at least a significant chunk of the activities of the rich owners of corporations who cater to the needs of the masses, corporations such as Subway, Wall Mart, The Gap, and many more. While income gained through political privileges and violence still exists, and grows the more important government intervention becomes in an economic order, certainly a significantly greater proportion of the income accruing to rich people at present was gained through serving the consumers efficiently than was the case before the industrial era. Ignoring the distinction between the two methods of earning money and just calling all of the rich ‘scoundrels’ and their income ‘unearned’ is overly-simplistic and represents an inability to think abstractly and mentally isolate the various different phenomena that are all operating in the real world and which must, for clarity’s sake, be considered separately.

               

           Even if we were to unrealistically assume that a large proportion of most fortunes today were solely due to political privileges rather than due to serving the consumers efficiently, the conclusion to tax the wealthy more still does not follow. What is the point of having the government give the politically privileged rich subsidies with one hand and take away the same amount in additional taxes with the other? Even if we could do the impossible, and determine the exact amount of extra dollars that the political privilege allowed certain rich people to make, and then tax them the exact same amount extra, there is still no point. In reality, these determinations are not attempted, with ‘rich’ people above a certain income level all paying the same extra taxes, no matter how relevant political privileges were in the making of their income.

            

           Having dealt with the current income of rich people, let us now look at the foundation of their wealth: land and capital holdings accumulated and passed down by ancestors. It is true that, if we look at the history of most parcels of land in the world, we will find that at some point or other, probably multiple times, they were taken from what should have been their rightful owner by an expropriator, who claimed it as his own by force. Does this mean that we should consider the current private ownership of every parcel of land and natural resource as we do a recently stolen car, that is, as illegitimate? The answer should be a resounding ‘No’. Anglo-Saxon Common Law has a statute of limitations for such claims to ‘stolen’ property or broken contracts for a very good reason. A private property society cannot function if people’s rights to own certain pieces of property are constantly called into question by the almost inevitable discovery that acts of expropriation had occurred with regards to that property, somewhere in the mists of history. Just as people won’t be as incentivized to improve their property and accumulate capital if they fear being expropriated by a government, they also won’t be as incentivized to improve their property and accumulate capital if they fear their property being taken by the heir of some obscure medieval peasant family who finally found evidence to prove that that land had once rightfully belonged to his family.

           

           Besides this, in a rapidly progressing commercial/industrial economy with free-market institutions, wealth and property are constantly changing hands, tending to go towards those best able to serve the consumers. Someone who acquires or inherits money must invest it in those lines and businesses which he expects will best be able to serve the consumers in order to make an income and avoid slowly dissipating his capital through consumption. Someone who acquires or inherits land must maintain the site and make sure that it is used in the ways which will best serve the consumers if he hopes to get a money-income from that land and not just use it for self-sufficient production. Those that fail in these tasks will dissipate their capital and may have to sell their land for cash. A good example of these phenomena occurred in England. In the Medieval and Early Modern periods, most of the land in England was 'owned' by noble families, who had acquired it through violence or as a political privilege. With the rise of a commercial/industrial society in England though, if the nobles wanted to enjoy a high standard of living for the time period, they had two options: they could continue despising business and just dissipate their capital and sell their lands in order to continue consuming at a high level, or they could adopt the ways of capitalistic business and try to keep a steady income flowing from their money capital and land holdings. One can find examples of both strategies in English history. In either case though, over the course of the nineteenth century especially, the importance of the large noble landowner as a privileged economic caste diminished significantly. Without any major governmental policies of land reform/redistribution, capital and land naturally flowed to those better able to use it to serve the consumers and do well in the new industrial market economy. All this is to say that in a free-market, industrial economy, the economic significance of a past act of expropriation gradually, and sometimes quickly, loses its importance, as the expropriator or descendants of the expropriator must learn to serve the consumers in a free-market order if they wish to maintain their standard of living and level of wealth.

