The twilight of the Cold War – which had largely seen the question of freedom framed as a purely economic debate between “capitalism” versus “socialism” – led to a resurgence of the importance of cultural matters in libertarian thinking. A noted effort from around this time was the paleolibertarian movement, the aim of which was to restore the governance of individual freedom to traditional culture, customs and institutions as an antidote to the un-tethered, culturally relativistic, “libertine” influence of the counterculture in the preceding decades. Right-leaning libertarians today continue to press for the avoidance of hollow, abstract, cosmopolitan, universalist messages in favour of focussing instead on the importance of time, place, culture, custom, tradition, family and community.
In other words, there is greater awareness today that – in spite of their foundational importance – the mere legal application of libertarian principles (e.g. “non-aggression”) to the governance of social relations is not the last word to be said on the composition of a free society. Additionally, the sociological and psychological requirements of sustaining such a society must be given greater attention.
While I agree entirely with these efforts, we should not delude ourselves into thinking that grasping the nature of the (often) unwritten values, morals, traditions and cultural elements of a free society – much less how these things can be recruited as part of a political strategy – is likely to be straightforward. As such, this is the first of a series of five articles which will seek to address this complex subject matter in detail.
To introduce this series, we will devote this first instalment to some clarifications that will dispel a number of confusions and illusions I have seen dog these kinds of issue in discussions elsewhere – confusions which could lead libertarians down a wrong path. This effort will also serve as an indicator of some of the intricacies that we will hope to unravel during this series.
"The illusion […] will continue as long as it's profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain they will just take down the scenery, they will pull back the curtains, they will move all the tables and chairs out of the way, and you will see the brick wall at the back of the theatre." - Frank Zappa
Writers and commenters on this blog have not been too enamoured with the recent coronation of King Charles and Queen Camilla. A fair summary of views is that the ceremony served as little more than a public pretence, offering only the veneer of a supposedly continuous lineage of values, rights and traditions that have persisted in England for many centuries. Behind the façade we see only, in Alan Bickley’s words, “the national rot [...] plainly on display”.
Through attempting to glean some of the ceremony’s original gravitas, one could, at least, sense the value in forcing the throne’s new incumbent to endure a multiple hour ritual in front of the altar.
The weight and difficulty of wearing St Edward’s Crown – traditionally regarded as a holy relic – is as much symbolic as it is physical. To see the king waddle like a toddler while attempting to balance his regalia demonstrates that to rule is as much a burden as it is a privilege. Moreover, it is a burden bestowed on the king not in some drab government building as the result of a committee vote, but by an Archbishop in a glorious church.
Little of this applies today. Not only is the awesome responsibility of power easily forgotten when secular, political office is subject to the modern day game of democratic musical chairs; it is an awesomeness that no longer applies very much to the king, except by way of constitutional fiction.
As such, this twenty-first century, family-friendly coronation felt much to me like a slightly-too-long royal wedding rather than a grand transition into a new era. Numb and inert is how best to describe my main reaction. I had pretty much forgotten the whole thing by the evening.
However, this feeling contrasted very much with the wall-to-wall news coverage and the outpourings of official adulation for the new royal rulers. Bickley may well be right in assessing the crowds to have been smaller than those which turned out for the 1953 coronation. But large, enthusiastic crowds were willing to brave that day’s unpleasant weather nonetheless.
One of the rules of thumb I employ when I have time to sift through the cesspool of the mainstream media’s output is to ask two questions:
“What are they trying to make me think?”
“Why would they want me to think that?”
So with regards to the coronation, we could ask: why is it so important to them that we celebrate this event for an institution that hardly seems fitting for a modern, progressive state to which ours supposedly aspires? What do they have to gain from this?
It is this theme – of a hollowed out institution that we are, nevertheless, encouraged to celebrate – that I wish to take forward in this essay.
Such was the title of a political leaflet received through my door last week.
Readers familiar with my work on this blog will know that I place little faith in the mainstream, political process as the primary means of achieving a freer society in the UK. There is no point in trying to grab control of the system when it is the system itself that is rotten.
Nevertheless, this leaflet – from an organisation called “NotLibLabCon” – caught my eye for three reasons.
