Today’s Quote of the Day…

…is from page 155 of the Liberty Fund’s edition of Adam Smith’s 1759 book The Theory of Moral Sentiments (emphasis added):

In war and negotiation, therefore, the laws of justice are very seldom observed. Truth and fair dealing are almost totally disregarded. Treaties are violated; and the violation, if some advantage is gained by it, sheds scarce any dishonour upon the violator. The ambassador who dupes the minister of a foreign nation, is admired and applauded. The just man who disdains either to take or to give any advantage, but who would think it less dishonourable to give than to take one; the man who, in all private transactions, would be the most beloved and the most esteemed; in those public transactions is regarded as a fool and an idiot, who does not understand his business; and he incurs always the contempt, and sometimes even the detestation of his fellow-citizens. In war, not only what are called the laws of nations, are frequently violated, without bringing (among his own fellow-citizens, whose judgments he only regards) any considerable dishonour upon the violator; but those laws themselves are, the greater part of them, laid down with very little regard to the plainest and most obvious rules of justice. That the innocent, though they may have some connexion or dependency upon the guilty (which, perhaps, they themselves cannot help), should not, upon that account, suffer or be punished for the guilty, is one of the plainest and most obvious rules of justice. In the most unjust war, however, it is commonly the sovereign or the rulers only who are guilty. The subjects are almost always perfectly innocent. Whenever it suits the conveniency of a public enemy, however, the goods of the peaceable citizens are seized both at land and at sea; their lands are laid waste, their houses are burnt, and they themselves, if they presume to make any resistance, are murdered or led into captivity; and all this in the most perfect conformity to what are called the laws of nations.


Today’s Quote of the Day…

…is from Page 10 of Ludwig von Mises’ 1949 treatise Human Action (emphasis added):

It is true that economics is a theoretical science and as such abstains from any judgement of value.  It is not its task to tell people what ends they should aim at.  It is a science of the means to be applied for the attainment of ends chosen, not, to be sure, a science of the choosing of ends.  Ultimate decisions, the valuations and the choosing of ends, are beyond the scope of any science.  Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends.

Far too many economists, both in Mises’ day and today, make the very mistake Mises warns against: treating economics as a science of the choosing of ends.  They consider themselves enlightened for building models that can maximize this or minimize that, and then call for said models to influence policy.  But building models like such, as Jim Buchanan said in his 1964 paper What Should Economist Do?, is the purview not of economics, but of applied mathematics.  Indeed, anyone with even an elementary level of calculus would find such a task trivially easy.

But economics is not this; it is not merely optimizing some constrained function with some universally desired “social goal.”  Economics is the study of exchange; Of competing interests for scarce resources and the institutions that arise to deal with these issues.  In short, the study of human action.

Economics as a Positive Science

Following a natural disaster, one can count on two things in the opinion pages and blogosphere: economists of all stripes decrying price-gouging legislation in a disaster and proponents calling economists immoral for questioning such legislation.

The conversation/disagreement between these two is a microcosm of a much larger discussion: the difference between the normative (subjective) and the positive (objective).

Economics is a positive science.  It deals with what is, not what ought to be.  When economists argue that price ceilings (like price-gouging legislation) cause shortages, that is a positive claim: it is a claim of what is.  This claim can be empirically tested, but it does not reflect the moral positions or suppositions of the economist.  In fact, the claim carries with it no moral implications whatsoever.  The claim price-gouging legislation causes shortages carries with it no more or less moral weight than the claim the sky is blue.

Conversely, morality is a normative science.  It deals with what ought to be, not what is.  When moralists argue that raising prices during a disaster is immoral, that is a normative claim: it is a claim of what ought (not) to be.  This claim cannot be empirically tested (although it can be tested to see if it falls into various moral criteria).  It reflects the belief structure of the person making the claim.  The claim raising prices during a disaster is bad carries with it no more or less empirical weight than the claim the sky is blue is good.

