ESSAYS ON ECONOMICS Jonathan M.

Giardina

CONTENTS Aggression Government: A Terror to Evildoers? Capitalism and Slaver : A Comparative!Instit"tions Anal sis #i$$eren%es: Epistemologi%al and other Violence and Social Orders &oo' (evie)

Aggression
Poor Joan Baez. In her autobiography "Daybreak," an antagonist asks her, the pacifist, some tough "What would you do if...?" questions: What would you do if someone were, say, attacking your grandmother? Say you're driving a truck. You're on a narrow road with a sheer cliff on your side. There's a little girl standing in the middle of the road. You're going too fast to stop. What would you do? After some verbal arm-wrestling, she eventually rebuts, "I'm really trying to say a couple of things. One is that no one knows what he'll do in a moment of crisis. And that hypothetical questions get hypothetical answers. I'm also hinting that you have made it impossible for me to come out of the situation without having killed one or more people." (Baez 1968, 131 - 134) Perhaps one should, similarly, pity oneself when reading academic literature. Authors of scholarly books are constantly pressuring us to advocate coercion. For example, Mancur Olson in "The Logic of Collective Action" claims that forced payments are "indispensable": The state ... is very important economically. Almost any government is economically beneficial to its citizens, in that the law and order it provides is a prerequisite of all civilized economic activity. But despite the force of patriotism, the appeal of the national ideology, the bond of common culture, and the indispensability of the system of law and order, no major state in modern history has been able to support itself through voluntary dues or contributions. Philanthropic contributions are not even a significant source of revenue for most countries. Taxes, compulsory payments by definition, are needed. (Olson [1965] 1971, 13, emphasis his) To sum it up: "Law and order" is indispensable. "Law and order" won't be provided if there is no coercion. Therefore, we must have coercion. Got it? You may have thought that if people needed something that they would pay for it but Mr. Olson insists that this is just not so. Common sense tells us one thing. The scholars tell us another. Someone is wrong. Resolving this issue is one of the tasks that this essay is attempting to do. #igression on Colle%tive A%tion A "common, collective or public good" is defined by Mancur Olson as "any good such that, if any person Xi in a group X1, ..., Xi, ..., Xn consumes it, it cannot feasibly be withheld from the others in that group. In other words, those who do not purchase or pay for any of the public or collective good cannot be excluded or kept from sharing in the consumption of the good, as they can where noncollective goods are concerned."

(Olson [1965] 1971, 14 & 15) The people who do not pay but still benefit from the provision of the collective good are often called "free riders." Any individual member of a "typical large organization" can potentially become a "free rider." He "is in a position analogous to that of the firm in a perfectly competitive market, or the taxpayer in the state: his own efforts will not have a noticaeable effect on the situation of his organization, and he can enjoy any improvement brought about by others whether or not he has worked in support of his organization." (Olson [1965] 1971, 16) Organizations have peculiar characteristics. As Olson explained Any group or organization, large or small, works for some collective benefit that by its very nature will benefit all of the members of the group in question. Though all of the members of the group therefore have a common interest in obtaining this collective benefit, they have no common interest in paying the cost of providing that collective good. Each would prefer that others pay the entire cost, and ordinarily would get any benefit provided whether he had borne part of the cost or not ... If, in a reasonably small organization, a particular person stops paying for the collective good he enjoys, the costs will rise noticeably for each of the others in the group; accordingly, they may then refuse to continue making their contributions, and the collective good may no longer be provided. However, the first person could realize that this might be the result of his refusal to pay anything for the collective good, and that he would be worse off when the collective good is not provided than when it was provided and he met part of the cost ... In a large group in which no single individual's contribution makes a perceptible difference to the group as a whole, or the burden or benefit of any single member of the group, it is certain that a collective good will not be provided unless there is coercion or some outside inducements that will lead the members of the large group to act in their common interest. (Olson [1965] 1971, 21, 43 & 44) Because coercion is used to get people to participate in collective action (and not "freeride"), this digression is necessary. Most people are aware of the commandments "Thou shalt not steal," "Thou shalt not kill," etc. In many economics books, getting something for free while minding your own business is treated as a sin or crime that merits retaliation: The "latent" group ... is distinguished by the fact that, if one member does or does not help provide the collective good, no other one member will be significantly affected and therefore none has any reason to react. Thus an individual in a "latent" group, by definition, cannot make a noticeable contribution to any group effort, and since no one in the group will react if he makes no contribution, he has no incentive to contribute ... Only a separate and "selective" incentive will stimulate a rational individual in a latent group to act in a group-oriented way. In such circumstances group action can be obtained only through an incentive that operates, not indiscriminately, like the collective good, upon the group as a whole, but rather selectively toward the individuals in the

group. The incentive must be "selective" so that those who do not join the organization working for the group's interest, or in other ways contribute to the attainment of the group's interest, can be treated differently from those who do. These "selective incentives" can be either negative or positive, in that they can either coerce by punishing those who fail to bear an allocated share of the costs of the group action, or they can be positive inducements offered to those who act in the group interest. (Olson [1965] 1971, 50 & 51, latter emphasis added) Before proceeding to a discussion of collective or public goods, let's take an unconventional (and optional) detour and get acquainted with some non-fictional examples of punishment. First example: It was April and the ground was still too wet for plowing, so farmer Valentine Byler decided to haul rocks to fill a mudhole in his lane. He hitched his two bay mares to an old flatboat. Then he hitched the colt with them to help get it broken in. A short time later two strangers approached. "This isn't going to be pleasant," said one of them. They took the reins. Byler was Amish and his religious beliefs forbade him to resist. The two men unhitched the team. "I couldn't watch," said Byler, "I went into the woods." The men led the horses away. The men were agents of the Internal Revenue Service. For reasons of religious conviction Byler had refused to pay his Social Security taxes and the horses were seized to satisfy the government claim. On May 1, 1961, the IRS sold the two mares and the colt at auction for $460. The IRS took $308.96 for back taxes and $133.15 for "expenses." Byler got back $37.89. (Brown et al 1974, 1 & 2) Second example: Billy hitchhiked to Carmel on a twenty-day AWOL from Fort Gordon, Georgia ... I met Billy at a little outdoor restaurant on a warm, sunny day - the last day of his AWOL ... He looked no older than seventeen, about five-nine, with a grown-out crewcut and bad complexion ... He was cheerful, undiscouraged, and only half aware that he was about to go war against the entire United States Army ... I watched Billy's face as he talked, and thought of the letters he'd been writing to me over the past four months. They were teletyped on big yellow sheets of paper. The first one had simply announced that he's walked into the office of the head of command on base and said, "Christ wouldn't kill. I won't either." He had listened to the inspector general deliver a string of patronizing lectures on God and Country, and realizing that they made no sense, had saluted and walked out of the room ... "What's the best thing that could happen to you, Billy?" ... "What's the best thing that could happen to me? Well, I could be put in alternative service ... That'd be the best. Believe me, I'd prefer that." "To what?" "Hard labor." "What does hard labor mean, exactly?" "Means you break rocks and dump them in ditches and then take them out again and get beatings for it." (Baez 1968, 84 -89) *"+li% Goods Nobel prize-winning economist James Buchanan explained public goods by telling a