First, the leaflet is clearly written from a right-leaning, pro-freedom perspective, listing political priorities such as:
Sensibly sized government
Stopping mass surveillance
Freedom of speech
Even political outsiders in this country tend to taint otherwise agreeable ideas by making obeisance to the NHS or to enforced “fairness” in this, that and the other. No mention of either was a good reason to save this leaflet from my rubbish bin.
One of the key indicators of the economic “performance” of any given country is its rate of unemployment. Low rates of unemployment are understood as a sign of prosperity while high rates are taken as a sign of recession and stagnation. Indeed, during the Great Depression, unemployment reached as high as 25% in the United States.
Politicians are particularly keen to monitor the rate of unemployment as low unemployment lends credence to the economic policies of those in power while high unemployment stocks the arsenal of those in the opposition. Given also that entire economic dogmas such as the so-called trade-off between full employment and inflation, not to mention the generation-long post-war Keynesian consensus are, at least, part rooted in the concept of unemployment, one would expect unemployment to be a unique and important category in economic theory.
This short essay will not explore in detail the state induced causes or aggravations of unemployment such as the minimum wage and excessive regulations heaped upon the shoulders of employers. Such topics have been examined countless times over by many economists, “Austrian” or otherwise. Rather, what we wish to concentrate on here is the validity of the very term “unemployment” itself and to determine whether it is really a useful concept in shaping so-called “economic policy” or whether it is really redundant and meaningless.
In the first place, as “Austrians” we must be highly suspicious of any concept that is an aggregation and is not explicitly linked to any notion of individual human action. All voluntary actions are, as we know, the result of the best choice of ends available with scarce means. A man who has several million pounds stashed in his bank account may be content to spend all of his time in leisure and would be “unemployed”. Yet, aside from any moral wrangling over the worth of such a lifestyle, we would hardly view this as a problem. But what about those lesser privileged folk – the ones who are not working but nevertheless have the outward appearance of needing an income from some kind of employment? Shouldn’t we classify these people as “unemployed” and doesn’t this state of unemployment indicate an egregious case of market failure?
The question turns on whether employment at the terms of the available opportunities is worthwhile for the individual person. If there are jobs available yet he refuses to accept them then it indicates that he is not satisfied with the terms of those opportunities. Perhaps it is the wrong industry, the office or factory is in wrong the place, or – most likely – the wage offered isn’t high enough for him. He therefore chooses to abstain and holds out for a better opportunity to appear in the future. From the point of view of individual satisfaction with the scarce means available, the outcome of seeming “unemployment” is therefore optimal.
Indeed, a person’s labour, like anything else, is a resource that is available for an individual to use. Not all resources are deployed 100% of the time. Everyone, for example, owns possessions that are not being used at the current moment – food in the fridge, clothes in the wardrobe, books and DVDs on the shelf, etc. Clearly it would be wasteful – nay, ridiculous – to try and use all of these “unemployed” resources at once. They are more valuable being kept in abeyance ready for utilisation when an opportune moment appears, i.e. when the person believes that use of them would yield more benefit than leaving them idle.
More widely, there are always buildings to let, oil in the ground, trees that are left standing, water in lakes and reservoirs, and so on. All of these resources remain idle because an opportunity valuable enough for deploying them has not yet arisen. Indeed, consistent requirement for all resources to be utilised would mean that shops should be empty of all goods as they have already been purchased and consumed, and ultimately everything in the world should be consumed right now. Similarly, a person actively searching for the right job is not, in his mind, unemployed in the sense of carrying out a wasteful activity.
The inability to see labour as a resource that is deployed at the choosing of the individual labourer leads to many related fallacies and reveals the dangers of looking only at surface phenomena and appearance. An individual does not view employment as an end itself – work for work’s sake. Rather, all employment is action aimed at diverting scarce means available to their most highly valued ends. Employment per se is not a goal or achievement. No one would dig a hole in the ground and fill it up again unless the act of doing so led to a valuable end. States and people succumb to the illusion of economic activity brought about by “employment” and the apparent lack of it by “unemployment”, with any focus on providing “full employment” never stopping to ask whether the activity in which employment will be created is either worthwhile or pointless.
