PART IV SOCIAL JUSTICE, RIGHTLY UNDERSTOOD CHAPTER 18 Where Do We Go From Here? ON THE POLITICAL ECONOMY OF THE AUSTRIAN SCHOOL WHERE WE ARE

WE HAVE OUTLINED an economics for real people, one studying real choices as they are made by you and me. Economics does not need to regard us as automatons, to assume we are only interested in monetary matters, or to treat us as atomistic, pleasure-seeking narcissists. It can acknowledge that we are embedded in a social context and that we are influenced by faith, despair, hope, fear, love, hate, superstition, and all of the other “irrational” aspects of human nature. Economics proceeds based on the solid foundation of the logic of choice. Many factors enter into human choice. Psychology, genetics, history, ethics, and religion may all have something to say about the origin and degree of influence of those factors. But economics can accept those factors as given and study the implications of the fact that we do choose. Those implications are significant.

The fundamental problems that human actors solve in the moment of choice are not of the sort that a computer can solve. That is because, unlike in the models of mathematical economics, the ends are not given to acting man: It is ultimately the ends themselves that we are creating with our actions. We must imagine the world as it ought to be, then act to make that imagined scenario real.

That is captured in a variety of commonsense nostrums—“Watch what you wish for,” “Once you start down that road, there’s no turning back,” “Choose your friends carefully,” etc. If you are choosing between killing your neighbor and praying for his forgiveness, you are not choosing different means toward a given end: you are choosing among ends. It is true, as the logic of choice points out, that we can always affirm that what you choose is regarded by you as better than what you do not choose. But in the act of choice you are, in fact, deciding what you value: Is it revenge or peace that you are after?

THE AUSTRIAN APPROACHES TO POLITICAL ECONOMY

THE INTERRELATIONSHIP OF politics and economics has existed since the first hints of economic thinking arose in human history. Policies have propelled the research of economists just as that research has propelled the development of policy. For many years the very name of economic science was “political economy.”

Are there particular approaches to politics implied by the Austrian conception of the market? To help answer that question, I will take four great Austrian economists as representative of different political positions adopted within the Austrian School: Ludwig Lachmann, F.A. Hayek, Ludwig von Mises, and Murray Rothbard. These positions form a spectrum, and it will be useful to contrast them while taking note of the reasoning that led them to their positions.

LUDWIG LACHMANN

AS LUDWIGLACHMANN’S career progressed he focused increasingly on the uncertainty of the future. The fact that we can’t say today what we might learn or create tomorrow means that uncertainty is a fundamental aspect of human action. It is the very quest for knowledge, with the surprising results it brings, that is the prime source of economic uncertainty. Because of his focus on uncertainty, Lachmann came to doubt that, in a laissez-faire society, entrepreneurs would be able to achieve any consistent meshing of their plans. The economy, instead of possessing a tendency toward equilibrium, was instead likely to careen out of control at any time. Lachmann thought that the government had a role to play in stabilizing the economic system and increasing the coordination of entrepreneurial plans. We can call his position “intervention for stability.”

F.A. HAYEK

HAYEK REJECTED THE radical uncertainty of Lachmann, based on his perception that the market does exhibit regularities. As Bastiat would say, Paris does get fed. We might account for those regularities by the actions of entrepreneurs. Hayek found no reason to suspect that governments could outperform profit-seeking entrepreneurs at achieving plan coordination.

The evolution of F.A. Hayek’s thought toward a system distinct from that of his mentor, Ludwig von Mises, involved a focus on evolutionary perspectives and the limits of reason. Mises centered his system on the idea that every choice is rational insofar as choice itself means conscious, purposive behavior. Hayek turned his attention to the customs, habits, institutions, morals, prejudices, and so on, which make up the substratum of choice. Hayek saw them as evolving below the radar of abstract reason, as a result of the evolutionary selection of group traits, operating on many societies across many generations. While Hayek did not regard those traditions as being off-limits to intellectual exploration, he felt we should be cautious about concluding that we fully understand them. As a corollary, we should also be cautious about tossing them out just because we so far don’t see a good reason for their existence. His exploration of the evolutionary aspect of society lent his generally libertarian thought a significant strain of conservatism. Where government interventions had existed in society for some time—poor relief, support for education, road building—Hayek was likely to be cautious or even negative about abandoning them. On the other hand, he was even more skeptical about proposals for new interventions. We could call Hayek’s position “traditionalist interventionism.”