story. At first, two men, Tizio and Caio, are on an island in the tropics. On this island, the public good is mosquito-repelling. This good "is purely public or purely collective" because "the death of one mosquito benefits each man simultaneously, and is thus equally available to each man." (Buchanan [1968]1999, 12) Whether a good is private or public does not depend on whether it is supplied by the government or not. It depends, instead, on the good's physical characteristics. As Buchanan explains, With privately divisible goods ... the unit that is produced or supplied is dimensionally equivalent to the unit that is consumed by some ultimate buyer. A single unit of production implies the availability of a single unit for consumption, by some one person. And this person's ultimate act in consuming the unit removes all possibility of others' like consumption of the same unit. It is the absence of this one-to-one relationship that is the basis of the public-goods distinction. With a pure public good, a unit that is produced or supplied is, by definition, simultaneously available for the consumption of all members of the relevant group. Hence, a unit that is supplied is wholly different in dimension from a unit that is consumed. The consumption of a unit by one person does not reduce or remove the possibility of consumption by another person. This may be put in terms of our simple illustration. A single unit of public-goods supply, mosquito repellent, amounts to two units of consumption, one for Tizio and one for Caio ... By the orthodox definition a pure public good or service is equally available to all members of the relevant community. A single unit of the good, as produced, provides a multiplicity of consumption units, all of which are somehow identical. Once produced, it will not be efficient to exclude any person from the enjoyment (positive or negative) of its availability ... The principle of exclusion characteristic of goods produced in the market breaks down here. Nonexclusion applies in the extreme or polar sense. Additional consumers may be added at zero marginal cost. The definition of a pure public good is "highly restrictive ... Strictly speaking, no good or service fits the extreme or polar definition in any genuinely descriptive sense. In realworld fiscal systems, those goods and services that are financed publicly always exhibit less than such pure publicness. The standard examples such as national defense come reasonably close to descriptive purity, but even here careful consideration normally dictates some relaxation of the strict polar assumption." (Buchanan [1968] 1999, 32, 33, 48 & 49) Returning now to our island-dwellers: Let us add Sempronio to the Tizio-Caio illustration. Suppose that Sempronio desires to migrate to the island, and that he, like the others, will share equally in the benefits of any mosquito repelling activity. Tizio and Caio will not be willing to allow Sempronio to join them unless he contributes some share in the costs of this public good, either through direct production on his own account or indirectly through transfers to them of private goods.

Tizio and Caio cannot exclude Sempronio from the benefits that their mosquito repelling provides. If he doesn't help provide the good, he gets a free ride. Tizio and Caio do not like this and therefore they give Sempronio an ultimatum: Help us or leave. In this illustration, Sempronio agrees to help them. As the size of the group becomes larger, it becomes necessary to give more and more people the ultimatum: Pay for the public good or else. The reason for this is because it is in every individual's interest to let his neighbor(s) provide the good while he "secures the benefits without contributing toward the costs." Each individual finds himself in a potential free-rider position: "Even if an individual should enter into ... a cost-sharing agreement, he will have a strong incentive to break his own contract, to chisel on the agreed terms." (Buchanan [1968] 1999, 80 & 83) Everyone has an incentive to get a free-ride. This creates a dilemma: "When everyone tries to be a free rider there are no rides for anyone." (Higgs 1987, 40) "Coercive arrangements, governmental in nature" are advanced as a way of solving this dilemma. The government eliminates "the alternative of remaining outside the agreement, or remaining a free rider." Coercion is necessary because "in the large-number case, the individual will not contribute voluntarily to the costs of public goods, at least not in an amount sufficiently large to generate optimal levels of provision." (Buchanan [1968] 1999, 84) As long ago as 1776 Adam Smith wrote about "certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence to any individual or small number of individuals, though it may frequently do much more than repay it to a great society." According to Smith, "the sovereign has only three duties to attend to" and erecting and maintaining these "goods" was one of them. (Smith [1776] 2003, 874) More recently, in their classic textbook, Armen Alchian and William Allen claimed that "governments do some things that the market exchange of private-property rights cannot do adequately." For example, "the use of roads under a market system would require a forbiddingly complex system of planning, collection, and enforcement devices." It is argued that some will benefit if the government provides certain goods and services by levying general taxes. According to Alchian and Allen, "some government actions are designed to enable some people to pay for services they could not otherwise obtain so cheaply through private contractual arrangements - for example, nearby public parks, better roads, sewers, police protection, sanitation, and protection from disease, insect pests, and fire." (Alchian & Allen 1983, 392, 393 & 397) Addressing the argument that "some essential services simply cannot be supplied by the private sphere, and that therefore government supply of these services is necessary", Murray Rothbard countered that "every single one of the services supplied by government has been, in the past, successfully furnished by private enterprise." (Rothbard 2011, 426) To the question "Are there some tasks that must be done, but that,

by their nature, cannot conceivably be done privately and must therefore continue to be done by government?" David Friedman answered, "I believe not." He added, "I believe that, although there are certain important tasks which for special reasons are difficult to do under institutions of total private property, these difficulties are in principle, and may be in practice, soluble." However, he conceded that "there might be circumstances in which voluntary institutions could not defend themselves against a foreign state." Friedman was humble. He acknowledged that "human beings and human societies are far too complicated for us to have confidence in a priori predictions about how institutions that have never been tried would work." (Friedman 1978, 24, 25 & 200) What would be necessary then is an "experiment" - an "experiment" in the direction of liberty. "Why," Rothbard asked, "must political experiments always be in the direction of more government? Why not give the free market a county or even a state or two, and see what it can accomplish?" (Rothbard 2011, 426) Sometimes you have to cross the line to find out where it is.

&i+liograph Alchian, Armen & Allen, William R. (1983) "Exchange and Production: Competition, Coordination, & Control" Third Edition Baez, Joan. (1968) "Daybreak" Brown, Susan Love et al. (1974) "The Incredible Bread Machine" Buchanan, James. ([1968] 1999) "The Demand and Supply of Public Goods" Friedman, David. (1978) "The Machinery of Freedom" Higgs, Robert. (1987) "Crisis and Leviathan"Olson, Mancur. ([1965] 1971) "The Logic of Collective Action" Rothbard, Murray N. (2011) "Economic Controversies" Smith, Adam. ([1776] 2003) "The Wealth of Nations"

Government: A Terror to Evildoers?

Let every person be subject to the governing authorities; for there is no authority except from God, and those authorities that exist have been instituted by God. Therefore whoever resists authority resists what God has appointed, and those who resist will incur judgment. or rulers are not a terror to good conduct, but to bad. (Romans 13:1 - 3 NRSV) ,hat is Government? According to Howard Zinn, "The greatest violence comes not from protesters and revolutionaries but from governments." (Zinn 1997, 582) Indeed, he is correct. As Ludwig von Mises wrote, "Government is beating into submission, imprisoning, and killing ... [A] law to which no sanction is attached (is) an imperfect law." (Mises 1962) "We must have government," claimed Robert Higgs. "Without government to defend us from external aggression, preserve domestic order, define and enforce private property rights, few of us could achieve much." (Higgs 1987, 3) Echoing Higgs, Armen Alchian and William Allen wrote, "[W]ithout government the state of society would be intolerable, and there could be neither exchange of private-property rights nor such rights. Because security against foreign and domestic aggressors is not adequately organized by private contracts, the military, the police, and the courts are essential." (Alchian & Allen 1983, 392) Again, von Mises: "In stark reality, peaceful social cooperation is impossible if no provision is made for violent prevention and suppression of antisocial action on the part of refractory individuals and groups of individuals." (Mises [1949] 1998, 715) "In order to preserve peaceful cooperation, one must be ready to resort to violent suppression of those disturbing the peace. Society cannot do without a social apparatus of coercion and compulsion, i.e., without state and government." (Ebeling 1990, 303) "What is required for the attainment of an end aimed at is a means, the cost to be expended for its successful realization." (Mises [1949] 1998, 715) "[W]ithout (government) no lasting social cooperation and no civilization could be developed and preserved." However, Mises warns, "It is a double-edged makeshift to entrust an individual or a group of individuals with the authority to resort to violence. The enticement implied is too tempting for a human being. The men who are to protect the community against violent aggression easily turn into the most dangerous aggressors. They transgress their mandate. They misuse their power for the oppression of those whom they were expected to defend against oppression." (Mises 1962) In Elaine Pagels book "The Origin of Satan," she pointed out that Paul, the author of Romans, was probably executed by order of a Roman magistrate and that Nero, a Roman emperor during the first century, had a group of Christians "hung up in his garden and burned alive as human torches." (Pagels 1995, 113) If we consider Christian conduct to be good then, certainly, these rulers were terrors to good deeds or, as Pagels translates it, "to the one who (did) good." (Pagels [1975] 1992, 43) (We are assuming here that Christians experienced fear.) "The main political problem," according to von Mises, "is how to prevent the police power from

