The Radical Liberal

2011-10-16T17:37:00.000-07:00

Image via WikipediaPersonal Value Judgments

In the, so far, excellent foreword to Ludwig von Mises's Epistemological Problems of Economics, Jörg Guido Hülsmann makes the following curious statement:

The discipline of economics dealt with human action to the extent that the acting person could base his decisions on personal value judgments and economic calculations, whereas praxeology dealt with human choices guided by personal value judgments alone.

But economic calculation simply augments personal value judgments. Any analogy might be the use of a scale when confronted by two sacks of potatoes. Which one should I buy? The scale is a tool that can aid me in that decision, assuming that I want to buy a greater weight of potatoes for my money. However, the color of the potatoes, their apparent age and quality may override my desire for the greater weight. The scale simply supplies a quantitative input to my value judgment, the basis for every choice I make.

If the statement were instead, "personal value judgments in the context of economic calculations," I would be in complete agreement. I suspect that Dr. Hülsmann would change the phrasing himself if asked about this seeming separation of value judgments and economic calculation.

2010-06-20T15:21:00.000-07:00

The GDP Fixation

Every Friday I receive a free investment letter from John Mauldin, an investment advisor who has enough credibility to get on CNBC, hold conferences with top speakers and produce an investment letter read by millions. Recently, he has been harping on GDP (as in GDP = C + I + G + (X-M), where C is consumption, I is investment, G is government spending, X is exports and M is imports). Now, if we accept that increased GDP is good, then any decrease in G is bad. However, some economists disagree and suggest that G should, in fact, be subtracted from the equation, as government spending is spending that people would otherwise forgo or channel into activities other than invading Iraq, bailing out banks or purchasing car companies that have failed to be competitive. Such an economist is Murray N. Rothbard who, in America's Great Depression, describes a measure he calls the Gross Private Product, or GPP. To quote him (pg 224),

In the pleasant but illusory world of "national product statistics," government expenditures on goods and services constitute an addition to the nation's product. Actually, since government's revenue, in contrast to all other institutions, is coerced from the taxpayers rather than paid voluntarily, it is far more realistic to regard all government expenditures as a depredation upon, rather than an addition to the national product. (emphasis in original)

So, Rothbard's equation is

GPP = C + I - G + (X-M)

where G now represents the maximum of government revenues and government spending - the value it extracts from the economy. Rothbard elaborates more on GPP and the reader may want to follow up on his ideas. In fact, I think that Rothbard may be too harsh on government spending, as there is some value produced in some spending - it's just impossible to know what it is as it is not subject to consumer sovereignty or profit and loss.

Now, if Mauldin were like Paul Krugman - that is completely ignorant of the Austrian School of economics and a shill for Democrats - I wouldn't blame him. However, Mauldin does know about the Austrian School and was apparently present when Gary North and Mark Skousen interviewed F. A. Hayek. Mauldin does disagree with the Austrian Business Cycle Theory (ABCT) and has said in his newsletter that he is more inclined to Irving Fisher's views; but how can a thinking person suggest that G - government spending - must not be reduced too quickly as it will lead to a reduction in GDP and further economic pain? Yes, a reduction of government spending will injure some parts of the population, but that capital is then freed up for productive uses. The longer we delay that reduction the greater - and wider - will be the pain.

2010-05-19T17:43:00.001-07:00

Article in Liberty Magazine

Liberty has published the issue online that contains an article I wrote called "Marketing Morality". It is an expanded and edited (by Liberty editors) version of my previous post "Competition as a Discovery Procedure for Ethics."

2010-05-17T21:48:00.000-07:00

Banking, Theory and the Crucible of Free Markets

Recently, a salvo was fired by Joseph T. Salerno in the battle between those who argue for 100% banking reserves (characterized by Salerno as the Neo-Currency School) and those who support a more lax approach, represented by Lawrence H. White. You can find White's response here.

Aside from disputing what von Mises meant when he wrote about banking on a number of occasions, it seems that Salerno's argument is that the creation of fiduciary media is sufficient to create business cycles, while White's claim is that the creation of fiduciary media in the right amount prevents depressions. To both of them I say that their approaches are simply business models. If consumers value the 100% reserves model more, it may dominate. If the fractional reserve model serves their needs better, we may see the opposite. And the likely result is that some combination of the models will co-exist, even in the same institution. And, if business cycles persist, entrepreneurs will either learn to live with them, as humanity has learned to live with the unknown future, or banks will adjust their actions to mitigate the financial impacts, learning from their market failures and successes.