The most grievous example of this is, of course, the forced lowering of interest rates to provoke an artificial investment boom. There will be lots of employment, everyone will be engaged in lots of activity and wages will be rising rapidly. But it is clear that everyone’s endeavours are ultimately wasteful and lie on a doomed path. So-called full employment policies are therefore nothing more than a surface coating to prevent social unrest, to make people feel as though they are doing something worthwhile and to put money into their hands that they can spend. To the extent that these actions create no new wealth, however, they should properly be regarded as welfare and not as employment. The wheels may be turning but the carriage goes nowhere and it is simply expending fuel on motionless activity. Far more difficult would be for governments to concentrate on policies that promote full production instead of full employment as this would, of course, require a dramatic reduction in the size and scope of state power and interference.
We submit, therefore, that unemployment is a meaningless concept, at least when applied to the unfettered free market. It may have some relevance in economies where states impede the ability of the supply of labour to meet demand through minimum wages and the like. Apart from shutting out a good number of low-productive persons from the labour market entirely, such interferences ultimately distort people’s views as to which terms of employment are achievable – they hold out for high wages because there is the illusion that such wages represent the worth of their labour. They do not realise, however, that supply is unwilling to meet demand at that inflated level and hence their search for employment is in vain. All of this, however, is simply a particular application of price theory. If the price of any good is fixed too high it will remain unemployed. There is, therefore, no special concept of unemployment applying only to labour that attracts a different body of theory.
Furthermore, the whole question of “nominal rigidity” or so-called “sticky wages” is beside the point when it comes to economic theory. If the demand for a particular good – in this case, labour – should drop it is entirely open for the particular labourers to express incredulity at this fact and to stubbornly hold out for wages that will never meet a willing demand. This is not, however, evidence of the market’s “failure to clear”. It means simply that the supply curve remains stuck to the left.
There is a wider misconception that the market is “efficient” because it “values” everything correctly – a doctrine that underpins so-called “efficient market hypothesis”. But the “efficiency” of the market – the nexus of voluntary exchanges between individual people – comes from its superior ability to channel goods to where they are most highly valued; it has nothing to do with whether a good should be valued or whether any particular valuation is correct. A good could be utterly useless but if a significant enough people chase a small supply it will command a relatively high price. The market will place this ware in the hands of those who value it the most, but the source of that value is the human mind and this valuation can be, and often is, erroneous. If, therefore, people remain unemployed, holding out for unrealistically high wages, the fault lies in their incorrect assessment of the value of their labour, not in any market failure.
Needless to say, of course, the causes of these erroneous valuations are usually state interferences. It is because the state creates such macroeconomic calamity that price bubbles and collapses occur, and so-called “sticky prices” are a phenomenon associated with post-boom deflations. Having become accustomed to high wages, it is natural for workers to become frustrated and resistant when supply for these wages suddenly dries up, and they not only have to face the prospect of lower wages but also a mass shift out of the capital goods industries – where they may have developed significant, specialist skills in the meantime – to consumer goods industries. In a genuine free market it is highly unlikely that workers would be faced with these problems.
However, none of this really has much to do with economic theory, the purpose of which is to expound the formal characteristics of human action rather than the substance of those actions. Rather, sticky wages is more a topic for psychology, the field of human action that studies why people make the valuations that they do.
We conclude, therefore, by emphasising that there is no special category of “unemployment” as it applies solely to labour. Any “unemployment” of labour is explained either as the willing choice of the individual worker to withhold his labour from the market (and thus, to him, the best possible outcome), or as the result of government price fixing which is merely a particular instance of the economic effects of that wider category of interference.
* * * * *
This concludes the series on economic myths. Hopefully readers have found the information useful in rebutting some of the most popular and persistent economic untruths.
Clement Attlee is, with little doubt, one of the more notable of Britain’s former Prime Ministers. Apart from the long lasting effects of his legacy he was, in 2004, voted the “Greatest British Prime Minister of the Twentieth Century” in a poll of 139 academics.
Needless to say, with such a high ranking in academic circles, almost every “accomplishment” of the post-war government that he led (with the possible exception of decolonisation) is likely to be an anathema to libertarians. Not only did he nationalise key industries such as the railways, canals, road haulage, coal mining, gas, electricity, telephones and steel manufacturing, he practically created the “cradle-to-grave” welfare state, the jewel in the crown of which was the now untouchable sacred cow, the National Health Service. Furthermore, he successfully entrenched the “Keynesian consensus” – the idea that full employment would be maintained by Keynesian fiscal policy – that was to unite all parties of any stripe for the three decades ending with the election of Margaret Thatcher’s government.