becoming tyrannical." (Mises 1962) Tyrannical governments are terrors to those who do good. They are exceptions to the rule. Unless we interpret the Christian teaching cited above as a generalization, it is difficult to reconcile the words from Romans with Mises' analysis. -a e' on Government Perhaps more than any other economist, F. A. Hayek emphasized the singular and, perhaps, insupplantable function religious beliefs serve. In his last major work. he wrote, "We owe it partly to mystical and religious beliefs, and, I believe, particularly to the main monotheistic ones, that beneficial traditions have been preserved and transmitted at least long enough to enable those groups following them to grow, and to have the opportunity to spread by natural or cultural selection." (Hayek [1988] 1991, 136) Decades early, Hayek's explication of religion's role in human affairs was almost fervent: It is essential for the growth of reason that as individuals we should bow to forces and obey principles which we cannot hope fully to understand, yet on which the advance and even the preservation of civilisation depend. Historically this has been achieved by the influence of the various religious creeds and by traditions and superstitions which made man submit to those forces by an appeal to his emotions rather than to his reason. (Hayek 2010) Precisely which traditions Hayek is referring to we don't know. A Christian author claimed that "Western civilization was built by Christianity" (D'Souza [2007] 2008, 43) but this is, for our purposes, ambiguous. What concerns us here is whether belief in Christian teachings on government is indispensable in the sense that rejection of them would lead to the destruction of civilization. Hayek's system of thought, which he referred to as "the antirationalist tradition," was "never antistate as such or anarchistic." (Hayek [1960] 2011) In this respect, Hayek's political philosophy is compatible with the biblical passage cited above. Why would you want the abolition of the state if it is a terror to evildoers? It's safe to say that Paul was not an anarchist. Neither was Hayek but his position is relatively sophisticated. Initially, Hayek wrote, "[T]he spontaneous order of a free society will contain many organizations (including the biggest organization, government)," implying that government is, by definition, a part of a free society. (Nishiyama & Luebe 1984, 366) Later, he refined his position: Government is an organization "which regularly occupies a very special position" within "the Great Society ... Although it is conceivable that the spontaneous order which we call society may exist without government, if the minimum of rules required for the formation of such an order is observed without an organized apparatus for their enforcement, in most circumstances the organization which we call government becomes indispensable in order to assure that those rules are obeyed." (Hayek 2013, 45) The New Testament, as we have seen, preaches non-resistance to authority. Without authority or government, Hayek maintains, in most cases, certain rules would

not be obeyed. If certain rules are not obeyed, society would cease to exist. Therefore, non-resistance to government, if we follow his premises, is, almost always, a necessary condition for the existence of civilization. ("Non-resistance" here means non-resistance by enough people to insure that the amount of resistance is suppressible and anarchy is avoided.) It is not, however, a sufficient one. Government itself must obey rules also. When government "successfully claims the monopoly of coercion and violence, it becomes ... the chief threat to individual freedom." (Hayek 2013, 462) Here we see what appears to be a divergence between Hayek and the New Testament. If government violates long run rules that were intended to limit its functions and scope how can anyone claim that such a government was "instituted by God"? Has God appointed all existing governments no matter how despotic? It depends on your interpretation. The letter to the Romans was written nearly two thousand years ago. Assuming modern translations are reliable, Paul is writing in the present tense. In these verses, he is referring to rulers in his day not ours. This is our error when we delve into biblical exegesis: We read the text as if the author is addressing us when he, in fact, was addressing people who have been dead for centuries. Nonetheless, the passage is thought-provoking because it recognizes that government's role is to enforce rules of conduct. What these rules should or should not be is the topic of the next section. ,hat ("les Sho"ld Government En$or%e? !o you wish to have no fear of the authority" Then do what is good, and you will receive its approval; for it is God#s servant for your good. $ut if you do what is wrong, you should be afraid. (3 & 4 NRSV) Is "the existence of strongly and widely held moral convictions in any matter ... by itself a justification for their enforcement"? According to Hayek, "[W]ithin a spontaneous order the use of coercion can be justified only where this is necessary to secure the private domain of the individual against interference by others ... [C]oercion should not be used to interfere in that private sphere where this is not necessary to protect others. Law serves a social order, i.e. the relations between individuals, and actions which affect nobody but the individuals who perform them ought not to be subject to the control of law, however strongly they may be regulated by custom and morals." (Hayek 2013, 221) Of course, Hayek is a classical liberal or libertarian: "[T]o the (classical) liberal neither moral nor religious ideals are proper objects of coercion ... [M]oral beliefs concerning matters of conduct which do not directly interfere with the protected sphere of other persons do not justify coercion." (Hayek [1960] 2011) The New Testament says that the one who has authority "is the servant of God to execute wrath on the wrongdoer." (13:4 NRSV) This, however, does not provide us with any principle to determine what laws government should enforce. According to Hayek, it is inadvisable that obedience to all moral rules should be coerced by government. He argued, "The importance of ... (the) freedom of the individual ...

everywhere where his actions do not conflict with the aims of the actions of others, rests mainly on the fact that the development of custom and morals is an experimental process, in a sense in which the enforcement of uniform rules of law cannot be - a process in which alternative rules compete and the more effective are selected by the success of the group obeying them." (Hayek 2013, 221) Although he is convinced that "freedom has never worked without deeply ingrained moral beliefs" and "coercion can be reduced to a minimum only where individuals can be expected as a rule to conform voluntarily to certain principles" he, nevertheless, insists that "there is an advantage in obedience to such rules not being coerced ... [I]t is, in fact, often desirable that rules should be observed only in most instances and that the individual should be able to transgress them when it seems to him worthwhile to incur the odium which this will cause." His grounds for supporting individual freedom and rejecting state coercion is "the antirationalist, evolutionary tradition." (Hayek [1960] 2011) This anti-rationalist theory of morals shows that, "so far as the creation of moral rules is concerned, 'reason of itself is utterly impotent' and that 'the rules of morality, therefore, are not conclusions of our reason' ... [O]ur moral beliefs are neither natural in the sense of innate, nor a deliberate invention of human reason, but ... a product of cultural evolution ... In this process of evolution what proved conducive to more effective human effort survived, and the less effective was superseded." (Hayek 1967, 111) Gradual evolution is possible only under limited government, only "with rules which are neither coercive nor deliberately imposed - rules which, though observing them is regarded as merit and though they will be observed by the majority, can be broken by individuals who feel that they have strong enough reasons to brave the censure of their fellows ... [R]ules of this kind allow for gradual and experimental change. The existence of individuals and groups simultaneously observing partially different rules provides the opportunity for the selection of the more effective ones." (Hayek [1960] 2011) Because "a rule of conduct may unexpectedly be contradicted by new experience," it is recommended that government should enforce only some rules and not make all immoral behavior illegal. (Nishiyama & Luebe 1984, xlii) In his essay "Principles of a Liberal Social Order," Hayek specified the kind of rules government should enforce. He argued that the coercive activities of government should be limited to the enforcement of universal rules of just conduct. Enforcement of such rules will protect "a recognizable private domain of individuals." (Nishiyama & Luebe 1984, 365) These rules "have essentially the nature of prohibitions" (There are exceptions. Sometimes the rules of just conduct require positive action.) As to what the protected or private domain of people should or should not include, Hayek doesn't say explicitly. It depends on what rules of just conduct the authorities enforce. That being said, not all rules that governments enforce are rules of just conduct. Rules that regulate behavior that doesn't infringe on the rights of others are not included in the rules of just conduct. As Hayek puts it, "[I]njustice is really the primary concept ... [T]he aim of rules of just conduct is to prevent unjust action ... [T]he injustice to be prevented is the infringement of the protected domain of one's fellow men, a domain which is to be

