A Libertarian Society

Economics Economics Questions
1

A common argument i hear among libertarians is that in a pure free market, individuals will be able to pay for private healthcare/no welfare will be needed etc. because everyone will be richer. The wages of the bottom rung of society will be higher.

So how does a free market facilitate this? In a capitalist society, as inequality increases, why will the capital owners simply not exploit the working class and supress wages?

Secondly, an argument i often hear is that the reason ‘big business’ exists is because of government protection for these corporations through subsidies and other forms of ‘crony capitalism’. In a free market, large exploitative corporations wouldnt exist in the first place and probably would never form. This sounds too utopian for me, without anti-trust laws, large monopolies and oligopolies are sure to form because they take advantage of barriers to entry, particularly natural monopolies. What would be a free market counter to this?

2

The real problem here is that you’re working on the basis of faulty economics. In a free market, the Marxist bugaboo of wage exploitation is a fantasy. If people are free to leave their jobs and there are no government barriers to entrepreneurial activity, how can workers be exploited? If they can get better pay somewhere else, they will move. If all of the firms in an industry are lowering wages in a manner inconsistent with the marginal utility of the labor, then a new firm will be able to pull away the best workers, driving up wages through price competition.

Secondly, monopolies are only a problem when created and enforced by government. Reading - http://mises.org/daily/621

3

Capitalism In One Lesson

4

http://mises.org/daily/5266/The-Myth-of-Natural-Monopoly

Natural monopolies are not possible. In any case, the current corrupt elites don’t really use the method you describe to rip off the working class.

They’d actually prefer to raise wages across the board. When you do that, it has the effect of raising the price of everything the workers - who are also the primary consumers - buy, which knocks on to raise the price of just about everything in the economy.

The real elites today, who effectively own the means of production, love inflation. People who are that rich and powerful don’t care about their cash incomes the way normal, or somewhat rich, people do. When inflation hits an economy, they’re still left owning the essential means of production when the dust clears. Their liquid cash is worth less, just like everyone else’s, but their real economic power comes from the real, hard assets they own, upon which everyone else depends. Normal people - who rely mostly on their cash incomes for their wealth - are gutted by inflation, but the elites who own the hard assets in an economy are not. Inflation actually makes them relatively wealthier compared to people who rely mostly on their cash incomes to survive.

If wages are being driven down across the board, for whatever reason, it’s going to cause deflation, the same way a rise in wages across the board causes inflation. Deflation primarily benefits people who rely exclusively on liquid money to derive their wealth, because deflation is a situation in which the value of money is increasing relative to hard assets.

Deflation, which is increasing the power of money relative to real assets, makes it more and more likely that the people who own real assets will want to trade them for money. They won’t want to hold onto them forever as much as they would if the environment were inflationary. Deflation is the situation you really want, if you want to benefit anyone other than the landed elites in this world.

5

A free market is not supposed to facilitate anything more than voluntary exchanges of property (including labor). Its “job” is not to facilitate any particular social engineer’s wet dream.

Why would inequality increase in a system of voluntary exchanges of property? How does “exploitation” (definition?) occur in a system of voluntary exchanges? The concept of (capitalist, working) classes has been dead since birth. Capital is created by postponing consumption. You become a capitalist when you save for tomorrow the last two slices of your pizza pie tonight. You remain a “worker” if you keep eating the whole pie every day. How do you “exploit” a worker tomorrow by voluntarily exchanging your capital (two slices of pizza) for his labor (chopping your wood, mowing your lawn)?

You have no idea of what is “sure to form” in a system of voluntary exchanges. I suggest you invest a couple of hours in educating yourself in the basics of economics by reading Hazlitt’s “Economics In One Lesson”.

6

In a free market everyone would be richer because there would be less economic distortion, more efficient allocation of resources and more capital accumulation. Wealth would be less concentrated and the rich could not stay rich for long unless they compete for they money. Poverty is lack of stuff, not lack of money, and therefore poverty is a question of productivity. A free market would be vastly more productive, therefore the poor would be able to afford more stuff.

Both your questions have a simple answer: competition. Which you seem to be leaving out of your equation. Capitalists compete for labor, therefore they can not “exploit” workers. If capitalists could arbitrarily set wages as a government makes laws, then they would pay workers just enough to feed themselves. But a free market is not a system where capitalists can arbitrarily do what they want, there are market forces. Sadly most people do not understand such systemic effects and only believe in effects that are directly intended.

Monopolies can’t form either, again because of competition. This is actually quite simple economics. Anti-trust laws are not designed to stop monopolies, but to make them possible.

