And when you subsidize something, you get more of it. What incentives will the failing companies have to strive for profit through faithful service to their customers and for standing on their own feet? This is a question that haunts all protectionism, whether through bailouts or tariffs or subsidies or monopoly privileges. If the purpose is to make a firm or industry strong or able to compete in the market, then protecting it only makes it weaker. One must throw each company out into the “dog-eat-dog” (ha!) competitive environment and through these pressures force it to improve and excel.

Nor is there an analogy from protecting human children and the elderly to protecting “infant” and “senile” industries. If an industry is foreseen to be profitable only after it matures, investors will still put money into it now. The government can’t find out which industries or firms ought to be kept alive and which, aborted. And if an industry is no longer profitable and its prospects are dim, then it deserves to “die.”

Note another thing that the bailouts represent: special privilege to particular market players to protect them from failure. This isolates these firms from the market forces, such that they remain afloat whether they do good or bad at satisfying consumer wants. Resources cannot be reallocated from what have been revealed as useless projects to more urgent ones, again, as determined by the consumers. The government is channeling the money into uneconomic uses.

This privilege, since protection cannot be extended to every single firm without resulting in a particularly absurd form of socialism and in complete calculational chaos, is the definition of injustice. It’s destructive of the impersonal order that is the free market. On the market it is never about “who you know”; it is almost always about how much money you have in buying and the quality and price of your product in selling. Thus, the market does not respect persons or firms. Good will is hard to obtain and easy to lose. Under hampered market, on the other hand, there arises a class of mafia-like “connected” companies with privileges bestowed on them by the coercive power of the state. They are personal friends of the political elite. They are exempt from the discipline of the market which beats and decimates its every member who fails to please the consumers. This favoritism, I want argue, is unjust. Government cannot pick winners in the marketplace — only consumers can; but losers surely pick the government as their refuge from the rigors of free enterprise.

Here’s Mises interpreting Marx: “The capitalists, in their subconsciousness ashamed of the mean greed motivating their own conduct and anxious to avoid social disapproval, encouraged their sycophants, the economists, to proclaim doctrines which could rehabilitate them in public opinion.” (Human Action, 78) Now it appears that Marx was in many ways right in his denunciation, except that he got the theory of class conflict wrong: the numerous so-called economists are sycophants not of the bourgeoisie but of special interests and the state. These economists have betrayed their calling to analyze the consequences of human actions not in the short-run and only for certain groups of people (such as the politically connected Wall Street firms) but in the long-run and for all groups. They have also failed to abide by rule utilitarianism, in that the market and a regime of private property cannot bear bailouts, subsidies, fiat money, massive government debt, and other forms of interventionism and outright socialism. They should be vociferously calling for explicit laws against this sort of things. As it is, they are paid shills for the political class.

There are three questions that must be answered by any supporter of anarcho-capitalism, one per each branch of the government to be dissolved and replaced by a private solution.

1) How do I know what is or is not lawful for me to do? According to what procedure am I to be guided to behave properly? Rothbard’s answer is: use the natural law. To the question, “What is the natural law?” Rothbard replies: “To ask what is man’s nature is to invite the answer. Go thou and study and find out!” (The Ethics of Liberty, 10) But now we are entitled to ask: is the natural law fully sufficient to discover (not “make”) and codify the entirety of the human law? Rothbard seems to think so; “universal laws, locally enforced” is his phrase. But consider the following situation: I am playing loud music late at night. My neighbor is upset and calls the police. Who, according to natural law, must shut up, me or my neighbor? (This is the sort of problem that “law and economics” enjoys posing.) Further, is there any discretion or must the law be the same everywhere? Can custom and common law have any sway whatsoever? In a footnote on p. 17 Rothbard writes:

[Henry] Hazlitt’s reaction to my own brief discussion of the legal norms essential to any free-market economy… was a curious one. While critical of blind adherence to common law in other writers, Hazlitt could only react in puzzlement to my approach; calling it “abstract doctrinaire logic” and “extreme a priorism,” he chided me for “trying to substitute his own instant jurisprudence for the common law principles built up through generations of human experience.” It is curious that Hazlitt feels common law to be inferior to arbitrary majority will, and yet to be superior to human reason!

