Essays in Honor of Hans-Hermann Hoppe - Stephan Kinsella
Essays in Honor of Hans-Hermann Hoppe - Stephan Kinsella
Essays in Honor of Hans-Hermann Hoppe - Stephan Kinsella
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Property, Freedom,& Society<strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong><strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>
Property, Freedom,& Society<strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong><strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Edited byJörg Guido Hülsmannand <strong>Stephan</strong> K<strong>in</strong>sellaLvMIMISES INSTITUTE
© 2009 by the Ludwig von Mises Institute and publishedunder the Creative Commons Attribution License 3.0.http://creativecommons.org/licenses/by/3.0/Ludwig von Mises Institute518 West Magnolia AvenueAuburn, Alabama 36832mises.orgISBN: 978-1-933550-52-7
<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>
ContentsIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ixJörg Guido Hülsmann and <strong>Stephan</strong> K<strong>in</strong>sellaPART ONE: GRATO ANIMO BENEFICIIQUE MEMORES1. A Life <strong>of</strong> Ideas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Llewellyn H. Rockwell, Jr.2. <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Political Equivalent<strong>of</strong> Nuclear Fusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Sean Gabb3. The Power <strong>of</strong> Argument <strong>in</strong> a Crazy World . . . . . . . . . . . . . . 21Remigijus Šimašius4. <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Libertarian Right . . . . . . . . 27Paul Gottfried5. Marxism Without Polylogism. . . . . . . . . . . . . . . . . . . . . . . . . . 37Jeffrey A. Tucker6. A Knight <strong>of</strong> Anarcho-Capitalism . . . . . . . . . . . . . . . . . . . . . . . 45Yuri N. Maltsev7. Help<strong>in</strong>g Future Generations <strong>of</strong> Scholars. . . . . . . . . . . . . . . . . 55Edward Str<strong>in</strong>gham8. A “Loveable Son <strong>of</strong> a Gun”. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Roland Baader9. Appreciation and Gratitude . . . . . . . . . . . . . . . . . . . . . . . . . . . 61John V. Denson10. A Student’s Appreciation <strong>of</strong> Pr<strong>of</strong>essor <strong>Hoppe</strong> . . . . . . . . . . . 63Jeffrey Barr11. The Vegas Circle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Lee Iglodyv
vi — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>PART TWO: CROSSROADS OF THOUGHT12. Uncompromis<strong>in</strong>g Radicalism as a Promis<strong>in</strong>g Strategy . . . . 73Philipp Bagus13. Abraham L<strong>in</strong>coln and the Modern State . . . . . . . . . . . . . . . . 81Luigo Marco Bassani14. The Sociology <strong>of</strong> the Development <strong>of</strong> Austrian Economics . . 95Joseph T. Salerno15. Bus<strong>in</strong>ess Ethics: In the Crossfire Between a Code<strong>of</strong> Conduct and Black Sheep. . . . . . . . . . . . . . . . . . . . . . . . . . 109Eugen-Maria Schulak16. Aga<strong>in</strong>st Standard Law & Economics: Austrians andLegal Philosophers on Board . . . . . . . . . . . . . . . . . . . . . . . . . 121Mart<strong>in</strong> Fronek and Joseph ŠímaPART THREE: POLITICAL PHILOSOPHY17. Toward a Libertarian Theory <strong>of</strong> Guilt and Punishmentfor the Crime <strong>of</strong> Statism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137Walter Block18. A Note on Intellectual Property and Externalities . . . . . . . 149Hardy Bouillon19. Classical Liberalism versus Anarcho-Capitalism . . . . . . . . 161Jesús Huerta de Soto20. What Libertarianism Is . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179<strong>Stephan</strong> K<strong>in</strong>sella21. Classical Natural Law and Libertarian Theory. . . . . . . . . . 197Carlo Lottieri22. Why We Have Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211Christian Michel23. Freedom and Property: Where They Conflict . . . . . . . . . . . 223Frank van DunPART FOUR: DEMOCRACY RECONSIDERED24. The Trouble With Democracy: Maslow Meets <strong>Hoppe</strong>. . . . 237Doug French
Contents— vii25. An Epistemic Justification <strong>of</strong> Democracy?. . . . . . . . . . . . . . 243David Gordon26. Democracy and Faits Accomplis . . . . . . . . . . . . . . . . . . . . . . . 249Robert Higgs27. Aga<strong>in</strong>st the Primacy <strong>of</strong> Politics—Aga<strong>in</strong>st theOverestimation <strong>of</strong> the Majority Pr<strong>in</strong>ciple. . . . . . . . . . . . . . . 263Robert NefPART FIVE: ECONOMICS28. <strong>Hoppe</strong>an Political Economy versus Public Choice. . . . . . . 271Thomas J. DiLorenzo29. Securitization and Fractional Reserve Bank<strong>in</strong>g. . . . . . . . . . 283Nikolay Gertchev30. <strong>Hoppe</strong> <strong>in</strong> One Lesson, Illustrated <strong>in</strong> Welfare Economics . . 301Jeffrey M. Herbener31. The Demand for Money and the Time-Structure<strong>of</strong> Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309Jörg Guido Hülsmann32. Risk, Uncerta<strong>in</strong>ty, and Economic Organization . . . . . . . . . 325Peter G. Kle<strong>in</strong>33. The Nature <strong>of</strong> Socialism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339Mateusz Machaj34. A Theory <strong>of</strong> Socialism and Capitalism . . . . . . . . . . . . . . . . . 351Mark Thornton35. TPR, Entrepreneurial Component, and CorporateGovernance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359James Yohe and Scott KjarEditors and Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371Index <strong>of</strong> Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377Index <strong>of</strong> Subjects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391
1Introduction<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> is one <strong>of</strong> the most importantscholars <strong>of</strong> our time. He has made pioneer<strong>in</strong>g contributionsto sociology, economics, philosophy, and history.He is the dean <strong>of</strong> the present-day Austrian School<strong>of</strong> economics, and is famous as a libertarian philosopher. He andhis writ<strong>in</strong>gs have <strong>in</strong>spired scholars all over the world to follow<strong>in</strong> his footsteps and to provide a scientific foundation for <strong>in</strong>dividualfreedom and a free society. The follow<strong>in</strong>g pages are amodest attempt to honor the occasion <strong>of</strong> Pr<strong>of</strong>essor <strong>Hoppe</strong>’s 60thbirthday. The contributors are former students, colleagues, andcollaborators, united <strong>in</strong> admiration for, and friendship with, thelaureate.<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> was born <strong>in</strong> the German town <strong>of</strong> Pe<strong>in</strong>eon September 2, 1949. In the late 1960s and early 1970s he studiedhistory, sociology, and philosophy at the universities <strong>of</strong> Saarbrückenand Frankfurt am Ma<strong>in</strong>. His 1974 doctoral dissertation,published <strong>in</strong> 1976, dealt with the praxeological foundations <strong>of</strong> epistemology.Its central thesis was that all cognitive processes, andthus the sciences, are but special forms <strong>of</strong> human action. It followedthat the laws <strong>of</strong> action were also the basic laws <strong>of</strong> epistemology.<strong>Hoppe</strong> would soon discover that, a few years before him, the Austrianeconomist Ludwig von Mises had come to essentially the sameconclusion. This was his first contact with Austro-Libertarianismix
x — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>and it was the beg<strong>in</strong>n<strong>in</strong>g <strong>of</strong> a process <strong>in</strong> the course <strong>of</strong> which young<strong>Hoppe</strong>, at the time a left-lean<strong>in</strong>g statist, came to revise his politicalbeliefs. The process accelerated when he started read<strong>in</strong>g MurrayRothbard and discovered that Misesian “subjectivist” economicscould be comb<strong>in</strong>ed with objective political philosophy. But he firstcont<strong>in</strong>ued his philosophical studies, develop<strong>in</strong>g a new epistemologyand methodology <strong>of</strong> the social sciences, based on the <strong>in</strong>sightshe had received from Mises and Rothbard.Eventually, <strong>Hoppe</strong> turned <strong>in</strong>to a full-blown Austrian when, <strong>in</strong>the early 1980s, he went to the United States on a prestigiousHeisenberg fellowship. This time his research project concernedpolitical philosophy, but it was aga<strong>in</strong> squarely built on Austrianeconomics. In 1986, he became Rothbard’s colleague at the University<strong>of</strong> Nevada, Las Vegas (UNLV), where he would teach forthe next 21 years. After Rothbard’s untimely death <strong>in</strong> 1995, Pr<strong>of</strong>essor<strong>Hoppe</strong> assumed a place <strong>of</strong> uncontested leadership among Austro-libertarianscholars, becom<strong>in</strong>g the editor <strong>of</strong> the Journal <strong>of</strong> LibertarianStudies, a co-editor <strong>of</strong> the Review <strong>of</strong> Austrian Economics, andthen a co-editor <strong>of</strong> the Quarterly Journal <strong>of</strong> Austrian Economics. Pr<strong>of</strong>essor<strong>Hoppe</strong>, now Pr<strong>of</strong>essor Emeritus <strong>of</strong> Economics at UNLV andDist<strong>in</strong>guished Fellow with the Ludwig von Mises Institute, alsoserves on on the editorial board <strong>of</strong> Libertarian Papers. In additionto author<strong>in</strong>g numerous scholarly articles, his important books<strong>in</strong>clude Handeln und Erkennen (1976), Kritik der KausalwissenschaftlichenSozialforschung (1983), Eigentum, Anarchie, und Staat(1987), A Theory <strong>of</strong> Socialism and Capitalism (1989), The Economics andEthics <strong>of</strong> Private Property (1993, enlarged 2nd edition 2006), Democracy—TheGod that Failed (2001), and The Myth <strong>of</strong> National Defense(editor, 2003). His works have been translated <strong>in</strong>to at least 21 languages,not count<strong>in</strong>g English. 1Among Pr<strong>of</strong>essor <strong>Hoppe</strong>’s many achievements we shouldstress <strong>in</strong> particular his brilliant critique <strong>of</strong> positivist methodologyas applied to the social sciences, a new praxeological approach topolitical philosophy, an encompass<strong>in</strong>g comparative analysis <strong>of</strong>socialism and capitalism, and a theory <strong>of</strong> secession as a means <strong>of</strong>1 Pr<strong>of</strong>essors <strong>Hoppe</strong>’s publications, <strong>in</strong>clud<strong>in</strong>g l<strong>in</strong>ks to translations and adetailed bibliography, are available at his website, www.hanshoppe.com.
Introduction — xipolitical reform. Most importantly, <strong>in</strong> his book Democracy—TheGod that Failed, Pr<strong>of</strong>essor <strong>Hoppe</strong> has delivered a pr<strong>of</strong>ound critique<strong>of</strong> democracy, as well as an orig<strong>in</strong>al re<strong>in</strong>terpretation <strong>of</strong> Westernhistory <strong>in</strong> the twentieth century, both <strong>of</strong> which have stirred <strong>in</strong>ternationaldebate <strong>in</strong> academia and among the wider public. Other<strong>in</strong>fluential works from his pen have dealt with the role <strong>of</strong> migrationswith<strong>in</strong> a free society, and with the role <strong>of</strong> public <strong>in</strong>tellectuals<strong>in</strong> political transformation processes. Moreover, he has excelled asan historian <strong>of</strong> thought and made path-break<strong>in</strong>g contributions toother areas such as monopoly theory; the theory <strong>of</strong> public goods;the sociology <strong>of</strong> taxation; the positive methodology <strong>of</strong> the socialsciences; the theory <strong>of</strong> risk; the production <strong>of</strong> security; the transformation<strong>of</strong> formerly socialist countries; and the evolution <strong>of</strong>monetary <strong>in</strong>stitutions and their impact on <strong>in</strong>ternational relations.And Pr<strong>of</strong>essor <strong>Hoppe</strong>’s work is ongo<strong>in</strong>g: he is currently work<strong>in</strong>gon a major book project that will restate and elaborate on his previouswork <strong>in</strong> the fields <strong>of</strong> epistemology and ethics—more generally,the nature <strong>of</strong> human rationality. The goal <strong>of</strong> the book is toprovide “a systematic and <strong>in</strong>terdiscipl<strong>in</strong>ary reconstruction <strong>of</strong>human history (pre-history, hunter-gatherer societies, agriculturalsocieties, <strong>in</strong>dustrial societies).” 2The preced<strong>in</strong>g list reveals that Pr<strong>of</strong>essor <strong>Hoppe</strong> is not only anacademic and scholar, but also a public <strong>in</strong>tellectual <strong>of</strong> the firstorder. He has tackled important and controversial subjects evenwhere this was likely to br<strong>in</strong>g him <strong>in</strong>to conflict with colleagues,politicians, bus<strong>in</strong>essmen, and conventional wisdom. He has notshied away from advanc<strong>in</strong>g provocative ideas, but has done so <strong>in</strong>a thoughtful and clear-cut manner that, more <strong>of</strong>ten than not, hasgarnered enthusiastic acclaim <strong>in</strong> lecture halls and among readersall over the world. His competent verve has <strong>in</strong>spired students andcolleagues, such as those who have contributed to the present volume.2 “<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>: Potret Intelektual Anti-Intelektual” [“Interviewwith <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, an Anti-Intellectual Intellectual”], <strong>in</strong>terview bySukasah Syahdan, Akal dan Kehendak (Indonesia) (Apr. 28, 2008) (Englishtranslation available at www.hanshoppe.com/publications).
xii — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>F<strong>in</strong>ally Pr<strong>of</strong>essor <strong>Hoppe</strong> has shown leadership not only <strong>in</strong> therealm <strong>of</strong> ideas, but also through the practical promotion <strong>of</strong> scientificenquiry and open debate. Most notably, <strong>in</strong> August 2005, he<strong>in</strong>itiated the foundation <strong>of</strong> the <strong>in</strong>ternational Property and FreedomSociety, which eventually held its <strong>in</strong>augural meet<strong>in</strong>g <strong>in</strong> May, 2006,and elected him president.The purpose <strong>of</strong> the Property and Freedom Society is to promotethe scientific debate <strong>of</strong> the politically relevant questions <strong>of</strong> ourtime without regard to the concerns <strong>of</strong> party politics. It acknowledgesthe expediency <strong>of</strong> <strong>in</strong>transigent libertarian radicalism, which,<strong>in</strong> the long run, is the surest path to a free society. It therefore seeksto promote Austro-libertarianism, which ties back to the n<strong>in</strong>eteenthcentury French economists Frédéric Bastiat and Gustave deMol<strong>in</strong>ari. It standsfor justly acquired private property, freedom <strong>of</strong> contract,freedom <strong>of</strong> association—which logically impliesthe right to not associate with, or to discrim<strong>in</strong>ateaga<strong>in</strong>st—anyone <strong>in</strong> one’s personal and bus<strong>in</strong>ess relations—andunconditional free trade. It condemns imperialismand militarism and their fomenters, and championspeace. It rejects positivism, relativism, and egalitarianism<strong>in</strong> any form, whether <strong>of</strong> “outcome” or “opportunity,”and it has an outspoken distaste for politics andpoliticians. 3The present liber amicorum is testimony to the fact that theseideals have a universal appeal and <strong>in</strong>spire scholars from all overthe world. It is therefore fitt<strong>in</strong>g that the name <strong>of</strong> <strong>Hoppe</strong>’s belovedProperty and Freedom Society <strong>in</strong>spire the title <strong>of</strong> the present volume.The editors wish to express their appreciation for the enthusiasticcooperation <strong>of</strong> all who have helped with this project. Our specialthanks go to the contributors, as well as to Mr. Llewellyn Rockwell3 “Pr<strong>in</strong>ciples <strong>of</strong> the Property and Freedom Society,” available at www.propertyandfreedom.org (quot<strong>in</strong>g the Open<strong>in</strong>g Declaration from the InauguralMeet<strong>in</strong>g: Bodrum, Turkey, May 2006).
Introduction — xiiifor his unflagg<strong>in</strong>g support <strong>in</strong> produc<strong>in</strong>g and publish<strong>in</strong>g the presentbeautiful volume. We also gratefully acknowledge the efficienteditorial assistance from Mrs. Judy Thommesen and Mrs. KathyWhite, both at the Mises Institute, and translation assistance fromMrs. Arlene Oost-Z<strong>in</strong>ner.JÖRG GUIDO HÜLSMANNAngers, FranceSTEPHAN KINSELLAHouston, TexasMay 2009
Part OneGrato Animo BeneficiiqueMemores
1A Life <strong>of</strong> IdeasLlewellyn H. Rockwell, Jr.My first full exposure to the brilliance <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong><strong>Hoppe</strong> came at an early Mises University <strong>in</strong> which hegave the ma<strong>in</strong> lecture on methodology. Here he<strong>of</strong>fered a new take on Mises’s Kantian method. <strong>Hoppe</strong>expla<strong>in</strong>ed Kant’s typology <strong>of</strong> propositions, and showed how Miseshad appropriated them but with a new twist.Instead <strong>of</strong> categories <strong>of</strong> th<strong>in</strong>k<strong>in</strong>g and categories <strong>of</strong> the m<strong>in</strong>d,Mises went further than Kant to del<strong>in</strong>eate categories <strong>of</strong> action,which is the foundation <strong>of</strong> economic reason<strong>in</strong>g. In this lecture, weall discovered someth<strong>in</strong>g about Mises we had not known, someth<strong>in</strong>gbigger and grander than we knew, and it caused us to th<strong>in</strong>kdifferently about a subject that we thought we knew well.This same <strong>Hoppe</strong>an effect—that sense <strong>of</strong> hav<strong>in</strong>g been pr<strong>of</strong>oundlyenlightened by a completely new way <strong>of</strong> understand<strong>in</strong>gsometh<strong>in</strong>g—has happened many times over the years. He hasmade contributions to ethics, to <strong>in</strong>ternational political economy, tothe theory <strong>of</strong> the orig<strong>in</strong> <strong>of</strong> the state, to comparative systems, to cultureand its economic relation, to anthropology and the theory andpractice <strong>of</strong> war. Even on a subject that everyone th<strong>in</strong>ks about butLlewellyn H. Rockwell, Jr., is founder and chairman <strong>of</strong> the board <strong>of</strong> the Ludwigvon Mises Institute <strong>in</strong> Auburn, Alabama, and editor <strong>of</strong> LewRockwell.com.3
4 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>no one really seems to understand—the system <strong>of</strong> democracy—heclarified matters <strong>in</strong> a way that helps you see the function<strong>in</strong>g <strong>of</strong> theworld <strong>in</strong> a completely new light.There aren’t that many th<strong>in</strong>kers who have this k<strong>in</strong>d <strong>of</strong> effect.Mises was one. Rothbard was another. <strong>Hoppe</strong> certa<strong>in</strong>ly fits <strong>in</strong> thatl<strong>in</strong>e. He is the k<strong>in</strong>d <strong>of</strong> th<strong>in</strong>ker who rem<strong>in</strong>ds you that ideas are realth<strong>in</strong>gs that shape how we understand the world around us. I daresay that no one can read works like Democracy—The God that Failed,A Theory <strong>of</strong> Socialism and Capitalism, and The Economics and Ethics <strong>of</strong>Private Property and come away unchanged. 1Often times when you first hear a po<strong>in</strong>t he makes, you resist it.I recall when he spoke at a conference we held on American history,and gave a paper on the U.S. Constitution. You might notth<strong>in</strong>k that a German economist could add anyth<strong>in</strong>g to our knowledgeon this topic. He argued that it represented a vast <strong>in</strong>crease <strong>in</strong>government power and that this was its true purpose. It created apowerful central government, with the cover <strong>of</strong> liberty as anexcuse. He used it as a case <strong>in</strong> po<strong>in</strong>t, and went further to argue thatall constitutions are <strong>of</strong> the same type. In the name <strong>of</strong> limit<strong>in</strong>g government—whichthey purportedly do—they <strong>in</strong>variably appear <strong>in</strong>periods <strong>of</strong> history when the elites are regroup<strong>in</strong>g to emerge fromwhat they consider to be near anarchy. The Constitution, then, representsthe assertion <strong>of</strong> power.When he f<strong>in</strong>ished, you could hear a p<strong>in</strong> drop. I’m not sure thatanyone was <strong>in</strong>stantly persuaded. He had challenged everyth<strong>in</strong>gwe thought we knew about ourselves. The applause was polite,but not enthusiastic. Yet his po<strong>in</strong>ts stuck. Over time, I th<strong>in</strong>k all <strong>of</strong>us there travelled some <strong>in</strong>tellectual distance. The Constitution waspreceded by the Articles <strong>of</strong> Confederation, which Rothbard haddescribed as near anarchist <strong>in</strong> effect. Who were these guys whocobbled together this Constitution? They were the leftovers fromthe war: military leaders, f<strong>in</strong>anciers, and other mucky mucks —a1 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God that Failed: The Economicsand Politics <strong>of</strong> Monarchy, Democracy, and Natural Order (New Brunswick, N.J.:Transaction Publishers, 2001); idem, A Theory <strong>of</strong> Socialism and Capitalism(Boston-Dordrecht-London: Kluwer, 1989); idem, The Economics and Ethics <strong>of</strong>Private Property: Studies <strong>in</strong> Political Economy and Philosophy (Boston: Kluwer,1993).
Rockwell: A Life <strong>of</strong> Ideas — 5very different crew from the people who signed the Declaration <strong>of</strong>Independence. Jefferson was out <strong>of</strong> the country when the Constitutionwas passed. And what was the effect <strong>of</strong> the Constitution? Torestra<strong>in</strong> government? No. It was precisely the opposite, just as<strong>Hoppe</strong> said. It created a new and more powerful government thatnot only failed to restra<strong>in</strong> itself (what government has ever donethat?), but grew and grew <strong>in</strong>to the monstrosity we have today. Itrequired a wholesale reth<strong>in</strong>k<strong>in</strong>g <strong>of</strong> the history, but what <strong>Hoppe</strong>had said that shocked everyone turns out to be precisely right—and this is only one example among many.I’m speak<strong>in</strong>g for multitudes when I say that he helped meunderstand democracy as a form <strong>of</strong> nationalization <strong>of</strong> the citizenry.We all became the government: or, we all became publicproperty. And what happens to public property? It is overutilizedand wasted because it is unowned by any one person or group <strong>of</strong>people <strong>in</strong> particular. Thus did the citizens become war fodder. Weare taxed without limit. We have no way to restra<strong>in</strong> the state s<strong>in</strong>ceno one <strong>in</strong> particular is made responsible for our plight. Our leadersare mere managers—not owners, like the monarchs—who areencouraged to loot and leave. They are there as covers for the realstate, which is a faceless apparatus that is permanent and caresnoth<strong>in</strong>g for the value <strong>of</strong> the commonwealth. He contrasted thiswith monarchy, not because he favors monarchy but rather to helpus understand. The monarch is the owner. He has the <strong>in</strong>centive topreserve value. He can hand it on to an heir. Heirs were raised andtra<strong>in</strong>ed for governance, and <strong>in</strong> turn to hand it on to their heirs. Sowe might expect them to be relatively more civilized as comparedwith democratic rulers.History bears this out. <strong>Hoppe</strong> dates the onset <strong>of</strong> moderndemocracy to World War I and follow<strong>in</strong>g, and he has scandalizedmany by call<strong>in</strong>g the U.S., the Soviet Union, and Nazi Germany alldemocracies, but he means this <strong>in</strong> his special sense: the people neitherown themselves nor are owned by anyone. The citizens arepublic property and are said to all participate <strong>in</strong> their own governanceunderstood as an elected executive state. This was a modernform <strong>of</strong> government that displaced the old form—and it goes along way towards expla<strong>in</strong><strong>in</strong>g the advent <strong>of</strong> total war and the totalstate.
6 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>There are many other issues for which he has done this—hisEconomics and Ethics <strong>of</strong> Private Property helped people to imag<strong>in</strong>esociety without a state as never before. On the issue <strong>of</strong> immigration,he showed how modern states use immigration as a means <strong>of</strong>state expansion. He has taken on the issue <strong>of</strong> property covenantsand their relationship to private property. There is so much more.We have all suspected for some time that this will culm<strong>in</strong>ate <strong>in</strong> asweep<strong>in</strong>g treatment <strong>of</strong> socio-economics, an <strong>in</strong>tegrated master treatisealong the l<strong>in</strong>es <strong>of</strong> the great books <strong>of</strong> Austrians past. Its time iscom<strong>in</strong>g.<strong>Hoppe</strong> is an orig<strong>in</strong>al th<strong>in</strong>ker, but he is glad to grant his debts toMises, to Rothbard, to Eric von Kuehnelt-Leddihn, and to the postmodernists<strong>of</strong> his German education. He stands on the shoulders<strong>of</strong> giants, and has reached beyond them, as Murray <strong>of</strong>ten acknowledged.There aren’t many th<strong>in</strong>kers we can name who have been sogenerous with their <strong>in</strong>sights, and given so much to help us understandthe world around us more clearly.Let me f<strong>in</strong>ally mention that <strong>Hans</strong> has someth<strong>in</strong>g else <strong>in</strong> commonwith his predecessors. He is a man <strong>of</strong> courage and conviction.He had plenty <strong>of</strong> opportunities to sell out for preferment’s sake,but he has stayed the course, committed to truth and to freedomand to the free marketplace <strong>of</strong> ideas. He is a tough and relentlessfighter that we can all admire. He fears no truth. All this is why Ican confidently predict that he will always emerge from battle as achampion.