Policy disputes are important in societies with large amounts of state intrusion, and if either Salerno or White had any chance of their arguments affecting the course of the Obama, or any other, Administration, I would be encouraging them to pull out the stops to mke their points. However, their arguments are for a free society, and consumers expressing their preferences will be the final arbiters.

2010-04-28T20:56:00.000-07:00

Conflict of Interest

During the recent grilling of Goldman Sachs's management I was struck by an oft-repeated question about whether they were concerned more about the welfare of their clients or of the firm. It seems the deeper question, assuming that the answer was one or the other, is how a firm that has a divergence between its interests and those of its clients can continue to exist? If a firm were to have a known divergence of interests with its clients and is still in business, a number of conclusions might be drawn.

It could be possible that for this type of business no one has come up with a way in which to align the interests of both parties. This problem is one of knowledge, and might especially plague industries in which results are difficult to evaluate or are not evident until a much later date - medicine comes to mind. Or it may be that there are known ways of aligning interests, but they are illegal. For example, it is my understanding that it is illegal for stock brokers to cover client losses on stock recommendations. Finally, in a corollary to the latter case, regulations and mandates may create such a barrier to entry that innovative business models that would potentially align the interests of clients and the firm more closely are unlikely to be tried. This condition effectively produces a cartel of the already-existing enterprises that then provide uniformly mediocre services. How many times has your bank angered you, and you decide against changing because "they are all the same?"

In a free market "consumer sovereignty" has a meaning, and firms that ignore it are destined for the trash heap.

2010-02-21T12:15:00.000-07:00

Anarchism

In the book The Socialist Tradition, Alexander Gray states (pg 3):

An anarchist society is conceivable only if all concerned are the embodiment of reason and restraint. Not merely therefore should an anarchist be a man of reason; he should also combine with his own reason a wholly unreasonable belief that all others are equally reasonable.

I would agree with this quote in the context of an anarchism that expects certain values, like abstract concepts of justice or equality, to be universally held. However, as a free-market anarchist I suggest that a society in which people hold many different values is possible, just as we live in a society in which Fords, Chevrolets and Toyotas, among others, address the values of a wide spectrum of car buyers. See my blog entry, "Competition as a Discovery Procedure or Ethics" for thoughts on that subject.

2010-01-17T22:53:00.000-07:00

Charity vs. Investment

The tragedy in Haiti the last week has led to an outpouring of requests for charity. Haiti has been the constant recipient of charity in the form of aid from the US and others, and what has been accomplished? This creation of dependent states, from Haiti to Africa has only perpetuated poverty and throttled development in emerging countries.

So, what is the answer? The left would call it "exploitation," while I would call it "investment." Haitians would clearly be willing to accept wage rates that are below those in much of the western hemisphere, and creating manufacturing capacity there could be very attractive to many companies. To do so the Haitians would have to convince those companies that their investments would be safe from confiscation and experience minimal taxation - not an easy task for a country with such a turbulent history. Also, nations that were truly interested in Haiti's recovery would need to offer true free trade with them. With unions and other populists likely to be in opposition, another big hurdle to overcome. In the end I think we can expect that Haitians will continue to starve and be dependent - a failure that we can attribute to ongoing charity.

Investment is superior to charity because the investor is concerned about the results and expects a return. That means that he tends his garden, rather than casting the seed to the winds and hoping for the best. I believe that even families, which are commonly thought to be socialist units, are based on investments in the members. Parents invest in the kids, hoping they will be close companions and helpers in the future. Even friendship is an investment with expectations of good times, a sympathetic ear and help when something can't be accomplished alone.

Investment, not charity, is a recipe for growth and prosperity.

2009-10-27T20:51:00.000-07:00

Liberal Fascism

I have just finished the book, Liberal Fascism by Jonah Goldberg. The book is quite informative, although not as well-written as I would like and somewhat weakened by the religious orientation that leaks through in a number of places.

Modern liberalism (not the extension of classical liberalism that I support) is clearly linked with the the ideology of fascism of the 20th century. Unfortunately, the author does not identify the neo-cons as heirs to this same ideology, as he himself is a contributor to "National Review" and a supporter their interventionist policy. However, the extensive research as reflected in the end notes is valuable to anyone who suspects that modern liberalism is not quite the compassionate philosophy projected on the Huffington Post.