7

Well, let’s be careful with words like “pure” and “free” - what is really meant is the absence of systematized privilege and coercion.

No, everyone will not be richer. In fact, it may be easier to choose to be poorer. Some people just want to get high and they don’t care about shit else in life. The prison-based society in which we live makes shiftlessness very dangerous since it is quite likely that you will end up in prison. In a free society, the only “punishment” for shiftlessness is that you have to beg and dig through dumpsters to get by. Thus, shiftlessness being less costly would result in greater numbers of people simply choosing to do nothing at all (be poor).

“Wages” is a wholly statist concept. Without the assistance of the State in keeping the labor resources confined to a limited set of employment options, employers would not simply “pay wages”, they would have to compete for the best talent. The modern employee/employer system has a lot more to do with tax collection than it has to do with capitalist exploitation. Employers assist the State in collecting taxes and the State, in turn, rewards employers with reduced competition over labor by restricting the range of competition. Overtime laws, for example, are commonly seen by liberals as a protection for employees when it is quite the opposite, it is a protection for employers. Employers only have to pay 1.5x for overtime, and never more than this. And the definition of “overtime” has been fixed at 41 or more hours for decades, even as the average work week has fallen considerably in this time. Employers benefit from regimentation of the pay schedule for labor since it reduces competition over labor.

As for how a free market facilitates prosperity, the answer is beyond obvious. The modern State consumes at least half of all production - depending on how you count, as much as 80% or 90% of all production. If this productive capacity were released from State consumption overnight, we’d all be about twice as rich, almost overnight. Note that less than 100 years ago, (1916), there was no Federal income tax and the total tax burden of the average US citizen was a couple percent of his total earnings, if that. Yet people were not starving in the streets for the centuries preceding the advent of the income tax in the US.

And this is leaving aside the even more insidious distorting effects of the State on the economy. By taxing certain lines of production and subsidizing other lines of production, the State artificially distorts economic production to disfavor those lines of production which are taxed and favor those lines of production which are subsidized. A great deal of these net taxation/net subsidy is wholly unintended on the part of the State, that is, it is an unforeseeable by-product of its regulations, laws and tax codes. The amount of wealth destroyed in this process is, I believe, greater than the amount of wealth lost to direct consumption by the State.

Then there is the business cycle created by the State’s inflationary currency. Read up on Austrian business cycle theory (ABCT) for more information.

Well, there would be big businesses even in the absence of systematized privilege and coercion. It’s just that the State favors large businesses because this reduces the number of entities which it must examine and manage in order to collect taxes from the population. Essentially, employers are tax farmers from the point of view of the State. They permit division of the immense task of tax collection into manageably sized pieces. Rather than individually taxing each and every employee of Wal-Mart (there are 800,000 of them in the US), the State only needs to say to Wal-Mart “If we catch you not enforcing the tax laws on your employees and their paychecks, we’re going to shut you down and impose crippling fines on you, maybe even put you on criminal trial” and Wal-Mart’s board of directors, chain of management and finance department is all on fire to be sure that each and every employee is taxed to the fullest extent of the law before he receives his paycheck. So, this cozy relationship leads to the State granting special favors to its publicani, which is otherwise known as “crony capitalism.”

You seem to think that scale automatically implies coercive capacity. Wal-Mart is huge but so is Exxon. In a law market devoid of monopoly privilege and public subsidy, large-scale insurers and protection companies could emerge that would specialize in taking on “the big boys”. While I agree this would not result in Utopia (coercion would still happen), it would minimize coercion by constantly creating a profit potential wherever systematic coercion is occurring.

Every argument and evidence is against this position. The historical record and elementary economic theory (even Keynesian) agree that monopolies and oligopolies are not a natural outcome of free market competition.

Yes, the natural monopoly on original paintings is a serious problem which the government must address (those Vermeer owners charge unconscionable prices!) Natural monopoly - if it really is natural - is, by definition, not a problem. The problematic form of monopoly is monopoly privilege because it is inherently unjust.

Clayton -

8

What makes you think, “inequality increases”?

9

are you kidding? look at thatcher and reagan in the 1980s, look at pinochet in chile, hell even the bush tax cuts meant that for middle america average incomes fell from 2002-2008. the market liberalisation of russia took two decades to get living standards for most of russia back to where they were in the old USSR. Even now many people are still worse off.

http://i.min.us/iiWpK.png <------- here is a good infograph showing that from the 1970s, average wages have stagnated and decreased whilst income for the top 1%-10% has skyrocketed. this is at the expense of everyone else, is it not? what do the free marketeers say to this?

surely you have to agree that the inequality produced under a market system leads to a neo-feudal society, a two-tier system? all the evidence points to that.

one of the earlier points also claimed that people can just leave their jobs if wages remain low. thats rubbish; its not like someone who has trained in a particular field for years can suddenly pick up somewhere else, is it?