Rothbard then agrees with Aquinas who says that “the force of a law depends on the extent of its justice. Now in human affairs a thing is said to be just, from being right, according to the rule of reason. But the first rule of reason is the law of nature… Consequently every human law has just so much of the nature of law, as it is derived from the law of nature. But if in any point it deflects from the law of nature, it is no longer a law but a perversion of law.” (ST, II-I, 95, 2)

2) What authority do judicial decisions obeyed by other people have on me under anarchy? Why must I respect the pronouncements of the (private) courts, no matter how high or dignified? Should there be a system of courts which will interpret the natural law at all, or is everyone free to interpret it himself? (Rothbard likes the second alternative:

Many people, when confronted with the libertarian legal system, are concerned with this problem: would somebody be allowed to “take the law into his own hands”? Would the victim, or a friend of the victim, be allowed to exact justice personally on the criminal? The answer is, of course, Yes, since all rights of punishment derive from the victim’s right of self-defense. In the libertarian, purely free-market society. however, the victim will generally find it more convenient to entrust the task to the police and court agencies.” (90))

3) How can a weaker protection agency defend its clients against a stronger agency? Suppose we have a society consisting of 11 people. 4 of them use agency A; 2, agency B; 3, C; and 2, D. Before we had agencies, there were 11 people existing in the state of anarchy doing what each thinks is best in his own eyes. Now that we add agencies into the mix, we have 4 agencies doing exactly the same, namely, what each thinks is best in the eyes of its own owner. There seems to be no difference at all. How does the addition of protection agencies solve the enforcement problem of anarcho-capitalism?

The Lockean (and Rothbardian) theory of initial acquisition of property involves the necessity of mixing one’s labor with an object in the external environment. Once labor has been applied to a thing, it can legitimately become one’s private property. The immediate question that arises is, how much labor is necessary in order to make a thing one’s own? Suppose I pick up a stone thinking of throwing it an my foe; is the stone thereby mine? But isn’t the stone unchanged? With what have I mixed my labor? Or suppose that I bend down and blow some air gently with my mouth over the stone without so much as touching it. Haven’t I exerted myself? Can I now claim the stone as mine by natural right? In another scenario imagine that Robinson Crusoe has decided to use the island he discovered as an amusement park, e.g., by placing some dinosaurs in it. Doesn’t it seem reasonable that he be able to claim the whole island as his own even before he populates it with raptors (otherwise, how can he be certain that he will not be thwarted in his endeavors for potential competitors in the meantime?)? Not according to Rothbard:

Suppose that Crusoe had landed not on a small island but on a new and virgin continent, and that, standing on the shore, he had claimed “ownership” of the entire new continent by virtue of his own prior discovery. This assertion would be sheer empty vainglory, so long as no one else came upon the continent. For the natural fact is that his true property – his actual control over material goods – would extend only so far as his actual labor brought them into production. (Ethics of Liberty, 34)

But what is true of a continent should be true of a smaller island, as well. And in yet another example, what if I want to abandon ownership of the stone by placing it back in the state of nature? Can I do that? The labor theory of property (LTP) would seem to say no. As Rothbard writes,

it would be empty and meaningless for Crusoe to trumpet that he does not “really” own some or all of what he has produced…, for in fact the use and therefore the ownership has already been his. Crusoe, in natural fact, owns his own self and the extension of his self into the material world, neither more nor less. (34)

A second problem is, how does an addition of labor to a thing make the entire result of capital good of (n-1)th order = labor + time + capital good of nth order one’s own as opposed to just the results of his labor? In order to own the capital good of (n-1)th order one must also have previously come to own the capital good of nth order, for example, a good that one simply found in nature. But how does he come to own that original good? Isn’t that precisely what we are trying to figure out? The LTP is of no help, for it assumes what it sets out to demonstrate. And it is beside the point that labor infused into a good is inseparable from that good. The question of justification of ownership remains. Further, say I labor on a good that belongs to someone else, and, what’s more, I invest into it much more energy than its owner had put into it. What reason is there, according to the LTP, for not considering me as the rightful owner of the good?