            

           These points should be enough to dispose of the statist argument presented at the beginning of this post. There remains the question though: after what period of time do we let bygones be bygones, and under what circumstances should property be returned to its former owner who was expropriated? It should go without saying that, as with any legal charge in a civilized legal system, any person accused of illegitimately holding stolen property should be assumed to be innocent unless proven guilty. The burden of proof would be on the plaintiff to produce documents proving that the property in question had been stolen in the past. It should also go without saying that ‘evidence’ based on ‘historical traditions passed down orally’ should not be accepted in a court of law, no matter what the most esteemed courts in Canada dealing with aboriginal issues claim.

            

           That said, if it can be sufficiently proven that the property in question was stolen in the past, the response should depend upon the nature of the property and what was done with it in the period since it was stolen, and on the length of time that has elapsed since it was stolen. For instance, a situation in which the land should probably be returned to its rightful owner is in cases of remnants of feudal land relations that can still be found in places such as Southeast Asia and Latin America. A feudal land relation is when a 'landlord' claims to own a vast swath of territory through the use and threat of force, but allows his ‘tenants’ to work the land and carry on their business, as long as they give the lord a cut. Rectifying the issue of the illegitimate land ownership of the feudal lord is relatively simple: just give the land to the people who are currently living on it/using it for their economic activities, and take the feudal lord out of the picture. I should emphasize that the foregoing is not an indictment of every landlord who rents his land to tenants, far from it. It is only the case of feudalism where the landlord clearly obtained title through expropriation or by purchasing it from an expropriator and is not really contributing anything positive to the lives of his tenants. If history were changed and feudal lords had never appeared on the scenes, the peasants and townsmen just would have owned the plots of land they were using themselves and little else would have changed. This is not the case, for instance, in an urban apartment building where a landlord owns the building and charges the tenants rent to live in the rooms. If a landlord or the person he purchased it from had not built the apartment, there would not have been an apartment for the tenants to live in.

Besides the feudal situation, most historical grievances related to land ownership should probably be forgotten about, unless the expropriation was fairly recent. This is because any inheritors of the expropriator’s land or people that he had sold the land to would not have been the ones to commit the crime themselves and would have assumed, probably quite reasonably, that the land was theirs to own legitimately and that they should go about improving the land. To grab back the land, at that point, and give the improved land to the descendants of the person who had been expropriated in the past does not seem fair, and as mentioned earlier, it would undermine the security of property rights necessary for a prosperous private property society to function and progress economically by diminishing incentives to improve land.

            

           That being said, there should be some measures, for land and for movable goods, to ensure that criminals don’t benefit from their crime. If a car thief steals a car and immediately sells it to an unknowing car dealership, the car should still be returned to the victim and it should be up to the car dealership to try to ensure that the thief pays them back somehow, and hopefully in the future be more careful about what property they buy. Similarly, if a bandit gang drives the rightful owners off a piece of land and then sells it to a corporation, as long as the suit is brought relatively quickly before the corporation invests tons of capital into the land, the land should be returned to its rightful owners.

            

           Thus, such is the ill gotten gains problem and such is what it does and does not imply, and what should and should not be done about it. It is an issue that should not be ignored, but nor should it be blown out of all proportions and used to justify expropriating wealthy people, leading the way to a system where ill gotten gains become more and more important along with the influence of politics in the economic sphere, that is: socialism and interventionism. Rather, we should seek to institute a set of institutional arrangements where ill gotten gains gradually become less and less important, that is, free-market capitalism.          

Thoughts on Environmentalism: Climate Change

Environmentalists also tend to worry a lot about carbon emissions from human productive activity because of the possibility of them causing ‘global warming’ or ‘climate change’. Most climate scientists agree that carbon getting trapped in the atmosphere will have a warming effect. What they disagree about is the climatic feedback effects of this warming. Some theorize that the climatic feedbacks will amplify the carbon/greenhouse warming effect by three times, as more evaporation from the oceans leads to even more heat-trapping than the carbon greenhouse effect because water vapour itself is the main greenhouse gas. More skeptical scientists theorize that the climatic feedbacks will actually dampen the carbon warming effect by half, as the extra water vapour from the direct warming effect of the carbon condenses into clouds, which reflect sunlight back out to space and cool the earth. The empirical data collected so far is probably not conclusive enough to directly lead to one theory or the other, but the extent of warming predicted in the 1980s based on the former theory has not shown up in the empirical data, lending some legitimacy to the skeptical position.