10

Oh yes, Thatcher and Reagan are our homeboys. They are the exemplars of the anarcho-capitalists and we approve of their corporatist system of governance. Big business loves rhetorical free marketers because they get just enough flexibility to operate yet just enough regulation to limit competition and cartelize (health insurance is a prime example of such a market).

Look, the prerequisite for getting social welfare legislation in place is the build up of capital. You can’t just install pure social democracy, minimum wage laws, and wealth redistribution in a developing country and then watch it go ballistic in terms of growth; you need “exploitation” of the working class in order to increase the standard of living in the first place. This is why a nation like Botswana is far surpassing their African neighbors. America got to where it was economically because of the Industrial Revolution and the age of the Robber Barons (although I don’t think any libertarian mythologizes that there was once a time when things were hunky-dory). If you freed the markets, wages would very possibly fall lower than they are today (thanks to minimum wage laws), but this doesn’t consider people who get locked out of the labor market and the subsequent crash in costs. The economy will continue to grow, if this process is actually played out. If you have corporations lobbying for regulations to hamper markets, then they will tend to destroy their competition and, in the case of banks like AIG and Goldman Sachs, privatize gains and socialize losses. That’s the quickest way to wealth disparity.

11

the road to market achievements do not happen overnight… the more and longer the government decide to screw the system, the longer it is going to take for the market to come back.

the problem with mainsteam econ (or most ) is that it concerns itself with how can we fix the problem right now! But they fail to look at long term consequences. Sure government policy can fix a certain problem right now but is it going to be sustainable or is it going to crash in a later date and then we face the same problem, again, thus we are back where we started.

12

@Eric: Good point… a quick search of mises.org turns up nary a kind word for Reagan.

And it always cracks me up how statists automatically exclude the government from having a profit motive by virtue of the fact that it can seize any property it likes, anytime. I wouldn’t have a profit motive, either, if I could take anything I needed, anytime I needed it. How does that prove that I’m less selfish and greedy or that I have a longer time-horizon than businessmen who abide by the law and must content themselves only to the property they can receive in free exchange with their fellow man?

Statists would like us to believe that rich men like Ted Turner who are constantly in favor of higher taxes “on the rich” really believe they ought to be paying more in taxes. Of course, there is a line on the 1040 form permitting a person to give as much additional money to the IRS as they like (not even as estimated tax, just to support God and country or whatever) so it’s not like there’s anything stopping them. That money will go directly to paying down the debt, and so on.

A more plausible explanation is that men like Ted Turner are part of the Establishment and, thus, grow wealthy from additional taxation through additional revenues to the companies they own. The shareholders of Lockheed-Martin would not like tax or deficit cuts that result in decreased defense expenditure. Of course, the various recipients of the public treasury are all constantly wrangling with one another to get a bigger piece of the pie at the expense of all the others but the one thing they all always agree on is that the pie itself should be bigger, not smaller.

American statecraft differs from British and European only in the level of subtlety involved. Standing behind every budget item in the Federal budget is a special interest, be it a defense contractor, medical association, bureaucracy or whatever. And the motives that drive the individuals that compose those special interests are no different than the motives of any other human being. The well-heeled political class of Washington, DC may not be quite as opulent as the financial class of New York City but, then, that’s not the right comparison since these public servants are not paid solely - or even primarily - by New Yorkers, they’re paid by black single mothers in the suburbs of Atlanta, GA or Van Nuys and lower-middle-class window washers in Pittsburgh.

Clayton -

13

do you think higher corporate tax rates could increase investment? given a choice of reinvesting profits into their business or paying tax, don’t you think higher corporate tax rates would encourage inward investment?

14

Actually both the Bush and Reagan tax cuts raised the share of taxes paid by the richest few. And it made the economy much more productive, it was a great benefit to the average person. To be better off average people need stuff, not money. And where does stuff come from? Maybe factories that rich people build? If you tax the rich, you make the poor poorer. Because what good is more money if there is less stuff to go around? Then real incomes are lower. Your reference to falling average incomes is likely a reference to household income, not per capita income. In recent years households have been getting smaller, and fewer people obviously earn less money. If average per capita incomes actually have been falling, that must have been the effect of insane government money printing, which secretly removes peoples purchasing power from their pockets, not fewer taxes on high earners = those who create wealth.