ascertained by means of these rules of justice." (Nishiyama & Luebe 1984, 369 & 370)

&i+liograph Alchain, Armen A. & Allen, William R. (1983) "Exchange and Production" D'Souza, Dinesh. ([2007] 2008) "What's So Great About Christianity" Ebeling, Richard M., ed. (1990) "Money, Method, and the Market Process: Essays by Ludwig von Mises" Hayek, F. A. ([1960] 2011) "The Constitution of Liberty" Hayek, F. A. (1967) "Studies in Philosophy, Politics, and Economics" Hayek, F. A. ([1973, 1976, 1979] 2013) "Law, Legislation and Liberty" Hayek, F. A. ([1988] 1991) "The Fatal Conceit" Hayek, F. A. (2010) "Studies on the Abuse and Decline of Reason" Higgs, Robert. (1987) "Crisis and Leviathan" Mises, Ludwig von. ([1949] 1998) "Human Action" Mises, Ludwig von. (1962) "The Ultimate Foundation of Economic Science" Nishiyama, Chiaki & Leube, Kurt R., ed. (1984) "The Essence of Hayek" Pagels, Elaine. ([1975] 1992) "The Gnostic Paul" Pagels, Elaine. (1995) "The Origin of Satan" Zinn, Howard. (1997) "The Zinn Reader"

Capitalism and Slaver : A Comparative!Instit"tions Anal sis

According to Thomas Sowell, slavery "is one of the oldest and most universal of all human institutions. (It) has existed among peoples around the world, as far back as recorded history goes." (Sowell 2009, 20) Capitalism, on the other hand, is less than 300 years old. (Mandel 1970, 30) They (capitalism and slavery) are not the same. Some authors, however, have emphasized some rather tenuous similarities between the two to the point of almost homogenizing them. This paper will address these arguments and counter some false impressions that they may leave in people's minds. .or%ed /a+or: Tr"e and .alse Forty years ago it was claimed that a particular author was "probably the most influential exponent of the political economy of scientific socialism in the Western world." (George Novack in Mandel 1970, 3) Since then, he has become less well-known. The author referred to is the Marxist scholar Ernest Mandel. Mandel is perhaps best known for the two volume treatise "Marxist Economic Theory". What concerns us here are his musings on the subject of forced labor. Forced labor, involuntary servitude and slavery are terms that are used interchangeably though they are not necessarily synonymous. (Slavery implies ownership of human beings and could conceivably exist without compulsory labor.) For our purposes, what matters is that slavery and servitude are synonyms and that they connote work performed by the dominated. Mandel, being a Marxist, was a critic of capitalism. He predicted its ultimate demise: "[C]apitalism ... is a product of history. It will perish in due course as it once was born." (Marx [1976] 1990, 13) One of his more noteworthy excoriations is the following: [U]nder capitalism, labour is fundamentally forced labour." (Marx [1976] 1990, 49, emphasis in original) Mandel doesn't take credit for discovering this. It was Marx's insight. However, it is safe to assume that Mandel agrees. How could such an unsettling conclusion be valid? To grasp his position we must first understand Mandel's concept of "economic compulsion". We must, for the moment, think like a Marxist; we must not "accept 'appearances' as they are, without looking for the basic forces and contradictions which they tend to hide from the superficial and empiricist observer." (Marx [1976] 1990, 20) Under chattel slavery, the reality of compulsion is obvious. The overseer brandishes a whip or, perhaps, a gun. If the human cattle do not perform or attempt to escape, woe be unto them! Unlike bondage, capitalism involves voluntary exchange. The "forced labor" that Mandel refers to is not necessarily the kind where someone is compelled to work for a specific individual or organization. It is, instead, the kind where people are compelled to work, ultimately, for a member of a specific class of men. How did it come about that the worker has only one "sensible" choice? As Mandel explains it,

[T[here is an institutional inequality of conditions between capitalists and workers. The capitalist is not forced to buy labour-power on a continuous basis ... The worker, on the other hand, is under economic compulsion to sell his labour-power. As he has no access to the means of production, including land, as he has no access to any largescale free stock of food, and as he has no reserves of money which enable him to survive for any length of time while doing nothing, he must sell his labour-power to the capitalist on a continuous basis and at the current rate. (Marx [1976] 1990, 47 & 48) In his earlier work, Mandel expressed the same sentiment less thoroughly but more pithily: "[O]nly a sufficient amount of property releases a man from the slavery of selling his labour-power to get the means of existence, from this condemnation to forced labour ... [T]he market is characterised by an institutional ine%uality, without which the capitalist (system) could not last a single day: the monopoly of the means of production in the hands of one social class; the obligation to which another social class is subject to sell its labour-power, in order to be able to exist." (Mandel [1962] 1968, 685, 709 & 710, italics in original) One is free to dismiss Mandel as a polemicist and demagogue but one would, arguably, be remiss for doing so when even an economist as eminent as Joan Robinson once wrote that in "the modern labour market ... the individual worker has no opportunity to decide anything except whether it is better to work or to starve." (Horowitz 1968, 150) If leaving a harsh critique of the market unanswered isn't intellectual dereliction, what is? Because of her prestige, we shall begin with Robinson's point first. She says, essentially, that the worker in a capitalist economy has two choices: work or starve. What are her assumptions? For this we turn to Mandel: 1. The worker has no access to means of production (tools, land) 2. The worker has no access to means of existence (food, clean water, medicine) 3. The worker has no access to means of payment (currency, liquid assets) There is another assumption than has not, thus far, been stated: 4. The worker cannot escape to a "better" territory. This assumption, of course, will need to be clarified. If we wish to be rigorous, we ought to split this assumption into two: 4a. The worker cannot escape. 4b. The worker can escape but there is no "better" territory. For the sake of simplicity, we'll just assume that the worker cannot escape. (If he can't escape, it's irrelevant if a "better" territory exists. He's not going there except for in his dreams.) This raises some interesting questions. Why can't the worker escape? He is not someone's legal property. Even if he was, enforcement is never perfect. When