2<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and thePolitical Equivalent <strong>of</strong> NuclearFusionSean GabbIhave been <strong>in</strong>vited to contribute a chapter to this book <strong>of</strong> appreciations<strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>. Now, he is a person <strong>of</strong> forbidd<strong>in</strong>gachievements. He has made important contributionsto economics, to political theory, to law, and to epistemology,among much else. He is also a person <strong>of</strong> much organizational ability,and the conferences he runs at Bodrum for his Property andFreedom Society have rapidly established themselves as one <strong>of</strong> thehigh po<strong>in</strong>ts <strong>in</strong> the libertarian calendar.This makes it difficult to know where to start when it comes towrit<strong>in</strong>g a s<strong>in</strong>gle chapter about his achievements. What I havedecided to do, however, is to try and show how what he mightregard as one <strong>of</strong> his m<strong>in</strong>or achievements is contribut<strong>in</strong>g to a newand potentially significant consensus with<strong>in</strong> the libertarian andconservative movements.Sean Gabb (sean@libertarian.co.uk), an English libertarian and conservative, isthe director <strong>of</strong> the Libertarian Alliance, a British free market and civil libertiesth<strong>in</strong>k-tank.7
8 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>THE END OF THE COLD WAR:A VICTORY DENIEDIn the ideological sense, the Cold War was fought betweenthe defenders <strong>of</strong> liberty and tradition and their most open andcomprehensive enemies. Yet, <strong>in</strong> the settlement that followed thedefeat <strong>of</strong> Communism, the ma<strong>in</strong> losers have been libertarians andconservatives.Those who still regard this defeat as one for the enemies <strong>of</strong> libertyand tradition have failed to see beneath the surface <strong>of</strong> th<strong>in</strong>gsto the underly<strong>in</strong>g reality. Orthodox Marxism-Len<strong>in</strong>ism, togetherwith its numerous heresies, was mostly important, not <strong>in</strong> its ownterms, but as an excuse. In every generation, there are people whowant to live at the expense <strong>of</strong> others, or to make them unhappy, orboth. Unless they are able to be predators by act <strong>of</strong> conquest—theAssyrians, for example, or the Mongols—these people alwaysneed arguments to persuade their victims that be<strong>in</strong>g robbed ormurdered will make the world a better place. Most <strong>of</strong> them needthemselves to believe these arguments.Long before the Berl<strong>in</strong> Wall came down, Marxism had becomean embarrassment. Its historical and economic underp<strong>in</strong>n<strong>in</strong>gshad crumbled. Its predictions had all been falsified. Its promiseswere all broken. Its body count and the poverty <strong>of</strong> its survivorscould no longer be denied. It no longer served to justify theactions or the existence <strong>of</strong> the Soviet state. Its disestablishmentafter 1989 was less a defeat for the enemies <strong>of</strong> liberty and traditionthan a release.The accelerated rise <strong>of</strong> politically correct multiculturalism s<strong>in</strong>cethen, and the rise, from almost noth<strong>in</strong>g, <strong>of</strong> environmentalism,should not, therefore, be seen as ideologies <strong>of</strong> asylum for dispossessedMarxists. Rather, they are ideologies <strong>of</strong> transformation andcontrol more <strong>in</strong> keep<strong>in</strong>g with the spirit <strong>of</strong> the present age. Just asMarxism once did, each provides a shared narrative, a shared term<strong>in</strong>ology,and shared feel<strong>in</strong>g <strong>of</strong> do<strong>in</strong>g good for those whoseobjects are anyth<strong>in</strong>g but good.They are, moreover, better than Marxism, so far as they are lessthreaten<strong>in</strong>g to the powers that be <strong>in</strong> the West. Diversity and susta<strong>in</strong>abilityrequirements raise up bureaucracies that allow acartelization <strong>of</strong> costs that privilege established wealth aga<strong>in</strong>st the
Gabb: <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Political Equivalent <strong>of</strong> Nuclear Fusion — 9competition <strong>of</strong> new entrants. They otherwise provide jobs and status<strong>in</strong> organizations that look reassur<strong>in</strong>gly like conventional bus<strong>in</strong>esses.THE NEW WORLD ORDERThe result has been the emergence, s<strong>in</strong>ce 1989, <strong>of</strong> a new order<strong>in</strong> which broadly liberal and democratic <strong>in</strong>stitutions are be<strong>in</strong>gtransformed <strong>in</strong>to the agencies <strong>of</strong> a police state, and <strong>in</strong> which traditionalways <strong>of</strong> life and real diversities are be<strong>in</strong>g swept aside <strong>in</strong>favor <strong>of</strong> centrally-directed homogeneity.There is noth<strong>in</strong>g unusual about what is happen<strong>in</strong>g. There isnoth<strong>in</strong>g that should not have been at least dimly perceived back <strong>in</strong>1989. At the end <strong>of</strong> every real war, the w<strong>in</strong>n<strong>in</strong>g alliance tends tobreak up, as the <strong>of</strong>ten radically different <strong>in</strong>terest groups that comprisedit f<strong>in</strong>d that what brought them together no longer exists tohold them together. New alliances then form between <strong>in</strong>terestgroups on the w<strong>in</strong>n<strong>in</strong>g and los<strong>in</strong>g sides.This happened at the end <strong>of</strong> the Napoleonic wars, when Brita<strong>in</strong>and France found themselves <strong>in</strong>creas<strong>in</strong>gly on the same sideaga<strong>in</strong>st the Central European powers. It happened aga<strong>in</strong> at the end<strong>of</strong> the Second World War, when the Americans and Russians fellout, and both recruited their zones <strong>of</strong> occupied Germany as allies<strong>in</strong> the new struggle. It has now happened with the new ideologicalsettlement that emerged at the end <strong>of</strong> the Cold War.Whether or not this was to be expected, libertarians and conservativeshave reason to feel aggrieved. They were perhaps thetwo most prom<strong>in</strong>ent ideological groups <strong>in</strong> the battle aga<strong>in</strong>st Communism.Libertarian economists provided the most devastat<strong>in</strong>gweapons <strong>of</strong> attack. Conservatives did most to articulate the revulsionthat ord<strong>in</strong>ary people felt when confronted with the kleptocracyand mass-murder at the heart <strong>of</strong> Communism. They are nowjo<strong>in</strong>tly surplus to requirements <strong>in</strong> a world where ex-Trotskyitesand even former Communist Party members have put on suits andbecome government m<strong>in</strong>isters, and now sit happily at d<strong>in</strong>ner withthe heads <strong>of</strong> global corporations.There are three possible responses to this state <strong>of</strong> affairs. Libertariansand conservatives can wh<strong>in</strong>e piteously about the unfairness<strong>of</strong> th<strong>in</strong>gs. Or they can carry on, as if noth<strong>in</strong>g had changed
10 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>after 1989, address<strong>in</strong>g arguments to the same allies and aga<strong>in</strong>st thesame enemies. Or they can recognize that the world has changed,and that promot<strong>in</strong>g the same values requires differences <strong>of</strong>approach.NEW TIMES, NEW WAYSLet me now drop the impersonal tone. I will not speak directlyfor the conservatives. But I will speak for the general libertarianmovement. There is no orthodoxy here. Libertarians disagreewith each other almost as much as we disagree with our variousopponents. Even so, it is possible to see an emerg<strong>in</strong>g consensus—first, that there is need <strong>of</strong> a new approach, and second, about itsnature.In expla<strong>in</strong><strong>in</strong>g this, the logical place to start is with our thoughtson the free market.LIMITED LIABILITY:THE WORM IN THE FREE MARKET BUDEveryone knows that libertarians believe <strong>in</strong> free markets. Someth<strong>in</strong>gwe have not always made sufficiently pla<strong>in</strong>—someth<strong>in</strong>g thatwe may not always have been clear about ourselves—is that whenwe talk about free markets, what we mean is markets <strong>of</strong> free people.It does not mean that we endorse markets simply because theyare efficient, or even because they are creative. In particular, wehave no affection for big bus<strong>in</strong>ess.Though there can be no doubt they have enriched the world,companies like Micros<strong>of</strong>t and General Motors and ICI are not natural<strong>in</strong>stitutions. They are creatures <strong>of</strong> the State. They came <strong>in</strong>tobe<strong>in</strong>g and are susta<strong>in</strong>ed by <strong>in</strong>corporation laws. These laws permit<strong>in</strong>dividuals and groups <strong>of</strong> <strong>in</strong>dividuals to act, not as themselves,but as servants <strong>of</strong> a fictitious entity. The directors and shareholdersare not legally responsible for the debts <strong>of</strong> the entity. Nor needthey feel morally responsible for their actions or <strong>in</strong>action on itsbehalf.Because <strong>of</strong> limited liability, bus<strong>in</strong>ess corporations can attractlarge amounts <strong>of</strong> <strong>in</strong>vestment. Because they are not natural persons,they need not follow the cycle <strong>of</strong> growth and decl<strong>in</strong>e normal to
Gabb: <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Political Equivalent <strong>of</strong> Nuclear Fusion — 11un<strong>in</strong>corporated bus<strong>in</strong>esses. Instead, one generation <strong>of</strong> directorsand shareholders can give way to another. These devices allowbus<strong>in</strong>ess corporations to grow much larger than un<strong>in</strong>corporatedbus<strong>in</strong>esses.It might be argued that <strong>in</strong>corporation laws are similar to marriagelaws—that is, that they gather what would otherwise be anumber <strong>of</strong> complex agreements <strong>in</strong>to a s<strong>in</strong>gle act. If there were nostate, people would still cohabit. Each partner could still make theother next <strong>of</strong> k<strong>in</strong>. There would be agreements or customary rulesto regulate the management <strong>of</strong> common property and the rear<strong>in</strong>g<strong>of</strong> children.But this is not the case with <strong>in</strong>corporation. Certa<strong>in</strong>ly, the owners<strong>of</strong> any bus<strong>in</strong>ess could agree with their suppliers and customersthat they are servants <strong>of</strong> a fictitious entity, and that their liabilityfor debt is limited to their <strong>in</strong>vestment <strong>in</strong> the entity. But they couldnot contract out <strong>of</strong> liability <strong>in</strong> tort. This fact alone would put <strong>of</strong>fany <strong>in</strong>vestor who was not able to buy a controll<strong>in</strong>g <strong>in</strong>terest. I andcountless millions <strong>of</strong> people like me own shares <strong>in</strong> companies <strong>of</strong>which I know noth<strong>in</strong>g. If we knew that we were to be regarded, <strong>in</strong>the event <strong>of</strong> a large award <strong>of</strong> damages, as jo<strong>in</strong>tly and severallyliable for payment, hardly any <strong>of</strong> us would risk be<strong>in</strong>g shareholders.Now, except for anarchists, to say that someth<strong>in</strong>g could notexist without the state does not, <strong>in</strong> itself, make it illegitimate. Butit is a reasonable presumption that whatever cannot exist naturallyneeds a strong justification <strong>in</strong> terms <strong>of</strong> utility. It is not enough topo<strong>in</strong>t to the achievements <strong>of</strong> big bus<strong>in</strong>ess. Libertarians have facedsimilar arguments for centuries now about the state. In most countries,the state provides education. In my country, the state providesmost healthcare. Obviously, this does not mean that educationand healthcare would not be provided without the state. It isthe same with bus<strong>in</strong>ess corporations. All pharmaceuticals andmost computer s<strong>of</strong>tware have been developed by big bus<strong>in</strong>ess corporations.But there is no reason to suppose they cannot be otherwiseprovided.And even if it could be shown that there would be fewer <strong>of</strong>these th<strong>in</strong>gs <strong>in</strong> a world without <strong>in</strong>corporation, the costs <strong>of</strong> <strong>in</strong>corporationmust be weighed aga<strong>in</strong>st the benefits.
12 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>CRONY CAPITALISMWhen the number and size <strong>of</strong> bus<strong>in</strong>ess corporations growsbeyond a certa<strong>in</strong> limit, they tend to become part <strong>of</strong> the rul<strong>in</strong>gclass. To create a new bus<strong>in</strong>ess and make it grow large requiresentrepreneurship, which is most <strong>of</strong>ten a quality <strong>of</strong> outsiders. Toadm<strong>in</strong>ister what is already established and make it bigger requiresskills similar to those required by politics and state adm<strong>in</strong>istration.Between the state and the larger bus<strong>in</strong>ess corporations, therefore,there will be an overlap or a cont<strong>in</strong>ual exchange <strong>of</strong> personnel.This will make it possible for bus<strong>in</strong>ess corporations to externalizesome <strong>of</strong> their costs <strong>of</strong> growth. They will, as political <strong>in</strong>siders,press for state <strong>in</strong>volvement <strong>in</strong> the build<strong>in</strong>g <strong>of</strong> roads and railwaysand other transport <strong>in</strong>frastructure that allows them to enjoygreater economies <strong>of</strong> scale than would otherwise be possible. Theywill press for the political control <strong>of</strong> foreign markets. They will bebest placed for secur<strong>in</strong>g government contracts—<strong>of</strong>ten to provideth<strong>in</strong>gs that they themselves <strong>in</strong>sist are necessary.Given an ideological climate favorable to active <strong>in</strong>tervention,they will fashion the tax and regulatory system to the disadvantage<strong>of</strong> smaller competitors.There are then the cultural costs. Anyone who works for anylength <strong>of</strong> time <strong>in</strong> a large bus<strong>in</strong>ess corporation tends to become justanother “human resource”—all his important life decisions madefor him by others, and encouraged <strong>in</strong>to political and cultural passivity.To do well there, he needs to become a receiver and transmitter<strong>of</strong> orders, to accept authority and avoid arguments withsuperiors, and to regard success <strong>in</strong> terms <strong>of</strong> steady <strong>in</strong>come punctuatedby steady advances. He must essentially be a bureaucrat.He will know noth<strong>in</strong>g <strong>of</strong> how real bus<strong>in</strong>ess is transacted. He willcare noth<strong>in</strong>g about laws and taxes that stop others from transact<strong>in</strong>greal bus<strong>in</strong>ess. He will not be <strong>in</strong>cl<strong>in</strong>ed to resist paternalism <strong>in</strong>the political arrangements <strong>of</strong> his country.AN END TO COMPROMISEAs said, this rejection <strong>of</strong> what may be called “actually exist<strong>in</strong>gcapitalism” is only an emerg<strong>in</strong>g consensus. There are still manylibertarians who see noth<strong>in</strong>g wrong with bus<strong>in</strong>ess corporations <strong>in</strong>
Gabb: <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Political Equivalent <strong>of</strong> Nuclear Fusion — 13themselves, and, until quite recently, people like me were on thefr<strong>in</strong>ge <strong>of</strong> the libertarian movement. But, then, until recently, it wasnot unreasonable for libertarians to look favorably on bus<strong>in</strong>ess corporations.Until 1989, all politics were shaped by the great ideological tug<strong>of</strong> war over socialism. We had little choice about jo<strong>in</strong><strong>in</strong>g that tug<strong>of</strong> war, and none <strong>in</strong> which direction we would be pull<strong>in</strong>g—andnone about with whom we would be pull<strong>in</strong>g. The Communistswanted to destroy bus<strong>in</strong>ess corporations as well as market freedom.Even corrupted markets are better than no markets, and itshould never be forgotten that “actually exist<strong>in</strong>g capitalism”works. It may constra<strong>in</strong> both markets and the human spirit, but ithas been better than any other system <strong>of</strong> economic organization<strong>of</strong>fered <strong>in</strong> the last hundred years. It has been fantastically productive.It has raised, and is rais<strong>in</strong>g, billions from poverty to prosperity.A libertarian world <strong>of</strong> small and unprivileged bus<strong>in</strong>ess unitswould be better. But what we have had was pretty good, and wasto be defended aga<strong>in</strong>st all its ma<strong>in</strong>stream rivals.But times are altered. Bus<strong>in</strong>ess corporations have become<strong>in</strong>creas<strong>in</strong>gly global s<strong>in</strong>ce the end <strong>of</strong> the Cold War. They havebeen mov<strong>in</strong>g steadily out <strong>of</strong> their entrepreneurial phase <strong>in</strong>to thebureaucratic. They are <strong>in</strong>creas<strong>in</strong>gly demand<strong>in</strong>g naked privilege.They are demand<strong>in</strong>g <strong>in</strong>tellectual property rights laws that go farbeyond what any ord<strong>in</strong>ary person might th<strong>in</strong>k reasonable.Through what are called “free trade” agreements, they are promot<strong>in</strong>gregulatory cartelization at the world level. Nobody <strong>of</strong>consequence wants to nationalize the corporations. They workhappily with governments <strong>of</strong> every apparent persuasion. Theirlead<strong>in</strong>g personnel are, more than ever, members <strong>of</strong> the rul<strong>in</strong>gclass.The more libertarians doubt the legitimacy <strong>of</strong> the bus<strong>in</strong>esscorporation, more we reconnect or connect with other traditions<strong>of</strong> resistance to state power. There is noth<strong>in</strong>g anti-libertarianabout strong, work<strong>in</strong>g class organizations. So long as there is nogrant <strong>of</strong> legal privilege, libertarians can have no objection totrade unions, or cooperatives, or other <strong>in</strong>stitutions. We mighthave noth<strong>in</strong>g aga<strong>in</strong>st the break up <strong>of</strong> large landed estates—countryand town.
14 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Big bus<strong>in</strong>ess no longer needs or deserves our support. We cannow safely emphasize the radical elements <strong>of</strong> our ideology. We areno longer <strong>in</strong> danger <strong>of</strong> support<strong>in</strong>g alternative <strong>in</strong>stitutions that mayturn out to be Communist front organizations. 11 None <strong>of</strong> the above should be regarded as orig<strong>in</strong>al. There is a large,though mostly American, literature on this po<strong>in</strong>t. See, for example, MurrayRothbard:Every element <strong>in</strong> the New Deal program: central plann<strong>in</strong>g,creation <strong>of</strong> a network <strong>of</strong> compulsory cartels for<strong>in</strong>dustry and agriculture, <strong>in</strong>flation and credit expansion,artificial rais<strong>in</strong>g <strong>of</strong> wage rates and promotion <strong>of</strong> unionswith<strong>in</strong> the overall monopoly structure, government regulationand ownership, all this had been anticipated andadumbrated dur<strong>in</strong>g the previous two decades. And thisprogram, with its privileg<strong>in</strong>g <strong>of</strong> various big bus<strong>in</strong>ess<strong>in</strong>terests at the top <strong>of</strong> the collectivist heap, was <strong>in</strong> nosense rem<strong>in</strong>iscent <strong>of</strong> socialism or leftism; there wasnoth<strong>in</strong>g smack<strong>in</strong>g <strong>of</strong> the egalitarian or the proletarianhere. No, the k<strong>in</strong>ship <strong>of</strong> this burgeon<strong>in</strong>g collectivismwas not at all with socialism-communism but with fascism,or socialism-<strong>of</strong>-the-right, a k<strong>in</strong>ship which manybig bus<strong>in</strong>essmen <strong>of</strong> the twenties expressed openly <strong>in</strong>their yearn<strong>in</strong>g for abandonment <strong>of</strong> a quasi-laissez-fairesystem for a collectivism which they could control….Both left and right have been persistently misled by thenotion that <strong>in</strong>tervention by the government is ipso factoleftish and antibus<strong>in</strong>ess.Murray N. Rothbard, “Left and Right: The Prospects for Liberty,” Left & Right1, no. 1 (Spr<strong>in</strong>g 1965).For further discussions, see: Gabriel S. Kolko, Railroads and Regulation,1877–1916 (Pr<strong>in</strong>ceton, N.J.: Pr<strong>in</strong>ceton University Press, 1965) and idem, TheTriumph <strong>of</strong> Conservatism: A Re<strong>in</strong>terpretation <strong>of</strong> American History, 1900–1916(New York: Free Press, 1965); Murray N. Rothbard, “War Collectivism <strong>in</strong>World War I,” <strong>in</strong> Ronald Radosh and Murray N. Rothbard, eds., A New History<strong>of</strong> Leviathan (New York: Dutton, 1972); Robert Higgs, Crisis and Leviathan:Critical Episodes <strong>in</strong> the Growth <strong>of</strong> American Government (Oxford and New York:Oxford University Press, 1987); Paul Weaver, The Suicidal Corporation: HowBig Bus<strong>in</strong>ess Fails America (New York: Simon & Schuster, 1988); Butler Shaffer,In Restra<strong>in</strong>t <strong>of</strong> Trade: The Bus<strong>in</strong>ess Campaign Aga<strong>in</strong>st Competition, 1918–1938(Lewisburg, Penn.: Bucknell University Press, 1997); John T. Flynn, As We Go
Gabb: <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Political Equivalent <strong>of</strong> Nuclear Fusion — 15OUTREACH TO CONSERVATIVES:OLD FRIENDS IN NEW TIMESSo much for the first part <strong>of</strong> our emerg<strong>in</strong>g strategy <strong>of</strong> resistance.But there is now the matter <strong>of</strong> our relationship with the conservatives.I do not mean by this the neo-conservatives. Generallyspeak<strong>in</strong>g, the prefix “neo” has a negative mean<strong>in</strong>g, and these peopleare less <strong>in</strong>terested <strong>in</strong> tradition than <strong>in</strong> keep<strong>in</strong>g up a military<strong>in</strong>dustrialcomplex that may have been necessary to face downSoviet Communism, but which now is simply a stand<strong>in</strong>g dangerto freedom at home and peace abroad.No—what I mean is real conservatives <strong>in</strong> the English-speak<strong>in</strong>gsense. Their defense <strong>of</strong> tradition is necessarily a defense <strong>of</strong> limitedgovernment, <strong>of</strong> due process, <strong>of</strong> civil liberty, and <strong>of</strong> market freedom.They were natural allies <strong>in</strong> the past. There is no reason whythey should not cont<strong>in</strong>ue to be <strong>in</strong> the future.The problem, so far, has been that there are certa<strong>in</strong> differencesbetween libertarians and conservatives that have prevented fullheartedcooperation. Even now, it is not commonly accepted thatthere is a new threat just as deadly and just as much <strong>in</strong> need <strong>of</strong> coord<strong>in</strong>atedresistance.The ma<strong>in</strong> difference is one <strong>of</strong> vision. The libertarian utopia isone <strong>of</strong> maximum choice <strong>in</strong> a world <strong>of</strong> rapid technologicalprogress. What we ultimately want is an order not wholly basedon this planet, <strong>in</strong> which people live for at least a very long time.We are not very <strong>in</strong>terested <strong>in</strong> keep<strong>in</strong>g up old ways <strong>of</strong> life simplybecause they are old.March<strong>in</strong>g (New York: Free Life, 1973); Roy Childs, Big Bus<strong>in</strong>ess and the Rise <strong>of</strong>American Statism (unnamed publisher, 1971); Joseph Stromberg, “PoliticalEconomy <strong>of</strong> Liberal Corporatism” (New York, Center for Libertarian Studies:1978) and idem, “The Role <strong>of</strong> State Monopoly Capitalism <strong>in</strong> the AmericanEmpire” (New York, Center for Libertarian Studies: 1978); Kev<strong>in</strong> A. Carson,The Iron Fist Beh<strong>in</strong>d the Invisible Hand: Corporate Capitalism as a System <strong>of</strong> State-Guaranteed Privilege (Montreal: Red Lion Press, 2001); idem, “Austrian andMarxist Theories <strong>of</strong> Monopoly-Capital: A Mutualist Synthesis,” EconomicNotes 102 (London: The Libertarian Alliance, 2004).I particularly commend the works <strong>of</strong> Kev<strong>in</strong> Carson.
16 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Conservatives, <strong>of</strong> course, are <strong>in</strong>terested <strong>in</strong> keep<strong>in</strong>g up these oldways. They hated socialism as an attack on their ideal order. Theysometimes regard libertarianism as barely less <strong>of</strong> an attack. In particular,they do not believe <strong>in</strong> mass immigration, which they perceiveas a threat to their organic nation-state, and they are dubiousabout a freedom <strong>of</strong> trade that may prevent their country fromfeed<strong>in</strong>g itself or from produc<strong>in</strong>g its own manufactures.Here, we come at last to what I see as the ma<strong>in</strong> achievement <strong>of</strong><strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>. I am not qualified to assess his economicwork. Because my own philosophical outlook is bounded by theGreek skeptics and by Epicurus and the British empiricists, hisepistemology does not really answer any <strong>of</strong> the questions that Ihave ever asked. Nor will I claim that he agrees with my own dislike<strong>of</strong> bus<strong>in</strong>ess corporations. But his clarification <strong>of</strong> what a libertarianorder might be is someth<strong>in</strong>g that I can appreciate, and it isthis that I th<strong>in</strong>k his greatest contribution to the jo<strong>in</strong>t cause <strong>of</strong> libertyand tradition.THE PROBLEM OF IMMIGRATIONLet us consider his work on immigration. Until the end <strong>of</strong> thetwentieth century, there was a libertarian consensus over immigrationthat had emerged dur<strong>in</strong>g earlier concerns about the entry<strong>of</strong> Jews and Irish Catholics <strong>in</strong>to England or <strong>of</strong> the southern andeastern peoples <strong>of</strong> Europe <strong>in</strong>to America. Libertarians <strong>in</strong>sisted, andga<strong>in</strong>ed agreement over time, that the problems raised by theseimmigrations were either imag<strong>in</strong>ary or short term; and that policies<strong>of</strong> benign neglect would turn strangers <strong>in</strong>to citizens.With the rise <strong>of</strong> mass immigration from outside the Europeanworld, this op<strong>in</strong>ion has had to come under review. If every Jew <strong>in</strong>Eastern Europe had moved to England before 1906, it would haveraised the population by perhaps three million. If every Slovak <strong>in</strong>Europe had moved to America before 1920, it would have raisedthe population also by three million. These were peoples whoseappearance and values were reasonably similar to those <strong>of</strong> thenative population, and who could be expected, <strong>in</strong> time, to becomelargely <strong>in</strong>dist<strong>in</strong>guishable from the native population.It may be different with non-European immigrants. They lookdifferent. Their values are <strong>of</strong>ten radically different, and even hostile.
Gabb: <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Political Equivalent <strong>of</strong> Nuclear Fusion — 17There are potentially vast numbers <strong>of</strong> them. Their simple presenceseems likely to displace cultural patterns that have long beenvaguely favorable to freedom, and to place a strong downwardpressure on the <strong>in</strong>comes <strong>of</strong> the poor. They are, moreover, be<strong>in</strong>gused as an excuse to create an order <strong>in</strong> which freedom <strong>of</strong> speechand contract and <strong>in</strong> which democratic accountability are be<strong>in</strong>g setaside <strong>in</strong> the supposed <strong>in</strong>terests <strong>of</strong> public order.The ma<strong>in</strong>stream libertarian response has been to deny thatthere is <strong>in</strong> itself any problem at all, and that the experience <strong>of</strong> pastimmigrations will simply be repeated. Their only policy recommendationsare to raise louder objections to the multiculturalpolice-state that was already grow<strong>in</strong>g before the quicken<strong>in</strong>g <strong>of</strong>non-European immigration. They also po<strong>in</strong>t out that much disputebetween newcomers and natives takes place with<strong>in</strong> areas controlledor <strong>in</strong>fluenced by the state. Let there be no state education,and there need be no argument over whether some schools shouldallow teachers to wear veils and others should teach the <strong>in</strong>errancy<strong>of</strong> the Bible or the non-existence <strong>of</strong> God. Let there be no welfarestate, and there need be no argument over taxes on natives toma<strong>in</strong>ta<strong>in</strong> the children <strong>of</strong> strangers or over taxes on strangers to paythe pensions <strong>of</strong> natives.As for the argument over fall<strong>in</strong>g wage rates, this is counteredby the observation that greater market freedom would, after awhile, check or even reverse this trend, or by deny<strong>in</strong>g the legitimacy<strong>of</strong> any state concern with the liv<strong>in</strong>g standards <strong>of</strong> the poor.What Pr<strong>of</strong>essor <strong>Hoppe</strong> does is to ignore the polarity <strong>of</strong> thedebate as it has been set up. Those who want an anarchist orderhave so far had to accept the legitimacy <strong>of</strong> mass immigration.Those who have been worried about mass immigration have hadto accept the need <strong>of</strong> a state to control the border. Pr<strong>of</strong>essor <strong>Hoppe</strong>walks straight through this debate.THE STATE; NOT GUARDIAN BUT TRAITOR AT THE GATEHe regards the mass immigration <strong>of</strong> the past half-century <strong>in</strong>towestern countries as an <strong>in</strong>stance, not <strong>of</strong> libertarian open borders, but<strong>of</strong> “forced <strong>in</strong>tegration.” It is different from free trade <strong>in</strong> goods andservices so far as it is not a free choice <strong>of</strong> <strong>in</strong>dividuals to associate as
18 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>they please. Instead, it is a product <strong>of</strong> anti-discrim<strong>in</strong>ation laws andstate welfare policies.In a democracy, politicians will have an <strong>in</strong>terest <strong>in</strong> import<strong>in</strong>gthose most likely to vote for big government, or those most likelyto lend themselves to an electoral balkanization that puts an end tothe accountability <strong>of</strong> rulers to ruled. Given enough pressure by themajority, these politicians will make immigration laws that looktough. But these will lead at best to random acts <strong>of</strong> oppressionaga<strong>in</strong>st the sorts <strong>of</strong> immigrant who, <strong>in</strong> any rational order, might bewelcomed. The policies <strong>of</strong> <strong>in</strong>discrim<strong>in</strong>ate welfare that attract paupers<strong>in</strong>to the country, and <strong>of</strong> political correctness and multiculturalismthat prevent the majority from resist<strong>in</strong>g, will cont<strong>in</strong>ueunchecked.But let us imag<strong>in</strong>e a society <strong>in</strong> which there is no state. Obviously,there would be no welfare provided by the tax payers. Norwould it be possible to frighten the natives <strong>in</strong>to passivity. Nor,though, would there be unchecked immigration.Pr<strong>of</strong>essor <strong>Hoppe</strong> says:[L]et us . . . assume an anarcho-capitalist society. . . . Allland is privately owned, <strong>in</strong>clud<strong>in</strong>g all streets, rivers, airports,harbors, etc. With respect to some pieces <strong>of</strong> land,the property title may be unrestricted; that is, the owneris permitted to do with his property whatever he pleasesas long as he does not physically damage the propertyowned by others. With respect to other territories, theproperty title may be more or less severely restricted. Asis currently the case <strong>in</strong> some hous<strong>in</strong>g developments, theowner may be bound by contractual limitations on whathe can do with his property (voluntary zon<strong>in</strong>g), whichmight <strong>in</strong>clude residential vs. commercial use, no build<strong>in</strong>gsmore than four stories high, no sale or rent to Jews,Germans, Catholics, homosexuals, Haitians, familieswith or without children, or smokers, for example.Clearly, under this scenario there exists no suchth<strong>in</strong>g as freedom <strong>of</strong> immigration. Rather, there exists thefreedom <strong>of</strong> many <strong>in</strong>dependent private property ownersto admit or exclude others from their own property <strong>in</strong>accordance with their own unrestricted or restrictedproperty titles. Admission to some territories might beeasy, while to others it might be nearly impossible. Inany case, however, admission to the property <strong>of</strong> the
Gabb: <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Political Equivalent <strong>of</strong> Nuclear Fusion — 19admitt<strong>in</strong>g person does not imply a “freedom to movearound,” unless other property owners consent to suchmovements. There will be as much immigration or nonimmigration,<strong>in</strong>clusivity or exclusivity, desegregation orsegregation, non-discrim<strong>in</strong>ation or discrim<strong>in</strong>ation basedon racial, ethnic, l<strong>in</strong>guistic, religious, cultural or whateverother grounds as <strong>in</strong>dividual owners or associations<strong>of</strong> <strong>in</strong>dividual owners allow.Note that none <strong>of</strong> this, not even the most exclusiveform <strong>of</strong> segregationism, has anyth<strong>in</strong>g to do with a rejection<strong>of</strong> free trade and the adoption <strong>of</strong> protectionism.From the fact that one does not want to associate with orlive <strong>in</strong> the neighborhood <strong>of</strong> Blacks, Turks, Catholics orH<strong>in</strong>dus, etc., it does not follow that one does not want totrade with them from a distance. To the contrary, it isprecisely the absolute voluntar<strong>in</strong>ess <strong>of</strong> human associationand separation—the absence <strong>of</strong> any form <strong>of</strong> forced<strong>in</strong>tegration—that makes peaceful relationships—freetrade—between culturally, racially, ethnically, or religiouslydist<strong>in</strong>ct people possible. 2Indeed, he does not stop with immigration. He argues that alibertarian world would have room for highly traditional communities<strong>in</strong> which conservative views <strong>of</strong> morality would be the norm.Now, I repeat, this may be a theoretical contribution that Pr<strong>of</strong>essor<strong>Hoppe</strong> rates lower than his work on Austrian economic theory.For me, and for anyone else who wants a fusion <strong>of</strong> libertarianand conservative movements, it is a contribution <strong>of</strong> first classimportance.RESISTING THE NEW WORLD ORDER:THE END OF THE BEGINNING?Conservatives might not be wholly pleased by such a world.Their organic ideal has room for a powerful state. But the answerto this at the moment—and for some time to come—is that anystate able to <strong>in</strong>tervene <strong>in</strong> matters <strong>of</strong> personal morality will necessarilybe run by the k<strong>in</strong>d <strong>of</strong> people who now run the state that we2 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “On Free Immigration and Forced Integration,”LewRockwell.com (1999).
20 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>have. This will not be a conservative state. Therefore, libertarianismmust, for the foreseeable future, be a strategy for conservatives.We are talk<strong>in</strong>g here about a debate that is tak<strong>in</strong>g place betweena few hundred people, and that is ignored by almost everyone else.There is no chance, either <strong>in</strong> England or <strong>in</strong> America, <strong>of</strong> a libertarianor even <strong>of</strong> a really conservative electoral victory.But, if regrettable, this is not necessarily important. What isimportant is that two groups <strong>of</strong> <strong>in</strong>tellectuals should arrive at thetruth and agree between themselves on that truth and how itshould be promoted. If what they decide is the truth, it will eventuallyhave its effect.I have said that those who enjoy liv<strong>in</strong>g at the expense <strong>of</strong> othershardly ever argue honestly about what they want. They hardlyever admit to themselves what they want. Instead, they operatefrom beh<strong>in</strong>d the most presently convenient ideology <strong>of</strong> legitimization.Attack these ideologies hard enough, and they will crumble.That may provoke the oppressed to stand up and demand theirrights. More likely, it will confuse and weaken those who benefitfrom such ideologies so that they eventually give <strong>in</strong> to less violentdemands.Libertarians and conservatives may have lost the Cold War. Butthe battle cont<strong>in</strong>ues, and, thanks, <strong>in</strong> part, to the work <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong><strong>Hoppe</strong>, what just a few years ago might have seemed a futilelast stand may be the prelude to a dazzl<strong>in</strong>g counter-attack.