LUDWIG VON MISES

LUDWIG VON MISES focused on the nature of human action itself. He took a more rationalist approach to human institutions than did Hayek. He acknowledged that they often arose as the unintended outcome of action directed toward other ends. But he held that reason should be used to examine such institutions and evaluate their efficacy. (As we’ve mentioned, Hayek did not argue against employing reason for social analysis. He was simply more cautious than Mises was about the results it would achieve.) Stressing that human action always involved the employment of means toward some end, he asked whether particular interventions were the suitable means to attain the end sought. He held that, by destroying the price mechanism and interfering with peaceful cooperation, all economic interventions eventually would have repercussions that were undesirable, even to those initially favored by the intervention. Mises concluded, however, that the state was necessary to establish the rule of law and the property rights that the market needed as its foundation. Mises’s ideal state is minarchist: it is the “night-watchman” state that acts only to prevent violence and theft. Mises’s position might be characterized as “intervention to create the necessary condition—the rule of law—for a market society.”

MURRAY ROTHBARD

MURRAY ROTHBARD PUSHED Mises’s rationalism a step further. He contended that reason should be used to evaluate not just the means of social policy, but the ends as well. His politics arose from his marriage of Austrian economics and a rationalist, libertarian system of ethics. Starting from the basic idea of ownership and the premise that everyone owns himself, Rothbard developed a system in which the state was seen to have no legitimate role at all. All necessary social institutions, Rothbard contended, including police, courts, and military, could be established, without coercion, through peaceful cooperation. Rothbard’s intellectual heirs, including Hans-Hermann Hoppe, David Gordon, Jörg Guido Hülsmann, Walter Block, and others, have sought to develop the rational base of his edifice and have begun to describe what a world without the state might look like. The Rothbardian view is market anarchist, or, as Rothbard called it, anarcho-capitalist: “no intervention, and no state that could consider intervening.”

Lachmann, Hayek, Mises, and Rothbard all recognized that the main problem facing economics is not to describe what the market would be like in equilibrium—an impossible state of affairs, anyway!—but to examine the interplay of forces that generate the market process. To a great extent, their political economy reflects their opinion about the robustness of that process. Lachmann, the most interventionist of the four, also was the most doubtful that the market was self-stabilizing. Rothbard, the least interventionist, felt that the market could provide even law and defense better than the state.

The common idea in Austrian political economy is to use the minimum of coercion necessary to create a functioning society. The above Austrians’ opinions on what that minimum might be range from “not too much” through “very little” to “none at all.” But all of them saw the value of freeing the individual human mind to set its own course, and preferred that freedom as far as their theoretical musings led them to believe it was feasible. Even Lachmann, the most interventionist of the four, recognized the tremendous power of voluntary cooperation and the profound limitations of central planning.

ECONOMICS AS THE SCIENCE OF WEALTH

AN ALTERNATE VIEW of economics, dating back to the mercantilists and promoted by Adam Smith, is that it is the study of how to make a society wealthier. Many economists who are thought of as “right wing” hold to such a view, at least implicitly. While economists from the left generally recommend state interventions to alleviate inequality, the interventions most frequently recommended from the right are those that “promote growth” (see Chapters 12, 13, and 17). From the Austrian perspective such views are problematic, given the subjective nature of “wealth,” “growth,” and so on. Who is to say if a town is wealthier located next to a prosperous factory or next to a beautiful forest? Am I wealthier if I have more cash in the bank, or more time to spend with my children? The insights of the Austrian School demonstrate that economics can’t answer those questions for us.