With such profound and fundamental changes to British society, many of which are still felt today, it is important to have an insight into Attlee’s motivations towards the legislation that his government passed.
Attlee’s own background, (not unlike that of most left wing intellectuals) was decidedly non-working class. The son of a solicitor, he was raised in Putney, an area of London populated by the professions. He was educated at an independent school and later read Modern History at University College, Oxford. He was not exactly born with a silver spoon in his mouth but neither was he consigned to a life of working in factories or down the coal pits.
According to Wikipedia, Attlee’s original political leanings were conservative. It was only after he spent three years managing a charitable institution for working class boys in Stepney, East London, that he “came to the view that private charity would never be sufficient to alleviate poverty and that only direct action and income redistribution by the state would have any serious effect”. Thereafter, he became a “full-fledged supporter of socialism”.
With such self-assuredness, can we expect Attlee’s post-war government to have come close to (as the infamous Beveridge Report that influenced his government’s policies put it) “abolishing want”? Unfortunately, the facts speak otherwise:
Coal production in 1947 fell seven million tons below the output of privately owned mines ten years earlier, resulting in a three week industrial power cut in London and the Midlands;
The government constructed 134,000 fewer homes per year at a higher cost per unit than were built in either of the two years preceding the war;
Wages were frozen to wartime levels while the cost of groceries soared as their supply declined;
When US and IMF loans dried up, the costs had to be borne by the British working man, leading to the “taxation and tears” budget of 1949.
And summing up the welfare state:
The [Beveridge] plan merely furnished a thin cushion against total disaster for the most impoverished third of the population. True, every citizen (whether or not he needed it) was entitled to prenatal care, a birth subsidy, hospitalization and medical care of sorts, unemployment insurance, an old-age pension, funeral costs, and an allowance for his widow and dependent orphans. The subsidies and allowances were tiny, and, with mounting inflation, barely sufficed for the poorest – sixteen dollars at birth and eighty dollars for a pauper burial. Medical services were spread so thin that even at the price of nationalizing the existing medical profession, it was impossible to guarantee first-rate care. With food rations hovering near the starvation level, sickness became more frequent and national; production fell still lower. So poverty was not eliminated but increased to plague proportions, and life was a nightmare for everyone but the most dedicated bureaucrats. A man might have “social security,” yet he could not go out and buy a dozen eggs. After four years of Socialist government, he was only entitled to an egg and a half per week, as decreed by Marxist No.1, John Strachey, Fabian Minister of Food and Supply.
The origin of Attlee’s political views betrays his belief in a common economic error, a belief that can clearly have disastrous consequences if its holder happens to one day become the leader of his country.
The view that either private charity or forced redistribution is the solution to poverty is based on the flawed notion that there is a fixed pool of wealth for everyone – that when one person possesses wealth it necessarily results in another person being without it. From this false premise it follows that the alleviation of the poverty of one person requires wealth to be disgorged from another.
The solution to poverty, however, is that wealth is created and not simply redistributed – the pie gets bigger and not just chopped up in a different way. Capitalism and the free market, far from creating haves and have-nots, involves the progressive accumulation of capital that produces more products at cheaper prices that everyone can buy. More factories, more machines, and more tools that produce a greater supply of goods for less and less effort serve to alleviate material poverty. All of us become better off as a result.
If, on the other hand, wealth is to be confiscated from some and redistributed to others, it retards this very process of wealth creation. While a specific redistribution may allow the beneficiaries to afford to purchase a bit more in the short term, in the long run there will be less work, less saving, and less capital investment and accumulation. The number of products produced will fail to increase and thus their prices will remain high and out of the reach of the poor. Redistribution is, therefore, a temporary solution at best. At worst, it traps the people permanently in the stagnant poverty that you are trying to get rid of.
Let us imagine ourselves, for one minute, as employees of the charitable institution of which Attlee was manager. How do we interpret that which we may see every day? From some kind of absolute standard, the poverty and destitution of the slums in the East End of London may have been “terrible” or “bad”. No one would ever seek to deny this.