chattel slavery was legal, some slaves did escape. As Thomas Sowell informs us, "While permanent escape from a slave plantation was very rare - perhaps two percent of the slaves made good their escape without being recaptured - escapes by urban slaves were far more often permanently successful." (Sowell 2009, 42) Unlike the chattel slaves, the laws of the land do not forbid the worker under capitalism from escaping. Why, then, can't he escape? It must be that, although escape is legal, it is not "feasible." In this scenario, escape is not guaranteed. Attempting it would be reckless. The trek is fraught with danger and discomfort. Some, if not most, will perish. A "reasonable" person would have to cross "escape" off of his list of options. He is left with the two that we began with: 1.) work; 2.) starve. For the sake of argument, let's assume that these are the worker's only two options. In this case, is it valid to assert that the worker is being coerced? It depends on one's understanding of the meaning of coercion. As F. A. Hayek expounded, while we can legitimately say that we have been compelled by circumstances to do this or that, we presuppose a human agent if we say that we have been coerced. Coercion occurs when one man's actions are made to serve another man's will ... It is not that the coerced does not choose at all ... Coercion implies ... that I still choose but that my mind is made someone else's tool, because the alternatives before me have been so manipulated that the conduct that the coercer wants me to choose becomes for me the least painful one. Although coerced, it is still I who decide which is the least evil under the circumstances. (Hayek [1960] 2011) If a worker is being coerced in the Hayekian sense, then it must be asked "Who is doing the coercing?" The alternatives that the worker faces are both disagreeable but can it be said that they have been manipulated by an identifiable individual or even a sinister cabal? Clearly not. The constraints that a solitary worker confronts in the market are much more closely related to the circumstances of the physical environment than they are to the compulsion of a domineering agent because the data of the market is the result of a process and was not consciously designed by an individual or group. When authors use the phrase "the tyranny of a free market," they are unwittingly acknowledging that if anything is leaving people with unsatisfactory courses of action it is "the market". "The market," however, is the totality of the actions of everyone participating in the market economy; not a conscious project pursuer. When Paul A. Baran and Paul Sweezy referred to "the compulsions of the system," they also were admitting that "the system" is doing the compelling. (Baran & Sweezy 1966, 364) If this is true, then workers are not being coerced in the Hayekian sense because they are not being made to serve any man's will. Even if we were to agree with Mandel that under capitalism, labor is forced labor it is not correct to assume that workers have only two options and that they choose to work because that is the least bad one. They have an additional option that hasn't been

mentioned yet: illegal employment of violence. Recall the three means that the coerced laborer lacks: of production, of existence, of payment. He could avoid work and starvation by illegally appropriating enough of any of the three means. (Unless we consider criminal appropriation to be a form of work.) It could be objected that breaking the law is not a "serious" option but, for the sake of academic rigor, it will be briefly covered. Recall Mandel's argument that workers are compelled to sell labor power for food and they are, in some sense, enslaved. Let's assume that they in fact are slaves. When dealing with slavery, we are dealing with what Ludwig von Mises called a hegemonic bond. Concerning such a bond, Mises wrote [N]o physical violence and compulsion can possibly force a man against his will to remain in the status of the ward of a hegemonic order. What violence or the threat of violence brings about is a state of affairs in which subjection as a rule is considered more desirable than rebellion. Faced with the choice between the consequences of obedience and of disobedience, the ward prefers the former and thus integrates himself into the hegemonic bond. (Mises [1949] 1998, 197) Under the most grotesque forms of slavery, suicide was an act of disobedience and many, understandably, chose this over obedience. As Thomas Sowell informs us, "in Peru (in the nineteenth century), ... guards were posted to prevent suicide among the Chinese shovelling bird manure into sacks for export as fertilizer, under conditions of stifling heat and stench." (Sowell 2009, 45) Among living slaves, disobedience must, of course, take a different form. Disobedience presents us with a conundrum. Why would a slave disobey when the expected consequences are so horrible? Almost as perplexing is why they would obey. The consequences of obedience can, also, be quite awful. It would be lazy for a social scientist to just assume that human beings rationally and dispassionately weigh the consequences of obedience with the consequences of its antonym and reject the worse scenario. How one evaluates different outcomes will depend on one's subjective value judgments and these value judgments, I suspect, are, for better or worse, normally influenced by various non-rational and/or irrational factors. How an individual will assess his situation will be, in part, determined by what social scientists label "ideology". ("Ideology" here means ideology in the pejorative sense.) In spite of this, we shall, for the moment, try to abstract from "ideology" and endeavor to behold the pure, unvarnished facts of reality. With this digression out of the way, we are now prepared to objectively record the traits that capitalism has in common with slavery. Capitalism or the market economy, as traditionally defined, includes a state or government; it presupposes authority and violence. "The state," according to Mises, "as an apparatus of compulsion and coercion is by necessity a hegemonic organization." (Mises [1949] 1998, 198) The application of force is an element that is common to the social order known as capitalism and chattel

slavery. This is relevant because as long as violence is occurring there will be disagreements about whether the violence is legitimate or not. If, as Mandel argued, the violence meted out by the capitalist state leads to conditions that are morally indistinguishable from slavery, then the legitimacy of the aforementioned violence is in question. As interesting as this moral dimension may be, this inquiry will leave these concerns unaddressed and focus, instead, on the economic differences between capitalism and slavery. By abstracting from morality, a topic where viewpoints are innumerable and consensus is rare, we can embark on a mission we are capable of: deducing the objective dissimilarities between capitalism and slavery. Even if we grant that under capitalism, labor is forced labor, the crucial distinction between capitalism and slavery is that, unlike slaves, workers in a market economy are not forced to work for a particular firm or employer. Slaves, on the other hand are the property of some consumer. These institutional variances have significant effects on compensation. As Murray Rothbard explained, Since the masters own the slaves, they indeed only pay them their subsistence wage: enough to live on and reproduce, while the masters pocket the surplus of the slaves' marginal product over their cost of subsistence. This surplus value extracted from the slave constitutes the profits of the masters from slave-ownership. In the free society, in contrast, the workers, owning their own bodies and their own labour, pocket their full marginal product (discounted ... by the interest return the labourers freely and willingly pay to the capitalists for advancing them the value of their production now rather than wait until after the product is produced and sold.) (Rothbard [1995] 2006) While Mandel's "worker" can't effectively quit wor&ing (because if he does he will starve) the slave can't legally quit his job. Regarding slavery, Walter Block wrote, jokingly, "[T]he only thing wrong with that curious institution was that you couldn't quit. Otherwise, it wasn't so bad; you got to pick cotton, sing songs, eat pretty well as much mush as you wanted..." (Block & Four Arrows 2011, 131) The worker in a capitalist country is not only not legally bound to work for a specific employer he is also not legally bound to remain a worker. While slaves are members of a caste, workers are merely the members of a class. There is a fundamental difference between the two and this distinction is at the root of the major divergences between capitalism and slavery. Castes are either legally privileged or legally disadvantaged while members of classes have the same rights as members of other classes. This discovery was made by Ludwig von Mises: Where status and caste differences prevail, all members of every caste but the most privileged have one interest in common, viz. to wipe out the legal disabilities of their own caste. All slaves, for instance, are united in having a stake in the abolition of slavery. But no such conflicts are present in a society in which all citizens are equal before the law. No logical objection can be advanced against distinguishing various classes among the