Schemes where property rights are violated in the interest of “promoting growth” are distinctly non-Austrian. Let’s imagine that economists conclude that the uncertainty and loss of savings generated by a mild inflation has historically spurred people to work harder, resulting in higher growth. For an economist of the “science of wealth” school, it would be clear that we should pursue that policy. We can hear similar opinions voiced by some supply-side economists, who seem to feel that the Fed cannot set interest rates too low, nor can economic expansion possibly be too rapid.

Instead of realizing that wealth is a subjective concept—you’re as wealthy as you think you are—economists favoring intervention to promote growth believe wealth can be measured by the dollar value of goods exchanged or some physical quantity of output. Instead of acknowledging that the market is the emergent outcome of the interaction of all participants’ values, the growth economists feel they know better than others how much we should sacrifice now to provide for the future. They would override individuals’ decisions as to how leisure, time with the kids, spiritual pursuits, and so on, are valued relative to having more “stuff.” Instead of seeing each person as an individual who is in the best position to plan for his own happiness, people are seen as subprocesses in a production function, to be tuned so as to maximize the output of the function.

Here, we must acknowledge a valid criticism from the left of many “free-market” economists. “The supporters of free markets,” their critique runs, “fail to admit how much their philosophy is a justification for the strong exploiting the weak.” Professor Hans-Hermann Hoppe of the University of Nevada, Las Vegas contends that Marxist historical literature on exploitation is highlighting a genuine historical phenomenon, but has misidentified its source. The term “exploitation,” when applied to a voluntary market exchange, simply means that the person using the term disapproved of that exchange. But when the government uses its monopoly on legitimatized coercion to force exchanges on people, the term takes on a more objective meaning. Again and again, expansive governments, generated around the rallying cry of protecting the weak, have been captured by the strong and used by them to fortify their own positions. (Their ability to exert their power is, after all, why we refer to them as “the strong”!)

An all-too-typical example recently occurred thirty miles from where I live, in New Rochelle, New York. Ikea wanted to put up a superstore. Town officials, excited by the “growth” this would promote (and the kudos and campaign contributions they might be able to garner?), enthusiastically backed the idea. (They eventually were forced to abandon it.) As reported by Jacob Sullum of Reason in his article, “Parcel Delivery”:

The site that Ikea had in mind for its new store happened to be occupied by 34 homes, 28 businesses, and two churches. Instead of trying to buy the land fair and square, Ikea asked the city to force the owners to sell, at whatever price the city considered reasonable.

If Ikea did that sort of thing on its own, it would be called extortion. But when the government does it, it’s called exercising the power of eminent domain. . . .

“Is it right to tear people from their homes?” one resident, Dominick Gataletto, asked ABC’s John Stossel in an interview that aired on January 27. “All the memories I’ve had all these years. . . . I’ve been here 67 years, and you just don’t wipe that away simply because a furniture store wants to come in. This is America.”

If the neighborhood in question was more valuable to Ikea than to the residents, Ikea could have paid them all enough to move out. The market allows individuals to carefully (or carelessly!) weigh their alternatives and to find their own balance between material prosperity and other values. If you feel the average person values his community too little, a free society allows you to engage in an unlimited amount of persuasion in order to convince him to value it more highly. Political solutions to questions of value force one set of values, typically those of some interest group, on everyone else.

A system where “government-business partnerships” run roughshod over property rights is not the free market as meant by Austrians. In our view, private property is essential in rationally estimating value. Using the best system we have of gauging such matters—market prices—we can conclude that the “growth” such measures promote is, in fact, a reduction in the wealth of many of those affected, in their own value judgments.

THE MARKET SOCIETY AND ITS DISCONTENTS

TIMUR KURAN, IN his book, Private Truths, Public Lies: The Social Consequences of Preference Falsification, suggests that supposedly voluntary choices are overly influenced by the fear of disapproval and the desire for approval. Kuran’s book is, in fact, an excellent study of the interaction between tradition and individual autonomy. But he has chosen his primary term badly.