However, it is important to realise that poverty, fundamentally, is not caused by humans but by nature. The Earth is not, and never has been, the Garden of Eden, full of delicious goodies that are ripe for our picking. The first person who trod the virgin soil of the Earth was in a position of absolute, crippling poverty by our modern standards. All he had was himself and his bare hands – no shelter, no food, no clothes, no tools, absolutely nothing. (Indeed, we might ask, how on Earth would “redistribution” have helped him when there was nothing to distribute!). But from the moment he dug the soil with his hands, from the second he picked up the first plank of wood to build into a shelter, from the day he fashioned a tool from basic materials such as a rock and a stick, so began the long, slow process of capital accumulation and wealth creation, a process that only really began to accelerate in the early 1800s.
Humans, in other words, have to work to overcome the natural state of poverty in order to build up a civilisation as prosperous as the one we have today. To view a snapshot of this process at any one moment in history and to declare, self-righteously, that “those people over there are in poverty!” is to judge this march of progress against an ideal – as if the earth should be the Garden of Eden. The appropriate standard against which to make a judgement, however, is the best that can be done given the eternal condition of scarcity.
If, therefore, one was to cry “something must be done” upon witnessing an “appalling” condition, one ignores the possibility that something is already being done and has currently reached its best possible stage before moving forward to bring greater things. Wealth creation and capital accumulation takes time – we did not get refrigerators and cars the very moment the first person on earth decided to get off his backside and start working. But this process has caused the percentage of people living on one dollar a day to fall from 85% to 20% in two hundred years – and that achievement has been accomplished while the population has multiplied five or six times.
The only way, then, by which we can judge that there is “too much poverty” at any one time is to ask a single question – is there anything that is slowing down or causing an artificially imposed constraint upon the process of wealth creation?
The answer can only be what Franz Oppenheimer referred to as the “political means” for an individual to gain wealth – that, rather than work oneself to use unowned resources, or to trade goods voluntarily with others, one confiscates them violently from people who already own them.
Although we can see that Attlee’s solution – redistribution through the welfare state – is a major part of the “political means”, so too is any restrictive and regulatory encroachment upon private property. In Attlee’s day, we can point to the fact that the decade of his birth, according to historian David Cannadine, marked the peak of aristocratic power and influence in British society. Today, it is the power of the privileged financial barons of Wall Street that benefit from cheap, freshly printed money, robbing the poor of the their purchasing power and ploughing it into fake assets, causing bubbles, malinvestments, booms, busts, unemployment and misery.
If we really want to solve poverty, we should be removing these barriers to wealth creation that favour the privileged elites rather than compounding the entire sorry state of affairs with further economic evils.
Next week’s myth: Unemployment
 Rose L Martin, Fabian Freeway – Highroad to Socialism in the USA 1884-1966, Western Islands Publishers (1966), Ch. 7.
An explosion of inequality [is] holding back the fight against poverty. Do we really want to live in a world where 1% own more than the rest of us combined?
The mainstream debate over this issue fails to understand the true nature of the problem (although, interestingly, The Guardian article referred to above is unusually far sighted in recognising some of the causes of inequality).
The pro-free market side is wont to point out that such inequality “doesn’t matter” and that governments should not do anything to interfere with the progress of business. The likely call from the opposite side, however, is for increased taxation and redistribution and, indeed, Oxfam itself stressed the need for a greater crackdown on tax avoidance by large, multinational corporations. However, the reality is much more nuanced than the false dichotomy between “pro-business” and “pro-government/anti-poverty”.
On the one hand, we can agree that wealth inequality does not, on its own, create any problems for the generation of wealth and the reduction of poverty. The common attitude towards the rich appears to assume that someone like Warren Buffett or Bill Gates has tens of billions of dollars lying around in a bank account for them to spend and enjoy.
The reality is that these figures represent the value of capital goods – machines, tools, factories and so on – that are invested in producing goods and services that everyone wants to buy. If these resources are in the hands of just a few people – say, “the 1%” – who most accurately devote them to the most urgently desired needs of consumers, then there is nothing economically deleterious with wealth inequality. Indeed, wealth inequality, in this scenario, is exceedingly good as any attempt to reduce it would divert resources into the hands of those less capable of directing them to the ends that people desire, or into the hands of those who would consume them. It is capital investment – more capital invested in more production processes to churn out more products that people need – not taxes and redistribution that solves the plight of poverty.