members of such a society. Any classification is logically permissible, however arbitrarily the mark of distinction may be chosen. But it is nonsensical to classify the members of a capitalistic society according to their position in the framework of the social division of labor and them to identify these classes with the castes of a status society ... In the unhampered market economy there are no privileges, no protection of vested interests, no barriers preventing anybody from striving after any prize. (Mises [1957] 2005, 76 & 77) Con%l"sion Even if we concede that laborers are forced to work for wages, it would be inaccurate to say that they are enslaved. Slavery presupposes both ownership of human beings and a status or caste society. Capitalism and slavery are not mutually exclusive. Slavery can exist within a capitalist society. So can caste privileges and disabilities. Hegemonic relations are a part of capitalism, as commonly understood, and slavery. It may be tautological to say that how coercion is used and how much will determine what social phenomena will exist but statements such as these send, in an admittedly pleonastic way, the important message that economic events have human causes. Under capitalism, private property rights are enforced by the state. If enforcement of such rights in effect compels workers to sell their labor power, it does so indirectly. Under slavery, the overseer directly forces the slaves to work. The choice set is different in the two situations. The choice set is a "function" of the kind and amount of intervention. It is conceivable that the matrix of intervention can be fine-tuned to the point where the choice set of an individual is greatly limited. Man-made obstacles, including government intervention in the market, may leave some castes with few options but there is still a difference in kind between forbidding someone to perform an action and commanding someone to perform one. In a capitalistic economy, the government both commands and forbids. On a slave plantation, the master does the same. In this respect, they are similar but, ultimately, one features the hiring of workers and the other features the owning of human beings. Either someone is someone's property or he isn't.

&i+liograph Baran, Paul A. & Sweezy, Paul M. ([1966] 1968) "Monopoly Capital" Block, Walter & Four Arrows (2011) "Differing Worldviews in Higher Education" Hayek, F. A. ([1960] 2011) "The Constitution of Liberty" Horowitz, David, ed. (1968) "Marx and Modern Economics" Marx, Karl. ([1976] 1990) "Capital" Volume I Mandel, Ernest. ([1962] 1968) "Marxist Economic Theory" Mandel, Ernest. (1970) "An Introduction to Marxist Economic Theory" von Mises, Ludwig. ([1949] 1998) "Human Action" von Mises, Ludwig. ([1957] 2005) "Theory and History" Rothbard, Murray. ([1995] 2006) "Classical Economics" Sowell, Thomas. (2009) "Applied Economics"

#i$$eren%es: Epistemologi%al and other

People can disagree with each other for various reasons. What concerns us here are disagreements that stem from differences in epistemology and methodology. Whether one's motives are noble or ignoble, it is critical that one is cognizant of reality. Deceiving others may be immoral but deceiving oneself is impractical. Unwittingly deceiving oneself by utilizing unsuitable epistemological methods may be unavoidable as long as men are fallible and time-constrained. It is not necessarily careless to be unaware of different methodologies. However, the consequences of unsound reasoning, drawing false conclusions and accepting erroneous "common sense" are not always minor. Before we scoff or attribute sinister motives to people who make claims that are counterintuitive, we ought to remember that "common sense tells us that the world is flat, that the sun goes around the earth, that heavy bodies always fall faster than light bodies, that boats made of iron will sink." (Chase 1956, 4) Theor and #ata

The late Nobel-Prize winning economist James Buchanan made a stunning confession. Speaking at a conference, he said, "I have suggested that the principle of spontaneous order is 'scientific' in the sense that it embodies a logically coherent argument. But does the economist who considers his main role to be that of teaching this principle to his students necessarily plead guilty to the charge that he is imposing an ideology? In one sense the answer is yes." (Buchanan 1979, 89) "Ideology" ... "impose." To the unsympathetic, this must sound conspiratorial. Ideology is a word that can have negative connotations. It can conjure up images of vested interests using propaganda to manipulate the public. Ideologue is not today usually a term of approbation. Referring to oneself as one is done with misgivings. "Ideology" in the sense that cynics use the word is what we want to avoid. Marxists believe in class struggle. Part of this class struggle involves intellectuals who preach doctrines for the sake of the capitalists. According to the Marxist Ernest Mandel, "If we consider objectively the entire realm in which ideas are shaped and defended, we shall not be able to deny that a fair number of cynics and careerists are to be met therein, people who sell their pens and their brains to the highest bidder, or who subtly modify the direction taken by their thought if it risks prejudicing their promotion." (Mandel [1962] 1968, 13 & 14) The charge that what is taught is taught because it aids the powerful is a familiar one. Professor Noam Chomsky insinuated this: Pursuit of what Adam Smith called the "vile maxim of the masters of mankind" ["All for ourselves, and nothing for other people."] has followed much the same course over and over again in (the last two centuries), always suffused with self-righteousness, inspired by the holy doctrines of a version of economic theory that is immune to abundant - one might perhaps argue, consistent - empirical refutation, and that has the miraculous

quality of invariably benefitting the masters, who are also the paymasters, a suggestive fact that is rarely explored. (Chomsky [1994] 1996, 5 & 118) If "moneybags" (to borrow a term from Marx) is influencing which theories are being disseminated amongst the people then this complicates matters. Of course, whether a theory is palatable to the oligarchs or not has no bearing on whether the theory is true. How beliefs came to be canonical or why they remain so should not concern us. If a doctrine is true then it cannot be rejected on scientific grounds. Our challenges are distinguishing science from non-science and selecting the appropriate methodology for our chosen inquiry. Turning now to the substance of the quotation from Chomsky, we should take note of two subjects: theory and empirical data. He says that data can refute theory. John Maynard Keynes argued this way. He wrote, "Professional economists ... were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation." (Keynes [1953] 1964, 33) Nearly two hundred years ago, William Godwin called experience "the pole-star of truth" and was hesitant about using complicated chains of reasoning. He wrote, There are two principal methods according to which truth may be investigated. The first is by laying down one or two simple principles, which seem scarcely to be exposed to the hazard of refutation; and then developing them, applying them to a number of points, and following them into a variety of inferences. From this method of investigation, the first thing we are led to hope is that there will result a system consentaneous to itself; and, secondly, that, if all the parts shall thus be brought into agreement with a few principles, and if those principles be themselves true, the whole will be found conformable to truth ... An enquiry thus pursued is undoubtedly in the highest style of man. But it is liable to many disadvantages; and, though there be nothing that it involves too high for our pride, it is perhaps a method of investigation incommensurate to our powers. A mistake in the commencement is fatal. An error in almost any part of the process is attended with extensive injury; where every thing is connected, as it were, in an indissoluble chain, and an oversight in one step vitiates all that are to follow. The intellectual eye of man, perhaps, is formed rather for the inspection of minute and near than of immense and distant objects. We proceed most safely when we enter upon each portion of our process, as it were, de novo; and there is danger, if we are too exclusively anxious about consistency of system, that we may forget the perpetual attention we owe to experience. (Godwin 1797, v -vi) The economist Stuart Chase identified six methods for obtaining knowledge. They are: 1. Appeal to the supernatural 2. Appeal to worldly authority - the older the better 3. Intuition