Given these difficulties, it seems to me that the theory of ownership should be to an extent modified. It is not the labor per se that causes a thing to become owned, but rather the thing’s participation in a plan of action devised by a person. If I simply decide to use an unowned object for a particular end, it immediately become my own. In other words, if there is a connection between a material thing and my immaterial designs for it, then that connection alone is sufficient to make the object mine. Thus, picking up the stone in order to defend myself causes the stone to become mine, because it is now part of a plan that I came up with to further my well-being. Blowing air over the stone does not, but not because the amount of labor exerted is too small, but because this action is meaningless and has no purpose. The use of the stone does not enter into my actions. Yes, Crusoe can claim the whole island as his, as long as he really intends to convert all of it into an amusement park. It becomes his the moment his plan forms in his mind with the natural proviso that the plan is at least at first glance realizable. Of course, if Friday also has plans for the island, it devolves to whoever first formally establishes his ownership of the island, for such a notice is essential to orderly claims of property rights in any actual society. And just as Crusoe can formally come to own the island, so he can, upon learning of the uselessness of a property to him, also formally divest himself of or abandon it. All he has to do is notify everyone of his no longer having an interest in it.

Thus, legal ownership should follow upon praxeological control. He comes to own a hitherto unowned thing who intends to use it for an end, even before he mixes any labor with it and regardless of the amount of the actual labor he imparts into it. In other words, the necessity of using labor with capital goods is due to the law that all production requires more than one input to factor in it. And it is true that working on a thing often constitutes good evidence of using it for a purpose, whereas Crusoe’s harboring a plan in his head is hidden from whoever may challenge him for the claim to a property. But it must be realized that this epistemological utility of labor is irrelevant to who ought to own any given thing.

Notice that the second problem of the LTP mentioned above is also solved, for any original good can become private property once it is incorporated into a plan of human action. One is able to get something for nothing (that is, for free) by appropriating nature-given resources under the right circumstances, exactly as our intuition demands. The concept of ownership is useful here, because it is rare that the same object can be used for several different purposes by different people at the same time. But does not our theory allow Crusoe to claim ownership of an entire continent, as long as he comes up with a plan to exploit it? I believe so, yet there is no absurdity in this. It is precisely the fact that one cannot usually have such enormous ambitions that causes continents to become owned by different people one little patch of land after another. Further, consider the following situation: in the not-so-distant future a big corporation sends a ship to Mars with the hope of “terraforming” a large part of it and thereby making it habitable by human beings (rather like in the movie Total Recall). Would it not be a perfectly just thing for the company to come to own the entire land it intends to transform from hostile to human life to supportive of it? Would it not be reasonable for it to be able to charge independent colonists who wanted to move to Mars money for the land even before it is developed, despite the fact that the amount of the land in its possession is huge? Yes, I think, on both questions. The LTP, on the other hand, would not allow the land to become owned until it is actually terraformed which might cause the company to become involved into futile disputes with competitors.

Now suppose a person has “claimed” a parcel of land by putting up a fence around it, yet he does not intend to use it for anything. According to our theory of property, that person does not actually own the land. But even if his property rights are formally recognized, this is not a problem. For now anyone can buy the land from its “owner” for no more than a penny, for even a penny would be of more use to its “owner” than the land itself. Thus, again, the imparting of a final cause to a thing is crucial for any genuine ownership of it. Unless the final cause is present, the property is worthless and may even be an economic bad.

Again, this is an outline of a theory of initial appropriation, not a theory of property transfers. If I already own a thing and give to another person the right to use it for his own purposes (e.g., renting an apartment), he does not by virtue of his controlling the object come to own it and thereby deprive me from owning it. Only when all the proper rights in the bundle of rights are transferred does ownership change hands. In other words, ownership persists even if the original plan of action that caused the object to become owned is no longer viable, as long as it still figures in some plan or another.

If the arguments above are correct, then this “praxeological” theory of property is superior to the LTP and should be used instead of it.