3The Power <strong>of</strong> Argument<strong>in</strong> a Crazy WorldRemigijus SimasiusWe should not be very surprised that the world iscrazy. Human nature leads to <strong>in</strong>dividual pursuit <strong>of</strong>goals, which leads to conflicts, power, and abuse <strong>of</strong>power. The world, however, is even more than crazynowadays. Instead <strong>of</strong> look<strong>in</strong>g for the solutions as to how to dealwith the dark side <strong>of</strong> human nature, the world’s political and op<strong>in</strong>ionleaders are busy ignor<strong>in</strong>g the problem or mak<strong>in</strong>g it much bigger.There are constant attacks on market economics and personalresponsibility. Regulation, education, subsidies—everyth<strong>in</strong>g isemployed <strong>in</strong> the service <strong>of</strong> these attacks.There are any number <strong>of</strong> strategies for deal<strong>in</strong>g with this crazyworld. You may go <strong>in</strong> l<strong>in</strong>e with it, rationalize its craz<strong>in</strong>ess, and earnRemigijus Šimašius (Remigijus@lr<strong>in</strong>ka.lt) is M<strong>in</strong>ister <strong>of</strong> Justice <strong>of</strong> the Republic<strong>of</strong> Lithuania. Prior to his appo<strong>in</strong>tment to this position <strong>in</strong> December 2008, hewas President <strong>of</strong> the Lithuanian Free Market Institute.21
22 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>a liv<strong>in</strong>g by serv<strong>in</strong>g those whose <strong>in</strong>terests are to keep the publicignorant. Or, you may analyze the world around you, show<strong>in</strong>gwhat is wrong with it and how th<strong>in</strong>gs really are. <strong>Hans</strong> <strong>Hoppe</strong> isone <strong>of</strong> those people who always looks for the truth, digs deeperthan others, and does not hesitate to expose his ideas to others.Let’s take some examples. Time preference is an essential issuewhen we speak about the creation <strong>of</strong> wealth. <strong>Hoppe</strong> expla<strong>in</strong>s thatyou may accumulate capital only if you are ready to postpone thepleasures <strong>of</strong> today for the sake <strong>of</strong> tomorrow. Sav<strong>in</strong>g, learn<strong>in</strong>g, andwork<strong>in</strong>g mean the postpon<strong>in</strong>g <strong>of</strong> leisure and consumption. 1 But, ifwe look to the policies and sentiments dom<strong>in</strong>ant <strong>in</strong> the worldtoday, we see that quite opposite virtues are be<strong>in</strong>g promoted:spend<strong>in</strong>g is treated as good, while sav<strong>in</strong>g is treated as bad, as is ithampers consumption today. Attack<strong>in</strong>g the skilled, the talented,and the educated, not only with taxation, but with “progressive”taxation is treated as moral. Education is regarded as a benefit tothe <strong>in</strong>dividual and society only for studies <strong>of</strong> th<strong>in</strong>gs that do notbr<strong>in</strong>g f<strong>in</strong>ancial ga<strong>in</strong>. Work<strong>in</strong>g is discouraged by taxes, while notwork<strong>in</strong>g is encouraged by subsidies. <strong>Hans</strong> <strong>Hoppe</strong>’s argumentsdemonstrate that you get exactly what you encourage and subsidize.If you subsidize laz<strong>in</strong>ess, you get laz<strong>in</strong>ess. If you subsidizepoverty, you get poverty. As he writes,As a result <strong>of</strong> subsidiz<strong>in</strong>g the mal<strong>in</strong>gerers, the neurotics,the careless, the alcoholics, the drug addicts, the AIDs<strong>in</strong>fected,and the physically and mentally “challenged”through <strong>in</strong>surance regulation and compulsory health<strong>in</strong>surance, there will be more illness, mal<strong>in</strong>ger<strong>in</strong>g, neuroticism,carelessness, alcoholism, drug addiction, AIDs<strong>in</strong>fection, and physical and mental retardation. 2The economic crisis <strong>of</strong> 2008 (and the artificial boom preced<strong>in</strong>git) is another example <strong>of</strong> how crazy the world is. Everyone is <strong>in</strong>1 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “On Time Preference, Government, and theProcess <strong>of</strong> De-Civilization—From Monarchy to Democracy,” <strong>in</strong> Democracy—The God that Failed: The Economics and Politics <strong>of</strong> Monarchy, Democracy, and NaturalOrder (New Brunswick, N.J.: Transaction Publishers, 2001); previouslypublished <strong>in</strong> Journal des Economistes et des Etudes Huma<strong>in</strong>es 5, no. 2 (1994).2 Idem, Democracy, p. 99.
Šimašius: The Power <strong>of</strong> Argument <strong>in</strong> a Crazy World — 23panic, everyone is desperately look<strong>in</strong>g for solution, and most turnto the government for a rescue plan. But what about the creditexpansion as the ultimate precondition to the crisis? The Austriantheory <strong>of</strong> the bus<strong>in</strong>ess cycle was ignored before the crisis becausethere was no crisis. Now the theory is ignored because it expla<strong>in</strong>sthat the government is the source <strong>of</strong> the crisis, and because it counselsthat we need patiently to wait while the market consummatesthe mal<strong>in</strong>vestment which has been encouraged for years. <strong>Hoppe</strong>expla<strong>in</strong>s that if you want to address the crisis, you must change themonetary system and abolish state-imposed fiduciary media. 3<strong>Hoppe</strong>’s axiom <strong>of</strong> private property is also <strong>of</strong> crucial importance.If you debate about ethical issues, it means that you presupposeyour own right, as well as the right <strong>of</strong> other people, to debatethe issue. 4 This acceptance implies that you do respect the rights <strong>of</strong>others people <strong>in</strong>volved <strong>in</strong> the debate to control their own bodies.And the conclusion is crucial: if you even beg<strong>in</strong> debat<strong>in</strong>g what isright and what is wrong, it means that you already have acknowledgedthat private property is necessary and <strong>in</strong>escapable for anymoral judgment. This applies even to those who try to argueaga<strong>in</strong>st private property. The ethical ground for private propertyhas never been so strong and deep before.There are also many other fields where <strong>Hans</strong> <strong>Hoppe</strong> has pushedthe limits <strong>of</strong> political and economic science. Monarchy is not as badas democracy, he argues. 5 This was and still is unacceptable tomany <strong>in</strong>tellectuals, and most people have followed the lead <strong>of</strong> the<strong>in</strong>tellectuals because they have had no good arguments to the contrary.A simple reference to the “strong hand” <strong>of</strong> a dictator was not3 Idem, Democracy, ch. 1 et pass.; idem, “How is Fiat Money Possible?—or,The Devolution <strong>of</strong> Money and Credit,” Review <strong>of</strong> Austrian Economics 7 no. 2(1994): 49–74; <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Jörg Guido Hülsmann & Walter Block,“Aga<strong>in</strong>st Fiduciary Media,” Quarterly Journal <strong>of</strong> Austrian Economics 1, no. 1(1998): 19–50.4 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism: Economics,Politics, and Ethics (Boston: Kluwer Academic Publishers, 1989), chs. 2 & 7;idem, The Economics and Ethics <strong>of</strong> Private Property: Studies <strong>in</strong> Political Economyand Philosophy, 2nd ed. (Auburn, Ala.: Ludwig von Mises Institute, 2006[1993]), chs. 11–13, 15, and “Appendix: Four Critical Replies.”5 Idem, Democracy.
24 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>only politically <strong>in</strong>correct and old fashioned, but also contrary tothe goals and the image <strong>of</strong> society most people actually have.<strong>Hoppe</strong> provides a clear explanation to sort through this <strong>in</strong>tellectualmess. The absence <strong>of</strong> democracy <strong>in</strong> public decision-mak<strong>in</strong>gdoes not necessarily mean dictatorship and the most terribleexploitation <strong>of</strong> the people. On the contrary: democracy is the systemwhich leads to dictatorship, exploitation <strong>of</strong> others, ignorance,and vulgarity.The private provision <strong>of</strong> security is another topic which hasbenefitted from <strong>Hoppe</strong>’s <strong>in</strong>sights. 6 Every decent person <strong>of</strong>ten feelsthat the police are actually not provid<strong>in</strong>g adequate protection. Butwhat is the alternative? Better this than noth<strong>in</strong>g, or so many <strong>of</strong>those unsatisfied with government tend to conclude. An army <strong>of</strong><strong>in</strong>tellectuals is ready to help them reach this conclusion. <strong>Hoppe</strong>provides sound arguments and expla<strong>in</strong>s the economics <strong>of</strong> the privateproduction <strong>of</strong> defense. No serious scholar can ignore <strong>Hoppe</strong>’simportant arguments. Those who claim that there will be no securitywithout government are simply mistaken. Now, you candirect them to <strong>Hans</strong> <strong>Hoppe</strong>’s works.Immigration, democracy, regulation—so many bad ideasabound concern<strong>in</strong>g all <strong>of</strong> these issues, and <strong>Hoppe</strong> addresses themso well <strong>in</strong> his writ<strong>in</strong>gs and speeches. 7<strong>Hans</strong> <strong>Hoppe</strong> is not, however, just a scholar who presents goodarguments and defends them competently and passionately. He islike an argument himself. Meet<strong>in</strong>g <strong>Hans</strong> is quite an event formany. He is a person who possesses a natural authority; it isimpossible not to notice him <strong>in</strong> any group <strong>of</strong> people. I do not meanthat <strong>Hans</strong> speaks loud, tells jokes, or acts <strong>in</strong> some k<strong>in</strong>d <strong>of</strong> bizarreor excited manner. On the contrary, he respects manners, and isself-confident enough not to need to show that he is “not like others.”It is just these good, old-fashioned manners, comb<strong>in</strong>ed with6 Idem, “Government and the Private Production <strong>of</strong> Defense,” <strong>in</strong> idem, ed.,The Myth <strong>of</strong> National Defense: <strong>Essays</strong> on the Theory and History <strong>of</strong> Security Production(Auburn, Ala.: Ludwig von Mises Institute, 2003).7 On immigration, see <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “The Case for Free Tradeand Restricted Immigration,” Journal <strong>of</strong> Libertarian Studies 13, no. 2 (Summer1998): 221–33; idem, “Natural Order, the State, and the Immigration Problem,”Journal <strong>of</strong> Libertarian Studies 16, no. 1 (W<strong>in</strong>ter 2002): 75–97.
Šimašius: The Power <strong>of</strong> Argument <strong>in</strong> a Crazy World — 25huge <strong>in</strong>tellect and knowledge which he never tries to hide fromothers, that make him a natural leader.<strong>Hans</strong> knows how to present an argument <strong>in</strong> a way which isvery understandable, even to a man <strong>of</strong> average <strong>in</strong>tellectual capacities.His examples are sometimes so unexpected and direct thatthey really help or even force you to reth<strong>in</strong>k what you havethought about the world before. It appears very natural for him,for example, to put a footnote <strong>in</strong> a book with a short explanationwhy public slavery is even worse than private slavery. 8 It does notmean that <strong>Hans</strong> tries to be simple. He is just very straightforward.He does not hesitate to criticize even free-market advocates whoare not consistent <strong>in</strong> their argumentation. If you say someth<strong>in</strong>gabsurd or make flawed arguments, he usually will not hide the factfrom you. Perhaps for this reason, some people even seem to be<strong>in</strong>timidated by <strong>Hans</strong> <strong>Hoppe</strong>. Understandably, it is not alwayspleasant to have your arguments smashed <strong>in</strong> public.I met <strong>Hans</strong> first when he was giv<strong>in</strong>g one <strong>of</strong> his brilliant lectures.I traveled the whole day from Vilnius to Krakow to hear that lecture.It was a complete satisfaction. It is not only <strong>Hoppe</strong>’s writtentexts which are so clear and appeal<strong>in</strong>g, but also his speeches. Subsequently,I have listened to his lectures, <strong>in</strong>clud<strong>in</strong>g on the sametopics, several times. The strange th<strong>in</strong>g is that they do not get bor<strong>in</strong>g,even the third or fourth time. The way he puts arguments <strong>in</strong>order to address the topic properly may be called an <strong>in</strong>tellectualstory. Accuracy comes together with <strong>in</strong>tellectual elegance, and“elegant” is precisely the world to describe his speeches. Theyhave noth<strong>in</strong>g special—no fancy slides or funny stories—just theprecision, strength, and the elegance <strong>of</strong> the argument.<strong>Hans</strong> does not present himself as a big scholar. On the contrary,his ambition is not very great when he speaks about the role <strong>of</strong> thescholar (<strong>in</strong>clud<strong>in</strong>g himself) <strong>in</strong> society. It is not his ambition to<strong>in</strong>vent some completely new theory or f<strong>in</strong>d a terra <strong>in</strong>cognito. Onthe contrary, <strong>Hoppe</strong> claims that the role <strong>of</strong> a decent scholar is, first<strong>of</strong> all, to preserve what is already found, expla<strong>in</strong>ed, and discovered.Not to waste the knowledge <strong>of</strong> the mank<strong>in</strong>d, but to preserve8 Idem, “On Time Preference, Government, and the Process <strong>of</strong> De-Civilization,”p. 24, n. 25.
26 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>and expla<strong>in</strong> it <strong>in</strong> modern language to new generations, is to him analready ambitious task. He does it perfectly. Contrary to many <strong>of</strong>those who are happy with their ambitious and <strong>of</strong>ten fallacious newtheories, or with “philosophical razzle-dazzle,” 9 he is alwaysstress<strong>in</strong>g the role <strong>of</strong> his teachers and predecessors, Rothbard andMises.Courage is another th<strong>in</strong>g which goes well with <strong>Hans</strong> <strong>Hoppe</strong>’sname. Political correctness is not a good pr<strong>in</strong>ciple to hold to whenyou are look<strong>in</strong>g for the truth, and while many people pay lip serviceto the importance <strong>of</strong> truth, not everyone will defend it evenwhen his own career and name are at stake. But when liberty andthe truth are at the stake, <strong>Hans</strong> <strong>Hoppe</strong> will never give up. Thewell-known controversy surround<strong>in</strong>g an example given about thedifferent time preferences among different groups <strong>of</strong> people perfectlyillustrates this courage. 10Our world has become crazy, but there is hope. <strong>Hans</strong> <strong>Hoppe</strong>and his works are an essential part <strong>of</strong> this hope. h9 Cf. <strong>Hoppe</strong>’s discussion <strong>of</strong> Robert Nozick’s “disparate or loosely jo<strong>in</strong>tedarguments, conjectures, puzzles, counterexamples, experiments, paradoxes,surpris<strong>in</strong>g turns, startl<strong>in</strong>g twists, <strong>in</strong>tellectual flashes, and philosophical razzle-dazzle,”<strong>in</strong> “Murray N. Rothbard and the Ethics <strong>of</strong> Liberty,” Introduction toMurray N. Rothbard, The Ethics <strong>of</strong> Liberty, 2nd ed. (New York and London:New York University Press, 1998), pp. xxiv.10 <strong>Stephan</strong> K<strong>in</strong>sella & Jeffrey Tucker, “The Ordeal <strong>of</strong> <strong>Hoppe</strong>,” The Free Market26, no. 4 (April 2005).
4<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and theLibertarian RightPaul GottfriedTo most <strong>of</strong> his colleagues <strong>in</strong> the libertarian movement hereand <strong>in</strong> Europe, <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> is known to be an<strong>in</strong>tellectually energetic companion <strong>in</strong> arms. This reputationseems entirely deserved for anyone who looks at<strong>Hans</strong>’s numerous writ<strong>in</strong>gs present<strong>in</strong>g libertarian views from a recognizablyAustrian School perspective. Whether his subject is thewelfare state’s effect on economic growth, the Federal Reserve System,the possibility <strong>of</strong> privatiz<strong>in</strong>g most modern government functions,bus<strong>in</strong>ess cycles, or public consumer protection agencies,<strong>Hans</strong> has come down <strong>in</strong>variably aga<strong>in</strong>st the “State.” Althoughdebate may occur about the details <strong>of</strong> these positions, <strong>Hans</strong> canalways be found on policy questions among the advocates <strong>of</strong> theleast possible government. Those who do not take such a standwould presumably not qualify as libertarians.But beyond this area <strong>of</strong> consensus, there is an obvious gulfbetween left- and right-libertarians. This area <strong>of</strong> disagreement canbe seen <strong>in</strong> a wide range <strong>of</strong> cultural, social, and historical issues, andPaul Gottfried (gottfrpe@etown.edu) is Horace Raffensperger Pr<strong>of</strong>essor <strong>of</strong>Humanities at Elizabethtown College and author <strong>of</strong> Multiculturalism and thePolitics <strong>of</strong> Guilt, The Strange Death <strong>of</strong> Marxism, and Conservatism <strong>in</strong> America:Mak<strong>in</strong>g Sense <strong>of</strong> the American Right, and his newly published autiobiography,Encounters: My Life with Nixon, Marcuse, and Other Friends and Teachers.27
28 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>the divid<strong>in</strong>g l<strong>in</strong>e among self-described libertarians may be evenmore important than the consensus duly noted above. Althoughnot the only illustration <strong>of</strong> a left-libertarian stance, a book byStephen Moore and Julian Simon, It’s Gett<strong>in</strong>g Better All The Time,contrast<strong>in</strong>g the U.S. <strong>in</strong> 1900 and <strong>in</strong> 2000, exemplifies the left-libertarianworldview—which is presumably that <strong>of</strong> Cato Institute, thefoundation with which Moore is closely associated. For almost 300pages, Moore and Simon dwell on the political, social, economic,and moral progress that the U.S. underwent between 1900 and2000. 1 This book is written aga<strong>in</strong>st the “gloom and doom <strong>in</strong>dustry”;Lawrence Kudlow, <strong>in</strong> a breathlessly ecstatic endorsement,thanks Moore and Simon for “dismantl<strong>in</strong>g the doomsday pessimismthat’s still so commonplace <strong>in</strong> academia and the media.” 2Exam<strong>in</strong><strong>in</strong>g what they see as conv<strong>in</strong>c<strong>in</strong>g data for the preced<strong>in</strong>gone-hundred-year period with a view toward <strong>in</strong>creased lifeexpectancy; cont<strong>in</strong>u<strong>in</strong>g technological advances; the availability <strong>of</strong>public education for the majority <strong>of</strong> American youth—<strong>in</strong>clud<strong>in</strong>gcollege degrees for half <strong>of</strong> our high-school graduates; the acquisition<strong>of</strong> civil rights for blacks, women, and gays; a successfulnational crusade aga<strong>in</strong>st xenophobia; and a vast <strong>in</strong>crease <strong>in</strong> percapita wealth, Moore and Simon argue that the U.S. “is a vastlybetter place today than it was a hundred years ago.” In contrast tothose who compla<strong>in</strong> about social dis<strong>in</strong>tegration and other signs <strong>of</strong>national decl<strong>in</strong>e, Moore and Simon see improvement <strong>in</strong> everyaspect <strong>of</strong> human life.Much <strong>of</strong> the evidence <strong>of</strong>fered that “the human condition hasimproved dramatically” relates to a cluster <strong>of</strong> technological andmedical advances that have been go<strong>in</strong>g on for centuries. Suchdevelopments deserve to be noted but also need to be treated <strong>in</strong>historic context. For example, <strong>in</strong>fant mortality has been steadily1 Stephen Moore and Julian L. Simon, It’s Gett<strong>in</strong>g Better All the Time: 100 GreatestTrends <strong>of</strong> the Last 100 Years (Wash<strong>in</strong>gton, D.C.: Cato Institute, 2000), p. 1.2 Kudlow’s blurb can be found on the Amazon.Com advertisement for It’sGett<strong>in</strong>g Better All the Time. Attention should also be paid to the critical assessment<strong>of</strong> the book’s figures for GDP growth between 1900 and 2000 <strong>in</strong> BrendanNyan and Ben Fritz, “The deceptive advocacy <strong>of</strong> Stephen Moore,” Sp<strong>in</strong>sanityblog (September 22, 2003) (visited Jan. 12, 2009).
Gottfried: <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Libertarian Right — 29decl<strong>in</strong><strong>in</strong>g because <strong>of</strong> medical discoveries that were made partly <strong>in</strong>the n<strong>in</strong>eteenth century, and the effect <strong>of</strong> this <strong>in</strong> the twentieth centurywas that fewer <strong>in</strong>fants and mothers died dur<strong>in</strong>g childbirth orshortly thereafter. This has caused a dramatic rise <strong>in</strong> median lifeexpectancy. Nonetheless, it is mislead<strong>in</strong>g to suggest that 47 yearold people were dropp<strong>in</strong>g dead all over the U.S. <strong>in</strong> 1900, whenwhat was really happen<strong>in</strong>g was that a higher proportion <strong>of</strong> <strong>in</strong>fantsdid not survive their first year <strong>of</strong> life.Moore’s and Simon’s comments on education verge on theludicrous, a judgment that my forty years <strong>in</strong> academia wouldamply confirm. The authors should have looked at the by nowproliferat<strong>in</strong>g studies show<strong>in</strong>g the plummet<strong>in</strong>g standards <strong>of</strong> literacy,mathematical knowledge, and cultural knowledge amongAmerican youth; 3 and the particularly meager results yielded bythe heavy public <strong>in</strong>vestment <strong>in</strong> br<strong>in</strong>g<strong>in</strong>g up standards for m<strong>in</strong>oritiesand the underclass. In their celebration <strong>of</strong> progress, theauthors are also not particularly sensitive to the drastic reductions<strong>of</strong> academic freedom <strong>in</strong> the U.S. and <strong>in</strong> Europe as a result <strong>of</strong> the triumph<strong>of</strong> the multicultural Left. Public discourse on a variety <strong>of</strong>issues has been reduced to the recitation <strong>of</strong> PC platitudes aboutdesignated victims and the dangers <strong>of</strong> racism, sexism, and homophobia.But my po<strong>in</strong>t here is less to challenge this book-length expression<strong>of</strong> heady optimism about human improvement than to stress theobvious. The authors do not object to massive governmental effortsto impose equality and end discrim<strong>in</strong>ation; this, <strong>in</strong> fact, is whatmuch <strong>of</strong> their book is celebrat<strong>in</strong>g. Their argument, with due respectto the blurbers who praise this book as a hymn to freedom and freeenterprise, is not a call for amelioration by gett<strong>in</strong>g government out<strong>of</strong> our faces. Quite the opposite conclusion might be drawn by anyonewho reads the supposed good news from cover to cover. Therise <strong>of</strong> the most powerful states <strong>in</strong> modern history <strong>in</strong> the “democraticWest” is not only not seen as a problem; it is made to appear tobe the real means for advanc<strong>in</strong>g what our left-libertarian authors3 See, e.g., Chris Hedges, “America the Illiterate,” Truthdig (Nov. 10, 2008);Robert Roy Britt, “14 Percent <strong>of</strong> U.S. Adults Can’t Read,” LiveScience.com(January 10, 2009)
30 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>truly value. The consequence <strong>of</strong> the enormous consolidation <strong>of</strong>adm<strong>in</strong>istrative power between 1900 and 2000 has been the entirelyacceptable price for promot<strong>in</strong>g human equality. 4Left-libertarians have a special th<strong>in</strong>g for equality. They see it asfoundational for a foreign policy as well as domestic commitment,which is the br<strong>in</strong>g<strong>in</strong>g <strong>of</strong> equality to as much <strong>of</strong> the human race asthey can manage to extend it to. One may agree or disagree withthis value-preference, but the pla<strong>in</strong> fact is that equality shapes theleft-libertarian understand<strong>in</strong>g <strong>of</strong> history and human affairs to adegree that its representatives may not even recognize. Thus, anargument one typically encounters among them is that it is silly totalk about liberty while blacks, women, gays, and so on have notyet been granted the same amount <strong>of</strong> this good as white males.And, even if we have achieved a reasonable amount <strong>of</strong> freedom forourselves, we should value the natural right held by all humanbe<strong>in</strong>gs to have the same bless<strong>in</strong>g made available to them.Whence the will<strong>in</strong>gness <strong>of</strong> the left-libertarian Virg<strong>in</strong>ia Postrelto enterta<strong>in</strong> the idea <strong>of</strong> wars fought to spread “democracy” andwhence the morbid sensitivity <strong>of</strong> all left-libertarians to any theorythat would make m<strong>in</strong>orities feel uncomfortable by suggest<strong>in</strong>g theexistence <strong>of</strong> <strong>in</strong>herited cognitive <strong>in</strong>equalities? Although modern libertariansmay talk about “equal rights,” among left-libertarians asmuch as socialists, the stress is on the “equal” distribution <strong>of</strong> therights be<strong>in</strong>g privileged. This emphasis is what renders left-libertarianstotally <strong>in</strong><strong>of</strong>fensive to the big-government Left and the neoconservatives.Give or take some possible disagreements aboutparticular regulations or drug laws, their views <strong>of</strong> history and thehuman good are largely <strong>in</strong>dist<strong>in</strong>guishable.It is hard to imag<strong>in</strong>e, on the other hand, anyone who personifiesmore fully the right-libertarian stance than <strong>Hans</strong>. Indeed, hiswork Democracy—The God that Failed is a treasure trove <strong>of</strong> right-libertarianstatements about life and history. In contrast to Moore andSimon, <strong>Hans</strong> observes that4 See It’s Gett<strong>in</strong>g Better All the Time, especially pp. 241–60; also Paul EdwardGottfried, After Liberalism: Mass Democracy and the Managerial State (Pr<strong>in</strong>ceton,N.J.: Pr<strong>in</strong>ceton University, 1999); and Robert Higgs, Crisis and Leviathan: CriticalEpisodes <strong>in</strong> the Growth <strong>of</strong> Government (New York: Oxford University Press,1987).
Gottfried: <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Libertarian Right — 31[i]n comparison to the n<strong>in</strong>eteenth century, the cognitivecapacities <strong>of</strong> political and <strong>in</strong>tellectual elites and the quality<strong>of</strong> public education have decl<strong>in</strong>ed. And the rates <strong>of</strong>crime, structural unemployment, welfare dependency,parasitism, negligence, recklessness, <strong>in</strong>civility, psychopathy,and hedonism have <strong>in</strong>creased. 5Such assertions, which pervade his magnum opus, would obviouslyupset the statistical researchers Moore and Simon or the editors <strong>of</strong>the Wall Street Journal. Supposedly, they have demonstrated to oursatisfaction the cont<strong>in</strong>uous unfold<strong>in</strong>g <strong>of</strong> human Progress, whereas<strong>Hoppe</strong> has the temerity to propose exactly the opposite view. 6In po<strong>in</strong>t <strong>of</strong> fact, his cultural and political assertions are at leastas demonstrable as theirs. But unlike them, he has no specialregard for the pr<strong>in</strong>ciple <strong>of</strong> equality. From his po<strong>in</strong>t <strong>of</strong> view, equalityand the democratic form <strong>of</strong> government that the advocates <strong>of</strong>that ideal enshr<strong>in</strong>e is a “deciviliz<strong>in</strong>g force.” It generates a constantlyexpand<strong>in</strong>g public adm<strong>in</strong>istration that <strong>in</strong>terferes <strong>in</strong> social<strong>in</strong>stitutions, particularly the family, and confiscates wealth, <strong>in</strong> thename <strong>of</strong> “social justice” and the “public good.” Adm<strong>in</strong>istereddemocracy may also seem to require, for the sake <strong>of</strong> doctr<strong>in</strong>al consistency,the overrunn<strong>in</strong>g <strong>of</strong> one’s country by immigrants. At thevery least, such a practice would <strong>of</strong>fset the <strong>in</strong>ertia that Postrel condemns<strong>in</strong> her book The Future and Its Enemies, <strong>in</strong> which she calls for“a world <strong>of</strong> constant creation, discovery, and competition.” 7 In herhatred <strong>of</strong> “stasis,” Postrel is annoyed that people prefer custom tochange: “I like my neighborhood the way it is. That is the all-toounderstandablesentiment that motivates stasist policy.” 8 Thealternative to “keep<strong>in</strong>g th<strong>in</strong>gs as they are” is, for Postrel, among5 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God that Failed: The Economicsand Politics <strong>of</strong> Monarchy, Democracy, and Natural Order (New Brunswick, N.J.:Transaction Publishers, 2001), p. 42–43.6 See also ibid., p. 69: “The Whig theory <strong>of</strong> history, accord<strong>in</strong>g to whichmank<strong>in</strong>d marches cont<strong>in</strong>ually forward toward ever higher levels <strong>of</strong> progress,is <strong>in</strong>correct.”7 Virg<strong>in</strong>ia Postrel, The Future and Its Enemies (New York: Free Press, 1998),p. xiv; see also David Gordon’s penetrat<strong>in</strong>g review <strong>of</strong> Postrel’s book, “Ask aSilly Question,” Mises Review 5, no. 1 (Spr<strong>in</strong>g 1999).8 Postrel, The Future and Its Enemies, p. 204.