Allow me to elaborate, lest I give the mistaken impression that normative and positive sciences are opposed.  Normative and positive are not opposed; in fact, they compliment each other quite well.  Normative can prevent positive from becoming abusive (think, for example, our modern sensibilities against eugenic human breeding [normative] despite knowing certain traits are genetic [positive]).  But positive can also keep normative from being “pie in the sky,” by explaining how the world is.  For example, normative claims like “one should not kill his neighbor,” are all well and good, but the positive claim that “murder happens,” is important to know, too.  Knowing the two together brings us to the conclusion that police are needed for the few who do break the law.

To apply this reasoning to disasters, knowing price-gouging legislation makes the logistical system worse is important to know, as it can help inform better forms of aid and legislation.

In short, answering a positive claim with a normative claim will get us nowhere, but the two must be given, and understood, concurrently.

A Smithian Look at Price-Gouging

As Hurricane Harvey hits Houston, Texas has invoked its price-gouging legislation, preventing prices from rising to meet the new levels of supply and demand.  As usual, lots of ink has been spilled by economists denouncing this legislation (for example, see here, here, and here).  On a recent post, Mark Perry asks: “It’s really not that complicated is it, to understand the adverse consequences of anti-price-gouging laws?”

Part of the issue is the price theory arguments against price-gouging are not complicated, but they are subtle.

I think the other issue is people take the positive analysis of economics and try to impute normative analysis onto it. That prices rise when demand rises/supply falls is neither good nor bad. It just is. Just like the sun rising in the East and setting in the West is neither good nor bad. It just is.

However, people will take this positive and try to make it normative. It is “bad” prices rise and people profit off of the suffering of others. Or it is “good” prices rise and lure in profit-seeking individuals and that increases supply.

These normative imputations get problematic because it is trying to answer a different question than the one originally posted. The question is not “how should people act when disaster strikes” (the normative) but rather “how to allocate needed resources to disaster areas” (the positive). Giving a normative answer to a positive question is neither helpful or insightful.

This is not to say that there is no room for the normative. I think that is an important aspect. Should people raise prices during disasters? Should there be discounts for those in absolute need? I think the answers to these two question is “yes.” I think Adam Smith’s “impartial spectator”  would be pleased to see prices rise in order to attract more goods/services to where they are needed, but also to see prices not rise (a discount) to those in absolute need. Indeed, the impartial spectator may frown if prices are “gouged” for those in the most need.

But does the disapproval of the impartial spectator, (“The heart of every impartial spectator rejects all fellow-feeling with the selfishness of his [the price-gouger’s, in this case] motives,” to use Smith’s words [The Theory of Moral Sentiments, page 78.3]), necessarily imply the need to anti-gouging laws? I’d argue “no.” Punitive legislation, Smith (and I) argue exists to serve justice:

“Resentment seems to have been given us by nature for defense, and for defense only.  It is the safeguard of justice and the security of innocence.  It prompts us to beat off the mischief which is attempted to be done to us, and to retaliate that which is already done; that the offender may be made to repent of his injustice, and that others, through fear of the like punishment, may be terrified from being guilty of the like offense.  It must be reserved therefore for these purposes, nor can the spectator ever go along with it when it is exerted for any other.  But the mere want of the beneficent virtues, though it may disappoint us of the good which might reasonably be expected, neither does, nor attempts to do, any mischief from which we may have occasion to defend ourselves (page 79.4).”

And the violation of justice is injury, that is: “it does real and positive hurt to some particular persons, from motives which are naturally disapproved of (page 79.5).” Since the price-gouger’s actions do no real and positive harm or a person, he cannot be punished: “To oblige him by force [ie, by legislation] to perform what in gratitude he ought to perform, and what every impartial spectator would approve of him performing, would, if possible, be still more improper than his neglecting him to perform it (page 78.3-79.3).”*

In short, the anti-gouging legislation both cause economic problems by creating shortages of much-needed supplies when they are already extremely scarce, but also invoke an injustice upon the society by punishing people, by inflicting harm on people, when no real and positive harm has been done.

*Nota bene: This conversation here revolves around price-gouging in general.  We could carve out all kinds of exceptions here that would allow for punitive legislation, but we are discussing the general case, not specifics.

Blood and Soil, MacLean, and Buchanan

Last week, at the Mises Institution, President Jeff Deist gave a speech on broadening libertarian appeal.  He concluded the talk thus [emphasis added]:

In other words, blood and soil and God and nation still matter to people. Libertarians ignore this at the risk of irrelevance.