However, this scenario is conditional upon the crucial aspect that resources must be in the hands of those who are best suited to serving the needs of consumers. In other words, those who are rich must have become so by meeting those needs. Unfortunately, it is patently obvious that the current ownership structure does not reflect the voluntary choices of consumers. Rather, it is the product of crony capitalism, of cheap printed money that is ploughed into malinvestments, and of taxpayer funded bail outs when it all collapses. The growth in wealth inequality is due not to the fact that consumers are voluntarily choosing to place that wealth in the hands of a few select people; it is because the government is throwing cheap money at this tiny elite so they can steal all of the world’s assets.
What, then, is the solution to this problem? Taxation and redistribution would clearly compound the economic evils rather than solve them. And, in any case, in spite of the hullaballoo about tax avoidance, the rich will always be able to influence tax policy to their benefit and to arrange their affairs so as to avoid it as much as possible.
Instead, what is needed is a wholesale withdrawal of the state from either supporting or hindering anyone in the pursuit of gaining wealth. All wealth should be obtained through the voluntary nexus of serving the needs of consumers and everyone should gain their riches through their abilities and not through their political connections.
One interesting question is what might such a world look like? Would it encourage wealth inequality or would such inequality be unlikely?
On the one hand, it is arguable that wealth would still be highly concentrated. Genuine entrepreneurship is a rare talent and is likely to always remain so. On the other hand, however, if that is the case it is also likely that those particular individuals who own the world’s resources will rotate relatively quickly, with the top dogs remaining on the pedestal for only a short time. Indeed one aspect of the current wealth divide that is ignored is whether the same people remain stuck within their wealth/income group or whether there is relatively fluid movement between the different groups.
Successful entrepreneurs make their biggest successes when they are small, nimble and contrarian. Once they have achieved their wealth, however, and their enterprises have morphed into large, multinational companies, they become large, unwieldy, inefficient and complacent. A former rebel becomes a part of the establishment who then becomes vulnerable to the insights of later entrepreneurs.
This can perhaps be illustrated with the technology industry where no, single player has managed to dominate each successive era. Microsoft put a PC into everyone’s home in the 1980s-90s; Google was the number one in internet search; Facebook was on top with social networking; and we are now, seemingly, in a fourth phase where Apple dominates smartphone technology and other hand-held devices. No single outfit has been able to carry through its dominance from one era to the next. Corporate dynasties and everlasting companies controlling everything will certainly not be a feature of a genuinely free market.
Even a stock investor such as Warren Buffett, who has profited from a great many businesses in numerous decades, would be unlikely to achieve the wealth that he has done. Buffett’s mantra of value investing relies upon the price of a stock to fall below the underlying value of the business, and for the price to then reach parity with, or exceed, that value. But the large distortions in stock prices – both up and down – have occurred precisely because of central banks flooding the markets with cheap, freshly printed money that results in excessive booms and busts. It is unlikely that Buffett, in a genuine free market, would have been able to buy and sell at such favourable prices as he was able to do in recent decades.
The same phenomenon also accounts for the wealth of Amazon CEO Jeff Bezos, who currently  occupies the top spot on the list of the world’s richest individuals. As successful as Amazon has been, Bezos is unlikely to have achieved his level of wealth without Amazon having been one of the seemingly over-hyped and over-privileged “FAANG” (Facebook, Amazon, Apple, Netflix, Google) stocks, which have been the main beneficiaries of the artificial, stock market gains since 2008.
Moreover, it is also possible that a free market would serve to make capital ownership more diffuse. As wealth creation ensues and the standard of living rises, ordinary people will find themselves with increasing amounts of disposable income that they may decide to divert into saving rather than increased consumption. Such funds, through savings accounts and the bond market, may form the backbone of investment funds that are ploughed into productive use. Thus, ownership of the claims on the proceeds of production may be more diverse than it is at present.
Either way, however, we can be sure that the resulting structure of production and ownership will be one that best serves the desires of consumers, changing and adapting as the tastes of consumers change. Ultimately, it will always be the everyday folk, through their purchasing habits, who decide on the level of wealth inequality – not the state and central banks handing out favours to their political cronies.