32 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>other th<strong>in</strong>gs, favor<strong>in</strong>g a cont<strong>in</strong>u<strong>in</strong>g transformation <strong>of</strong> one’s cultureand environment.If the subject were the aggregate effects and distributed costs <strong>of</strong>our present immigration policy, <strong>Hoppe</strong> would have a strongerargument than the late Julian Simon. The social costs <strong>of</strong> our passionfor diversity and undocumented, cheap labor are at least as great as<strong>Hoppe</strong> suggests. But it must be kept <strong>in</strong> m<strong>in</strong>d that he and the leftlibertariansare com<strong>in</strong>g from entirely different value directions.Unlike them, he does not believe it is the duty <strong>of</strong> civil society toadvance equal opportunities for the rest <strong>of</strong> the world, or even less,that the modern adm<strong>in</strong>istrative state is a fitt<strong>in</strong>g <strong>in</strong>strument to carryout such a task. Nor does he have any patience with other characteristicassumptions <strong>of</strong> the left-libertarians, e.g., that democracyand liberal immigration policies expand the amount <strong>of</strong> ordered liberty<strong>in</strong> a country, that the more people we encourage to vote, themore “just” our society becomes, or that the quality <strong>of</strong> a civilizationcan be raised by <strong>in</strong>creas<strong>in</strong>g the extent <strong>of</strong> m<strong>in</strong>imal literacy. <strong>Hoppe</strong>engages all <strong>of</strong> these sticky po<strong>in</strong>ts—and other ones as well.There is also much <strong>in</strong> his thought that is typically libertarian,such as his defense <strong>of</strong> Austrian economics and his model <strong>of</strong> civilsociety drawn at least partly from John Locke. For <strong>Hans</strong> the idealsociety is a collection <strong>of</strong> property-own<strong>in</strong>g <strong>in</strong>dividuals, who are leftfree to accumulate and spend wealth. They may also act collectively,on the basis <strong>of</strong> agreements, to restrict the membership <strong>of</strong>their property-hold<strong>in</strong>g community—or else to allow others to come<strong>in</strong> if they see fit. In this “anarcho-capitalist” vision, which wasdeveloped by <strong>Hans</strong>’s mentor Murray Rothbard, <strong>in</strong>dividual property-holdersshould be free to conclude protective pacts, <strong>in</strong>clud<strong>in</strong>gagreements for rais<strong>in</strong>g their own military forces. They should alsobe authorized to bar from their communities unwanted immigrantswho did not receive permission to settle there. Least <strong>of</strong> all shouldthey be forced to provide for those with whom they did not elect toshare their property assets. In this view, the state has co-optedactivities that could be done more efficiently, or does not have to bedone at all, by consent<strong>in</strong>g property-holders. And these otherarrangements would be possible if the state were not around. 99 <strong>Hoppe</strong>, Democracy; and Murray N. Rothbard, Power and Market (KansasCity: Sheed, Andrews and McMeel, 1977).
Gottfried: <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Libertarian Right — 33But because <strong>of</strong> the present impossibility <strong>of</strong> junk<strong>in</strong>g this parasitic<strong>in</strong>stitution, <strong>Hans</strong> suggests (perhaps not entirely tongue-<strong>in</strong>cheek)a return to an already tried political alternative, namely,monarchy. Much <strong>of</strong> Democracy—The God that Failed deals with thisother model and with show<strong>in</strong>g that it is less predatory than a democraticregime. Monarchs have the advantage over democraticrulers that they view the realm that they control as a hereditarypossession, albeit one with restrictions on what they could do toothers. Their hereditary right to their position, however, rendersmonarchs less <strong>in</strong>cl<strong>in</strong>ed to plunder than democratic <strong>of</strong>ficeholders,who have only limited tenures and who therefore feel impelled totake as much as they can from taxes and public properties beforethey retire from <strong>of</strong>fice.Moreover, democratically selected rulers are usually emboldenedby their popular mandate to enrich themselves ad libitum,whereas monarchs have been surrounded by jealous aristocratsand churchmen who have imposed limits on their appetites.Although <strong>Hans</strong> may overstate both the countervail<strong>in</strong>g forces <strong>in</strong>monarchies and the lack <strong>of</strong> controls <strong>in</strong> democracies, his largerpo<strong>in</strong>t—that everyth<strong>in</strong>g be<strong>in</strong>g equal, monarchies are not as oppressiveas democracies can be and have been—is probably correct.Both the elevation <strong>of</strong> democratic government to godlike status andthe preoccupation <strong>of</strong> this form <strong>of</strong> government with equality have<strong>in</strong>creased the potential <strong>of</strong> modern democratic regimes for destroy<strong>in</strong>gproperty rights and communal rights. Such regimes practice aform <strong>of</strong> <strong>in</strong>terventionism that was not available to most monarchies—andcerta<strong>in</strong>ly not to the Western-type monarchies thatexisted <strong>in</strong> the n<strong>in</strong>eteenth century.Significantly, <strong>Hans</strong> does not hold back <strong>in</strong> criticiz<strong>in</strong>g monarchiesfor do<strong>in</strong>g <strong>in</strong> a quite primitive way what democratic adm<strong>in</strong>istrationshave succeeded <strong>in</strong> accomplish<strong>in</strong>g with less fallout, which is monopoliz<strong>in</strong>gpower. Like democrats, k<strong>in</strong>gs tried to marg<strong>in</strong>alize theiropposition by declar<strong>in</strong>g all political authority to be a prerogative <strong>of</strong>the centralized state. Monarchical sovereignty was a prelude todemocratic sovereignty, and it was based the same “orig<strong>in</strong>al s<strong>in</strong>,”“the monopolization <strong>of</strong> the function <strong>of</strong> judge and peacemaker.” 10 Thebest form <strong>of</strong> authority for <strong>Hans</strong> is, <strong>in</strong> fact, “the natural order,” one10 <strong>Hoppe</strong>, Democracy, p. 72.
34 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>that is “[t]he natural outcome <strong>of</strong> the voluntary transactionsbetween various private property owners” and which is “decidedlynonegalitarian, hierarchical, and elitist.” 11 Any effort to br<strong>in</strong>gthis about <strong>in</strong> our democratic, late modernity is hailed as a positivestep: “Thus, <strong>in</strong> addition to advocat<strong>in</strong>g the abdication <strong>of</strong> democracy,it is now <strong>of</strong> central strategic importance that at the same timeideological support be given to all decentraliz<strong>in</strong>g or even secessionistsocial forces.” 12A question that might be raised is whether the generality <strong>of</strong>humank<strong>in</strong>d would endorse the tendencies that <strong>Hans</strong> is promot<strong>in</strong>g.Would democratic populations (who have ceased to be citoyens(citizens) or Staatsbürger <strong>in</strong> any mean<strong>in</strong>gful sense) really want tolive <strong>in</strong> the decentralized, elitist society that <strong>Hans</strong> recommends, one<strong>in</strong> which a “natural elite” possess “natural authority,” and,because <strong>of</strong> “selective mat<strong>in</strong>g” and the “laws <strong>of</strong> civil and genetic<strong>in</strong>heritance,” these “positions <strong>of</strong> natural authority are more likelythan not passed on with<strong>in</strong> a few noble families.” 13 Why would themajority want to acknowledge these “authority persons,” whopresumably would arbitrate conflicts on the basis <strong>of</strong> the social deferencethat others extend to them? It is hard to see why most peoplewould accept such arrangements, as opposed to a democracy,<strong>in</strong> which the promise is made and <strong>of</strong>ten fulfilled <strong>of</strong> redistribut<strong>in</strong>ggoods to the voters. The question is not whether the democraticstate robs from Peter to pay Paul (it obviously does that!) butwhether <strong>Hans</strong>’s “natural order” <strong>of</strong>fers most people what theywant. The answer is an emphatic “no” and therefore this order(which looks a bit like Friedrich Hayek’s conception <strong>of</strong> “spontaneousorder”) depends for its realization on the possibility <strong>of</strong>“decentralization and secession.” Absent such a possibility, thisorder is <strong>in</strong> no way feasible.11 Ibid., p. 71; and <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Eigentum, Anarchie und Staat:Studien zur Theorie des Kapitalismus (Opladen: Westdeutscher Verlag, 1987).12 <strong>Hoppe</strong>, Democracy, p. 74; and <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, The Economics andEthics <strong>of</strong> Private Property: Studies <strong>in</strong> Political Economy and Philosophy (Boston:Kluwer, 1993).13 <strong>Hoppe</strong>, Democracy, p. 71.
Gottfried: <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> and the Libertarian Right — 35Two other observations may be appropriate for understand<strong>in</strong>gmore fully the libertarianism <strong>of</strong> the Right that <strong>Hans</strong> exemplifies.One, this libertarianism is a recognizable subspecies <strong>of</strong> what theItalian Marxist Domenico Losurdo calls “aristocratic radicalism,”which he explores <strong>in</strong> volum<strong>in</strong>ous works on Friedrich Nietzsche(1844–1901). Accord<strong>in</strong>g to Losurdo, Nietzsche’s “critique <strong>of</strong>modernity” is based on his opposition to the level<strong>in</strong>g tendenciesthat he perceives <strong>in</strong> democracy and socialism. 14 It was thereforeperfectly consistent for Nietzsche to praise aristocratic societies,<strong>in</strong>clud<strong>in</strong>g the Indian caste system, and to advocate liberty <strong>in</strong> theWestern world <strong>of</strong> his time. That is because the state, as Nietzscheunderstood it, was becom<strong>in</strong>g an <strong>in</strong>strument <strong>of</strong> equalization; andits attack on property relations would belong to a larger effort toremove all social and gender dist<strong>in</strong>ctions. Nietzsche, as Losurdopo<strong>in</strong>ts out, also disliked Christianity, because he thought the“slave morality” that pervaded this religion and the culture it nurturedrendered them <strong>in</strong>effective aga<strong>in</strong>st the Left. He thereforebroke with classical conservatives, who had viewed establishedreligions as bulwarks aga<strong>in</strong>st revolution. From Nietzsche’s perspective,Christianity and the Left were related worldviews, andonly a new aristocratic order, one that had shed its Christian past,could save civilization from the unfold<strong>in</strong>g <strong>of</strong> the egalitarian ideal,go<strong>in</strong>g from democracy <strong>in</strong>to socialism and fem<strong>in</strong>ism.In addition to the aristocratic radicalism that animates <strong>Hans</strong>’s libertarianism(albeit without Nietzsche’s passionate dislike for Christianity),there is another <strong>in</strong>fluence on his work that deserves to bestressed. His German background has made him allergic to the“American democratic” ideal, as <strong>Hans</strong> states candidly <strong>in</strong> the open<strong>in</strong>gl<strong>in</strong>es <strong>of</strong> the Preface to the German edition <strong>of</strong> his magnum opus:“Politically <strong>in</strong>correct” is what the rulers and <strong>in</strong> particularthe victors among the rulers proclaim. The great victor<strong>of</strong> the 20th century, <strong>in</strong> particular as far as Germany isconcerned, is the USA. Hence, the USA has determ<strong>in</strong>edthe “correct” <strong>in</strong>terpretation especially <strong>of</strong> recent history.Defeated Germany was not only occupied, but also14 Domenico Losurdo, Nietzsche il Ribelle Aristocratico: Biografia Intelettuallee Bilancio Critico (Tur<strong>in</strong>: Bollati Bor<strong>in</strong>ghieri, 2002).
36 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>reeducated. Germany’s schools and universities, underalmost complete government control, and the governmentallylicensed mass media, have proclaimed to thisday the <strong>of</strong>ficial American view <strong>of</strong> history and <strong>in</strong> particular<strong>of</strong> the 20th century as a triumph <strong>of</strong> good over evil. 15It is hard to ignore the likely connection between <strong>Hans</strong>’s detestation<strong>of</strong> the “State” <strong>in</strong> all <strong>of</strong> its modern manifestations and the use<strong>of</strong> postwar public adm<strong>in</strong>istration <strong>in</strong> West Germany, perhaps evenmore than <strong>in</strong> the Communist East, to humiliate his nation. Hissense <strong>of</strong> what was done to “reeducate” defeated Germans after theWar, which is documented <strong>in</strong> detail <strong>in</strong> Caspar von Schrenk-Notz<strong>in</strong>g’sCharakterwäsche: Die Politik der amerikanischen Umerziehung <strong>in</strong>Deutschland, has left <strong>Hans</strong> understandably skeptical about themodern democratic project. 16 His relation as a student to JürgenHabermas, the German th<strong>in</strong>ker and publicist who more than anyoneelse <strong>in</strong> his country has called for a rejection <strong>of</strong> a Germannational identity and for the creation <strong>of</strong> a new “constitutionalpatriotism,” based on supposedly universal democratic values,may expla<strong>in</strong> even more about <strong>Hans</strong>’s <strong>in</strong>tellectual odyssey.<strong>Hans</strong> has seen the ugliest side <strong>of</strong> modern, guided democracy,which is the side that keeps gett<strong>in</strong>g shoved <strong>in</strong>to the faces <strong>of</strong> its critics.The fact that the advocates <strong>of</strong> an American global democraticmission, a group now <strong>in</strong>sanely referred to as “conservatives,” haveelevated German reeducation to a global model is further pro<strong>of</strong> <strong>of</strong>the imperialistic side <strong>of</strong> the ideology that <strong>Hans</strong> goes after. Thisnew democratic undertak<strong>in</strong>g may have added to his discomfortwith “the god that failed.” If this is the case, then his discomfort isfully justified. 15 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Der Gott, der ke<strong>in</strong>er ist, Robert Gröz<strong>in</strong>ger, trans.(Waltrop & Leipzig: Manuscriptum Verlagsbuchhandlung, 2003), pp. 7–8(English translation from <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “Demokratie. Der Gott, DerKe<strong>in</strong>er Ist,” LewRockwell.com (December 5, 2003)). See also similar comments<strong>in</strong> <strong>Hoppe</strong>, Democracy, pp. x–xi; and xxiii, not<strong>in</strong>g that “both Mises andRothbard had a s<strong>of</strong>t spot for democracy and tended to view the transitionfrom monarchy to democracy as progress.”16 Caspar von Schrenck-Notz<strong>in</strong>g, Charakterwäsche: Die Politik der amerikanischenUmerziehung <strong>in</strong> Deutschland (Graz: Ares Verlag, 2004); and Ernst vonSalomon, Der Fragebogen, seventeenth ed. (Rowohlt Taschenbuch Verlag,2007).
5Marxism Without PolylogismJeffrey A. TuckerLudwig von Mises believed that the topic <strong>of</strong> polylogism wasimportant enough to put up front <strong>in</strong> the <strong>in</strong>troduction <strong>of</strong>Human Action.Marxism asserts that a man’s th<strong>in</strong>k<strong>in</strong>g is determ<strong>in</strong>ed byhis class affiliation. Every social class has a logic <strong>of</strong> itsown. . . . This polylogism was later taught <strong>in</strong> variousother forms also. Historicism asserts that the logicalstructure <strong>of</strong> human thought and action is liable to change<strong>in</strong> the course <strong>of</strong> historical evolution. Racial polylogismassigns to each race a logic <strong>of</strong> its own. 1He was writ<strong>in</strong>g <strong>in</strong> 1949 but he saw where trends were headed:polylogist th<strong>in</strong>k<strong>in</strong>g—the belief that a multiplicity <strong>of</strong> conflict<strong>in</strong>gforms <strong>of</strong> logic exist with<strong>in</strong> the human population, subdivided bysome group-based characteristic—would become a prevail<strong>in</strong>g feature<strong>of</strong> modern social science. So today a vast amount <strong>of</strong> modernpolitics is based on some form <strong>of</strong> this idea. We speak <strong>of</strong> the groupbased<strong>in</strong>terests not just about class but also <strong>in</strong> the areas <strong>of</strong> race, sex,religion, ability, looks, and more. Even environmentalist politicsJeffrey A. Tucker (tucker@mises.org) is Editorial Vice President <strong>of</strong> the Ludwigvon Mises Institute.1 Ludwig von Mises, Human Action, Scholar’s Edition (Auburn, Ala.: Ludwigvon Mises Institute, 1998 [1949]), p. 5.37
38 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>might be understood <strong>in</strong> these terms: that nature itself operatesaccord<strong>in</strong>g to a different logical matrix from the human population,so that we are exploit<strong>in</strong>g nature all the time and might not knowit.An additional po<strong>in</strong>t about polylogism: it is believed that notonly are there are a variety <strong>of</strong> forms <strong>of</strong> logical structure exist<strong>in</strong>g <strong>in</strong>the world but that these forms <strong>of</strong> logic create a conflict, rooted <strong>in</strong>exploitation, that forms the basis <strong>of</strong> society and cries out for correctionby some external means. Thus do all these forms <strong>of</strong> polylogismgenerate a supposed need for some social (state) action toaccommodate these varieties <strong>of</strong> th<strong>in</strong>k<strong>in</strong>g. The exploiters must beoverthrown, even <strong>in</strong> the case <strong>of</strong> the environment. So pervasive isthis perspective that it nearly def<strong>in</strong>es the whole <strong>of</strong> the social sciencesas practiced <strong>in</strong> academia today. 2Becom<strong>in</strong>g aware <strong>of</strong> this through read<strong>in</strong>g Mises, the reader isshocked at <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>’s presentation <strong>of</strong> the coreclaims <strong>of</strong> Marxian class theory and his summary conclusion: “Iclaim that all <strong>of</strong> them are essentially correct.” 3How can we account for <strong>Hoppe</strong>’s apparent s<strong>of</strong>tness toward theMarxist idea, even as Mises is so thoroughly aga<strong>in</strong>st it? There is ananswer here: what <strong>Hoppe</strong> has done is purge Marxism <strong>of</strong> its epistemologicalassumptions and reta<strong>in</strong>ed its analysis <strong>of</strong> the materialworld. This permits us to draw for Marxism many important<strong>in</strong>sights while disregard<strong>in</strong>g the polylogism that has led to so much<strong>in</strong>sidious rhetoric <strong>of</strong> the past and present.A classic example <strong>of</strong> the use <strong>of</strong> polylogism can be found <strong>in</strong> KarlMarx and the Close <strong>of</strong> His System by Eugen von Böhm-Bawerk <strong>in</strong>1896. 4 Böhm-Bawerk <strong>of</strong>fers a pa<strong>in</strong>stak<strong>in</strong>gly detailed argument,stretch<strong>in</strong>g over 150 pages, that Marx never got around to fullyexpla<strong>in</strong><strong>in</strong>g why it is that goods do not exchange <strong>in</strong> proportion tothe value <strong>of</strong> labor <strong>in</strong> them but rather that the pr<strong>of</strong>it <strong>of</strong> capital is <strong>in</strong>proportion to the capital <strong>in</strong>vested. Had Marx attempted to expla<strong>in</strong>2 My friend B.K. Marcus sums up his entire college experience as a fouryearcase for polylogism.3 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, The Economics and Ethics <strong>of</strong> Private Property(Auburn, Ala.: Ludwig von Mises Institute, 2006), pp. 117–38.4 Eugen von Böhm-Bawerk, Karl Marx and the Close <strong>of</strong> His System (NewYork: Augustus M. Kelley, 1949).
Tucker: Marxism Without Polylogism — 39this, as he kept promis<strong>in</strong>g he would, it would have been obviousthat his entire theory <strong>of</strong> surplus value was <strong>in</strong>herently contradictoryto the facts on the ground. This is a fatal flaw <strong>in</strong> Marx’s work,because he doesn’t allow the reader to logically or empirically testhis claim concern<strong>in</strong>g the surplus value extracted by the capitalistand not given to workers. Böhm-Bawerk further writes that Marxismseems to have built <strong>in</strong>to the system a strategy that belies anyattempt to refute it. Every disagreement is dismissed with adhom<strong>in</strong>em <strong>of</strong> sorts, that the writer is hopelessly mired <strong>in</strong> bourgeoisth<strong>in</strong>k<strong>in</strong>g. “Is it too much to demand that if he <strong>in</strong>troduces subjective<strong>in</strong>terpolations <strong>in</strong>to his system they should be correct, wellfounded, and non-contradictory? And this reasonable demandMarx has cont<strong>in</strong>ually contravened.” This was Böhm-Bawerk’sprotest aga<strong>in</strong>st the use <strong>of</strong> polylogist assertions embedded <strong>in</strong> Marxistdefense tactics.Marxist theorist Rudolf Hilferd<strong>in</strong>g responded to Böhm-Bawerk<strong>in</strong> a way that underscored the problem with polylogism: he doesprecisely what Böhm-Bawerk would predict that a Marxist woulddo. He dismissed the source, and with long-w<strong>in</strong>ded criticismtossed aside all <strong>of</strong> Marx’s critics <strong>in</strong> the same way that Marx did.Concern<strong>in</strong>g the great pr<strong>of</strong>essor’s detailed attempt to grapple withthe details <strong>of</strong> Marx’s theory, Hilferd<strong>in</strong>g writes:As spokesman for the bourgeoisie, it enters the lists onlywhere the bourgeoisie has practical <strong>in</strong>terests to defend.In the economico-political struggles <strong>of</strong> the day it faithfullyreflects the conflict <strong>of</strong> <strong>in</strong>terests <strong>of</strong> the dom<strong>in</strong>antcliques, but it shuns the attempt to consider the totality<strong>of</strong> social relationships, for it rightly feels that any suchconsideration would be <strong>in</strong>compatible with its cont<strong>in</strong>uedexistence as bourgeois economics. 5Hilferd<strong>in</strong>g further says that the pr<strong>of</strong>essor’s argument can bedisregarded because he failed to deal with Marxism “it itsentirety” as a complete system <strong>of</strong> thought, that, one supposes,must be accepted on faith. Whereas Böhm-Bawerk talks about subjectivevalues, and <strong>in</strong>dividual prices and their relationship withcapital <strong>in</strong>vested, Marx, writes Hilferd<strong>in</strong>g, “looks upon the theory5 Ibid., p. 121.
40 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong><strong>of</strong> value, not as the means for ascerta<strong>in</strong><strong>in</strong>g prices, but as the meansfor discover<strong>in</strong>g the laws <strong>of</strong> motion <strong>of</strong> capitalist society.”Hilferd<strong>in</strong>g writes:Instead <strong>of</strong> tak<strong>in</strong>g economic or social relationships as thestart<strong>in</strong>g po<strong>in</strong>t <strong>of</strong> their system, they have chosen for thatstart<strong>in</strong>g po<strong>in</strong>t the <strong>in</strong>dividual relationship between menand th<strong>in</strong>gs. They regard this relationship from the psychologicaloutlook as one which is subject to natural andunalterable laws. They ignore the relationships <strong>of</strong> production<strong>in</strong> their social determ<strong>in</strong>ateness, and the idea <strong>of</strong> alaw-abid<strong>in</strong>g evolution <strong>of</strong> economic happen<strong>in</strong>gs is aliento their m<strong>in</strong>ds. 6Hilferd<strong>in</strong>g’s criticism can be summed as an application <strong>of</strong> thispolylogist dismissal: as a member <strong>of</strong> the rul<strong>in</strong>g class who is weddedto bourgeois ways <strong>of</strong> th<strong>in</strong>k<strong>in</strong>g, Böhm-Bawerk is just not capable<strong>of</strong> th<strong>in</strong>k<strong>in</strong>g the right away about these th<strong>in</strong>gs. Marxist thought,which is all about the laws <strong>of</strong> history and the social determ<strong>in</strong>atesdriv<strong>in</strong>g the material world, is alien to him simply because his m<strong>in</strong>dis <strong>in</strong>capable <strong>of</strong> see<strong>in</strong>g the truth.And so it is today with so many political arguments. The rhetoricis on a much lower level today, but this is the usual way <strong>in</strong>which political discussion takes place <strong>in</strong> the post-Marxist society <strong>in</strong>which the polylogist assumption drives discussion. Capitalistscan’t possibly understand the logic <strong>of</strong> environmentalist th<strong>in</strong>k<strong>in</strong>gbecause they are out <strong>of</strong> touch with nature and its need. Whites cannoteven beg<strong>in</strong> to comprehend the demands <strong>of</strong> blacks for preferenceand redistribution because the black experience and way <strong>of</strong>th<strong>in</strong>k<strong>in</strong>g are alien to the white experience and way <strong>of</strong> th<strong>in</strong>k<strong>in</strong>g. Sotoo with issues <strong>of</strong> sex, sexuality, religion, and physical ability. It isusually assumed that one may not even speak about the controversies<strong>of</strong> our time unless one belongs to the “victim group” be<strong>in</strong>gdiscussed. Even then, if a woman or a block or a gay <strong>of</strong>fers a po<strong>in</strong>t<strong>of</strong> view that runs contrary to the dom<strong>in</strong>ate political agenda <strong>of</strong> thema<strong>in</strong>stream lobby for these groups, that person is dismissed assomehow lack<strong>in</strong>g higher consciousness or hopeless mired <strong>in</strong> a differentm<strong>in</strong>dset. She is not a real woman, he is not a real black, they6 Ibid., p. 196.
Tucker: Marxism Without Polylogism — 41are not really disabled, he doesn’t genu<strong>in</strong>ely represent the views <strong>of</strong>Islam, etc.What’s at work here is an unravel<strong>in</strong>g <strong>of</strong> the entire basis for anyform <strong>of</strong> <strong>in</strong>tellectual discussion. If we can’t agree on universal rules<strong>of</strong> establish<strong>in</strong>g the veracity <strong>of</strong> truth claims, all discussion isreduced to a series <strong>of</strong> demands followed by ad hom<strong>in</strong>em attacks onanyone who resists those demands. Mises himself understood thatif we are to avoid this fate, there had to be some understand<strong>in</strong>gand agreement on the rules <strong>of</strong> logic. George Koether reports 7 thatMises told his sem<strong>in</strong>ar students that the first book on economicsthat they should read is a book on logic by Morris Cohen, a bookwhich is <strong>in</strong> fact one <strong>of</strong> the last complete texts on logic to publishedfor universal use <strong>in</strong> the college classroom. 8 Meanwhile, forums onacademic discussion board filled with compla<strong>in</strong>ts that logic as adiscipl<strong>in</strong>e is no longer part <strong>of</strong> high-school study or even undergraduatecollege study, which means that after 16 years <strong>of</strong> formalstudy, hardly any students are taught even the basic rules on howto th<strong>in</strong>k.This is further evidence that this one aspect <strong>of</strong> Marxism—itsradical attack on the core <strong>of</strong> clear th<strong>in</strong>k<strong>in</strong>g, a subject that (alongwith grammar and rhetoric) has been part <strong>of</strong> the “trivium” s<strong>in</strong>cethe middle ages—has triumphed <strong>in</strong> ma<strong>in</strong>stream th<strong>in</strong>k<strong>in</strong>g today, somuch so that any pr<strong>of</strong>essor suspected <strong>of</strong> hold<strong>in</strong>g to logical universalsand refus<strong>in</strong>g to accept class-<strong>in</strong>terest arguments as self-evidentlytrue can be driven out <strong>of</strong> the university merely for hold<strong>in</strong>g“politically <strong>in</strong>correct” op<strong>in</strong>ions.<strong>Hoppe</strong>’s attachment to Marxism, however, eschews polylogismcompletely and <strong>in</strong>stead embraces universal logical pr<strong>in</strong>ciples asthe very method by which to reapply Marxian political theory <strong>in</strong> acompletely different context. In his writ<strong>in</strong>gs on class theory, heticks through the familiar list: history is def<strong>in</strong>ed by class struggle;the rul<strong>in</strong>g class has a common <strong>in</strong>terest; class rule is def<strong>in</strong>ed byownership relations <strong>in</strong>volv<strong>in</strong>g exploitation; there is a tendencytoward centralization <strong>of</strong> class <strong>in</strong>terest; and centralization and7 Austrian Economics Newsletter 20, no. 3 (Fall 2000).8 Morris Cohen, An Introduction to Logic and Scientific Method (New York:Read Books, 2007); orig<strong>in</strong>ally published <strong>in</strong> 1934.