Pinochet was a dictator who happened to take the advice of liberal economists. So what, the same economists also advised the Soviet Union. Chile was on the brink of collapse because of it’s communist economic policies, and after liberal reforms it had the highest growth in Latin America. Also, market liberalism succeeded in bringing about democratic reforms, communist countries tend to stay dictatorships. Standards of living in Russia went down because of the collapse of communism. If an empire crumbles, and everything collapses, can you really claim that the resulting mess is the fault of free markets because the system at that time happens to be more free market? What do you expect, that free markets immediately raise standards of living, in the aftermath of a crumbling empire? Besides, that Russia was poor, despite being the worlds leading oil producer, was because of communism in the first place. As for standards of living in communism vs. capitalism, do I really need cite comparisons between North and Sount Korea, Taiwan and mainland China, or East and West Germany?

The statistic you link above is based on a well-known fallacy, or rather deception. It looks at statistical classes instead of real people. See here. People move up through the income brackets, and so “the rich” this year is not the same people as “the rich” next year. Note that “the rich” is an euphemism for high income earners. Most of the difference between “the rich” and “the poor” is the mundane fact that people start out with low incomes and move up as they get older. In other words, the rich and the poor are the same people at different points in their lives! 40% of the poor will be in the top two income quintiles within their lifetime. In other words, “the rich getting richer” means “there is more wealth in the top quintile”, which is another way of saying that society is getting richer. If you look at the wealth gain of individual people, you find that the poor gained a few thousand percent while the rich made a modest gain. If you look at individual people you find that two thirds of the super rich were no in that category a decade later, they lost their wealth and others moved into their place.

15

As I’m laying down on my futon, next to two blankets, with four pillows supporting my back, while wearing my prescription glasses, I have in direct view the following: A leather chair, a pile of roughly 20 clothes, a computer desk, an iPod nano, a stack of about 35 video games, a dresser that is 5 feet tall, a stack of college textbooks, an industrial fan, a MicroKorg electronic sytnthesizer, a reading lamp, a Kawai electronic piano, a Mickey Mouse souveniour statuete I got when I went to Disney World, a little plastic container with bathroom equipment such as a toothbrush, contact lens cleaner, deoderant, Brut body spray, and cologne, a high-quality chess set, a very new pair of shoes that are one of those new Nike super-light variety, my work belt, a TV that I got on sale a few years ago that has an in-built VHS and DVD player, about 5 baseball caps, a clock on the wall, a Michigan Wolverines football banner over my futon, and a Michigan Wolverines clock. And yes, I’m at my parents house for the summer, but they are each middle-class workers and I supplement my income by currently working for minimum wage (at the ripe ol’ age of 20 ).

So this is the same process that is the unraveling of society that will lead to us trampling over dead bodies when we leave the house in a few years to work at our jobs in coal mines for $1 an hour to be exploited by a greedy capitalist with a monacle, a top hat, and mutton chops?

16

That’s silly, it’s like asking if the government raised my taxes, would it leave more money for me to spend… the answer is “no” by elementary arithmetic.

I have no idea what “inward” investment is, but I do know that investors seek to move their capital to where returns are the highest. If you understand ECON 101 (the part that even Keynesians concede), pushing investors to invest where returns are lower does not result in economic growth, it slows investment and growth.

Clayton -

17

Those are all good points, EmperrorNero. I would much rather live in a corporatist society than in a pure socialist society, although the pure socialist society would certainly be less hypocritical. It’s important to note though that these people installed modest economic reforms while not striking the root of the issue: Corporatism. That is basically the thing that drives libertarians crazy, RonPaulLol. Libertarians will often not be apologists for free market rhetoricians or state-nurtured abominations like Boeing, GE, Goldman Sachs, AIG, etc.

18

Why do you think it should be up to the government to (effectively) dictate the level of internal investment for businesses?

19

look at pinochet in chile

Chile was so bad with free market reforms and economic liberalization that the civilian authorities that came later continued such policies, and by the way Chile now has a classical liberal pro-free market president… dont talk about topics you dont know nothing about.

the market liberalisation of russia took two decades to get living standards for most of russia back to where they were in the old USSR.

I stop reading after this, Im sorry but this is too LOL for me.

20

and if someone loses their job, then suddenly there is no welfare state to pick them up and they can no longer afford private health insurance, then what?

will they be left to die?