4. Common sense 5. Pure logic 6. The scientific method He wrote that "only the last furnishes a cumulative storehouse of dependable and consistent knowledge." (Chase 1956, 3) Let's assume he is correct. This presents us with a problem: How can we do experiments in the social realm? The social sciences present us with difficulties. According to Ernest Nagel, "Perhaps the most frequently mentioned source of difficulty is the allegedly narrow range of possibilities for controlled experiments on social subject matter." In a controlled experiment, the experimenter can manipulate at will ... certain features in a situation (often designated as "variables" or "factors") which are assumed to constitute the relevant conditions for the occurrence of the phenomena under study, so that by repeatedly varying some of them (in the ideal case, by varying just one) but keeping the others constant, the observer can study the effects of such changes upon the phenomenon and discover the constant relations of dependence between the phenomenon and the variable. (Nagel 1979, 450 & 451) According to Nagel, John Stuart Mill, the nineteenth century philosopher, "was a foremost advocate ... for employing the logical methods of the natural sciences in social inquiry." However, "he was convinced that experimentation directed toward establishing general laws was not feasible in the social sciences ... His contention is based in part on the supposition that controlled experimentation ... requires the occurrence of variation in just one (relevant) factor at a time." According to his Method of Difference, "two situations are required, the phenomenon being present in one and not in the other, that are alike in all respects but one (which may ... be identified as the "cause" or "effect" of the phenomenon)." (Nagel 1979, 454) Nagel conceded that controlled experiment can apparently be performed at best only rarely in the social sciences, and perhaps never in connection with any phenomenon which involves the participation of several generations and large numbers of men ... Since a given change introduced into a social situation may produce (and usually does produce) an irreversible modification in relevant variables, a repetition of the change to determine whether or not its observed effects are constant will be upon variables that are not in the same initial conditions at each of the repeated trials. In consequence, since it may thus be uncertain whether the observed constancies or differences in the effects are to be attributed to differences in the initial states of the variables or to differences in other circumstances of the experiment, it may be impossible to decide by experimental means whether a given alteration in a social phenomenon can be rightly imputed to a given type of change in a certain variable. (Nagel 1979, 451) Because time travel is not an option, "no laboratory experiments can be performed with

regard to human action. We are never in a position to observe the change in one element only, all other conditions of the event being equal to a case in which the element concerned did not change." (Mises [1949] 1998, 31) If the scientific method is not useful when studying social phenomena, it is because, as Ludwig von Mises demonstrated, "all knowledge of human action rests on methodological dualism, on a profound difference between the study of human beings on the one hand, and stones, molecules, or atoms, on the other." von Mises used a methodology that Godwin was dismissive of. He started with the "axiom of action". The axiom of action simply means that "individual human beings are conscious, that they adopt values and make choices - act - on the basis of trying to attain those values and goals." This axiom is self-evident because it "cannot be refuted without selfcontradiction; that is without using the axiom in any attempt to refute it." As Murray Rothbard, an economist in the Misesian tradition, explains, "since the axiom of action is self-evidently true, any logical deductions or implications from that action must be absolutely, uncompromisingly, 'apodictically,' true as well." Recall how Keynes and Chomsky said that economic theory had been contradicted by the facts. Rothbard, however, believed that the body of economic theory that derived from the self-evident axiom of action is "absolutely true" and that "any talk about testing its truth is absurd and meaningless. Moreover, no testing can take place since historical events are not, as are natural events in the laboratory, homogenous, replicable, and controllable. instead, all historical events are heterogeneous, not replicable, and the result of complex causes." (Holcombe 1999, 158) According to Hans-Hermann Hoppe, another Misesian economist, "true synthetic a priori propositions are grounded in self-evident axioms and ... these axioms have to be understood by reflection upon ourselves rather than being in any meaningful sense 'observable'." These propositions "can be validated independently of observations and thus cannot possibly be falsified by any observation whatsoever." (Hoppe [1995] 2007, 20 & 24) The science of human action, according to von Mises, is called praxeology. Praxeology, according to Hoppe, says that "all economic propositions which claim to be true must be shown to be deducible by means of formal logic from the incontestably true material knowledge regarding the meaning of action ... Provided there is no flaw in the process of deduction, the conclusions ... must be valid a priori because their validity would ultimately go back to nothing but the indisputable axiom of action." (Hoppe [1995] 2007, 25 & 26) As briefly noted, according to the Misesian method, "economic theories cannot be 'tested' by historical or statistical facts ... There are always many causal factors impinging on each other to form historical facts. Only causal theories a priori to these facts can be used to isolate and identify the causal strands ... The only test of a theory is the correctness of the premises and of the logical chain of reasoning." Rothbard's defense of praxeology is an essential tool in our toolkit and deserves to be quoted at length.

Suppose a theory asserts that a certain policy will cure a depression. The government, obedient to the theory, puts the policy into effect. The depression is not cured. The critics and advocates of the theory now leap to the fore with interpretations. The critics say that the failure proves the theory incorrect. The advocates say that the government erred in not pursuing the theory boldly enough, and that what is needed is stronger measures in the same direction. Now the point is that empirically there is no possible way of deciding between them. Where is the empirical "test" to resolve the debate? How can the government rationally decide upon its next step? Clearly, the only possible way of resolving the issue is in the realm of pure theory - by examining the conflicting premises and chains of reasoning. (Rothbard [1963] 2000)

&i+liograph Buchanan, James. (1979) "What Should Economists Do?" Chase, Stuart. (1956) "The Proper Study of Mankind" Revised Edition Chomsky, Noam. ([1994] 1996) "World Orders: Old and New" Godwin, William (1797) "The Enquirer" Holcombe, Randall G., ed. (1999) "15 Great Austrian Economists" Hoppe, Hans-Hermann. ([1995] 2007) "Economic Science and the Austrian Method" Keynes, John Maynard. ([19530 1964) "The General Theory of Employment, Interest, and Money" Mandel, Ernest. ([1962] 1968) "Marxist Economic Theory" von Mises, Ludwig. ([1949] 1998) "Human Action" Nagel, Ernest. (1979) "The Structure of Science" Rothbard, Murray ([1963] 2000) "America's Great Depression" Fifth Edition

Violence and Social Orders &oo' (evie)

"Violence and Social Orders" by Douglass North, John Wallis and Barry Weingast is an excellent book loaded with many surprising facts. It both challenges many assumptions and reinforces economists' beliefs about decentralization and competition. The book compares "natural states" to "open access societies." While natural states "regulate economic competition" in order to control violence and "establish social cooperation," open access societies "regulate economic and political competition in a way that uses the entry and competition to order social relations." (North et al 2009, xi) One of the characteristics of open access societies is "bigger, more decentralized governments." According to the authors, "High-income countries create and sustain a much denser network of subnational government organizations." (North et al 2009, 11) In countries with per capita incomes between $300 and $2000 annually, the subnational government percent of all government is only 4% while in countries with per capita income of over $20,000 annually, the same figure is 30%. This data is consistent with the theories of the Austrian economist F. A. Hayek. According to Hayek, because knowledge is dispersed, decisionmaking should be decentralized. The problem of the division of knowledge, he wrote, "seems to me to be the really central problem of economics as a social science." (Hayek 1948, 50) The central question of all social sciences is "How can the combination of fragments of knowledge existing in different minds bring about results which, if they were to be brought about deliberately, would require a knowledge on the part of the directing mind which no single person can possess?" (Hayek 1946, 54) Incredibly, "income and the size of the central government are not related." What really matters is the size of the subnational governments: "[T]he strongest pattern is the positive relationship between income and the size of subnational governments." (North et al 2009, 11) Could Hayek's analysis explain this data? Statements like the following suggest that it explains quite a lot: Open access orders appear to be better at coping with change over the long run. Decision makers in an open access society are widely decentralized and include leaders in economic and political organizations. They reach decentralized decisions within the organizations they represent. (North et al 2009, 253) Because knowledge is divided among the population, no one person or one group has all the facts. As Hayek put it, "The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess." (Hayek 1948, 77) In open access societies, "all the separate individuals" have a wide discretion when it comes to