42 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>expansion <strong>of</strong> exploitative rules leads to an unviable attempt atglobal dom<strong>in</strong>ation. What he is speak<strong>in</strong>g <strong>of</strong> here is not polylogismas such but a narrower aspect <strong>of</strong> Marxian politics and its claimsconcern<strong>in</strong>g the social forces <strong>of</strong> history. And he says that they areall essentially correct. The basis for <strong>Hoppe</strong>’s claim reflects hisviews <strong>of</strong> the Marxist theory <strong>of</strong> exploitation, which he regards ascorrect <strong>in</strong> its analytical features but not it its application.<strong>Hoppe</strong> deals with the application error <strong>in</strong> Marxist theoryswiftly and decisively. The Marxist view says it is exploitation forthe worker to labor five days and receive only three days <strong>of</strong> productvalue back <strong>in</strong> wages. And yet it rema<strong>in</strong>s true that workers will<strong>in</strong>glyaccept wage contracts. It is a strange sort <strong>of</strong> exploitation thatis mutually beneficial to all parties and engaged <strong>in</strong> will<strong>in</strong>gly andhappily by billions <strong>of</strong> people every day. The <strong>in</strong>terests <strong>of</strong> the workerand the capitalist are harmonious: the worker accepts a smallerportion <strong>of</strong> goods <strong>in</strong> the present over a larger one <strong>in</strong> the future,while the capitalist has the opposite preference. Marx didn’t seethis because he failed to comprehend that it is impossible toexchange future goods aga<strong>in</strong>st present goods except at a discount.But what about the theory <strong>of</strong> the reality <strong>of</strong> exploitation itself?<strong>Hoppe</strong> argues that it is fulfilled <strong>in</strong> the Austrolibertarian framework<strong>of</strong> look<strong>in</strong>g at the world, once we understand that the rul<strong>in</strong>gclass is dist<strong>in</strong>guished by its access to state power. This followsfrom <strong>Hoppe</strong>’s new def<strong>in</strong>ition <strong>of</strong> exploitation, which occurs when aperson successfully claims partial or full control over scarceresources that he has not homesteaded, saved, or produced, noracquired contractually from a previous producer-owner. The statecan be seen as a firm devoted entirely to the task <strong>of</strong> exploitation <strong>in</strong>this sense. This exploitation creates victims, who can overthrowtheir exploiters once they develop a consciousness <strong>of</strong> the possibility<strong>of</strong> an exploitation-free society <strong>in</strong> which private property is universallyrespected and not systematically violated by a rul<strong>in</strong>gclass.What’s <strong>in</strong>terest<strong>in</strong>g about the <strong>Hoppe</strong>an account <strong>of</strong> the Marxiantheory, and his recast<strong>in</strong>g <strong>of</strong> the theory <strong>in</strong> light <strong>of</strong> Austrolibertariantheory, is that it completely bypasses the core polylogist assumption<strong>of</strong> Marxist theory. There is no need to postulate that theexploiters and the exploited are somehow socially hardwired <strong>in</strong>toth<strong>in</strong>k<strong>in</strong>g differently accord<strong>in</strong>g to conflict<strong>in</strong>g logical pr<strong>in</strong>ciples. On
Tucker: Marxism Without Polylogism — 43the contrary, <strong>Hoppe</strong>’s approach assumes the universal applicability<strong>of</strong> one set <strong>of</strong> logical pr<strong>in</strong>ciples. Here is the ma<strong>in</strong> po<strong>in</strong>t <strong>of</strong> departure,one that clarifies the seem<strong>in</strong>g difference between Mises and<strong>Hoppe</strong>, and highlights an important ideological agenda for thefuture.In what ways might <strong>Hoppe</strong>’s reconstruction <strong>of</strong> Marxism applyto Marxism’s modern sp<strong>in</strong><strong>of</strong>fs? Once we strip away the polylogistassumption underly<strong>in</strong>g modern politics, we can see that manygroup relations are <strong>in</strong>deed characterized by varieties <strong>of</strong> <strong>Hoppe</strong>styleexploitation. And it is precisely law and legislation that makethis possible. Laws that privilege one race, one religion, one sex,one class <strong>of</strong> abilities, over another generate a group <strong>of</strong> victims andsolidify a form <strong>of</strong> group solidarity that might have previouslyexisted only <strong>in</strong> nascent form. Whereas group differences mightresolve themselves through trade, the entry <strong>of</strong> the state <strong>in</strong>to theassociation amplifies and <strong>in</strong>stitutionalizes group conflicts. This istrue as regards, for example, religion. Once the state beg<strong>in</strong>s to subsidizeone form <strong>of</strong> religious expression, it generates the impressionon the part <strong>of</strong> other religions that they are be<strong>in</strong>g ripped <strong>of</strong>f or putupon <strong>in</strong> some way, and the only means <strong>of</strong> defense is to organizeand coalesce to take back what is rightly theirs. This trajectory canbecome particularly explosive when it <strong>in</strong>volves issues <strong>of</strong> race andsex, but conflict also appears <strong>in</strong> other areas, such as environmentallegislation and disability legislation.In the same way that state-subsidized exploitation led Marx toobserve but misdiagnose the nature <strong>of</strong> exploitation <strong>in</strong> his time,forms <strong>of</strong> state exploitation today can lead people to embrace anticapitalisticcreeds based on a misdiagnosis <strong>of</strong> the root <strong>of</strong> conflictsover race, sex, religion, ability, and the environment today. It is notthe case that demographic groups are <strong>in</strong>herently <strong>in</strong> conflict; theillusion is created by the absence <strong>of</strong> what <strong>Hoppe</strong> calls “clean capitalism,”<strong>in</strong> which all relationships <strong>in</strong> society are characterized byvoluntary exchange and association. Part <strong>of</strong> that misdiagnosisdrives people to embrace a polylogist understand<strong>in</strong>g <strong>of</strong> the structure<strong>of</strong> the human m<strong>in</strong>d. But once the <strong>Hoppe</strong>an understand<strong>in</strong>g <strong>of</strong>the exploitation and conflict—those kernels <strong>of</strong> truth <strong>in</strong> Marxism—becomes clear, there is no need to resort to far-flung explanationsto account for them. The root problem is not somehow embedded<strong>in</strong> the structural diversity <strong>of</strong> operat<strong>in</strong>g logics <strong>in</strong> the world; the
44 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>explanation <strong>of</strong> conflict <strong>in</strong> society is rooted <strong>in</strong> a much more directand simple cause: the state itself.In this way, then, the <strong>Hoppe</strong>an theory <strong>of</strong> social conflict has thepotential to not only do away with old-time Marxist politics and itsdestructive effects <strong>in</strong> the world but to hold with<strong>in</strong> itself the potentialfor uproot<strong>in</strong>g and overthrow<strong>in</strong>g the entire polylogist basis <strong>of</strong>the social sciences as they have developed <strong>in</strong> the last hundredyears—and the state apparatus <strong>of</strong> <strong>in</strong>terventionism that resultsfrom them. As to whether this is possible, it comes down to thequestion <strong>of</strong> which is more fundamental to the Marxist worldview:its polylogism or its exploitation theory. A major job <strong>of</strong> the <strong>Hoppe</strong>anproject is to toss out the former while reta<strong>in</strong><strong>in</strong>g a version <strong>of</strong>the latter <strong>in</strong> a way that can be used aga<strong>in</strong>st the state and its <strong>in</strong>terests.
6A Knight <strong>of</strong>Anarcho-CapitalismYuri N. Maltsev<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> is the most ardent advocate <strong>of</strong> liberty<strong>in</strong> our time. He has done more to advance ourunderstand<strong>in</strong>g <strong>of</strong> philosophical, legal, economic, andcultural aspects <strong>of</strong> liberty and private property thanany other liv<strong>in</strong>g <strong>in</strong>tellectual. A favorite student and close personalfriend <strong>of</strong> Murray and Joey Rothbard, <strong>Hoppe</strong> developed the anarcho-capitalisttradition <strong>of</strong> the Austrian school <strong>of</strong> economics afterMurray’s untimely death <strong>in</strong> January 1995. A prolific writer, greatteacher, and very popular public speaker, he has attracted tens <strong>of</strong>thousands <strong>of</strong> people <strong>in</strong> all parts <strong>of</strong> the world to the ideas <strong>of</strong> liberty.<strong>Hoppe</strong> is not a “secondhand dealer <strong>in</strong> ideas” (us<strong>in</strong>g Hayek’sexpression). 1 He is a generator <strong>of</strong> new knowledge, new ideas, andnew <strong>in</strong>terpretations <strong>of</strong> well established facts, and his understand<strong>in</strong>g<strong>of</strong> history is second to none. In his books and public appearances,he provides a crystal clear vision <strong>of</strong> social phenomena anddevelops his own pioneer<strong>in</strong>g theory <strong>of</strong> history based on themethodology <strong>of</strong> the Austrian School.Yuri N. Maltsev (maltsev.yuri@gmail.com) is Pr<strong>of</strong>essor <strong>of</strong> Economics atCarthage College and Senior Fellow <strong>of</strong> the Ludwig Von Mises Institute.1 F.A. Hayek, “The Intellectuals and Socialism,” University <strong>of</strong> Chicago LawReview (Spr<strong>in</strong>g 1949), repr<strong>in</strong>ted <strong>in</strong> Studies <strong>in</strong> Philosophy, Politics and Economics(Chicago: University <strong>of</strong> Chicago Press, 1967), p. 178.45
46 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>His sem<strong>in</strong>al work, A Theory <strong>of</strong> Socialism and Capitalism, 2 providesa logical and ethical case for capitalism and aga<strong>in</strong>st socialism,and shows that no system but capitalism is ethically justifiable.<strong>Hans</strong> has become the most well-known, liv<strong>in</strong>g critic <strong>of</strong> socialism<strong>in</strong> our time. He stared the beast <strong>in</strong> the face and called it by itsname, provid<strong>in</strong>g an unparalleled analysis <strong>of</strong> the evil nature <strong>of</strong>socialism; he made an airtight case that “socialism is economicallyand morally <strong>in</strong>ferior to capitalism.” 3Cont<strong>in</strong>u<strong>in</strong>g his analysis <strong>of</strong> the ethical foundations <strong>of</strong> capitalism<strong>in</strong> his The Economics and Ethics <strong>of</strong> Private Property, he provided alogical and ethical case for a purely private economy based on theabsolute right to self-ownership and to private property. Theappendix to this book, “Four Critical Replies,” aga<strong>in</strong> shows him athis best. Critically engag<strong>in</strong>g Osterfeld, Lomasky, Steele, Rasmussen,Yeager, and Conway, <strong>Hoppe</strong> gives a brilliant outl<strong>in</strong>e <strong>of</strong>the theory <strong>of</strong> anarcho-capitalism based on crystal clear def<strong>in</strong>itions<strong>of</strong> anarchism, natural rights, private property, self-ownership, andmany other terms.The same year as the Economics and Ethics <strong>of</strong> Private Property waspublished (1993), he contributed the chapter “Marxist and AustrianClass Analysis” to the volume on Marx <strong>of</strong> which I was theeditor. 4 His twenty-two page contribution is the most devastat<strong>in</strong>gcritique <strong>of</strong> the Marxist belief system ever written. He focuses hisanalysis on the heart <strong>of</strong> Marxism—the Marxian theory <strong>of</strong> capitalistexploitation—show<strong>in</strong>g that Marx could “not understand the phenomenon<strong>of</strong> time preference as a universal category <strong>of</strong> humanaction” 5 and built his whole theory <strong>of</strong> history underly<strong>in</strong>g his secularreligion <strong>of</strong> “scientific communism” on the wrong premises.<strong>Hoppe</strong> writes: “If Marx’s theory <strong>of</strong> capitalist exploitation and his2 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism: Economics,Politics, and Ethics (Boston: Kluwer Academic Publishers, 1989).3 Ibid., p. 166.4 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “Marxist and Austrian Class Analysis,” <strong>in</strong>Requiem for Marx, Yuri N. Maltsev, ed. (Auburn, Ala.: Mises Institute, 1993);first published under the same title <strong>in</strong> the Journal <strong>of</strong> Libertarian Studies 9, no. 2(Fall 1990), pp. 79–93.5 <strong>Hoppe</strong>, “Marxist and Austrian Class Analysis,” p. 56.
Maltsev: A Knight <strong>of</strong> Anarcho-Capitalism — 47ideas on how to end exploitation and establish universal prosperityare false to the po<strong>in</strong>t <strong>of</strong> be<strong>in</strong>g ridiculous, it is clear that any theory<strong>of</strong> history derived from it must be false, too.” 6The goal <strong>of</strong> social ownership <strong>of</strong> the means <strong>of</strong> production is themost important prerequisite <strong>of</strong> the Marxist plan for socialism,communism, and the wither<strong>in</strong>g <strong>of</strong> the State. <strong>Hoppe</strong> shows that, ifachieved, it will lead to human slavery, misery, and the omnipotentState. He writes:In fact, social ownership is not only economically <strong>in</strong>efficient. . . it is <strong>in</strong>compatible with the idea that the state is“wither<strong>in</strong>g away.” For if means <strong>of</strong> production areowned collectively, and if it is realistically assumed thatnot everyone’s ideas as to how to employ these means <strong>of</strong>production happen to co<strong>in</strong>cide (as if by miracle), then itis precisely socially owned factors <strong>of</strong> production whichrequire cont<strong>in</strong>ued state actions, i.e., an <strong>in</strong>stitution coercivelyimpos<strong>in</strong>g one person’s will on another disagree<strong>in</strong>gone’s. 7He was also the first to systematically demonstrate that democracy<strong>in</strong>evitably leads to the growth <strong>of</strong> socialism and the omnipotence<strong>of</strong> big government. Enemies <strong>of</strong> freedom understood thisnature <strong>of</strong> democracy and were us<strong>in</strong>g democracy for their own evilends. In the Marxist textbook on revolution, The State and Revolution,published <strong>in</strong> 1917, Len<strong>in</strong> wrote:Democracy means equality. The great significance <strong>of</strong> theproletariat’s struggle for equality and <strong>of</strong> equality as aslogan will be clear if we correctly <strong>in</strong>terpret it as mean<strong>in</strong>gthe abolition <strong>of</strong> classes. But democracy means onlyformal equality. And as soon as equality is achieved forall members <strong>of</strong> society <strong>in</strong> relation to ownership <strong>of</strong> themeans <strong>of</strong> production, that is, equality <strong>of</strong> labor andwages, humanity will <strong>in</strong>evitably be confronted with thequestion <strong>of</strong> advanc<strong>in</strong>g further, from formal equality to6 Ibid., p. 58.7 Ibid., pp. 72–73; <strong>in</strong>ternal footnotes omitted.
48 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>actual equality, i.e., to the operation <strong>of</strong> the rule “fromeach accord<strong>in</strong>g to his ability, to each accord<strong>in</strong>g to hisneeds.” 8<strong>Hoppe</strong> shows that socialism’s centralized control over propertywould require a gargantuan state and oppressive statemach<strong>in</strong>ery, and that the history <strong>of</strong> world communism has beenone <strong>of</strong> <strong>in</strong>dividual and collective executions, deaths <strong>in</strong> concentrationcamps, mass murder, genocide, government-organized massstarvation, and deportations. These crimes were the direct results<strong>of</strong> the Marxist theory <strong>of</strong> capitalist exploitation and its collateraltheory <strong>of</strong> class struggle which justified the need for “elim<strong>in</strong>ation”<strong>of</strong> people who were not considered useful to the construction <strong>of</strong>a new society.In terms <strong>of</strong> numbers <strong>of</strong> victims, communists outperformed anyother mass murderers <strong>in</strong> human history. Pr<strong>of</strong>essor R.J. Rummel,the lead<strong>in</strong>g authority on genocide and democide, estimated communistcrimes have resulted <strong>in</strong> the loss <strong>of</strong> 171,035,000 <strong>in</strong>nocentlives. 9 The victims <strong>of</strong> communism lived <strong>in</strong> the squalor <strong>of</strong> shabbypublic barracks and collective farms, received pittance wages, andwere killed “for try<strong>in</strong>g to leave the country.” 10I remember a discussion <strong>of</strong> the fate <strong>of</strong> freedom <strong>in</strong> EasternEurope when <strong>Hoppe</strong> told me that he detests nationalism as a form<strong>of</strong> collectivism, but nationalism <strong>of</strong> the small countries is preferableto that <strong>of</strong> the modern day empires, as is it is closer to <strong>in</strong>dividuals.He has devoted his life to the search <strong>of</strong> truth and defense <strong>of</strong> liberty,to the fight aga<strong>in</strong>st ideologies <strong>of</strong> slavery <strong>in</strong> all their forms andshapes, to “cont<strong>in</strong>uous ideological struggle, for if the power <strong>of</strong>government rests on the widespread acceptance <strong>of</strong> false <strong>in</strong>deedabsurd and foolish ideas, then the only genu<strong>in</strong>e protection is the8 V.I. Len<strong>in</strong>, Gosudarstvo I Revolucija (Moskva: Politizdat, 1968), str. 27(translation by the author).9 Calculated by author from data available at .10 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “The Case for Free Trade and Restricted Immigration,”Journal <strong>of</strong> Libertarian Studies 13, no. 2 (Summer 1998), pp. 221–33, atp. 230.
Maltsev: A Knight <strong>of</strong> Anarcho-Capitalism — 49systematic attack <strong>of</strong> these ideas and the propagation and proliferation<strong>of</strong> true ones.” 11Follow<strong>in</strong>g the rationalist tradition <strong>of</strong> the Austrian School, furtherdeveloped by his mentor and friend Murray N. Rothbard,<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> is an outspoken rationalist and critic <strong>of</strong>social relativism <strong>in</strong> all its forms: empiricism, deconstructionism,historicism, positivism, post-structuralism, post-modernism, anarcho-syndicalism,skepticism, and post-anarchism. <strong>Hans</strong> developedthe theory and practice <strong>of</strong> epistemological and methodological<strong>in</strong>dividualism to its present heights.Only <strong>in</strong>dividuals act; consequently, all social phenomenamust be expla<strong>in</strong>ed—logically reconstructed—as theresult <strong>of</strong> purposeful, <strong>in</strong>dividual actions. Every “holistic”or “organicist” explanation must be categoricallyrejected as an unscientific pseudo-explanation. Likewise,every mechanistic explanation <strong>of</strong> social phenomenamust be discarded as unscientific. 12<strong>Hans</strong> celebrates <strong>in</strong>dividualism and opposes all forms <strong>of</strong> collectivismwhich makes peopleeasily deluded and sunk <strong>in</strong>to habitual submission. Thustoday, <strong>in</strong>undated from early childhood with governmentpropaganda <strong>in</strong> public schools and educational<strong>in</strong>stitutions by legions <strong>of</strong> publicly certified <strong>in</strong>tellectuals,most people m<strong>in</strong>dlessly accept and repeat nonsensesuch as that democracy is self-rule and government is <strong>of</strong>,by, and for the people. 13<strong>Hoppe</strong>’s sem<strong>in</strong>al treatise on democracy 14 provides readers withdeep <strong>in</strong>sights <strong>in</strong>to the reasons for decivilization that we all witness11 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God that Failed: The Economicsand Politics <strong>of</strong> Monarchy, Democracy, and Natural Order (New Brunswick, N.J.:Transaction Publishers, 2001), p. 93.12 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “Murray N. Rothbard: Economics, Science, andLiberty,” <strong>in</strong> 15 Great Austrian Economists, Randall G. Holcombe, ed. (Auburn,Ala.: Mises Institute, 1999), p. 224.13 <strong>Hoppe</strong>, Democracy, p. 92.14 Ibid.
50 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>and experience. Follow<strong>in</strong>g Mises’s question “Are We Historians <strong>of</strong>Decl<strong>in</strong>e?,” <strong>Hans</strong> <strong>in</strong>vestigated the logical reasons for the deeprootedsickness <strong>of</strong> the West, swamped by welfare dependency,family break-up, random violence and crime, drug culture, graffiti,and deteriorat<strong>in</strong>g public health. His answer is a revelation for manyand it is as true as it is discomfort<strong>in</strong>g for the apologists <strong>of</strong> the State:As a result <strong>of</strong> subsidiz<strong>in</strong>g the mal<strong>in</strong>gerers, the neurotics,the careless, the alcoholics, the drug addicts, the Aids<strong>in</strong>fected,and the physically and mentally “challenged”through <strong>in</strong>surance regulation and compulsory health<strong>in</strong>surance, there will be more illness, mal<strong>in</strong>ger<strong>in</strong>g, neuroticism,carelessness, alcoholism, drug addiction, Aids<strong>in</strong>fection, and physical and mental retardation. 15<strong>Hoppe</strong> provides a clear and humanistic alternative: societybased on pure private property, private law, and voluntaryexchange. “Instead, the wither<strong>in</strong>g away <strong>of</strong> the state, and with thisthe end <strong>of</strong> exploitation and the beg<strong>in</strong>n<strong>in</strong>g <strong>of</strong> liberty and unheard<strong>of</strong> economic prosperity, means the establishment <strong>of</strong> a pure, private-propertysociety regulated by noth<strong>in</strong>g but private law.” 16Born <strong>in</strong> Pe<strong>in</strong>e, a small town between Braunschweig andHanover <strong>in</strong> Central Germany, <strong>in</strong>to a lov<strong>in</strong>g and <strong>in</strong>tellectuallynourish<strong>in</strong>g family, he received his education at the Johann WolfgangGoethe University <strong>in</strong> Frankfurt am Ma<strong>in</strong> (also known asFrankfurt University). When <strong>Hoppe</strong> was celebrat<strong>in</strong>g his first birthday<strong>in</strong> 1950, Max Horkheimer, Theodor W. Adorno, and FriedrichPollock re-opened the Institut für Sozialforschung (Institute forSocial Research) which was shut down by the Nazis. The Institutewas a home <strong>of</strong> the Frankfurt School <strong>of</strong> neo-Marxist critical theory,social research, and philosophy which attempted to adapt Marxismto the realities <strong>of</strong> the Twentieth century. Lead<strong>in</strong>g German<strong>in</strong>tellectuals—Jürgen Habermas, Herbert Marcuse, Erich Fromm,Walter Benjam<strong>in</strong>, Karl Mannheim, and <strong>Hans</strong>-Georg Gadamer—worked <strong>in</strong> the Institute, and one <strong>of</strong> the most <strong>in</strong>terest<strong>in</strong>g and popularones, Habermas, became <strong>Hans</strong>’s mentor and Ph.D. advisor.15 Ibid., p. 99.16 <strong>Hoppe</strong>, “Marxist and Austrian Class Analysis,” p. 73.
Maltsev: A Knight <strong>of</strong> Anarcho-Capitalism — 51How easy it would be for <strong>Hoppe</strong> to accept his mentor’s ideas andbecome another brilliant Frankfurt School disciple! Instead hechose another path—the path <strong>of</strong> truth and liberty.His study at the Johann Wolfgang Goethe University withHabermas and Karl-Otto Apel was time well spent, however, as itshaped <strong>Hoppe</strong> as a first class social scientist and helped him to putforth an “argumentation ethics” defense <strong>of</strong> <strong>in</strong>dividual rights,based <strong>in</strong> part on the discourse ethics theories <strong>of</strong> the FrankfurtSchool. His <strong>in</strong>tellectual <strong>in</strong>dependence prevented him from accept<strong>in</strong>ghis mentors’ apology for socialism and their anti-capitalistmentality. As one reviewer noted, “<strong>Hoppe</strong> believes his formerteacher Habermas’s discourse-ethics theories, while correct at core,are applied <strong>in</strong>correctly by Habermas to yield a socialistic ethic;<strong>Hoppe</strong> feels that Habermas’s theories, if correctly applied (as<strong>Hoppe</strong> himself does), yield the libertarian non-aggressionnorm.” 17It is not a co<strong>in</strong>cidence that popularity <strong>of</strong> <strong>Hoppe</strong>’s scientificf<strong>in</strong>d<strong>in</strong>gs, and his books and lectures, is extremely high <strong>in</strong> the postcommunistworld—among people who were used as gu<strong>in</strong>ea pigsby their own governments to be experimented on for the sake <strong>of</strong> abloody, Marxist utopia. Latvians and Lithuanians, Estonians andBulgarians, Russians and Armenians, Poles, Germans, Czechs andother victims <strong>of</strong> communist murder and slavery are a most attentiveaudience for Dr. <strong>Hoppe</strong>. <strong>Hoppe</strong>’s worldwide outreach withlectures and sem<strong>in</strong>ars <strong>in</strong> the United States, Europe, and Asia, hiscontribution to the <strong>in</strong>tellectual demise <strong>of</strong> socialism <strong>in</strong> the postcommunistworld from Estonia to Georgia, Lithuania to the CzechRepublic and Poland, have made him even more famous <strong>in</strong> Easternand Central Europe and Asia than he is <strong>in</strong> the United Statesand Germany.At all <strong>of</strong> the dozens <strong>of</strong> events that I have heard <strong>Hans</strong> speak—conferences, sem<strong>in</strong>ars, and other <strong>in</strong>tellectual events <strong>of</strong> the Ludwigvon Mises Institute <strong>in</strong> the United States; conferences overseas, <strong>in</strong>17 <strong>Stephan</strong> K<strong>in</strong>sella, “The Undeniable Morality <strong>of</strong> Capitalism [review essay<strong>of</strong> <strong>Hoppe</strong>’s The Economics and Ethics <strong>of</strong> Private Property (1993)],” St. Mary’s LawJournal 25 (1994), p. 1434.
52 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Vilnius, Lithuania, and Copenhagen, annual meet<strong>in</strong>gs <strong>of</strong> the Propertyand Freedom Society <strong>in</strong> Bodrum, Turkey—he was the mostthought-provok<strong>in</strong>g, <strong>in</strong>tellectually stimulat<strong>in</strong>g, and admiredspeaker.His <strong>in</strong>tellectual rigor and austerity peacefully co-exist with hiswarm and humorous character. I remember well the SouthwesternEconomics Association Meet<strong>in</strong>g <strong>in</strong> San Antonio, Texas. After theconference we decided to explore the “Venice <strong>of</strong> the Southwest”with its well-known River Walk and took a water taxi whichbrought us to a Brazilian restaurant with the richest choice <strong>of</strong> tastiestmeats that I have ever experienced before (not surpris<strong>in</strong>gly, asI was raised <strong>in</strong> an almost meatless USSR). <strong>Hoppe</strong> jumped on theoccasion to poke fun at vegetarians and tree huggers, and to stressthat our bra<strong>in</strong> needs to be honed and pampered not only by foodfor thought, but by the nicest delicacies and dr<strong>in</strong>ks provid<strong>in</strong>gexcellent nourishment for great ideas. How true! Moscow bureaucratswith whom I’ve spent most <strong>of</strong> my life did not have clearth<strong>in</strong>k<strong>in</strong>g with bra<strong>in</strong>s on a meager diet <strong>of</strong> vodka, borscht, and potatoes.I first met <strong>Hoppe</strong> <strong>in</strong> April 1990 at the conference on Economics<strong>of</strong> Desocialization <strong>in</strong> Wash<strong>in</strong>gton D.C. One <strong>of</strong> my few friends <strong>in</strong>Wash<strong>in</strong>gton was Gottfried von Haberler (1901–1995), an em<strong>in</strong>enteconomist, active participant <strong>in</strong> the famous “Mises-Kreis”—Mises’s Viennese sem<strong>in</strong>ars—and later pr<strong>of</strong>essor at Harvard andfellow <strong>of</strong> the American Enterprise Institute. A well-known Austrianeconomist most <strong>of</strong> his life, Gottfried followed the widespreadfashion for cheap money and abandoned his previous support <strong>of</strong>the <strong>in</strong>ternational gold standard. Haberler also abandoned his earlyAustrian School views on bus<strong>in</strong>ess cycles and became a critic <strong>of</strong>Misesian theory. Thus, <strong>Hoppe</strong> was very critical <strong>of</strong> Haberler’sideas. Yet, dur<strong>in</strong>g the conference, he was most cordial and helpfulto the frail 89 years old man. He told me that the conference <strong>in</strong>Wash<strong>in</strong>gton was a good opportunity for a reconciliation <strong>of</strong> Dr.Haberler with the modern Austrian school and to <strong>in</strong>form him <strong>of</strong>the progress <strong>in</strong> Austrian economics and the activities <strong>of</strong> the Ludwigvon Mises Institute. The conference turned out to be a greatsuccess, and Haberler paid a mov<strong>in</strong>g tribute to Ludwig von Misesand praised the role <strong>of</strong> the Institute <strong>in</strong> the development <strong>of</strong> the AustrianSchool <strong>of</strong> economics.
Maltsev: A Knight <strong>of</strong> Anarcho-Capitalism — 53In 2006, <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> founded the Property andFreedom Society, the true <strong>in</strong>tellectual alternative to the MontPèler<strong>in</strong> Society which had become monopolized by neo-conservatives,and organized its first <strong>in</strong>ternational meet<strong>in</strong>g at the beautiful,Mediterranean resort <strong>of</strong> Bodrum, Turkey. Together with his wifeGuelc<strong>in</strong>, the most charm<strong>in</strong>g economist that I have ever met, theyhave graciously hosted annual meet<strong>in</strong>gs <strong>of</strong> the Society at the Guelc<strong>in</strong>’sMediterranean resort, the Hotel Karia Pr<strong>in</strong>cess. Each <strong>of</strong> thesemeet<strong>in</strong>gs has been a true celebration <strong>of</strong> free th<strong>in</strong>k<strong>in</strong>g and <strong>in</strong>tellectualfellowship, and provided me with enough <strong>in</strong>tellectual oxygenfor the whole year.Calm, logical and focused, <strong>Hoppe</strong> is a Sherlock Holmes <strong>of</strong> economics,<strong>in</strong> constant search for truth, reject<strong>in</strong>g any compromisesand “sweet little lies” <strong>of</strong> “publicly certified <strong>in</strong>tellectuals,” beltwaylibertarians, and neo-conservatives. A most learned scholar, he hascalled upon all advocates <strong>of</strong> liberty to be “<strong>in</strong>tellectual anti-<strong>in</strong>tellectuals,”as opposed to most “<strong>in</strong>tellectuals” <strong>in</strong> the West, who havesold out to the state:The first and foremost task <strong>of</strong> the <strong>in</strong>tellectual anti-<strong>in</strong>tellectuals,then, is to counter this dogmatic slumber <strong>of</strong> the masses by <strong>of</strong>fer<strong>in</strong>ga precise def<strong>in</strong>ition <strong>of</strong> the state, as I have done at the outset, andthen to ask if there is not someth<strong>in</strong>g truly remarkable, odd,strange, awkward, ridiculous, <strong>in</strong>deed ludicrous about an <strong>in</strong>stitutionsuch as this. I am confident that such simple, def<strong>in</strong>itionalwork will produce some serious doubt regard<strong>in</strong>g an <strong>in</strong>stitutionthat one previously had been taken for granted. 18I feel very lucky to have known <strong>Hans</strong> personally for almosttwenty years. I am still amazed by his encyclopedic erudition <strong>in</strong>history, culture, economics, law, and philosophy, and fasc<strong>in</strong>atedby the amount <strong>of</strong> <strong>in</strong>tellectual energy he generates and radiates toothers! h18 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “Reflections on the Orig<strong>in</strong> and the Stability <strong>of</strong>the State,” LewRockwell.com (June 23, 2008).