Many libertarians objected to the phrase “blood and soil,” because of its historical context and ties to Nazi Germany and fascism (for example, see this piece by Steve Horwitz).  Others claim that the phrase is taken out of context and that it was referring to a Jeffery Tucker piece written earlier that month (personally, I find this explanation a bit problematic, but I won’t go into that here).

Also this summer, libertarians have taken aim at the book Democracy in Chains by Nancy MacLean, a highly erroneous account of the intellectual life of James Buchanan, founder of the Public Choice school of thought.  MacLean’s thesis is straightforward: despite the value-free wording of  Public Choice, James Buchanan and the Koch Brothers are working on a vast conspiracy to overthrow democracy and establish an oligarchy.  Despite lots of footnotes, she provides no hard evidence for her claims (as noted by various reviewers and fact-checkers, the sources cited in the footnotes tend to either be incorrect, incomplete, or downright contradictory).  And yet, she pushes on, undeterred and several on the left jump on board.

At first, I wondered how she could get away with this.  But then, I realized libertarians, and in particular, the methods espoused by Jeff Deist, aren’t doing ourselves any favors.

A quick history lesson is necessary (for a more complete, and probably more accurate than my retelling here, account, see here): back in the 80’s and 90’s, there was a movement within libertarians, lead in particular by Murray Rothbard, Lew Rockwell, and Ron Paul, to recruit as many people to libertarianism as possible, particularly as a conservative-libertarian fusion and oppose the left, which was becoming more socialistic, on cultural grounds.  Of course, this strategy appealed to many people who were of decidedly anti-democratic nature (white supremacists, Neo-Nazis, anti-foreigner, etc).  Whether or not recruiting these specific people was the goal of the policy is irrelevant; it was the consequence.  Many of these groups, which were now broadly calling themselves “libertarians,” were decidedly anti-democratic and decidedly racist and decidedly elitist and all the charges levied by MacLean against Buchanan.

One cannot fault MacLean for not knowing this history (although perhaps were she doing a better job on her book, she would have researched the matter).  I, who have been in the libertarian movement for about a decade, am just learning much of this.  But it does make her accusations, at least prima facie, more understandable.  Buchanan’s work is used in a lot of libertarian economics (although to call him a major influence is a bit much), he got money from the Kochs (who are libertarians), Stormfront and alt-right leader Richard Spenser have called themselves “libertarians,” therefore Buchanan and the Kochs must share similar goals as Spenser and Stormfront and others.

Jeff Deist may think he’s doing libertarians a favor by trying to make libertarianism have a broad appeal.  But, if you cast a wide net, you also risk dragging up rotten fish which can ruin the whole bunch.  This is the wrong strategy for winning people over.  Rather than admit libertarianism is weak, unable to face challenges of the day, and thus must turn to other areas and places (or, abandon our principles in the face of things like “immigration” and “feminism”), we must show that libertarianism and classical liberalism is still relevant.  If we continue to cast a wide net and drag up rotten fish (unintentionally or not), then we will continue to stink.

Taxation Is Not Necessarily Theft: A Rejoinder to Libertarians and Anarchists

Taxation, by its nature, is not necessarily theft.  Likewise, taking something and not giving something in return is not necessarily theft, either.  The circumstances are what matter.

By way of example: two men meet on the street.  One is selling apples.  The other man has money.  They agree to an exchange: one man gets $5, the other gets a bushel of apples.  The two go on their merry way, happy as can be.  No theft here.

A similar circumstance: two men meet on the street.  One is selling apples.  The other man has money.  While the apple seller is distracted, the other man takes an apple and leaves no money.  Now, a theft has occurred.

What is the difference between the two stories above?  In the first, there is consent between the two parties.  In the second, there is no consent.  Consent is what makes an action theft or voluntary.  There would be no argument whatsoever on this point.  So, the question becomes, can one never consent to taxation?  Is taxation inherently non-consensual?