Quoting:

An eminent economist writes: ‘The spheres of rational action and economic action are… coincident. All rational action is economic. All economic activity is rational action.’ And what is the end of economic activity? One’s own pleasure. ‘Action based on reason,’ goes on Professor von Mises, ‘action therefore which is only to be understood by reason, knows only one end, the greatest pleasure of the acting individual.’

Blanshard adds in a footnote:

Von Mises adds, to be sure, that ‘pleasure’ covers all human ends, ‘noble and ignoble, altruistic and egotistical’. But he presumably means that it is the pleasure involved in beauty, knowledge, and the rest, that is actually sought; to identify pleasure with knowledge, e.g., would hardly be possible. And how the end of ‘the greatest pleasure of the acting individual’ could be described as ‘altruistic’ I do not understand. (Reason and Analysis, 53)

1. I’ve tried to get our resident pragmatist in the philosophy department to admit that there is speculative knowledge in addition to practical knowledge, and consequently the intellectual virtues (knowledge, understanding, wisdom) in addition to the moral virtues (prudence, etc.). But I think to no avail. So, Blanshard scores a point here. Where he is wrong is in holding that prudence is identical with foxlike craftiness, selfish cunning, and “scheming sagacity.” Prudence is a great virtue, but it has vices opposed to it, like guile, fraud, “prudence of the flesh,” and so on.

2. There is no need to identify pleasure with beauty and knowledge. Aquinas distinguishes between 3 goods not merely 2 (means and ends): the useful good (means), the virtuous good desired for its own sake (the end), and the pleasant good (the will’s rest or repose in the end attained). Neither Mises nor Blanshard recognize this distinction.

3. How can one’s pleasure be described as altruistic? When the good sought for another person is also your own good; when the beloved whose happiness you seek is another self or half of your soul, as Augustine put it. On the other hand, self-interest is not to be identified with charity (as in, the primal force and the theological virtue of). So, Mises got it half right.

Suppose that Iran got a nuclear bomb. Would it be of any use to it? Let’s say the US attacks Iran and kills half of its population. Iran decides to retaliate by nuking Israel and destroying half of its population. What happens next? Israel responds with a nuclear strike eliminating the rest of Iran. Hence the Iranian strike was both immoral (for millions of innocent Israelis are murdered) and irrational, because not only did the Iranian government get blood on its hands, but the entire Iran was wiped out rather than merely 1/2 of it.

Similarly, suppose that during the Cold War the Russians nuked the New York City. Would it be reasonable for Americans to retaliate, wiping out Moscow? First, it would clearly be immoral: to the death toll of 8 million innocent New Yorkers the US would add 5 million (or however many) innocent Muscovites. Second, it would invite further attack on the part of the Russians who would after the destruction of Moscow annihilate, say, Chicago. If Americans replied by laying waste to Leningrad, the Russians would get madder still and obliterate Los Angeles. And so it would go until the entire human civilization would be gone. The purpose of war, which has traditionally been to conquer and rule, is defeated. If all is destroyed, what’s there left to rule? Empty ruins?Suppose further that the two countries exchanging nuclear blows are geographically next to each other. Then the secondary effects of a nuclear attack (radiation, etc.) by any country will affect that country, as well. That is an additional reason for a victimized nation not to act in response to a nuclear attack by a neighbor state.

Proceeding from the next-to-last strike, it is clear that any retaliation makes neither moral nor self-interested sense. Hence, if these simple considerations are true, the US can attack Iran with nuclear weapons and be fairly sure that there will be no retaliation. Similarly, Iran can nuke Israel and hold, correctly, that the latter is unlikely to respond in kind.

It follows that nukes do not deter first nuclear strikes. Do they deter attacks with conventional weapons? At first glance it seems unlikely, because nukes are so powerful that they cannot be pinpointed against the attacker on a battleground and will harm their possessor, as well, when detonated. But their deterrent value could still lie in the threat to destroy the cities and the economy of the offender country that uses conventional weapons. Suppose that the Lebanese had got the bomb. Israel could no longer treat them like dirt, for they could in principle threaten to blow up Jerusalem, for which act, as has been suggested, it would make no sense for Israel to retaliate in kind.