7Help<strong>in</strong>g Future Generations <strong>of</strong>ScholarsEdward Str<strong>in</strong>ghamFrom criticiz<strong>in</strong>g democracy to advocat<strong>in</strong>g a stateless societyPr<strong>of</strong>. <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> is well known for not back<strong>in</strong>gaway from controversy. 1 <strong>Hoppe</strong> has well earned reputationfor not compromis<strong>in</strong>g his beliefs and not sugarcoat<strong>in</strong>g howhe presents ideas. But I would like to highlight how <strong>in</strong> addition tobe<strong>in</strong>g an uncompromis<strong>in</strong>g scholar, Pr<strong>of</strong>essor <strong>Hoppe</strong> has been verysupportive <strong>of</strong> others as well. My story has to do with <strong>Hoppe</strong> as theEditor <strong>of</strong> the Journal <strong>of</strong> Libertarian Studies, and myself at the beg<strong>in</strong>n<strong>in</strong>g<strong>of</strong> what has become an academic career. In 1997, I f<strong>in</strong>ished mycollege honors thesis under the direction <strong>of</strong> my pr<strong>of</strong>essor WalterBlock. My topic was on privatiz<strong>in</strong>g law enforcement, for which IEdward Str<strong>in</strong>gham (edward.str<strong>in</strong>gham@tr<strong>in</strong>coll.edu) is Shelby Cullom DavisVisit<strong>in</strong>g Associate Pr<strong>of</strong>essor at Tr<strong>in</strong>ity College.1 See, e.g., <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God that Failed: The Economicsand Politics <strong>of</strong> Monarchy, Democracy, and Natural Order (New Brunswick,N.J.: Transaction Publishers, 2001); idem, “Government and the Private Production<strong>of</strong> Defense,” <strong>in</strong> idem, ed., The Myth <strong>of</strong> National Defense: <strong>Essays</strong> on theTheory and History <strong>of</strong> Security Production (Auburn, Ala.: Mises Institute, 2003).2 Idem, A Theory <strong>of</strong> Socialism and Capitalism: Economics, Politics, and Ethics(Boston: Kluwer Academic Publishers, 1989); idem, The Economics and Ethics <strong>of</strong>Private Property: Studies <strong>in</strong> Political Economy and Philosophy, 2nd ed. (Auburn,Ala.: Mises Institute, 2006 [1993]).55
56 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>read a bunch <strong>of</strong> material <strong>in</strong>clud<strong>in</strong>g two <strong>of</strong> Pr<strong>of</strong>essor <strong>Hoppe</strong>’sbooks, A Theory <strong>of</strong> Socialism and Capitalism and The Economics andEthics <strong>of</strong> Private Property. 2 I th<strong>in</strong>k the thesis was f<strong>in</strong>e for my age, butit was not nearly as structured or polished as someth<strong>in</strong>g onewould write with years <strong>of</strong> experience. I hoped to be able to publishsometh<strong>in</strong>g from it, but I did not know where to beg<strong>in</strong>. WalterBlock said I should send the complete manuscript to Pr<strong>of</strong>essor<strong>Hoppe</strong> to ask for advice.One can only imag<strong>in</strong>e how many other th<strong>in</strong>gs Pr<strong>of</strong>. <strong>Hoppe</strong> hadon is plate, but not only did he look at my manuscript—he read all120 pages. Pr<strong>of</strong>essor <strong>Hoppe</strong> also took the time to highlight whatwas useful and what was potentially publishable. And I reallyappreciated what Pr<strong>of</strong>. <strong>Hoppe</strong> had to say. My favorite part <strong>of</strong> themanuscript had been the f<strong>in</strong>al quarter, but Walter Block said heliked the first three quarters and not the last part. One can onlyimag<strong>in</strong>e my dismay when I showed the manuscript to my motherand she said the same th<strong>in</strong>g. Yet Pr<strong>of</strong>essor <strong>Hoppe</strong> said that myimportant contribution was <strong>in</strong> the f<strong>in</strong>al part! I ended up follow<strong>in</strong>g<strong>Hoppe</strong>’s recommendations, and rewrote the f<strong>in</strong>al quarter as astand-alone piece, which ended up as my first publication. 3 Thispleasant experience paved the way for dozens <strong>of</strong> other publications,and so I am glad Pr<strong>of</strong>. <strong>Hoppe</strong> was the way he was. The factthat such an established scholar took the time to help the youngme is someth<strong>in</strong>g for which I will always be grateful. h3 Edward Str<strong>in</strong>gham, “Market Chosen Law,” Journal <strong>of</strong> Libertarian Studies14 no. 1 (W<strong>in</strong>ter 1998–99): 53–77.
8A “Lovable Son <strong>of</strong> a Gun”Roland Baader<strong>Hans</strong> <strong>Hoppe</strong>’s first visit to my hometown and currentdomicile, Waghaeusel, (<strong>in</strong> Baden-Wuerttemberg, Germany)took place <strong>in</strong> June <strong>of</strong> 1995. My dear wife, Uta,was still alive at the time. With great pride she showed<strong>Hans</strong> the tidy garden she was so devoted to. She asked him: Doyou like it? <strong>Hans</strong> answered dryly, “yes.” A little later Uta assumeda dancer’s pose and asked <strong>Hans</strong> if he liked what he saw. “Yes,” hesaid. In the even<strong>in</strong>g Uta prepared a delicious meal. She looked atthe guest with anticipation and at last asked, “do you like it?”<strong>Hans</strong>: “Yes.” Uta’s reply: “<strong>Hans</strong>, you are a son <strong>of</strong> a gun, but themost lovable son <strong>of</strong> a gun I know. I love you anyway.”At the time we had a border <strong>in</strong> our house, a poodle named Olgawho belonged to Pr<strong>of</strong>essor Gerard Radnitsky. I put Olga on aporch chair next to <strong>Hans</strong> and said: “This is a very learned poodle.He <strong>in</strong>sists on pr<strong>of</strong>essorial company.” <strong>Hans</strong> <strong>Hoppe</strong> commented: Itis a priori true and needs no falsification, that a poodle is not ahuman be<strong>in</strong>g and therefore cannot be a scientific theorist. But hecan rema<strong>in</strong> seated if he likes.Roland Baader (M.Econ.; Roland-Baader@t-onl<strong>in</strong>e.de) is a private scholar andmajor representative <strong>of</strong> the Austrian School <strong>in</strong> Germany, author <strong>of</strong> 15 booksand hundreds <strong>of</strong> articles <strong>in</strong> newspapers, magaz<strong>in</strong>es, and scholarly journals.This chapter was translated by Arlene Oost-Z<strong>in</strong>ner.57
58 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Many years passed before <strong>Hans</strong> renewed the tiresome journey(with the <strong>in</strong>tercity tra<strong>in</strong> from Frankfurt to Mannheim, and fromthere with the regional tra<strong>in</strong>) <strong>in</strong> July <strong>of</strong> 2004.Because we hadn’t seen each other <strong>in</strong> such a long time, our conversationalcups were overflow<strong>in</strong>g. And because <strong>Hans</strong> wanted t<strong>of</strong>ly back to the USA on the very next day, we had but one even<strong>in</strong>gto tackle a quota <strong>of</strong> <strong>in</strong>tellectual exchange that would normallyrequire an entire week. At the ready were four bottles <strong>of</strong> Sard<strong>in</strong>ianred w<strong>in</strong>e to serve as “Babbelwasser” (local dialect for alcoholicbeverage that aids <strong>in</strong> the acceleration <strong>of</strong> l<strong>in</strong>guistic and semanticgymnastics). When the first light <strong>of</strong> morn<strong>in</strong>g appeared the bottleswere empty—and we were still lucid, but tired. A short sleep followed.Now because <strong>Hans</strong>, who usually exercises caution with respectto false Gods (Bacchus among them), survived the Sard<strong>in</strong>ian floodseem<strong>in</strong>gly unscathed, I sent him a certificate a few days later. Itread:g{x UÜÉà{xÜ{ÉÉw Éy à{x exw aÉáx?à{x fÉv|xàç Éy ftÜw|Ç|tÇ VÉÅÑxà|à|äx WÜ|Ç~xÜá?yÉÜ {tä|Çz wxÅÉÇáàÜtàxw âÇvÉÅÅÉÇ uÜtäxÜç tà à{xUtààÄx Éy jtz{txâáxÄ? 1ÉÇ à{x Ç|z{à Éy à{x EJà{ àÉ à{x EKà{ Éy ]âÄç? ECCG?|á ÑÄxtáxw àÉ {ÉÇÉÜPr<strong>of</strong>essor Dr. <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Tá t Ä|yxÄÉÇz ÅxÅuxÜeÉÄtÇw UttwxÜf|zÇtàâÜx Éy à{x cÜxá|wxÇà1 There really was a Battle <strong>of</strong> Waghaeusel <strong>in</strong> 1849 between the Baden rebelsand the Prussian troops.
Baader: A”Lovable Son <strong>of</strong> a Gun” — 59The fun and games came full circle with <strong>Hans</strong>’s reply:Dear Roland:be<strong>in</strong>g recognized as a Sard<strong>in</strong>ian competitive dr<strong>in</strong>ker and be<strong>in</strong>gnamed a life long member <strong>of</strong> your exclusive society moves medeeply.Yours, <strong>Hans</strong><strong>Hans</strong>, on this the occasion <strong>of</strong> your 60th Birthday, I am deeplymoved at how you’ve scattered the lies and the errors <strong>of</strong> ma<strong>in</strong>streameconomic battalions the world over, how you’ve so eloquentlyborne the torch <strong>of</strong> every flame started by Mises and Rothbardand have gone on to fan the same fire <strong>of</strong> freedom <strong>in</strong> millions<strong>of</strong> m<strong>in</strong>ds and hearts.
9Appreciation and GratitudeJohn V. DensonThank you for the opportunity to convey my very highregard and great appreciation for the outstand<strong>in</strong>g body <strong>of</strong>work <strong>of</strong> my friend <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>. <strong>Hans</strong> is an orig<strong>in</strong>alth<strong>in</strong>ker and tireless fighter for the ideas <strong>of</strong> <strong>in</strong>dividualfreedom and a free market economy. We desperately need scholarslike him now more than ever.Congratulations, <strong>Hans</strong>. John V. Denson (donna.moreman@alacourt.gov) is a Circuit Judge <strong>in</strong> LeeCounty, Alabama and has been closely connected with the Ludwig von MisesInstitute s<strong>in</strong>ce it was founded. He is the editor <strong>of</strong> two books, The Costs <strong>of</strong> Warand Reassess<strong>in</strong>g the Presidency and is the author <strong>of</strong> a third book A Century <strong>of</strong>War.61
10A Student’s Appreciation <strong>of</strong>Pr<strong>of</strong>essor <strong>Hoppe</strong>Jeffrey BarrLike German eng<strong>in</strong>eer<strong>in</strong>g, Pr<strong>of</strong>essor <strong>Hans</strong> <strong>Hermann</strong>-<strong>Hoppe</strong>’sworldview is orderly, robust, and ultimately compell<strong>in</strong>g.Yet, I came to discover (and then embrace) this worldview byaccident. Though I was generally a good student, I miserably failedthe first microeconomics class I ever took. The class was a morass<strong>of</strong> neoclassic <strong>in</strong>cantations and mathematic models <strong>of</strong> humanbehavior that had no ground<strong>in</strong>g <strong>in</strong> reality. Indeed, at the time, economicslooked like Carlyle’s “dismal science,” and the experiencewas so bad that I vowed never aga<strong>in</strong> to set foot <strong>in</strong> another economicsclass. But because I had failed, I had to make up the class.Fortuitously, Pr<strong>of</strong>essor <strong>Hoppe</strong>’s microeconomics class happenedto fit with<strong>in</strong> my schedule <strong>in</strong> the follow<strong>in</strong>g semester. My advisorcounseled aga<strong>in</strong>st tak<strong>in</strong>g Pr<strong>of</strong>essor <strong>Hoppe</strong>, stat<strong>in</strong>g, “Many studentsf<strong>in</strong>d him to be . . . unorthodox.”Hav<strong>in</strong>g had my fill <strong>of</strong> economic orthodoxy, I ignored my advisorand happily signed up for Pr<strong>of</strong>essor <strong>Hoppe</strong>’s class. Pr<strong>of</strong>essor<strong>Hoppe</strong> did not disappo<strong>in</strong>t. In contrast to the dismal science, Pr<strong>of</strong>essor<strong>Hoppe</strong> refresh<strong>in</strong>gly pr<strong>of</strong>essed praxeology: the science <strong>of</strong>Jeffrey Barr (BarrJ@city<strong>of</strong>northlasvegas.com) practices law <strong>in</strong> Las Vegas,Nevada. He studied under Murray Rothbard and <strong>Hans</strong>-Herman <strong>Hoppe</strong> <strong>in</strong> thelate 1980s and early 1990s.63
64 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>human action. The subject matter made <strong>in</strong>tuitive sense, and Pr<strong>of</strong>essor<strong>Hoppe</strong> delivered crisp and articulate lectures, always punctuatedwith his dry wit and German accent. He eschewed standardeconomics textbooks; <strong>in</strong>stead, his students read Henry Hazlitt’sEconomics <strong>in</strong> One Lesson 1 and Lew Rockwell’s The Free MarketReader. 2 Even Pr<strong>of</strong>essor <strong>Hoppe</strong>’s exams poked subversive fun atma<strong>in</strong>stream economics.Though I attended many <strong>of</strong> Pr<strong>of</strong>essor <strong>Hoppe</strong>’s lectures <strong>in</strong> severaldifferent classes, I was particularly fortunate to enroll <strong>in</strong> anunforgettable sem<strong>in</strong>ar entitled, “Marxism and Its Critics.” Pr<strong>of</strong>essor<strong>Hoppe</strong> devoted the first half <strong>of</strong> the sem<strong>in</strong>ar to <strong>in</strong>doctr<strong>in</strong>at<strong>in</strong>gthe class <strong>in</strong> traditional, unadulterated Marxism. He <strong>in</strong>sisted thathis students be able to recite tenets <strong>of</strong> socialism better than anySoviet university student. The Good Pr<strong>of</strong>essor then devoted thesecond half <strong>of</strong> the semester to systematically refut<strong>in</strong>g each fundamentalsocialist contention. In session after session, Herr <strong>Hoppe</strong>methodically demolished the logical underp<strong>in</strong>n<strong>in</strong>gs <strong>of</strong> the communistsystem, attack<strong>in</strong>g the rotten philosophy at its core. It wasalso this time that I devoured Pr<strong>of</strong>essor <strong>Hoppe</strong>’s first English-languagebook, A Theory <strong>of</strong> Socialism and Capitalism. 3 This treatise andthe Marxism-and-Its-Critics course solidified <strong>Hoppe</strong>’s brilliance <strong>in</strong>my m<strong>in</strong>d. I also realized that I might be <strong>in</strong> the presence, ironicallyenough, <strong>of</strong> Marx’s most formidable critic.Despite all <strong>of</strong> the formal coursework with Pr<strong>of</strong>essor <strong>Hoppe</strong>, Icherish his <strong>in</strong>formal classes most. At the beg<strong>in</strong>n<strong>in</strong>g <strong>of</strong> each semester,Pr<strong>of</strong>essor <strong>Hoppe</strong> would announce that he would meet withstudents who were <strong>in</strong>terested <strong>in</strong> jo<strong>in</strong><strong>in</strong>g the Political EconomyClub at a local pub. He <strong>in</strong>vited everyone <strong>in</strong> his classes, though fewhad the fortitude to attend. Those who did enjoyed long hours <strong>of</strong>debates on the many issues <strong>of</strong> the day—and what issues therewere to discuss! The late-1980s/early 1990s were excit<strong>in</strong>g times.1 Henry Hazlitt, Economics <strong>in</strong> One Lesson, rev. ed. (New York: Manor Books,[1962, 1974]; repr<strong>in</strong>t New Rochelle, N.Y.: Arl<strong>in</strong>gton House, 1979).2 Llewellyn H. Rockwell, Jr., Ed. The Free Market Reader: <strong>Essays</strong> <strong>in</strong> the Economics<strong>of</strong> Liberty (Auburn, Ala.: Ludwig von Mises Institute, 1988).3 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism (Boston-Dordrecht-London:Kluwer, 1989).
Barr: A Student’s Appreciation <strong>of</strong> Pr<strong>of</strong>essor <strong>Hoppe</strong> — 65Murray Rothbard was at the zenith <strong>of</strong> his prestige. Communism’sfall had v<strong>in</strong>dicated Mises, and the so-called “grassroots Republicanrevolution” <strong>of</strong> the early 90s exuberantly confirmed the theoriesI was learn<strong>in</strong>g <strong>in</strong> university. These events provided much fodderfor late-night, smoky meet<strong>in</strong>gs <strong>of</strong> the Political Economy Club. Thesessions were less like meet<strong>in</strong>gs, and more like Pr<strong>of</strong>essor <strong>Hoppe</strong>hold<strong>in</strong>g court. A bit detached, Pr<strong>of</strong>essor <strong>Hoppe</strong> would <strong>of</strong>ten listento the deliberations, sip his dr<strong>in</strong>k, put his hand to his ch<strong>in</strong>, look<strong>in</strong>to the air <strong>in</strong> deep contemplation, and f<strong>in</strong>ally, after gather<strong>in</strong>g histhoughts, he would respond with a, “Ja, Ja, but, you see . . .” Much<strong>of</strong> the time, I would simply listen to these discussions, dar<strong>in</strong>g notto ask an un<strong>in</strong>telligent question because <strong>Hoppe</strong>’s genius <strong>in</strong>timidatedme. After know<strong>in</strong>g Pr<strong>of</strong>essor <strong>Hoppe</strong> for nearly twentyyears, I confess that I rema<strong>in</strong> <strong>in</strong> awe <strong>of</strong> his brilliance so much sothat I still feel a bit awkward address<strong>in</strong>g him as anyth<strong>in</strong>g but “Pr<strong>of</strong>essor<strong>Hoppe</strong>.”I am proud to be a part <strong>of</strong> this “festive-writ<strong>in</strong>g,” honor<strong>in</strong>g theremarkable career <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>. Few <strong>in</strong>dividualshave had a more pr<strong>of</strong>ound <strong>in</strong>fluence on my life. In an odd way, Iwill be forever grateful to that awful neoclassical economics pr<strong>of</strong>essorwhose microeconomics class I flunked. Without that fail<strong>in</strong>ggrade, I might never have had the privilege to call <strong>Hans</strong> <strong>Hermann</strong>-<strong>Hoppe</strong> friend, mentor, and, most <strong>of</strong> all, pr<strong>of</strong>essor. Congratulations,Pr<strong>of</strong>essor <strong>Hoppe</strong>! h
11The Vegas CircleLee I. IglodyIwas <strong>in</strong>troduced to Pr<strong>of</strong>essor Dr. <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>through Murray N. Rothbard, whom I had followed fromNew York’s Brooklyn Polytech to the University <strong>of</strong> Nevada,Las Vegas, <strong>in</strong> order to study Austrian Economics. Hav<strong>in</strong>grecently f<strong>in</strong>ished his Mises Institute booklet on the AustrianMethod, I almost trembled when reach<strong>in</strong>g out to shake his hand.Almost twenty years later, I still remember fondly that briefmoment <strong>in</strong> the hallway. It was, to exaggerate only slightly, moreexcit<strong>in</strong>g than meet<strong>in</strong>g Mick Jagger and David Bowie. Right <strong>of</strong>f thebat, anyone who knew Pr<strong>of</strong>essors Rothbard and <strong>Hoppe</strong> back <strong>in</strong> thelate 80s and early 90s will confirm that this dynamic duo had achemistry that at once made them very accessible and yet strangelydistant. Accessibility came from the fact that Rothbard was alwayswill<strong>in</strong>g to enterta<strong>in</strong> even the most foolish questions with his characteristiccackle and an explanation <strong>of</strong> the way th<strong>in</strong>gs are. Pr<strong>of</strong>essor<strong>Hoppe</strong>, on the other hand, had a much more methodological,Teutonic way <strong>of</strong> deal<strong>in</strong>g with stupid <strong>in</strong>quiries, a form <strong>of</strong> SocraticLee Iglody (leeiglody@yahoo.com), an attorney <strong>in</strong> Las Vegas, completed hisBachelor <strong>of</strong> Arts <strong>in</strong> Economics with honors under the guidance <strong>of</strong> Pr<strong>of</strong>essorsMurray N. Rothbard and <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> at the University <strong>of</strong> Nevada,Las Vegas.67
68 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>dialogue with a lot <strong>of</strong> “ja, so” thrown <strong>in</strong> to punctuate the conversation.(“Government provides goods that the market cannot produce?Ja, so what do you mean by ‘goods’?”)At the time, I traveled the “libertarian” sem<strong>in</strong>ar circuit quite abit. At each <strong>of</strong> these programs, I always found <strong>in</strong>dividuals whowere amazed by the depth and breadth <strong>of</strong> the works <strong>of</strong> Rothbardand <strong>Hoppe</strong>, and could not stop ask<strong>in</strong>g questions about them andtheir work. And each time this happened, I took a moment tothank God aga<strong>in</strong> for the chance I had to learn at the feet <strong>of</strong> theactual masters, Rothbard and <strong>Hoppe</strong>. And this is where part <strong>of</strong> thedistance came <strong>in</strong>. Rothbard and <strong>Hoppe</strong> were operat<strong>in</strong>g on a differentlevel altogether. There are those <strong>of</strong> us who are lucky enoughto go through life with some vague understand<strong>in</strong>g <strong>of</strong> what th<strong>in</strong>gsare and how they became so. A few, select, blessed <strong>in</strong>dividualstranscend everyth<strong>in</strong>g, see almost everyth<strong>in</strong>g and are adept atimpart<strong>in</strong>g the gift to see to others. In this regard, <strong>Hoppe</strong> simplysoared.In the classroom, Pr<strong>of</strong>essor <strong>Hoppe</strong> was not some lecturer regurgitat<strong>in</strong>gthe sanitized and sterile “knowledge” <strong>of</strong> textbooks (hedidn’t use them), but a great “pr<strong>of</strong>essor” <strong>of</strong> truth, with a clear, concisestyle <strong>of</strong> delivery punctuated by his wonderful dry wit, and aread<strong>in</strong>g list that <strong>in</strong>cluded books such as Hazlitt’s Economics <strong>in</strong> OneLesson and Rothbard’s Man, Economy, and State. I personally witnessedhim convert many students to libertarianism. “You know,he really makes sense,” was uttered by countless students afterclass. He made even generally dis<strong>in</strong>terested students th<strong>in</strong>k aboutand grapple with fundamental questions <strong>of</strong> economics and, thus,civilization.Predictably, although Pr<strong>of</strong>essor <strong>Hoppe</strong> regularly received outstand<strong>in</strong>gstudent reviews, and his publication list put to shamemost <strong>of</strong> the economics department, there came a time when theUniversity attempted to deny him tenure. With perseverance anddignity, Pr<strong>of</strong>essor <strong>Hoppe</strong> overcame his opponents and achievedtenure. Thereafter, twice more his enemies came after him, andtwice more he repulsed them, at great personal cost. I personallywitnessed the immense time and effort Pr<strong>of</strong>essor <strong>Hoppe</strong> had toexpend defend<strong>in</strong>g aga<strong>in</strong>st these onslaughts, and it saddens me toth<strong>in</strong>k how many new ideas humanity has been deprived <strong>of</strong>because <strong>of</strong> this diversion <strong>of</strong> his time and thoughts.
Iglody: The Vegas Circle — 69One <strong>of</strong> our regular activities outside the classroom was theweekly Political Economy Club meet<strong>in</strong>g that took place at a localtavern, with cheap beer and a suitably quiet corner for us to gatheraround Pr<strong>of</strong>essor <strong>Hoppe</strong>. Usually, by the third or fourth round,Pr<strong>of</strong>essor <strong>Hoppe</strong> became “<strong>Hans</strong>” and the discussions became animated.Various visit<strong>in</strong>g students, and the occasional dignitary,would <strong>of</strong>ten stop by to <strong>in</strong>ject new energy <strong>in</strong>to the discussion <strong>of</strong>diverse topics. Aside from the educational and social benefits <strong>of</strong>talks that went <strong>in</strong>to the wee hours, I was privileged to observe theevolution <strong>of</strong> <strong>Hoppe</strong>’s thoughts on many issues.True, <strong>Hans</strong> is genu<strong>in</strong>ely Teutonic <strong>in</strong> his reserve and detachment,but like so many great Germanic Th<strong>in</strong>kers, beneath this Teutonicexterior is a passion for freedom and knowledge that propelshim to seek answers and solutions precisely because the consequencesfor humanity are so great. Anyone who has read his theoreticalor practical works can imag<strong>in</strong>e him a s<strong>in</strong>cere defender <strong>of</strong>Western Civilization, with all that implies; but to have sat acrossfrom him when he is “<strong>Hans</strong>” expla<strong>in</strong><strong>in</strong>g why, for example,methodological <strong>in</strong>dividualism is <strong>in</strong>dispensible to real knowledgeor democracy is a false god, is to see and feel that here sits anotherbrave soul who has taken “Tu ne cede malis, sed contra audentior ito”to heart. Ludwig von Mises is said to have regretted, not the timeshe stood fast, but the times he compromised. By this standard, Pr<strong>of</strong>essor<strong>Hoppe</strong> will have but few regrets.I salute you, <strong>Hans</strong>. h
Part TwoCrossroads <strong>of</strong> Thought
12Uncompromis<strong>in</strong>g Radicalism asPromis<strong>in</strong>g StrategyPhilipp BagusThe first time I came across Pr<strong>of</strong>essor <strong>Hoppe</strong>’s work waswhen, still <strong>in</strong> high school, I read his <strong>in</strong>troduction to arepr<strong>in</strong>t <strong>of</strong> the German edition <strong>of</strong> Mises’s Liberalism. I wasfasc<strong>in</strong>ated both by Mises’s book and by <strong>Hoppe</strong>’s compell<strong>in</strong>gstatements, and glad to discover <strong>in</strong> him a lead<strong>in</strong>g liv<strong>in</strong>gscholar <strong>in</strong> the tradition <strong>of</strong> Austrian economics, which I was then <strong>in</strong>the process <strong>of</strong> discover<strong>in</strong>g. As he was a fellow German I overcamemy timidity, traced him on the Internet and sent him an e-mail ask<strong>in</strong>gfor advice for a place to study Austrian economics <strong>in</strong> Germany.To my surprise and pleasure he actually answered my e-mailquickly. I learned to my disappo<strong>in</strong>tment that it was impossible tostudy Austrian economics at a German University. But Pr<strong>of</strong>essor<strong>Hoppe</strong> suggested that I attend the Mises University <strong>in</strong> Auburn,Alabama to get an <strong>in</strong>troduction to this school <strong>of</strong> thought. He alsogenerously <strong>of</strong>fered his recommendation to get me a scholarship tothis event. Later he would recommend me for a fellowship at theMises Institute; outl<strong>in</strong>e an epistemological table for my methodologyclass; <strong>in</strong>vite me to the Property and Freedom Society Meet<strong>in</strong>gsPhilipp Bagus (philipp.bagus@web.de) is assistant pr<strong>of</strong>essor <strong>of</strong> economics atthe Universidad Rey Juan Carlos <strong>in</strong> Madrid.73
74 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>and Private Sem<strong>in</strong>ars, and <strong>in</strong> various other ways promoted andshaped my pr<strong>of</strong>essional development.As a mentor, Pr<strong>of</strong>. <strong>Hoppe</strong> surely can serve as a role model. Supportivethough he is as a pr<strong>of</strong>essor, however, as a scholar he isknown to be <strong>in</strong>transigent. The words he wrote about Mises <strong>in</strong> theabove-mentioned text describe his own attitude very well: “Afterall Mises was a man <strong>of</strong> pr<strong>in</strong>ciples, who categorically opposed compromisesthat were contrary to his theoretical <strong>in</strong>sights; <strong>in</strong> a timewhere at republican Universities flexibility and opportunism weredemanded for more than ever.” 1 In adopt<strong>in</strong>g such an uncompromis<strong>in</strong>gattitude, Pr<strong>of</strong>. <strong>Hoppe</strong> has bewildered and antagonizedmany colleagues and readers. However, it is precisely this attitudethat is also attract<strong>in</strong>g the attention and admiration <strong>of</strong> <strong>in</strong>dividualswho value pr<strong>in</strong>ciples, consistency, rigor, and truth. In what followsI will analyze Pr<strong>of</strong>. <strong>Hoppe</strong>’s uncompromis<strong>in</strong>g radicalism as astrategy to spread Austro-Libertarian theory, and make the case that itis an excellent—and possibly the only suitable—strategy to atta<strong>in</strong>this end.Pr<strong>of</strong>. <strong>Hoppe</strong> has never made any compromise <strong>in</strong> economic theory,even though this could have brought him more <strong>in</strong>fluence <strong>in</strong>the ma<strong>in</strong>stream economic pr<strong>of</strong>ession. He is well known for hisstrong methodological stand aga<strong>in</strong>st the ma<strong>in</strong>stream by defend<strong>in</strong>gan extreme rationalism and apriorism. 2 Moreover, he is an uncompromis<strong>in</strong>gscholar also <strong>in</strong> the political sphere. Here he goes onestep beyond Mises, who rema<strong>in</strong>ed <strong>in</strong> favor <strong>of</strong> a m<strong>in</strong>imal state anddid not come to the logical conclusion <strong>of</strong> his own statement:[t]he program <strong>of</strong> liberalism . . . if condensed <strong>in</strong>to a s<strong>in</strong>gleword, would have to read: property, that is, privateownership <strong>of</strong> the means <strong>of</strong> production (for <strong>in</strong> regard tocommodities ready for consumption, private ownershipis a matter <strong>of</strong> course and is not disputed even by the1 Ludwig von Mises, Liberalismus (Jena: Gustav Fischer, 1927; repr<strong>in</strong>t SanktAugust<strong>in</strong>: Academia Verlag, 1993) p. 16.2 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “In Defense <strong>of</strong> Extreme Rationalism: Thoughtson Donald McCloskey’s The Rhetoric <strong>of</strong> Economics,” Review <strong>of</strong> Austrian Economics3 (1989): 179–214; idem, Economic Science and the Austrian Method(Auburn, Ala.: Ludwig von Mises Institute, 1995).