The answer to that question is “no.”  Taxation is not inherently non-consensual.  It can be agreed upon; it can be consented to.  Let’s say a group of people get together and decide to pool their resources for some public good (let’s say, common defense).  Depending on the structure of their arrangement, they all agree to provide some annual contribution to this goal.  This is, in essence, taxation.  Furthermore, it is consensual taxation.

But if taxation can be consensual, doesn’t the use of (or threat of) force for compliance necessarily mean that taxation isn’t consensual?  Isn’t that evidence against my thesis?  Again, not necessarily.  Yes, the thief may use force to get what he wants, but even consensual agreements may carry a threat of force.  Contracts contain provisions in case one person reneges on his deal.  These are voluntary agreements that contain elements of force if certain conditions are not upheld.  So, the existence of force is not in and of itself a sign that the agreement is involuntary.

The real question, the one we should be discussing and thinking on, is “what constitutes consent?”  If governments “derive their just powers from the consent of the governed,” what constitutes consent?  At what point does government “become destructive to these ends”?*  Yes, this is the interesting question and one I will not be discussing in this post.

*A quick aside on this point: using the same logic as above, it can be shown that merely being in a minority, losing an election, or not having things go your way in politics is not necessarily a sign of oppression or malfunctioning government.

Everyday Economics: Bioshock Edition

On my recent trek between Virginia and Massachusetts (and back), I listened to an audio version of the book Bioshock: Rapture by John Shirley (If you’re looking for something light to take your mind off of things, this is a good book).  The book details the rise and fall of Rapture, a massive underwater city built by Andrew Ryan (a not so subtle jab at Ayn Rand) to escape the “parasitic” governments of the world and build a society dedicated to freedom and free markets.  While the initial goal of Rapture may have been freedom and free markets, as the novel (and the video game that the novel is based on) details, Rapture becomes a totalitarian police state with an extremely wealthy (and often sadistic) upper class, and extremely poor low class, and no one in between.  Some see Bioshock as a refutation of Randian philosophy, however, I will not address that here as I am no expert in Ayn Rand (for an excellent discussion, see The Value of Art in Bioshock: Ayn Rand, Emotion, and Choice by Jason Rose).  I’ll leave that to people far smarter than I.  Rather, I want to address the economic situation of Rapture and discuss, briefly, how that contributed to the downfall.

A few quick disclaimers before I begin:

  1. As far as I know, Bioshock: Rapture is not canonical.  However, it is the only detailed source I can find thus far on the days of Rapture that take place before the video game (which is canon) so I will operate on the assumption that my source material is canonical knowing full well everything I write here could become completely worthless insofar as discussing canonical information (the lessons gleaned from this book are still important, however).
  2. Nothing in this essay should be taken as implying the rise or fall of Rapture is purely economic.  There are many other factors involved (social, political, medical, psychological, etc).  I skip or gloss over these not because I think they are unimportant (quite the opposite, really), but because I simply lack the expertise to discuss them with any confidence.
  3. I will be avoiding using direct quotes in this version of this essay.  The reason for this is simple: I have the audio book, not the book itself.  I can’t easily do verbatim quotes and attribute them to proper pages for citations.  Therefore, the reader should be aware that I am doing this partly out of memory (although I did scribble some notes) and further the reader should assume that whenever I describe what’s happening in Rapture, that is a reference to the work of Mr. Shirley.  The only original material will be my analysis.  Any inaccuracies, either to details or analysis, belong to me and me alone.

The short version of what follows: Rapture cannot be classified in any meaningful sense as a “free market.” It suffers from several deficiencies that prevent us from labeling Rapture as a free market: lack of property rights, lack of free trade (autarky), lack of labor mobility (autarky in the labor market), rejection of altruism, widespread and institutionalized fraud (this issue is speculative based off of interviews with characters within the book but not substantiated by details), and censorship (indirect at first, but more direct later).  In Andrew Ryan’s Rapture, “free market” and “laissez-faire” were not much more than dishonored buzzwords.  It can best be described, in the words of James Buchanan, as “moral anarchy,” (see Moral Science and Moral Order, especially page 190 and Limits of Liberty, especially Chapter 7).  These factors, coupled with other psychological, social, and other factors, lead to the decline, civil war, and eventual fall of Rapture.  Continue reading