the plans that they make and the revisions of those plans. The alternative to this system of "decentralized planning by many separate persons" is central planning - "direction of the whole economic system according to one unified plan." (Hayek 1948, 79) Hayek argued that central planning would be inefficient because "the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place." For this reason, "it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot except that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all this knowledge, issues its orders." (Hayek 1948, 83 & 84) Hayek instead advocated the price mechanism as a way to coordinate economic activity. By depending on the price mechanism instead of central planning, open access orders are able to function more efficiently. "Planning" would be unfeasible for any given population but would be even more difficult for a heterogeneous population. As Hayek argued, Planning, or central direction of economic activity, presupposes the existence of common ideals and common values; and the degree to which planning can be carried is limited to the extent to which agreement on such a common scale of values can be obtained or enforced ... It is, after all, only common sense that the central government in a federation composed of many different people will have to be restricted in scope if it is to avoid meeting an increasing resistance on the part of the various groups which it includes ... There seems to be little possible doubt that the scope for the regulation of economic life will be much narrower for the central government of the federation than for national states. (Hayek 1948, 264 & 265) According to North, Wallis and Weingast, the scope of the federal government in the nineteenth century was small compared to what it is today. They wrote, [T]hroughout most of the nineteenth century, economic regulation in the United States was undertaken by the states rather than the national government. ... Focusing on the national government ... leads to the erroneous conclusion that laissez-faire government policies promoted economic development. The conclusion depends on the inaction of the national government (laissez faire by default rather than by design) and on ignoring state governments that were not laissez faire but that actively promoted both democracy and economic growth. This system had its advantages: "The system of federalism induced competition among the states, including competition for solutions to common problems." (North et al 2009 120 & 229) In the market economy, intense competition leads to innovations. Similarly, competition among political units puts at least some check on the behavior of rulers and

may even spur more enlightened ones to do what is in the public interest. As we'll see, conventional wisdom among economists concerning competition can be used as a tool for understanding historical events. In the market economy, the profit motive incentivizes businessmen to please their customers and serve them better still in the future. Israel Kirzner explained this process: [I]n the course of the market process the participants are continually testing their competitors. Each inches ahead by offering opportunities a little more attractive than theirs. His competitors, in turn, once they become aware of what they are competing against, are forced to sweeten still further the opportunities they make available to the market; and so on. (Kirzner 1973, 12) Competition of a different kind on the world scene, likewise, resulted in, from the standpoint of free market economics, good policies such as more secure property rights and freer competition: International military competition has two closely related effects. The first is economic: thriving markets in open access orders provide the resource base from which these societies sustain longterm international struggles with hostile rivals. Open access orders that compromise their economies also compromise their ability to survive against hostile international rivals. (North et al 2009, 131) When it comes to raising revenue for armed conflict, natural states are at a disadvantage. According to the authors, they have a "schizophrenic relationship ... to specialization and division of labor." As long ago as 1776, Adam Smith explained how specialization and division of labor made abundance possible. Natural states, however, have to balance their need for revenue with their desire to keep the peace among the different factions. "[I]ncreasing specialization and division of labor," the authors explain, "often requires opening entry and access, and doing so dissipates rents, thus threatening the stability of the dominant coalition." (North et al 2009, 41) According to the economist Joseph Schumpeter, "the important kind of competition in the market system is competition from the new commodity, technology, source of supply and type of organization." (Kirzner 1973, 125) Similarly, competition among hostile nations is competition from new military technology and organization. Understanding this, it should not be surprising that "opening access was not forced on elites, but was in part driven by elites who found it in their interest to expand access." (North et al 2009, 131) As the authors put it, "states had to grow or die ... Increasing military scale created demands for more resources. Better enforcement of property rights for capital and commerce emerged as political elites realized that they could capture more resources from cities in exchange for honoring rights and privileges. The economic success that followed allowed more resources to be devoted to the military." (North et al 2009, 178) Even more analogous to the marketplace is a democratic election. The phrase "vote

with their dollars" has been used by numerous economists. In theory, officials are held accountable for their actions by voters on election day just as businessmen are held accountable by consumers by their abstention from buying. According to Kirzner, "The pure entrepreneur ... proceeds by his alertness to discover and exploit situations in which he is able to sell for high prices that which he can buy for low prices." (Kirzner 1973, 48) The entrepreneur is not "a source of innovative ideas ex nihilo" but is "alert to opportunities that exist already and are waiting to be noticed." (Kirzner 1973, 74) "Political entrepreneurs who lead parties," on the other hand, "seek to advance new ideas and programs in ways that increase the likelihood of success over their rivals." (North et al 2009, 116) What separates entrepreneurs in the market from political "entrepreneurs" is what they are competing for: one for customers, the other for power. The competition for customers drives managers to keep costs down and even reduce them if it is wise to do so. Price competition, according to Hayek, is "one of the most important forces which in a truly competitive economy brings about the reduction of costs to the minimum discoverable." Cost curves, as he points out, are not objectively given facts: [T]he method which under given conditions is the cheapest is a thing which has to be discovered, and to be discovered anew, sometimes almost from day to day, by the entrepreneur ... The force which in a competitive society brings about the reduction of price to the lowest cost at which the quantity salable at that cost can be produced is the opportunity for anybody who knows a cheaper method to come in at his own risk and to attract customers by underbidding the other producers. (Hayek 1948, 196) Contrast this with the scenario facing politicians in liberal democracies: Democracy in open access orders sustains competition among political parties for the exercise of power. Competition for power induces parties to offer competing visions for addressing the society's principal problems. As with other forms of competition, innovators who devise more attractive ways of dealing with problems have advantages over those who do not. (North et al 2009, 125) This, of course, is the ideal version of democracy. It is in their discussion of democracy where their grasp of economics leads them astray. Politicians are not businessmen. While the incentives of the capitalist system do cause businesses to "build better mousetraps," it is far from obvious that the incentives of the democratic system cause politicians to "devise more attractive ways of dealing with problems." The history of the United States seems to be telling us a quite different story. While the statement "Competition for power induces parties to offer competing visions for addressing the society's principal problems" can be interpreted as true, it nevertheless white washes most of the history of the twentieth century. Competition for power has more often than not induced parties to label as many situations as possible crises in order to grab more power (Higgs 1987), to fume about "unscrupulous money changers" and "economic

royalists" (Murphy 2009, 116 & 118) and to engage in appalling dirty tricks and skullduggery (Jamieson 1992, 279), among other things. To be fair to the authors, it isn't untrue that when there is a problem, "[p]olitical competition ... provides those in power with strong incentives to adapt policy in ways that address the problem; failing to do so risks losing power." (North et al 2009,145) However, as Thomas Sowell made clear, democratic institutions have a serious defect: "Political systems provide some feedback via the electoral process, so that laws can be amended, repealed, or given varying amounts of financial support. This feedback is neither as fast nor as universal, nor as immediately coercive as in economic market processes." (Sowell 1980, 36) While comparing the market with democracy may be a useful teaching tool, the similarities should not be exaggerated.

&i+liograph Hayek, F. A. (1948) "Individualism and Economic Order" Higgs, Robert. (1987) "Crisis and Leviathan" Jamieson, Kathleen Hall. (1992) "Packaging the Presidency" Second Edition Kirzner, Israel M. (1973) "Competition and Entrepreneurship" Murphy, Robert P. (2009) "The Politically Incorrect Guide to the Great Depression and the New Deal" North, Douglass C., Wallis, John Joseph and Weingast, Barry R. (2009) "Violence and Social Orders" Sowell, Thomas. (1980) "Knowledge and Decisions"