If I do not go to work dressed in only ostrich feathers, despite the fact that I love wearing them, it is misleading to call that “preference falsification.” Rather, it shows that my preferences are influenced by my social milieu. I prefer not looking ridiculous even more than I prefer wearing ostrich feathers.

Imagine a Moslem woman living in a society that legally permits her to appear in public without a veil. If she chooses to wear one anyway, due to social pressure, she has not “falsified” her preferences. She has, in fact, expressed her preference for complying with social norms instead of “letting it all hang out.”

Of course people are influenced by their social circumstances. Of course they adopt fads, take on “nutty” ideas from their environment, and are creatures of their time in history, their social class, and so on. But a man who would replace other individuals’ choices with his own must answer the question of whether he isn’t also a creature of his circumstances.

Those who criticize the choices of others based on the fact that those choices are overly influenced by social pressure imagine themselves to be standing outside of society passing judgment on those “trapped” inside. But man as we know him is inherently a social creature, a fact that all of the great Austrian economists have recognized. The intellectual critic of society is no exception—he is himself embedded in his society.

Looking at the other side of the coin, communitarians such as John Gray contend that market behavior is inadequately influenced by customs, manners, traditional morals, habits, and so on. Many of those at the recent “globalization” protests in Seattle, Washington, and Quebec City subscribe to somewhat similar views. Gray complains about the market society as follows:

The celebration of consumer choice, as the only undisputed value in market societies, devalues commitment and stability in personal relationships and encourages the view of marriage and the family as vehicles of self-realization. The dynamism of market processes dissolves social hierarchies and overturns established expectations. Status is ephemeral, trust frail, and contract sovereign. This dissolution of communities promoted by market-driven labour mobility weakens, where it does not entirely destroy, the informal social monitoring of behaviour which is the most effective preventive measure against crime. (Enlightenment’s Wake: Politics and Culture at the Close of the Modern Age)

But “consumer choice” (or freedom, as we might put it) allows one to make one’s own decisions between “commitment and stability in personal relationships” and a new microwave. As Mises says, consumers in the market society are not choosing only among material objects or things for sale. The nature of free choice is that the chooser is deciding what to value. Commitment, stability, love, status, and all other “human values are offered for option.”

I wonder where Gray has been as governments have forced resettlements of vast numbers of people, leveled neighborhoods in the name of renewal, and seized property, forcing people to move, through eminent domain?

And just what will Gray do about all of the people who might move around hither and thither if left to their own devices? Why, he must stop them, of course! Intellectuals like John Gray will flit around the world to various think tanks and conferences, while a blue-collar worker is expected to stay put, in the place he was born. Gray cannot eliminate the fact that life involves trade-offs and that better opportunities might only be available far from home. He cannot eliminate tough decisions, but he would be happy to make them for you.

Who should decide how much importance someone should place on such traditional values, “the authorities” or the individuals whose lives are in question? Although the communitarians have a point in faulting many current government-business partnerships as disrupting prevailing ways of life, their distress ought to lead them to reject interventionism, instead of hoping that future interventions will be more hospitable to communities. “We” cannot decide how much to innovate and how much to respect tradition—each of us individually decides this. As political philosopher Paul Gottfried says in “The Communitarians”:

Even if the state were to carry out policies that seemed pro-community, such as changing the income tax so as to favor large working families, this would not serve the long-term interest of communities. It merely provides another cover for political management, albeit one marketable to the middle class. But for those serious about communities, the goal of protecting their institutional integrity is inseparable from guarding their independence and their property from political invasion.

Another common complaint against the market society is that “we” have lost control of social life to “the market,” which is now making our decisions for us. For instance, in his book, The Illusion of Choice: How the Market Economy Shapes Our Destiny, Andrew Bard Schmookler calls the market

a monster run amok . . . [that], because of its biases and distortions, carries us to a destination chosen by that system and not by us. . . . [T]o conclude . . . that the market allows people to choose their destiny is a widespread and enormously influential fallacy.