It is true that such a response by Lebanon would be disproportionate if triggered and therefore morally wrong, but it would serve to deter aggression nonetheless. To avoid misunderstanding, I am arguing that conventional but not nuclear attacks can be deterred by a nation’s becoming nuclear. The reason is that the former kind of attack aims at control, while the latter, at pure destruction. To destroy as a response to a destructive act makes no sense, especially if there is any kind of trade going on between the belligerents, and will to boot snowball out of control. But wiping out the enemy’s women and children will be a sufficient threat to prevent any state from challenging the existing regime of a foreign nation through non-nuclear means.

The question then, is this deterring function a sufficient good such that we should encourage every country to get WMDs? Instead of fighting with Iran over its (non-existent) nukes, should we subsidize their building? (Or, better, should we simply give them some of our missiles?) I say no, because of the collectivist nature of nuclear attacks. Instead of seeing the world in terms of governments fighting for supremacy, we should adopt radical individualism and, as its ultimate manifestation, market anarchism, under which no private entity (for there will be no governments as such) will be permitted to own WMDs, and such possession will be treated as a tort or a crime.

So, nukes can deter a foreign government from trying to overthrow the government of another country, such as the US overthrowing the Iranian state. But under anarcho-capitalism the ownership of such weapons will not only be illegal but pointless, as well. Will the city of Kent, Ohio need them to protect itself against the encroachments of the city of Akron, Ohio? If it weren’t for the federal government and its massive stock of WMDs, would we all be speaking Akronese now? But then the only purpose of nuclear weapons, viz., to deter conventional attacks, is voided under anarchism or even a regime in which the biggest government is that of a city-state. As preparation for this glorious state of affairs, achieved in part through abolition of the US federal government, there should be a unilateral disarmament of all WMDs.

Here is the problem, according to Steven Landsburg:

Taking a step has a certain cost, in terms of energy expended. That cost is the same whether you’re on the stairs or on the escalator. And taking a step has a certain benefit — it gets you one foot closer to where you’re going. That benefit is the same whether you’re on the stairs or on the escalator. If the costs are the same in each place and the benefits are the same in each place, then the decision to step or not to step should be the same in each place.

In other words, a step either is or is not worth the effort, and whatever calculation tells you to walk (or not) on the escalator should tell you to do exactly the same thing on the stairs.

Landsburg’s solution is that

before you can weigh costs against benefits, you’ve got to measure the benefits correctly. And in this case, “getting one foot closer to where you’re going” is the wrong way to measure benefit. Who cares how close you are to where you’re going? What matters is how long it takes to get there. Benefits should be measured in time, not distance. And a step on the stairs saves you more time than a step on the escalator because — well, because if you stand still on the stairs, you’ll never get anywhere. So walking on the stairs makes sense even when walking on the escalator doesn’t.

It is easy enough to understand why people walk on stairs yet joyride on escalators all the way:

Clearly, the total profit/loss of walking on stairs differs from the profit/loss of walking on an escalator, assuming as I do that the benefits of each action in terms of money are reasonably determined. But why do people make the marginal steps? Here is what Rothbard has to say about it:

For example, it is erroneous to argue as follows: Eggs are the good in question. It is possible that a man needs four eggs to bake a cake. In that case, the second egg may be used for a less urgent use than the first egg, and the third egg for a less urgent use than the second. However, since the fourth egg allows a cake to be produced that would not otherwise be available, the marginal utility of the fourth egg is greater than that of the third egg.

This argument neglects the fact that a “good” is not the physical material, but any material whatever of which the units will constitute an equally serviceable supply. Since the fourth egg is not equally serviceable and interchangeable with the first egg, the two eggs are not units of the same supply, and therefore the law of marginal utility does not apply to this case at all. To treat eggs in this case as homogeneous units of one good, it would be necessary to consider each set of four eggs as a unit. (Man, Economy, and State, 73ff)

Another example. Suppose it costs $1 to buy a candy bar. I start giving you pennies, one after another. First you have 1 penny, then 2, …, then 99. No matter how many you have so far, you can’t get what you want. Whether you have 1 penny or 99 doesn’t make a difference. But now I give you the 100th penny, and suddenly you have the means to obtain the candy bar. It’s no longer merely more of the same — the situation is qualitatively different. Does it mean that the 100th penny has more utility than any other penny or even the first 99 pennies? Rothbard would probably argue that the 100 pennies constitute one marginal unit. But out pops Landsburg and asks our Austrian school hero why it was in his interest to get penny #46, say. Landsburg explains that it was because that penny reduced the number of pennies still needed to buy the candy bar by 1. And that (he says) is its utility.