2009-09-22T22:46:00.000-07:00

Capitalism is Inherently Long-Term

Capitalism depends upon the accumulation of capital in order to implement more indirect methods of production. Capital makes it possible to build a complex system of production, supporting those who build it and the entrepreneur in the gap between laying its foundation and bringing the product to market. As, over time, production processes become ever more complex the tendency is for the views of capitalists to stretch further into the future.

This view is in contradiction to the general view that capitalism is short term, but that view seems to be more oriented to the financial side of economic activity. Finance, especially in the world of fiat currency, is largely short term as it is not oriented to funding productive processes.

2009-09-13T20:51:00.000-07:00

What Can We Expect From the Free Market?

All that the free market guarantees is that individuals may pursue their own values. To the extent that the market is not free, some individuals are able to pursue their values at the expense of others.

The free market is essentially an individualist utilitarian environment in which one maximizes utility. This environment is different from that of classical utilitarianism in that it is not political. Policies are not set and imposed on populations through some fantastic calculation or estimate of costs and benefits, but are lived by market participants with profit and loss being the sole arbiter of success and failure.

In such an environment, experiments are welcome and the failures affect only the participants - not society at large. It is unfortunate that Karl Popper, if Bryan Magee can be taken at his word, believed that the best society was one in which problems could be solved most rapidly through experimentation and falsification of wrong theories, but never fully embraced the free market as the appropriate avenue to do that.

2009-09-09T15:52:00.000-07:00

The Observational Evidence for a priori Knowledge

Karl Popper, the philosopher of science, quite clearly supports the concept of a priori knowledge. Not knowledge as in knowing the laws of gravitation, but knowledge as in knowing about and how to deal with gravitation.

In the essay "The Epistemological Position of Evolutionary Epistemolgy" in the essay collection All Life is Problem Solving, Popper suggests that life must know something about the universe in order to survive through even the first few minutes of its existence.

For the adaptation of life to its environment is a kind of knowledge. Without this minimal knowledge, life cannot survive.

The observable fact that life exists tells us that this knowledge, which Popper calls "genetically a priori," also exists.

2009-08-13T04:12:00.000-07:00

What Do We Favor?

I have been reading Jeremy Shearmur's Hayek and After: Hayekian liberalism as a research programme (London, Routledge, 1996) and am struck by the recurring discussion about how Hayek's ideas will or will not produce the result he (Hayek) favors. The amazing thing to me is that he favors any particular results, other than the satisfaction of consumer wants. Hayek is the chief proponent of what may be called "spontaneous order" - market-generated order that appears when no central plan is imposed on the market - and one finds it difficult to reconcile that with the idea that any particular outcome may be preferred. It is this very idea of a preferred outcome, especially when uttered by an economist, that supports the interventionism that Hayek generally rejects. This inability to accept market outcomes, no matter how displeasing they might be to your sensibilities, has led to the acceptance of the state or the invention of extra-market moralities by those who could have known better.

2009-07-07T14:28:00.000-07:00

Let Go and Let the Market

About 5 years ago I wrote an essay, "Let Go and Let the Market," articulating a philosophy that relies completely on market action, with no resort to natural rights or any specific ethical system. This essay had very limited distribution, but a week ago I stumbled upon a Web site that not only had an electronic copy of my effort, but an extensive critique, Market Driven Government. There is also a link to my original document, Let Go and Let the Market.

Interestingly, my critic seems to have understood my arguments quite well - something that encourages me in the sense that what I write is comprehensible. His primary argument against my view is that it does not include God - specifically a Christian God. The reality is that if people found that "Christ and His Way" supplied the moral directive that led to their greatest happiness it would become the ethical system of a free society. If not, only its imposition on an unwilling populace will make it a reality.

Dr. Ashier ignores the fact that Christian Europe had endless wars and cruelty until the rise of commerce. Voltaire and others noticed that trade reduced religious passions and that Christians (of all stripes), Jews and Moslems could all meet peacefully in the marketplace. Their interest in improving their living conditions and increasing their wealth quenched their thirst for the blood the infidels with whom they dealt.

One thing that I want to clarify, if someone reads the critique in order to make the decision to read my essay, is that identity chips are only a possible, and optional, method by which we might raise confidence that the person we are dealing with is who he says he is (biometrics might be a preferred method). In The Evolution of Cooperation, by Robert Axelrod, the length of expected interactions increases the chance of cooperation in the Prisoners' Dilemma game. Ensuring identity tends to expand the length of those interactions by allowing a potential consumer or producer to access an individual's history of cooperation with others.