Bagus: Uncompromis<strong>in</strong>g Radicalism as Promis<strong>in</strong>g Strategy — 75socialists and communists). All the other demands <strong>of</strong>liberalism result from this fundamental demand. 3While Mises rema<strong>in</strong>ed throughout his life a staunch defender <strong>of</strong>a m<strong>in</strong>imal state defend<strong>in</strong>g the violation <strong>of</strong> property rights by thegovernment <strong>in</strong> order to secure them, Pr<strong>of</strong>. <strong>Hoppe</strong> is more consistent<strong>in</strong> his political theory and does not hesitate to follow theimplication <strong>of</strong> liberalism to its logical end:For those members <strong>of</strong> the movement who still hold on tothe classic notion <strong>of</strong> universal human rights and the ideathat self-ownership and private property rights precedeall government and legislation, the transition from liberalismto private property anarchism is only a small <strong>in</strong>tellectualstep, especially <strong>in</strong> light <strong>of</strong> the obvious failure <strong>of</strong>democratic government to provide the only service thatit was ever <strong>in</strong>tended to provide (that <strong>of</strong> protection). Privateproperty anarchism is simply consistent liberalism;liberalism thought through to its ultimate conclusion, orliberalism restored to its orig<strong>in</strong>al <strong>in</strong>tent. 4The <strong>in</strong>tellectual radicalism <strong>of</strong> Pr<strong>of</strong>. <strong>Hoppe</strong> and his strategytowards a free society, i.e., private property anarchy, go hand <strong>in</strong>hand. Follow<strong>in</strong>g Etienne de la Boétie, David Hume, and Ludwigvon Mises, he emphasizes that government’s power rests on publicop<strong>in</strong>ion rather than sheer force. 5 Without widespread supportand voluntary cooperation on part <strong>of</strong> a large portion <strong>of</strong> a populationgovernments cannot enforce their will. Consequently, governmentscan be brought down if a large part <strong>of</strong> population just ceasesits support. In order to achieve this, a m<strong>in</strong>ority must conv<strong>in</strong>ce amajority to end its support <strong>of</strong> the rulers. Pr<strong>of</strong>. <strong>Hoppe</strong> likes to callsuch an energetic m<strong>in</strong>ority “anti-<strong>in</strong>tellectual <strong>in</strong>tellectuals” referr<strong>in</strong>g3 Ludwig von Mises, Liberalism: In the Classical Tradition, Ralph Raico,trans. (Irv<strong>in</strong>gton-on-Hudson, N.Y.: Foundation for Economic Education,[1927] 1985), p. 19.4 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God that Failed: The Economicsand Politics <strong>of</strong> Monarchy, Democracy, and Natural Order (New Brunswick, N.J.:Transaction Publishers, 2001), p. 236.5 Ibid., p. 289.
76 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>to the fact that the vast majority <strong>of</strong> <strong>in</strong>tellectuals function as corrupted<strong>in</strong>tellectual safeguards <strong>of</strong> the rulers. The anti-<strong>in</strong>tellectual<strong>in</strong>tellectuals, however, have a good chance <strong>of</strong> be<strong>in</strong>g successfulonly if they are idealistic and strongly committed, as well as<strong>in</strong>spired by the vision <strong>of</strong> a free society, because they will face difficulties<strong>in</strong> a state-ruled world. Thus, they must have the energyand patience to conv<strong>in</strong>ce the masses to end their support to therulers. Here is where Pr<strong>of</strong>. <strong>Hoppe</strong>’s <strong>in</strong>tellectual radicalism comes<strong>in</strong>. He rightly assures that:In fact, there must never be even the slightest waver<strong>in</strong>g<strong>in</strong> one’s commitment to uncompromis<strong>in</strong>g ideologicalradicalism (“extremism”). Not only would anyth<strong>in</strong>g lessbe counterproductive, but more importantly, only radical—<strong>in</strong>deed,radically simple—ideas can possibly stirthe emotions <strong>of</strong> the dull and <strong>in</strong>dolent masses. And noth<strong>in</strong>gis more effective <strong>in</strong> persuad<strong>in</strong>g the masses to ceasecooperat<strong>in</strong>g with government than the constant andrelentless exposure, de-sanctification, and ridicule <strong>of</strong>government and its representatives as moral and economicfrauds and impostors: as emperors withoutclothes subject to contempt and the butt <strong>of</strong> all jokes. 6Intellectual radicalism is not only adequate to conv<strong>in</strong>ce themasses <strong>of</strong> government failure but also to recruit a dedicated m<strong>in</strong>ority,especially among the young. In fact, Rothbard regarded educationas the key to success on the road to a free society. 7 In my op<strong>in</strong>ionthe educational efforts should be concentrated on the young. AsI can tell from my own experience, young people that are still idealisticcan be ignited by excitement and enthusiasm for a logicalconsistent theory or program. Moreover, young people might stillbe <strong>in</strong>tellectually flexible, change their world view and have not<strong>in</strong>vested a long time <strong>in</strong> cooperat<strong>in</strong>g with, be<strong>in</strong>g assisted by orapprov<strong>in</strong>g publicly or privately <strong>of</strong> the state. They do not have toconsider their past as a great error hav<strong>in</strong>g cooperated with the6 Ibid., p. 94.7 Murray N. Rothbard, For a New Liberty: The Libertarian Manifesto, rev. ed(San Francisco: Fox & Wilkes, 1996), p. 297.
Bagus: Uncompromis<strong>in</strong>g Radicalism as Promis<strong>in</strong>g Strategy — 77state. Without such a psychic mortgage they are easier conv<strong>in</strong>ced <strong>of</strong>the prospects <strong>of</strong> a free society. Specifically, they might see theirrole <strong>in</strong> the change <strong>of</strong> the state <strong>of</strong> affairs <strong>in</strong>to a better direction, thedirection <strong>of</strong> an <strong>in</strong>spir<strong>in</strong>g ideal. An <strong>in</strong>spir<strong>in</strong>g uncompromis<strong>in</strong>g idealwas already called for by F.A. Hayek:We must make the build<strong>in</strong>g <strong>of</strong> a free society once morean <strong>in</strong>tellectual adventure, a deed <strong>of</strong> courage. What welack is a liberal Utopia, a program which seems neithera mere defense <strong>of</strong> th<strong>in</strong>gs as they are not a diluted k<strong>in</strong>d <strong>of</strong>socialism, but a truly liberal radicalism which does notspare the susceptibility <strong>of</strong> the mighty (<strong>in</strong>clud<strong>in</strong>g thetrade union), which is not too severely practical andwhich does not conf<strong>in</strong>e itself to what appears today aspolitically possible. We need <strong>in</strong>tellectual leaders whoare prepared to resist the blandishments <strong>of</strong> power and<strong>in</strong>fluence and who are will<strong>in</strong>g to work for an ideal, however,small may be the prospect <strong>of</strong> its early realization.They must be men who are will<strong>in</strong>g to stick to pr<strong>in</strong>ciplesand fight for their full realization, however remote. . . .Free trade and freedom <strong>of</strong> opportunity are ideals whichstill may rouse the imag<strong>in</strong>ations <strong>of</strong> large numbers, but amere “reasonable freedom <strong>of</strong> trade” or a mere “relaxation<strong>of</strong> controls” is neither <strong>in</strong>tellectually respectable norlikely to <strong>in</strong>spire any enthusiasm. The ma<strong>in</strong> lesson whichthe true liberal must learn from the success <strong>of</strong> the socialistsis that it was their courage to be Utopian whichga<strong>in</strong>ed them the support <strong>of</strong> <strong>in</strong>tellectuals and thereby an<strong>in</strong>fluence on public op<strong>in</strong>ion which is daily mak<strong>in</strong>g possiblewhat only recently seemed utterly remote. Thosewho have concerned themselves exclusively with whatseemed practicable <strong>in</strong> the exist<strong>in</strong>g state <strong>of</strong> op<strong>in</strong>ion haveconstantly found that even this has rapidly becomepolitically impossible as the result <strong>of</strong> change <strong>in</strong> a publicop<strong>in</strong>ion which they have done noth<strong>in</strong>g to guide. Unlesswe can make the philosophic foundations <strong>of</strong> a free societyonce more a liv<strong>in</strong>g <strong>in</strong>tellectual issue, and its implementationa task which challenges the <strong>in</strong>genuity andimag<strong>in</strong>ation <strong>of</strong> our liveliest m<strong>in</strong>ds, the prospects <strong>of</strong> freedomare <strong>in</strong>deed dark. But if we can rega<strong>in</strong> that belief <strong>in</strong>
78 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>the power <strong>of</strong> ideas which was the mark <strong>of</strong> liberalism atits best, the battle is not lost. 8Pr<strong>of</strong>. <strong>Hoppe</strong> is such a Utopian <strong>in</strong> the best Hayekian sense. Hehas, <strong>in</strong> a sense, fulfilled Hayek’s call, especially with his bestsellerDemocracy—The God That Failed. With his theory <strong>of</strong> argumentationethics and build<strong>in</strong>g upon Rothbard’s natural law theory, he hasshown that an objective and consistent ethical theory is possible.His work comb<strong>in</strong>es two branches, a consistent economic theorywith a consistent political and ethical theory <strong>in</strong>to a consistent theory<strong>of</strong> the social sciences—Austro-Libertarianism—that by its logicalconsistency, rigor, radicalism, clarity, and explanatory poweris capable <strong>of</strong> <strong>in</strong>spir<strong>in</strong>g the excitement and enthusiasm necessary toachieve its radical social ends.I regard his uncompromis<strong>in</strong>g position as a good strategy toga<strong>in</strong> <strong>in</strong>fluence <strong>in</strong> the long term. In the process <strong>of</strong> persuad<strong>in</strong>g othersto accept a particular viewpo<strong>in</strong>t, a coherent theory should prevailover an opportunistic strategy. Science always must tell thetruth. One should not overthrow pr<strong>in</strong>ciples, tell an untruth, or liejust to persuade others about a particular po<strong>in</strong>t <strong>of</strong> view. Such astrategy is not ethical, and it will destroy one’s consistency andunderm<strong>in</strong>e one’s argumentative basis, so much so that <strong>in</strong> the longrun this strategy becomes self-defeat<strong>in</strong>g. Mak<strong>in</strong>g compromises <strong>in</strong>theory eventually thwarts the one’s own aims as a theorist.Perhaps mak<strong>in</strong>g compromises will help to get one’s articlespublished <strong>in</strong> a top journal. Maybe deal<strong>in</strong>g with applied topics thatare <strong>in</strong> vogue <strong>in</strong> the ma<strong>in</strong>stream can help garner a position <strong>in</strong> a topuniversity. Opportunistic behavior might help assure tenure,respect, and a better <strong>in</strong>come. The temptation to get <strong>in</strong>to everhigher-ranked top journals, ever-better universities, and mediaoutlets can lead some to make ever more substantial compromises.But once one starts with compromises he is on a slippery slope. Ofcourse, this strategy can help one achieve more impact and <strong>in</strong>fluence,especially <strong>in</strong> the short run and among certa<strong>in</strong> <strong>in</strong>tellectuals.But it entails the great danger that one starts to gradually resemblethese <strong>in</strong>tellectuals <strong>in</strong> order to conv<strong>in</strong>ce them. In fact, the Chicago8 F.A. Hayek,“The Intellectuals and Socialism,” <strong>in</strong> Studies <strong>in</strong> Philosophy, Politics,and Economics (Chicago: University <strong>of</strong> Chicago Press, 1967), p. 194.
Bagus: Uncompromis<strong>in</strong>g Radicalism as Promis<strong>in</strong>g Strategy — 79School has had more <strong>in</strong>fluence <strong>in</strong> academics and politics than theAustrian school through mak<strong>in</strong>g compromises and advocat<strong>in</strong>gvarious forms <strong>of</strong> state <strong>in</strong>tervention.However, what is important for an economist or an economicschool is not to have <strong>in</strong>fluence but to tell the truth. Fiat veritas, etpereat mundus, to change a famous Lat<strong>in</strong> phrase. There shall betruth even if the world perishes. The orig<strong>in</strong>al phrase and motto <strong>of</strong>the Habsburg Emperor Ferd<strong>in</strong>and (1503–1564) is: Fiat iustitia, etpereat mundus. There shall be justice even if the world perishes.Fortunately, it lies <strong>in</strong> the nature <strong>of</strong> man that we do not have tochoose between justice and the flourish<strong>in</strong>g <strong>of</strong> civilization. Justicedoes not stand <strong>in</strong> contrast to wealth production but is actually necessaryfor it. As Rothbard states, “the proper groundwork for thisgoal [liberty] is a moral passion for justice.” 9Stick<strong>in</strong>g to the truth is the best strategy to achieve the flourish<strong>in</strong>g<strong>of</strong> civilization and liberty. Ultimately it is public op<strong>in</strong>ion thatchanges the course <strong>of</strong> the world. People must be conv<strong>in</strong>ced <strong>of</strong> thebenefits <strong>of</strong> liberty and told about the evil <strong>of</strong> government. Therefore,the truth about liberty must be unequivocally stated aga<strong>in</strong>and aga<strong>in</strong>. Noth<strong>in</strong>g is more attractive <strong>in</strong> theory than a coherent,consistent, and str<strong>in</strong>gent position. Pr<strong>of</strong>. <strong>Hoppe</strong> has demonstratedthat consistent theory is beautiful and liable to attract a hard core<strong>of</strong> students strongly committed to the cause <strong>of</strong> truth. By stick<strong>in</strong>g tothe truth one will not need rhetoric that makes compromises toconvey a position s<strong>in</strong>ce the truth seekers will f<strong>in</strong>d the truth. Neitherwill one need to approve <strong>of</strong> others’ <strong>in</strong>consistent, compromis<strong>in</strong>g,and socialistic positions.By contrast, <strong>in</strong>tellectual compromise entails a strategic disadvantage.An <strong>in</strong>consistent theory will lead to false conclusions andwill attract those with shallow reason<strong>in</strong>g who will easily abandonthe cause <strong>of</strong> truth. But compromise—deliberate <strong>in</strong>consistency—does even greater harm. There is no logical end <strong>in</strong> cont<strong>in</strong>u<strong>in</strong>g withcompromises until the whole orig<strong>in</strong>al theory is abandoned and fallsapart. Eventually the compromis<strong>in</strong>g scholar loses respect for hisown orig<strong>in</strong>al position. He ends up <strong>in</strong> <strong>in</strong>tellectual sloth, stagnat<strong>in</strong>g9 Murray N. Rothbard, The Ethics <strong>of</strong> Liberty (New York: New York UniversityPress., 1998), p. 264.
80 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>debates, muddled positions, and bor<strong>in</strong>g superficialities—an unappeal<strong>in</strong>gpotpourri.Pr<strong>of</strong>. <strong>Hoppe</strong>’s economic and political theory avoids this pitfall.A consistent, rigorous, and radical theory is proposed by a manwho does not make compromise <strong>in</strong> his goal <strong>of</strong> achiev<strong>in</strong>g a freesociety. In so do<strong>in</strong>g, he <strong>in</strong>spires others to follow him on the path tothat goal. I, for my part, will try to make my own contributiontowards that end follow<strong>in</strong>g Pr<strong>of</strong>. <strong>Hoppe</strong>’s model. I would like toexpress my deepest gratitude to him for direct<strong>in</strong>g my path fromthe moment at which I first started read<strong>in</strong>g his <strong>in</strong>troduction toMises’s Liberalism, and wish him all the best <strong>in</strong> the future. h
13Abraham L<strong>in</strong>coln and theModern StateLuigi Marco BassaniWhile still revered by a great majority <strong>of</strong> Americans ascrucial for national freedom, the “L<strong>in</strong>coln episode” isconsidered by some peripheral scholars to be thef<strong>in</strong>al nail <strong>in</strong> the c<strong>of</strong>f<strong>in</strong> <strong>of</strong> the American experiment <strong>in</strong>self-government. At the very best, it drastically changed theFounders’ Republic, and <strong>in</strong> a way that cannot sit well with conservativeand libertarian political outlooks. Accord<strong>in</strong>g to ThomasFlem<strong>in</strong>g, for <strong>in</strong>stance, “L<strong>in</strong>coln’s presidency was . . . the secondAmerican found<strong>in</strong>g . . . which turned a constitutional system establishedby Wash<strong>in</strong>gton, Adams and Jefferson, as a regime <strong>of</strong> liberty,<strong>in</strong>to a radical Jacob<strong>in</strong> State rooted <strong>in</strong> the pr<strong>in</strong>ciple <strong>of</strong> equality.” 1In this brief treatment <strong>of</strong> L<strong>in</strong>coln—upon which I will venturevery much aware, but not afraid <strong>of</strong> what a scholar aptly def<strong>in</strong>ed“the stranglehold that Jaffa and Thurow have on L<strong>in</strong>colnian politicaltheory” 2 —there is no room or even need to treat the question <strong>of</strong>Luigi Marco Bassani (marco.bassani@unimi.it) is pr<strong>of</strong>essor <strong>of</strong> History <strong>of</strong> PoliticalTheory at the Università di Milano, Italy.1 Thomas Flem<strong>in</strong>g, “Three Faces <strong>of</strong> Democracy: Cleisthenes, Jefferson, andRobespierre,” Telos 104 (Summer 1995), p. 51.2 William S. Corlett, Jr., “The Availability <strong>of</strong> L<strong>in</strong>coln’s Political Religion,”Political Theory X, no. 4 (Nov. 1982) p. 521.81
82 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>slavery. The well-known letter to Horace Greely is, <strong>in</strong> any case, thepla<strong>in</strong>est refutation <strong>of</strong> the idea that L<strong>in</strong>coln waged a war aga<strong>in</strong>st theSouth to uproot slavery. As he most clearly acknowledged, hisforemost preoccupation was always the preservation <strong>of</strong> the Union,and concern for the black slaves had no part <strong>in</strong> it. He pla<strong>in</strong>ly statedthat he did not want “to leave any one <strong>in</strong> doubt” thatMy paramount object <strong>in</strong> this struggle is to save theUnion, and is not either to save or to destroy slavery. IfI could save the Union without free<strong>in</strong>g any slave Iwould do it. 3While for most people <strong>in</strong> those days antislavery was unionism,and vice versa, L<strong>in</strong>coln took a simpler l<strong>in</strong>e <strong>of</strong> argument and statedvery clearly that the Union was the one and only goal <strong>of</strong> the struggle.It is exactly the notion <strong>of</strong> the Union as an end <strong>in</strong> itself, as theonly moral <strong>in</strong>stitutional arrangement for Americans, which is centralto the understand<strong>in</strong>g <strong>of</strong> L<strong>in</strong>coln as the agent <strong>of</strong> the establishment<strong>of</strong> the modern State <strong>in</strong> America.Much <strong>of</strong> the L<strong>in</strong>coln debate <strong>in</strong> the past generations has centeredon whether the Republic survived the Civil War drama unscathedor was fundamentally altered. L<strong>in</strong>coln always <strong>in</strong>sisted that he trod<strong>in</strong> the footsteps <strong>of</strong> Wash<strong>in</strong>gton and Jefferson regard<strong>in</strong>g all relevantquestions <strong>of</strong> government. Later on, however, both L<strong>in</strong>coln’s devoteesand a great number <strong>of</strong> historians (the two categories tend tomerge <strong>in</strong> the “L<strong>in</strong>coln cult”) have contended that the Americannation was <strong>in</strong> fact very much <strong>in</strong> need <strong>of</strong> another found<strong>in</strong>g, thusrefut<strong>in</strong>g the claims <strong>of</strong> cont<strong>in</strong>uity with the republican past attributedto L<strong>in</strong>coln’s policies and actions. At any rate, nowadays thenotion that L<strong>in</strong>coln, for better or for worse, <strong>in</strong>stigated a radical renovationand changed the American political landscape forever iscommon ground.Here I shall very briefly contend that L<strong>in</strong>coln <strong>in</strong>deed broughtabout a change <strong>of</strong> the first order, and probably much greater thanmost historians <strong>of</strong> ideas would concede, as it obliterated the orig<strong>in</strong>al,American Republic. Put bluntly, L<strong>in</strong>coln precipitated the f<strong>in</strong>al3 Abraham L<strong>in</strong>coln to Horace Greely, August 22nd, 1862, The CollectedWorks <strong>of</strong> Abraham L<strong>in</strong>coln, R.P. Basler, ed., 9 vols. (New Brunswick, N.J.: RutgersUniversity Press, 1953), vol. V, p. 388; here<strong>in</strong>after Collected Works.
Bassani: Abraham L<strong>in</strong>coln and the Modern State — 83migration to America <strong>of</strong> European categories <strong>of</strong> power and theState.Prima facie, L<strong>in</strong>coln appears simply to be the victorious successorto the progression <strong>of</strong> characters runn<strong>in</strong>g from AlexanderHamilton to Daniel Webster and Henry Clay. But with the idea <strong>of</strong>the Union as an end <strong>in</strong> itself, L<strong>in</strong>coln discovered the Trojan horsefor br<strong>in</strong>g<strong>in</strong>g the European categories <strong>of</strong> the modern State <strong>in</strong>toAmerica. That is, <strong>in</strong> secur<strong>in</strong>g the Union and uproot<strong>in</strong>g slavery,L<strong>in</strong>coln was not merely uphold<strong>in</strong>g a moral stance; rather he was<strong>in</strong>terpret<strong>in</strong>g the Zeitgeist, whose real focus was on the consolidation<strong>of</strong> the modern State.LINCOLN’S CONSTITUTIONL<strong>in</strong>coln generally denied that his actions violated the Constitutionor were otherwise outside its framework. In spite <strong>of</strong> his reassurances,L<strong>in</strong>coln’s Constitution became, <strong>in</strong> effect, a pr<strong>of</strong>oundlydifferent document from the one ratified <strong>in</strong> 1788. Even the mostsuperficial read<strong>in</strong>g <strong>of</strong> the Constitution and the Bill <strong>of</strong> Rights (1791)will show that the revolutionary generation thought that nearly allserious threats to the freedom <strong>of</strong> the <strong>in</strong>dividual came from government.All the freedoms and rights that the Founders were talk<strong>in</strong>gabout were understood as safeguards <strong>of</strong> the <strong>in</strong>dividual aga<strong>in</strong>stgovernment. That was the rationale, unsophisticated as it may be,beh<strong>in</strong>d the Founders’ notion <strong>of</strong> m<strong>in</strong>imal government. All the basicfreedoms were deemed <strong>in</strong> need <strong>of</strong> protection from one and onlyone potential aggressor, namely government (more properly thefederal government, rather than States’ governments). While other<strong>in</strong>dividuals could always be a threat to property, governmentcould obliterate both property and property rights.With L<strong>in</strong>coln the focus <strong>of</strong> threats to liberty changes from governmentto <strong>in</strong>dividuals. It is not government, but private <strong>in</strong>dividualsthat can become potentially abusive. The government, therefore,ought to be charged with the task <strong>of</strong> tak<strong>in</strong>g the necessarysteps to protect <strong>in</strong>dividuals from exploitation by other persons.This is a turn<strong>in</strong>g po<strong>in</strong>t <strong>of</strong> the first order and it betokens an entirelydifferent way <strong>of</strong> th<strong>in</strong>k<strong>in</strong>g about government. Expand<strong>in</strong>g uponthese ideas, George Fletcher has written a thoughtful book calledOur Secret Constitution: How L<strong>in</strong>coln Redef<strong>in</strong>ed American Democracy.
84 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>In his op<strong>in</strong>ion there are now two Constitutions <strong>in</strong> this country.Alongside the first, orig<strong>in</strong>al Constitution, there now is a “secret”unwritten one crafted by L<strong>in</strong>coln himself. The two documentsentail two different sets <strong>of</strong> values, locked <strong>in</strong> an ongo<strong>in</strong>g contradiction.“The first Constitution commits itself to freedom and the secondbuilds both on a preference for equality and the recognitionthat freedom is <strong>of</strong>ten an illusion.” 4While the first Constitution is built on a deeply-felt distrust <strong>of</strong>government, the second presupposes confidence <strong>in</strong> a forceful government,the protector <strong>of</strong> citizens from other citizens. In the pr<strong>of</strong>oundchange engendered by the presidency <strong>of</strong> Abraham L<strong>in</strong>coln,a new understand<strong>in</strong>g <strong>of</strong> the relation between the <strong>in</strong>dividual andthe government was brought to America, a notion that prevailed—and still prevails—<strong>in</strong> Europe. The conclusion is such as to tear thevery fabric <strong>of</strong> the old constitutional <strong>in</strong>strument: “The view thatcomes to the fore <strong>in</strong> the Secret Constitution recognizes that freedomas well as rights depend on the proper <strong>in</strong>teraction with government.”5 Sympathizers and critics alike agree on one po<strong>in</strong>t: L<strong>in</strong>colnchanged the Constitution and the American system <strong>of</strong> governmentforever.L<strong>in</strong>coln bent the Constitution to his own purposes. The explanation<strong>of</strong> the logic beh<strong>in</strong>d all the abuses came <strong>in</strong> a very importantletter to Albert Hodges. He wrote <strong>in</strong> April 1864:I did understand, that my oath to preserve the constitutionto the best <strong>of</strong> my ability, imposed upon me theduty <strong>of</strong> preserv<strong>in</strong>g, by every <strong>in</strong>dispensable means, thatgovernment—that nation—<strong>of</strong> which that constitutionwas the organic law. Was it possible to lose the nation,and yet preserve the constitution? By general law lifeand limb must be protected; yet <strong>of</strong>ten a limb must beamputated to save a life; but a life is never wisely givento save a limb. I felt that measures, otherwise unconstitutional,might become lawful, by becom<strong>in</strong>g <strong>in</strong>dispensableto the preservation <strong>of</strong> the constitution, through4 George P. Fletcher, Our Secret Constitution: How L<strong>in</strong>coln Redef<strong>in</strong>ed AmericanDemocracy (New York: Oxford University Press, 2001), p. 223.5 Ibid.
Bassani: Abraham L<strong>in</strong>coln and the Modern State — 85the preservation <strong>of</strong> the nation. Right or wrong, Iassumed this ground. 6This is the most important s<strong>in</strong>gle statement <strong>of</strong> the “L<strong>in</strong>coln persuasion”for two reasons. It is the best illustration <strong>of</strong> his politicalthought and the manifest death warrant for classical liberalism <strong>in</strong>America.L<strong>in</strong>coln believes the Constitution to be an “organic law,” aEuropean notion that was quite a novelty <strong>in</strong> American politicaldiscourse. He goes on to draw an unambiguous parallel between ahuman and a collective body. In a few sentences one can f<strong>in</strong>d allthe elements <strong>of</strong> the modern State theory <strong>of</strong> European orig<strong>in</strong>, articulatedby a man who may never have heard <strong>of</strong> Machiavelli, Bod<strong>in</strong>,Hobbes, but was nonetheless s<strong>in</strong>g<strong>in</strong>g to their tune. In L<strong>in</strong>coln’sm<strong>in</strong>d, the Constitution is <strong>in</strong> fact an organic law as it is meant toprotect and give form to an organic society by creat<strong>in</strong>g an organicState. The crucial th<strong>in</strong>g is that the society or the nation that itshould protect is much more important than the law itself, theConstitution. In other words, the Nation comes first.For L<strong>in</strong>coln the Constitution had no particular mean<strong>in</strong>g whendetached from its more significant “progenitor,” the Union. Whilethe question <strong>in</strong> earlier American political discourse would have tobe summarized as “whether the Union had any mean<strong>in</strong>g apartfrom the Constitution,” 7 L<strong>in</strong>coln was effectively revers<strong>in</strong>g thedyadic relation. In fact, the Union had become a mystical and selfjustify<strong>in</strong>gend.Herman Belz and a number <strong>of</strong> other scholars deny altogetherthat the President ever violated the Constitution. Accord<strong>in</strong>g to him,“L<strong>in</strong>coln’s example, is to <strong>in</strong>sist on fidelity to the text, forms, andpr<strong>in</strong>ciples <strong>of</strong> the framers’ Constitution.” 8 For L<strong>in</strong>coln, “American6 Abraham L<strong>in</strong>coln to Albert G. Hodges (April 4th, 1864), Collected Works,vol. VII, p. 281.7 Richard Gamble, “Reth<strong>in</strong>k<strong>in</strong>g L<strong>in</strong>coln,” <strong>in</strong> The Costs <strong>of</strong> War: AmericaPyrrhic Victories, John V. Densen, ed. (New Brunswick, N.J.: Transaction,1999), p. 141.8 Herman Belz, Abraham L<strong>in</strong>coln, Constitutionalism, and Equal Rights <strong>in</strong> theCivil War Era (New York: Fordham University Press, 1998), p. 100.
86 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>nationality was def<strong>in</strong>ed by the Constitution . . . the nation was theConstitution.” 9 In fact, L<strong>in</strong>coln declared exactly the opposite: thenation was not the Constitution and L<strong>in</strong>coln was ready to violatethe latter to save the former.The most reveal<strong>in</strong>g part <strong>of</strong> L<strong>in</strong>coln’s frank statement on theNation and the Constitution is the use <strong>of</strong> the organic metaphor.This equation between a liv<strong>in</strong>g body and a polity is <strong>of</strong> the utmostimportance, s<strong>in</strong>ce it is crucial to the emergence <strong>of</strong> the categoriesand the term<strong>in</strong>ology <strong>of</strong> the modern State <strong>in</strong> political theory. The(modern) State, <strong>in</strong> fact, is not only a set <strong>of</strong> rules, a novel way <strong>of</strong>look<strong>in</strong>g at the political community; it is also embodied <strong>in</strong> a term<strong>in</strong>ologywhich subtly compels one to th<strong>in</strong>k <strong>of</strong> and about the Statewith<strong>in</strong> the mental framework <strong>of</strong> the State itself. The emergence <strong>of</strong>the modern State <strong>in</strong> Europe went hand <strong>in</strong> hand with the change <strong>in</strong>the political lexicon that took place from the 1500s. The State hadto be construed by jurists as an artificial person that transcendedthe person <strong>of</strong> the pr<strong>in</strong>cely ruler and, ultimately, his very dynasty,guarantee<strong>in</strong>g its perpetuation. The new body politic had a life <strong>of</strong>its own, beyond subjects and even the sovereign; it did not representanybody, it simply existed and it was nurtured by myths producedby historians, jurists, theologians, as well as politicians (firstand foremost the myth <strong>of</strong> hav<strong>in</strong>g always existed).Vital to such a creation, almost as crucial as the notion <strong>of</strong> sovereigntyitself, was the extensive use <strong>of</strong> the organic metaphor. Thisis the idea that the set <strong>of</strong> relationships between human be<strong>in</strong>gsforms a real entity, a liv<strong>in</strong>g organism, which the State, this artificialperson, has the duty to regulate. At best, it simply implies thatpolitical rule is natural to society, as society itself is a body politic.While it is true that such metaphors may be found <strong>in</strong> ancient Greekpolitical thought, chiefly <strong>in</strong> Plato’s Republic, they were not particularlypopular prior to the rise <strong>of</strong> the modern State.A civil war is utterly disruptive, as it conflicts directly with theState dogma: it duplicates, or multiplies the unity upon which theState is predicated. It presents a “house divided,” or a sick organism,and “it cannot stand.” In a modern State, the contenders, thedisruptors <strong>of</strong> unity, must be treated as unredeemable foes,9 Ibid., p. 98.