(Note: All of this information is from the short article, The Skeptic’s Case, by climate scientist David M.W. Evans, found at https://mises.org/daily/5892/ )

            

           I am not a climate scientist, and which theory is correct is an issue to be solved by the physical sciences, not the social sciences. Despite this, this scientific question has some political implications, which can be analyzed as a social science question.

            

           Essentially, there are three ways of dealing with the potential anthropomorphic climate change issue, which I will outline and evaluate. The first is to politicize the issue and throw it as a bone of contention into the cesspool of party politics. Some interest groups and political groupings will be interested in exaggerating the threat; some will be interested in downplaying the threat, depending on their economic positions or general political ideologies. Sympathetic scientists will be enlisted by both sides, and scientists of the other viewpoint will be denounced, making a political/ideological issue of a physical science issue that in truth either goes one way or the other, and that is decidedly not a ‘matter of opinion’. There will be strong forces operating to undermine the scientific integrity of the climate science field. Based on shaky scientific theories influenced by general political ideologies, governments will enact policies with serious ramifications for the productiveness of the economy. This ‘solution’ is decidedly the worst, and it is the solution being pursued at the moment.

            

           The second way of dealing with the issue is through a courts and property rights approach, similar to the way of dealing with air pollution outlined previously. It could be argued that along with property rights in the quality of the air which can be protected against polluters, people also have property rights in a climate not substantially changed for the worse by the actions of other humans. Thus, someone would have the right to bring a lawsuit regarding climate change to the courts. If it could be proven, according to the normal rules of evidence and beyond a reasonable doubt, that other humans were causing climate change, the nature and extent of that change, and that the change would negatively impact the property of the plaintiff, the courts could then authorize the government to set up some kind of carbon cap and trade system to prevent or mitigate this change. These kinds of cases would bring climate change science under the scrutiny of the judicial system, and the rigorous rules of evidence would apply. Hopefully, this would allow climate change policy to be less politicized and more based on objective scientific evidence. The problem is that by recognizing people’s absolute right to an unchanged climate, this could, assuming the evidence were there, lead to some pretty rigid carbon caps which might have serious implications for productivity.

            

           The third way of dealing with the issue is probably, given that the science seems to suggest that the theories of the global warming alarmists are either not correct or exaggerated, the one I currently prefer. This is to treat any anthropomorphic climate change that might occur as a natural phenomenon, and thus not a violation of anyone’s rights, just like an earthquake is a violation of no one’s rights. The fact is that, whether caused by humans or not, the world’s climate will substantially change at some point in the future. The coming and going of the Little Ice Age, which lasted from about 1550 to 1850 AD, with different effects in different regions of the world, represented a serious climate change that occurred relatively recently. The richer, the more capital-intensive, and the more technologically-advanced the people of the world are, the better they will be able to deal with any dislocations which climate change might cause. Crippling production through strict anti-carbon emissions laws will lead to less of these things, the things that people need to effectively adapt to any climate change, man-made or otherwise. Thus, perhaps the best solution is just to let people press on with un-crippled production and hence be more ready for any climate change when it occurs.

            

            Of these solutions, I think that one is the worst, while two and three both have their merits. Given the current state of the science, I think approach three would be the simplest and the best overall, but if the science clearly indicated a serious problem that climate change might cause, perhaps taking it to court and allowing a carbon cap and trade system if the case was successful could be called for. In either case, climate change is certainly not something that should make us rethink our entire economic system and substantially cripple our productive potential as some radical environmentalists claim.