2009-07-04T14:39:00.000-07:00

Competition as a Discovery Procedure for Ethics

Friedrich Hayek wrote essays concerned with competition in a theoretical sense, e.g. "Competition as a Discovery Procedure," and in a pragmatic sense, e.g. "Denationalisation of Money." The first essay argues (among other things) that competition leads to discoveries of new knowledge that could not have been aimed at. The latter essay was written as a challenge to the monopolization of the monetary system and the resulting failure to create sound money by proposing the introduction of competitive currencies. It is time to challenge another monopoly of the state – that of the ethical or legal system – and suggest that competing ethical systems are the method by which we may approach an ever more sound system.

Ethical systems are generally presented as being handed down from God or derived in some way from human nature. Ayn Rand and Murray Rothbard developed systems explicitly in the latter class. Andrew
J. Galambos claimed to derive an ethical system from science, a claim that may also be lumped in with theirs, being derived from the nature of volitional beings. These claims are not intended by the claimants to be subject to test, but are presented as systems to which people must adhere, even though the systems may be based upon free market, stateless societies (Rothbard's and Galambos's systems are members of this class while Ayn Rand retains the existence of the state).

Ethical systems, where they intersect with the state, produce legal systems that are imposed upon the inhabitants within the borders of a political entity. In the time of monarchy the legal system reflected the religion of the monarch and whatever concepts of justice the monarch held. In modern democracies the legal system is a reflection of the struggle between various groups and may reflect most fundamentally the views of the religious majority. The one system that attempts to reflect evolutionary market forces is English Common Law, but even in that case the discovery process is hampered by the fact that competition between courts is limited and petitioners may not choose the legal system by which a case will be tried. A free market in judicial services would harness the engine of competition in the quest for ethical systems that are more sound and responsive to the consumers' needs.

If individuals may enter into contracts with different companies providing judicial services reflecting different ethical systems (e.g. Christian, Rothbardian, Galambosian, Islamic, etc.) to resolve their disputes, defend or recover their property, etc., one can imagine that there would be a number of problems. But would these problems be greater than the problems that exist between countries
or, in the United States, between local state jurisdictions? Certainly the execution of a judgment or transfer of an alleged criminal between jurisdictions involves some process that would evolve between justice companies. If companies do not have reciprocal agreements, due to remoteness, neglect or aversion, it is possible that disputes that cross their boundaries will not be resolved, and a loss that might be covered by insurance will be incurred.

Each company may codify its ethical system and reference it in its advertising, along with endorsements from its satisfied customers. If a company has an attractive ethical system it can be expected to attract repeat customers and grow. Superior systems will be reproduced and inferior ones will die out. Better ways of handling cases will be sought, successes added and failures dropped, advancing the system using the same method as science.

In Karl Popper's parlance, each ethical system is a theory and is subject to falsification. The falsification method is its profitability. However, it must be remembered that a falsification of an ethical system, as it is a volitional creation, is subject to its circumstances. Certainly, an ethical system that many might find reasonable today would have found few customers in the depths of the Dark Ages. People's beliefs are essential in the discussion of human action, and change over time. So, it is clear that an ethical system introduced into the market "before its time" may fail, only to be rediscovered and retried successfully later.

If the state were to end its monopolization of the justice market, various ethical systems could flourish, some succeeding (generating profits) and some failing (generating losses). Through this system of competition, inferior systems could be weeded out and superior systems discovered.

Sources

F.A. Hayek, Competition as a Discovery Procedure in The Essence of Hayek (Stanford, California: Hoover Institution Press, 1984) 254-265.

F.A. Hayek, Denationalisation of Money: The Argument Refined (London: The Institute of Economic Affairs, 1978).

Bryan Magee, Philosophy and the Real World: An Introduction to Karl Popper (La Salle, Illinois: Open Court, 1985).

2006-11-04T16:20:00.000-07:00

Value

Value is subjective. This statement is true of all values - no exceptions. There is no absolute value, no absolute ethics, nothing that will give you the answer in all situations. Every action has risks, and you make your judgment. You choose what you think will increase what is of value to you or minimize its decrease, and act. Sometimes you win, and sometimes you lose.

Of course, many will cry that this statement supports "situational ethics." No kidding! How many times have you seen movies or read books that propose "moral dilemmas?" Were you always happy with the outcome? Did you feel uneasy? Did you wonder what you would do - what was "ethical?" If you might save a person you loved, would it be permissable to torture someone? How about if it would save ten people? A thousand?

There are some interesting answers to these questions - not answers about "right" and "wrong" but about costs and benefits. Answers that the market can help us with and which will be discussed in future posts.