Even more simply, suppose that in order to make some product P you need 25X + 3Y + 8Z; these factors are perfectly specific; and you can’t sell them. If you obtain 15X or even 25X, 3Y, and 7Z, is there a benefit to you? On the one hand, in the latter case now you only need somehow to procure 1Z to make the product. (Suppose you are making the factors by hand; you’ve worked for several days, and now you only need to spend 1 more hour to manufacture the remaining 1Z.) On the other hand, the factors are still useless. In a way, the making of the factors will be shown to have been useful only after P is built. If you change your mind and decide to abandon the project at the last minute, then your 25X, 3Y, and 7Z will sit there doing precisely nothing. So, an Austrian economist could reasonably proclaim {25X, 3Y, 8Z} to be the marginal unit.

Lastly, it is true that the journey of a thousand miles begins with a single step. But even if you have completed 99.9% of the journey, the final mile is just as important as the 999 miles you have already traveled. Again, the 1,000 miles would be the marginal unit, because only when you’ve reached your destination does all your effort pay off.

The marginal unit in Landsburg’s example then is the whole staircase/escalator. And the reason why it makes sense to walk on stairs and sometimes to stand on an escalator is simply that in the former case the benefits ($100) may outweigh the costs, while in the latter case, the costs may outweigh the benefits (¢33), the costs being the same in both situations. (Don’t misunderstand, the profit of getting to your destination on the escalator is $100 as opposed to not getting to your destination, if you do not walk; and the same profit on the stairs is ($100 – the cost of physical exertion), assuming that you walk as fast as the escalator moves. So, it is good to have an escalator.) In addition, walking on stairs is essential to reaching your end, while walking on an escalator is not. Our author concludes that

Every producer knows that workers should spend less time with inferior machinery. Compared to an escalator, a staircase is an inferior machine, so the “workers” — that is, the people who use the stairs — should try to minimize their time there. The way to limit your time on a staircase is to keep walking until you get to the end.

But in saying that he implicitly acknowledges that it is surmounting the whole staircase that is the goal, and therefore the whole staircase is the marginal unit.

Finally, Landsburg writes that “The same argument proves, incidentally, that even if you choose to walk on the escalator, you should always walk even faster on the stairs.” On his own terms, clearly it does not so prove, because the faster you walk, the greater, presumably, the cost of walking per step. On our terms, the psychic profit of walking on an escalator can be compared with the psychic profit of not walking on the escalator (and doing something else instead), and similar for stairs, but it makes no sense to compare the profit of walking on an escalator with the profit of walking on stairs: it is not a choice with which one can meaningfully be presented.

A final objection. Why do we seemingly arbitrarily set the marginal unit to the whole staircase, rather than, say, to half the staircase, or to a single step, or to the staircase + the distance to wherever you may still be going after you have climbed our stairs? The answer is that we are dealing with ends and means. Climbing the staircase is the end, attaining which, we assume, will give one a certain amount of satisfaction, while claiming half the staircase or a single step will not. Here each step is merely a means to the end, and its value is wholly derivative from the end. If we had set making a single step as the end sought, then each step would indeed be the marginal unit. If we had set staircase + some further distance to be the goal one is trying to reach, then that entire thing would be the marginal unit.

To go with Rothbard’s example again, we are not confusing the cake as the marginal unit (1 cake, 2 cakes, …) with the 4 eggs as the marginal unit (4 eggs, 8 eggs, …). Both can be such in various circumstances, and if the eggs are essential to baking the cake, the two are all but interchangeable.