If Schmookler desires a system where everyone can wish for any destiny that we desire and it will come to us, then he is wishing for the impossible. Means are scarce, ends are not, and acting man must somehow cope with the disparity. Those scarce means must be allocated among competing ends. The market society allows us to do so based on the prices that consumers are willing to pay for various consumption goods. On what basis would Schmookler allocate these resources?

When he says that “we” should choose our destination, instead of “the market,” by “we” he means the political process. But we have seen that politics is inherently controlled by special interest groups. So, what Schmookler’s request amounts to is that, rather than each of us making our own choices, various lobbies and power blocs should make our choices for us.

A market society does not prevent its members from forming a commune, going on meditation retreats, buying land and turning it into nature preserves, or any other “nonmaterialist” pursuit. If we do not do so, but wish we had, it is merely an attempt to escape responsibility to blame “the market” for our choices.

If it turns out that consumers prefer “trashy” and “vulgar” goods, it is not the fault of “the market.” As Mises says in Human Action:

The moralists’ and sermonizers’ critique of profits misses the point. It is not the fault of the entrepreneurs that the consumers—the people, the common man—prefer liquor to Bibles and detective stories to serious books, and that governments prefer guns to butter. The entrepreneur does not make greater profits in selling “bad” things than in selling “good” things. His profits are the greater the better he succeeds in providing the consumers with those things they ask for most intensely. People do not drink intoxicating beverages in order to make the “alcohol capital” happy.

It is true that we are often at the mercy of the decisions of others. If I wish to buy an ounce of gold for two dollars, the fact that others are willing to pay more than two hundred dollars for that same ounce will doubtlessly prevent me from carrying out my plan. But it is not some gigantic being called “the market” that presents me with this difficulty—it is the fundamental fact that human desires are unlimited, but the means to fulfill them are scarce. “The market” is merely a name for the emergent outcome of myriad individual choices. Other social systems cannot get around the fact that everyone cannot have as much gold as they’d like to have. Someone will decide who gets how much gold, and if it is not the price system, it will be the will of the rulers, whomever they may be.

I recall an episode of Star Trek (I think it was in The Next Generation series) during which, somehow, a twentieth-century businessman winds up on the Enterprise. The crew is shocked by his interest in profit, buying, and selling. The crew members inform him that, in their time, things are no longer bought and sold, as there are goods aplenty to satisfy all members of society. Now, we might imagine a future in which nanotechnology repairs clothes as they wear out and builds houses essentially for free. Perhaps food will be so abundant that it is no longer an economic good. But what about starships? Can everyone who wants one have one for free? What about beach-front property in California? What if you want your own planet? As long as humans are not omnipotent and immortal, our desires will outstrip the means available to achieve them.

Economics does not hold that the desires of the consumers are pure or virtuous. It does illustrate that the market process is the only way to approximately gauge those desires. All other systems must attempt to impose the rulers’ values on the ruled. Those who plan on doing the imposing have a very high regard for their own judgment, and a very low regard for that of the rest of us. To paraphrase the economist G.L.S. Shackle, the man who would plan for others is something more than human; the planned man, something less.

Mises describes those who would coercively replace the value judgments of their fellow men by their own value judgments:

[They] are driven by the dictatorial complex. They want to deal with their fellow men in the way an engineer deals with the materials out of which he builds houses, bridges, and machines. They want to substitute “social engineering” for the actions of their fellow citizens and their own unique all-comprehensive plan for the plans of all other people. They see themselves in the role of the dictator—the duce, the Führer, the production tsar—in whose hands all other specimens of mankind are merely pawns. If they refer to society as an acting agent, they mean themselves. If they say that conscious action of society is to be substituted for the prevailing anarchy of individualism, they mean their own consciousness alone and not that of anybody else. (The Ultimate Foundation of Economic Science)