Bassani: Abraham L<strong>in</strong>coln and the Modern State — 87absolute enemies, to be erased from the face <strong>of</strong> the Earth: for theyhave challenged the most sacred pr<strong>in</strong>ciple <strong>of</strong> them all, that <strong>of</strong>unity. If this perspective <strong>of</strong> the Civil War as the “modern Statecom<strong>in</strong>g to America” is correct, then the war was not unnecessary, asThomas DiLorenzo suggests, 10 because the m<strong>in</strong>imalist and decentralizedRepublic <strong>of</strong> the Founders needed to be replaced by the“rationality” <strong>of</strong> the modern State, and the war was the means tothat end.America experienced <strong>in</strong> a few years, roughly between 1832 and1865, a telescoped replica <strong>of</strong> what happened to Europe from 1525to 1815. In Europe it was the sovereign—first the K<strong>in</strong>g and then theassembly—who promised to free all <strong>in</strong>dividuals from the tyrannicalas well as outmoded loyalties that were the core <strong>of</strong> liberty <strong>in</strong> theMiddle Ages: church, city, corporation, family and the like. The<strong>in</strong>dividual had to be liberated <strong>of</strong> all previous social ties <strong>in</strong> order tobecome a good and free citizen.In this tragedy the federal government took the part <strong>of</strong> the sovereignpower <strong>in</strong> European history, while the States were left withthe role <strong>of</strong> relics. The war was <strong>in</strong>deed necessary because theRepublic <strong>of</strong> the Founders was based on pr<strong>in</strong>ciples that were notonly at odds with the modern State, but utterly <strong>in</strong>imical to it. Agenu<strong>in</strong>e federalism is, <strong>in</strong> fact, not an option for a modern State.For L<strong>in</strong>coln the Union was the organic metaphor <strong>of</strong> choice. Asevidence <strong>of</strong> L<strong>in</strong>coln’s stance on the Union, the message to Congress<strong>of</strong> December 1st, 1862 is <strong>in</strong>valuable. The mov<strong>in</strong>g description <strong>of</strong> theUnited States as a physical liv<strong>in</strong>g entity, as “our national homestead,”is the premise on which the President builds his claim thatsuch an organic entity<strong>in</strong> all its adaptations and aptitudes . . . demands union,and abhors separation. In fact, it would . . . force reunion,however much <strong>of</strong> blood and treasure the separationmight have cost. 1110 Thomas J. DiLorenzo, The Real L<strong>in</strong>coln: A New Look at Abraham L<strong>in</strong>coln,His agenda, and An Unnecessary War (New York: Three Rivers Press, 2003).11 Abraham L<strong>in</strong>coln, “Annual Message to Congress” (December 1st, 1862),Collected Works, vol. V, p. 529.
88 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>In this important message to Congress L<strong>in</strong>coln also stressed veryclearly why there should be no separation, at any cost:That portion <strong>of</strong> the earth’s surface which is owned and<strong>in</strong>habited by the people <strong>of</strong> the United States, is welladapted to be the home <strong>of</strong> one national family; and it isnot well adapted for two, or more. . . . [Everyth<strong>in</strong>g <strong>in</strong> thiscountry is] to be an advantageous comb<strong>in</strong>ation, for oneunited people. 12To L<strong>in</strong>coln, the Union was the great guardian <strong>of</strong> the pr<strong>in</strong>ciple <strong>of</strong>equality and he was ready to sacrifice everyth<strong>in</strong>g to preserve it. Hewanted America to take the place <strong>of</strong> Europe <strong>in</strong> world supremacybecause he firmly believed that Europe was doomed by her history<strong>of</strong> oppression, brutality, and radical <strong>in</strong>equality, and that Americawas go<strong>in</strong>g to be a better, fairer leader: a leader that would eventuallybr<strong>in</strong>g equality and democracy to all mank<strong>in</strong>d.THE CIVIL RELIGION OF ABRAHAM LINCOLNA further element <strong>of</strong> <strong>in</strong>terest <strong>in</strong> this appraisal <strong>of</strong> the irruption <strong>of</strong>the categories <strong>of</strong> the modern State <strong>in</strong> America is L<strong>in</strong>coln’s notion<strong>of</strong> “civil religion.” In modern times, the idea <strong>of</strong> a civil religion wash<strong>in</strong>ted by Machiavelli and later it was fully developed by Jean-Jacques Rousseau. The search <strong>of</strong> a civil religion that would replaceChristianity goes hand <strong>in</strong> hand with the <strong>in</strong>tellectual construction<strong>of</strong> the modern State. One <strong>of</strong> the secular dogmas <strong>of</strong> the modernState is that the “mystery <strong>of</strong> be<strong>in</strong>g” is to be located <strong>in</strong> this worldand <strong>in</strong> the political community, not <strong>in</strong> heaven above us. Machiavelli,Rousseau, and many others, looked to a “civic (or civil) religion”as the most suitable tool for guarantee<strong>in</strong>g the obedience <strong>of</strong>the citizenry to political <strong>in</strong>stitutions.L<strong>in</strong>coln thought <strong>of</strong> himself as a pure Christian and is stillregarded by many as an <strong>in</strong>spirational character <strong>in</strong> this field. Still,his only clear reference to the notion <strong>of</strong> an “American political religion”is characterized by dist<strong>in</strong>ctly un-Christian overtones. I amreferr<strong>in</strong>g to his famous speech <strong>of</strong> 1838, <strong>in</strong> which he advocated the12 Ibid., p. 527.
Bassani: Abraham L<strong>in</strong>coln and the Modern State — 89“reverence for the laws” to become the supreme virtue <strong>of</strong> the country:Let it be taught <strong>in</strong> schools, <strong>in</strong> sem<strong>in</strong>aries, and <strong>in</strong> colleges. . . let it be preached from the pulpit, proclaimed <strong>in</strong> legislativehalls, and enforced <strong>in</strong> courts <strong>of</strong> justice. And, <strong>in</strong>short, let it become the political religion <strong>of</strong> the nation; andlet the old and the young, the rich and the poor, thegrave and the gay, <strong>of</strong> all sexes and tongues, and colorsand conditions, sacrifice unceas<strong>in</strong>gly upon its altars. 13Once aga<strong>in</strong>, the reader and the scholar must wonder at the factthat somehow L<strong>in</strong>coln had Rousseau engraved <strong>in</strong> his heart, without,probably, ever hav<strong>in</strong>g heard <strong>of</strong> him.FRANCIS LIEBER AND THE GERMAN STAATSTHEORIE SCHOOLWhen confronted with all these threads—Union, Nation, organicmetaphors, civil religion—all lead<strong>in</strong>g to one s<strong>in</strong>gle goal, the renewal<strong>of</strong> the American political community <strong>in</strong> the shape <strong>of</strong> a modern State,the historian <strong>of</strong> ideas faces one big question: “Where was it com<strong>in</strong>gfrom?” While L<strong>in</strong>coln was the most brilliant American politician <strong>of</strong>his times (and possibly <strong>of</strong> American history), he was quite uneducated<strong>in</strong> political philosophy. In some ways, however, the works <strong>of</strong>Francis Lieber, who <strong>in</strong> 1827 was one <strong>of</strong> the first German academicsto migrate to America, may well have made it through to L<strong>in</strong>coln’sown m<strong>in</strong>dset. Lieber served as a conduit between the <strong>in</strong>tellectualand political cultures <strong>of</strong> Germany, England, and America. Lieber’s<strong>in</strong>fluence <strong>in</strong> br<strong>in</strong>g<strong>in</strong>g the modern State categories to the New Worldcannot be overstated. As remarked by two historians <strong>of</strong> the Germancultural <strong>in</strong>fluences <strong>in</strong> the United States:[Lieber’s] contributions to political theory marked thebeg<strong>in</strong>n<strong>in</strong>g <strong>of</strong> a new era <strong>in</strong> American ideas on the nature<strong>of</strong> the state. There had been anticipatory statements <strong>of</strong>the theory he advanced, but these had been fragmentary13 Abraham L<strong>in</strong>coln, “Address Before the Young Men’s Lyceum <strong>of</strong> Spr<strong>in</strong>gfield,Ill<strong>in</strong>ois” (January 27th, 1838), Collected Works, vol. I, p. 112; emphasisadded.
90 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>and unsystematic as compared with the organic systempresented <strong>in</strong> his learned treatises. The publicationbetween 1838 and 1853 <strong>of</strong> his three books on politicalethics, on legal and political hermeneutics, and on civilliberty and self-government put him at the head <strong>of</strong> thenew school <strong>of</strong> political thought, at the same time putt<strong>in</strong>gthe then regnant theory <strong>of</strong> natural law to rout. 14S<strong>in</strong>ce its beg<strong>in</strong>n<strong>in</strong>g with Francis Lieber, American “political science”was—and rema<strong>in</strong>ed for decades—stamped <strong>in</strong> the mold <strong>of</strong>the Teutonic Staatstheorie, albeit without the philosophic subtleties<strong>of</strong> the Kant-Fichte-Hegel tradition. It was predicated on cont<strong>in</strong>entalnotions, first and foremost on the worshipp<strong>in</strong>g <strong>of</strong> “[t]he statewhose orig<strong>in</strong> is <strong>in</strong> history, whose nature is organic, whose essenceis unity, whose function is the exercise <strong>of</strong> its sovereign will <strong>in</strong> law,and whose ultimate end is the moral perfection <strong>of</strong> mank<strong>in</strong>d.” 15Or, as Lieber himself declared <strong>in</strong> one <strong>of</strong> his most significantworks:The State is aborig<strong>in</strong>al with man; it is no voluntary association. . . no company <strong>of</strong> shareholders; no mach<strong>in</strong>e, nowork <strong>of</strong> contract by <strong>in</strong>dividuals who lived previouslyout <strong>of</strong> it; no necessary evil; . . . the State is a form and faculty<strong>of</strong> mank<strong>in</strong>d to lead the species toward greater perfection—itis the glory <strong>of</strong> man. 16Lieber’s doctr<strong>in</strong>e is “a prophetic conception,” accord<strong>in</strong>g to VernonParr<strong>in</strong>gton, based on “the pr<strong>in</strong>ciple <strong>of</strong> an evolv<strong>in</strong>g state thatdraws all lesser sovereignties <strong>in</strong>to its orbit by the law <strong>of</strong> attraction.” 1714 Henry A. Pochmann & Arthur R. Schultz, German Culture <strong>in</strong> America,1600–1900: Philosophical and Literary Influences (Madison: University <strong>of</strong> Wiscons<strong>in</strong>Press, 1957), p. 125.15 Sylvia D. Fries, “Staatstheorie and the New American Science <strong>of</strong> Politics,”Journal <strong>of</strong> the History <strong>of</strong> Ideas 34, no. 3 (July–September 1973), p. 11.16 Francis Lieber, Manual <strong>of</strong> Political Ethics, Designed Chiefly for the Use <strong>of</strong>Colleges and Students at Law (1838–1839), 2nd rev. ed., Theodore D. Woolsey,ed. (Philadelphia: Lipp<strong>in</strong>cott, 1888), vol. II, p. 162.17 Vernon L. Parr<strong>in</strong>gton, Ma<strong>in</strong> Currents <strong>in</strong> American Political Thought: AnInterpretation <strong>of</strong> American Literature from the Beg<strong>in</strong>n<strong>in</strong>gs to 1920, The Romantic Revolution<strong>in</strong> America (1800–1860) (New York: Harcourt, Brace, 1927), vol. II, p. 89.
Bassani: Abraham L<strong>in</strong>coln and the Modern State — 91Parr<strong>in</strong>gton was well aware <strong>of</strong> the importance <strong>of</strong> Francis Lieber,who “provided a philosophical background” to the legal theory <strong>of</strong>Joseph Story. “Under the comb<strong>in</strong>ed legal and philosophical attackthe compact theory found its philosophical breastworks leveled,its natural rights theory underm<strong>in</strong>ed, and its command<strong>in</strong>g positioneffectively turned.” 18 Alan Grimes places Lieber at the transitionbetween “the constitutional and legal approach to an understand<strong>in</strong>g<strong>of</strong> the nature <strong>of</strong> the American Union, and the rise <strong>of</strong> theorganic concept <strong>of</strong> the nation.” 19 The importance <strong>of</strong> the Germanpr<strong>of</strong>essor <strong>in</strong> shap<strong>in</strong>g the ideas which L<strong>in</strong>coln exploited fully hasbeen noticed by other historians. Lieber “had <strong>in</strong>deed argued beforethe war that the orig<strong>in</strong>al Constitution was <strong>in</strong>sufficient to the needs<strong>of</strong> the nation . . . <strong>in</strong> the 1830s and 1840s, he had ga<strong>in</strong>ed prom<strong>in</strong>ence,North and South, by attack<strong>in</strong>g the idea <strong>of</strong> a fixed Constitution.” Astaunch advocate <strong>of</strong> federal growth, he thought “that federal powershould expand slowly and organically—and thus constitutionally—asthe nation grew. . . . He believed that the war would solidifythe Union and thus fulfill his dream, nurtured dur<strong>in</strong>g his schoolyears <strong>in</strong> Germany, <strong>of</strong> liv<strong>in</strong>g <strong>in</strong> a modern nation-state.” Later on,dur<strong>in</strong>g the war Lieber became very popular, wrote dozens <strong>of</strong> articlesand pamphlets <strong>in</strong> order “to popularize his dist<strong>in</strong>ctive brand <strong>of</strong>nationalism.” In practice, “[h]is many public statements used theSouth’s <strong>in</strong>surrection to justify an expansion <strong>of</strong> federal powerbeyond what the Constitution expressly sanctioned.” 20Although probably the most important, Lieber was not alone <strong>in</strong>foster<strong>in</strong>g these concepts all across the country. William T. Harris <strong>of</strong>St. Louis, one <strong>of</strong> the first American Hegelians, and the Germaneducated John W. Burgess, Lieber’s own successor at ColumbiaCollege, were jo<strong>in</strong><strong>in</strong>g forces <strong>in</strong> render<strong>in</strong>g familiar the new nationalistdogma to the citizenry. In this respect the war was clearly aturn<strong>in</strong>g po<strong>in</strong>t. As Merle Curti put it:18 Ibid.19 Alan Pendleton Grimes, American Political Thought (New York: Holt,1960), p. 283.20 Michael Vorenberg, F<strong>in</strong>al Freedom: The Civil War, the Abolition <strong>of</strong> Slavery,and the Thirteenth Amendment (Cambridge: Cambridge University Press, 2001),p. 64.
92 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Dur<strong>in</strong>g and after the Civil War, Northern <strong>in</strong>tellectualsdeveloped the <strong>in</strong>cipient organic theory, which at firstdid not reach the rank and file even <strong>in</strong> the North. In theOld World the organic theory was likewise serv<strong>in</strong>g the<strong>in</strong>tegral type <strong>of</strong> nationalism that had largely replacedthe older, humanitarian variety <strong>of</strong> the early n<strong>in</strong>eteenthcentury. 21CONCLUSIONIn the words <strong>of</strong> Karl Marx, the Civil War was a “world-transform<strong>in</strong>g. . . revolutionary movement.” 22 Dat<strong>in</strong>g from the year1862, this must be considered as one <strong>of</strong> his few correct prophecies,albeit an easy one.The whole political landscape <strong>of</strong> America was changed by thewar <strong>in</strong> an unparalleled way. The call for centralized power was thetheme <strong>of</strong> the day and became the everlast<strong>in</strong>g legacy <strong>of</strong> the war. Asfar as the States were concerned, it was not only the idea <strong>of</strong> a perpetualand not so voluntary union that had prevailed, but also thenotion that the States were mere prov<strong>in</strong>ces <strong>of</strong> a vast empire.The sectional crisis beg<strong>in</strong>n<strong>in</strong>g <strong>in</strong> 1828 (with the publication <strong>of</strong>South Carol<strong>in</strong>a’s Exposition and Protest, penned by John Calhoun)up to the Southern bid for <strong>in</strong>dependence developed on two <strong>in</strong>tertw<strong>in</strong>edissues: constitutional <strong>in</strong>terpretation and tariffs. The victory<strong>of</strong> the North on both fronts was absolute. The Constitution wastransformed by the post-war amendments and could be freely<strong>in</strong>terpreted by the Supreme Court, with the States—qua States—hav<strong>in</strong>g no part <strong>in</strong> its read<strong>in</strong>g. The Constitution became a typicalmatter for the federal power to deal with. Likewise, by the end theeconomic supremacy <strong>of</strong> the federal government was unchallenged.A system <strong>of</strong> national banks chartered by the national governmentrendered the decade long struggle aga<strong>in</strong>st a national bank21 Merle Curti, The Roots <strong>of</strong> American Loyalty (New York: Columbia UniversityPress, 1946), p. 175.22 Karl Marx to Friedrich Engels, October 29th–November 17th, 1862, <strong>in</strong>Karl Marx on America and the Civil War, Saul K. Padover, ed. (New York,McGraw-Hill, 1972), p. 263.
Bassani: Abraham L<strong>in</strong>coln and the Modern State — 93obsolete. If the fight <strong>of</strong> the Jeffersonians had been for “hard currencyand hardly any government,” by the end <strong>of</strong> the 1870s an allpowerfulgovernment was sponsor<strong>in</strong>g fiat money.The Supreme Court, under Chase . . . upheld the constitutionality<strong>of</strong> the Legal Tender Act. Before the end <strong>of</strong>Reconstruction, Greenbackers were clamor<strong>in</strong>g for morepaper money. Few citizens before the war had contributeddirectly to the treasury. By the war’s closeeveryone and everyth<strong>in</strong>g was taxed. 23In the end, it was the presidency <strong>of</strong> L<strong>in</strong>coln—the very statesmanwho said “the pr<strong>in</strong>ciples <strong>of</strong> Jefferson are the def<strong>in</strong>itions andaxioms <strong>of</strong> free society” 24 —that wrote f<strong>in</strong>is to those very same pr<strong>in</strong>ciplesand ended the American experiment <strong>in</strong> limited governmentand self-government. One <strong>of</strong> the major consequences <strong>of</strong> the metaconstitutionaltheory <strong>of</strong> the Union as an end <strong>in</strong> itself (and <strong>of</strong> equat<strong>in</strong>gits dissolution with a “moral catastrophe”) embraced by AbrahamL<strong>in</strong>coln was that <strong>of</strong> mak<strong>in</strong>g American political thought morereceptive to European theories. 25 America proceeded towards a“normalization” <strong>of</strong> sorts, grow<strong>in</strong>g ever more similar to Europe.And this process <strong>of</strong> “convergence” was to reach its peak dur<strong>in</strong>gthe last century. L<strong>in</strong>coln “normalized” America, thus open<strong>in</strong>g thedoor for the Americanization <strong>of</strong> the world.American constitutional liberalism <strong>of</strong> the orig<strong>in</strong>s, namely federalism,hav<strong>in</strong>g lost its moor<strong>in</strong>gs <strong>in</strong> the theory <strong>of</strong> natural rights,became <strong>in</strong>creas<strong>in</strong>gly transformed <strong>in</strong>to an <strong>in</strong>strument <strong>of</strong> ideologicalconflict between the two sections <strong>of</strong> the country, which were bynow tantamount to veritable dist<strong>in</strong>ct nations.23 James A. Rawley, The Politics <strong>of</strong> Union: Northern Politics dur<strong>in</strong>g the CivilWar (L<strong>in</strong>coln: University <strong>of</strong> Nebraska Press, 1980), p. 184.24 Abraham L<strong>in</strong>coln to H.L. Pierce et al. (April 6th 1859), Collected Works,vol. II, p. 375.25 Just as an example, <strong>in</strong> the late N<strong>in</strong>eteenth century John W. Burgess<strong>of</strong>fered a def<strong>in</strong>ition <strong>of</strong> sovereignty as an “orig<strong>in</strong>al, absolute, unlimited, universalpower over the <strong>in</strong>dividual subject and over all associations <strong>of</strong> subjects,”and <strong>of</strong> “the State . . . [as] the source <strong>of</strong> all titles to land and <strong>of</strong> all powers overit,” John W. Burgess, Political Science and Comparative Constitutional Law(Boston-London: G<strong>in</strong>n, 1891), vol. I, pp. 47, 52.
94 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>The sea changes that I have tried here to summarize are betterunderstood as the triumph <strong>of</strong> the modern State, but they mightlikewise be seen, <strong>in</strong> a more classical, American approach, as thef<strong>in</strong>al displacement <strong>of</strong> the Found<strong>in</strong>g Fathers’ design for self andlimited government. This conclusion, <strong>of</strong> course, is liable to grate onthe ears <strong>of</strong> those—scholars, popular historians, journalists andpoliticians—who subscribe to the standard, fashionable view thatthe gigantic upheaval occasioned by the Civil War was first andforemost a moral crusade for the eradication <strong>of</strong> slavery and theredemption <strong>of</strong> the white race <strong>in</strong> this country from its orig<strong>in</strong>al s<strong>in</strong>.In conclusion, we must turn aga<strong>in</strong> to the American Staatstheoriepr<strong>of</strong>essors. It is true that their dom<strong>in</strong>ance <strong>in</strong> the pr<strong>of</strong>ession fadedafter World War I, and their ultimate failure might be l<strong>in</strong>ked to thefact that they were “unable to apply the German idea <strong>of</strong> the stateto the American Political tradition.” 26 But this is true only from apurely theoretical perspective. Abraham L<strong>in</strong>coln was not engag<strong>in</strong>g<strong>in</strong> such a complex pursuit. He did not have to render the two traditionscompatible, but rather to burn the bridges with the oldAmerican notion <strong>of</strong> “liberty vs. government.” In addition, he didnot have to w<strong>in</strong> any sophisticated scholarly dispute, as he had betterweapons than cont<strong>in</strong>ental authorities on the subject <strong>of</strong> libertyand the State. It was his army that, <strong>in</strong> fact made every citizen,North and South <strong>of</strong> the Potomac, appreciate the notion that therewas an identity <strong>of</strong> <strong>in</strong>terest between the <strong>in</strong>dividual and the State (bynow understood as the Nation).The conventional wisdom concedes that Abraham L<strong>in</strong>coln, <strong>in</strong>uproot<strong>in</strong>g slavery, also uprooted the old notion <strong>of</strong> an oppositionbetween the <strong>in</strong>dividual and the State. I would contend, however,that a more careful read<strong>in</strong>g <strong>of</strong> history gives us a materially differentpicture. L<strong>in</strong>coln’s primary object was, <strong>in</strong> fact, to eradicate theeighteenth century opposition between the <strong>in</strong>dividual and theState, depriv<strong>in</strong>g <strong>of</strong> any mean<strong>in</strong>g a Constitution that was constructedon such a dichotomy. The pr<strong>in</strong>cipal result was the end <strong>of</strong>the Founders’ Republic and the emergence <strong>of</strong> the United States asa Modern State. The end <strong>of</strong> slavery was only a side effect, albeit amuch welcomed one, <strong>of</strong> L<strong>in</strong>coln’s primary goal. 26 Fries, “Staatstheorie and the New American Science <strong>of</strong> Politics,” p. 403.
14The Sociology <strong>of</strong> the Development <strong>of</strong>Austrian EconomicsJoseph T. SalernoAlthough this paper was presented as a lecture <strong>in</strong> 1996, Ihave chosen to publish it <strong>in</strong> this volume <strong>in</strong> nearly itsorig<strong>in</strong>al manuscript form. 1 It was never previously publishedor posted electronically, but the paper achieved alimited circulation <strong>in</strong> manuscript form via copy and fax mach<strong>in</strong>esdur<strong>in</strong>g the primitive days <strong>of</strong> the Internet. Despite its relativelyrestricted exposure, however, it generated a remarkably heateddiscussion <strong>in</strong> Austrian economics circles—much <strong>of</strong> it based on an<strong>in</strong>accurate hearsay version <strong>of</strong> the paper—that lasted for a number<strong>of</strong> years. 2 So the first reason for publish<strong>in</strong>g the paper now withoutJoseph T. Salerno (salerno@mises.com) is the Academic Vice-President <strong>of</strong> theLudwig von Mises Institute, a Pr<strong>of</strong>essor <strong>of</strong> Economics (Graduate ProgramChair) at the Lub<strong>in</strong> School <strong>of</strong> Bus<strong>in</strong>ess at Pace University, and editor <strong>of</strong> theQuarterly Journal <strong>of</strong> Austrian Economics. This paper is an edited version <strong>of</strong> aspeech presented at the Ludwig von Mises Institute’s First Annual AustrianScholars Conference, Auburn University, Alabama, January 26–27, 1996, on apanel entitled “The Future <strong>of</strong> the Austrian School.”1 Footnotes have been added and the title has been changed, but save forthe correction <strong>of</strong> grammatical errors and the <strong>in</strong>sertion <strong>of</strong> a few clarify<strong>in</strong>gwords here and there, the text has rema<strong>in</strong>ed substantially unaltered.2 See, for example, David L. Prychitko, “Thoughts on Austrian Economics,‘Austro-Punkism,’ and Libertarianism,” <strong>in</strong> idem, Markets, Plann<strong>in</strong>g and Democracy:95
96 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>major revision is to set the record straight regard<strong>in</strong>g the actualclaims and support<strong>in</strong>g arguments conta<strong>in</strong>ed <strong>in</strong> it. A second reasonfor proceed<strong>in</strong>g with belated publication <strong>of</strong> the manuscript is toacquiesce <strong>in</strong> and thus put a halt to the numerous importunities topublish that I have been subjected to over the years by colleaguesand friends who were broadly aware <strong>of</strong> the prolonged controversythat swirled around the paper but were neither <strong>in</strong> the audience atits orig<strong>in</strong>al presentation nor had the opportunity to read it subsequently.The third, and perhaps the most important, <strong>of</strong> my reasonsfor comply<strong>in</strong>g with the editors’ request to publish the paper is that,despite the fact that the situation <strong>in</strong> Austrian economics hasgreatly changed for the better s<strong>in</strong>ce the paper was orig<strong>in</strong>ally writtenand despite my dissatisfaction with its imperfections <strong>of</strong> styleand tone, I th<strong>in</strong>k its substantive claims have stood up quite welland bear repeat<strong>in</strong>g. In particular, I believe the paper identifiescounterproductive attitudes peculiar to proponents <strong>of</strong> a heterodox<strong>in</strong>tellectual movement. Such attitudes are always liable to recurand must be vigilantly guarded aga<strong>in</strong>st because they are likely toimpede the movement’s further progress, if not threaten its verysurvival.AUSTRIAN ECONOMICS DEFINEDBefore we venture to speculate on the future <strong>of</strong> the AustrianSchool, we must first def<strong>in</strong>e the dist<strong>in</strong>ct <strong>in</strong>tellectual paradigmadherence to which characterizes a member <strong>of</strong> this school.Specify<strong>in</strong>g a vague methodological attitude or stance, for example“subjectivism” or “methodological <strong>in</strong>dividualism,” is not sufficient.These labels arguably apply to a broad array <strong>of</strong> modern economists—fromthe late George Shackle to Milton Friedman the pricetheorist—as well as to the contemporary followers <strong>of</strong> Carl Mengerand Ludwig von Mises. To capture the essence <strong>of</strong> the dist<strong>in</strong>ctivelyAustrian approach to economics, therefore, we must do much more.Namely, we must def<strong>in</strong>e the precise and realistic method utilized bythe acknowledged masters <strong>of</strong> Austrian economics for discover<strong>in</strong>g<strong>Essays</strong> after the Collapse <strong>of</strong> Communism (Lyme, N.H.: Edward Elgar Publish<strong>in</strong>g,2002), p. 186, et pass.
Salerno: The Sociology <strong>of</strong> the Development <strong>of</strong> Austrian Economics — 97and explicat<strong>in</strong>g what Menger called the “exact” laws <strong>of</strong> economics.3 For my money, this method is praxeology, which was given itsname and first comprehensive explication by Mises. Mises did notconceive praxeology as a metaeconomic discourse unrelated to theworkaday concerns <strong>of</strong> the economic theorist; he himself used it asa tool <strong>of</strong> research <strong>in</strong> revolutioniz<strong>in</strong>g the theories <strong>of</strong> money, bus<strong>in</strong>esscycles, and socialism. Even before Mises, however, thismethod was actually employed by the great founders <strong>of</strong> the Austrianschool, Menger and Böhm-Bawerk, to discover new economictruths. What Mises calls “the modern theory <strong>of</strong> value andprices,” 4 first systematically expounded by Böhm-Bawerk, is a tangiblecreation <strong>of</strong> praxeology. Go<strong>in</strong>g back further still, this methodwas also adumbrated and used by some <strong>of</strong> the most creative eighteenth-and n<strong>in</strong>eteenth-century economists, namely Cantillon, Say,Senior, and Cairnes.The essence <strong>of</strong> Austrian economics may be def<strong>in</strong>ed, then, as thestructure <strong>of</strong> economic theorems that is arrived at through theprocess <strong>of</strong> praxeological deduction, that is, through logical deductionfrom the reality-based Action Axiom. In addition to provid<strong>in</strong>ga unique and practicable method for develop<strong>in</strong>g the science <strong>of</strong> economics,this def<strong>in</strong>ition is useful precisely because it clearlyexcludes Shackle and Friedman, as well as many other economists,past and present, from be<strong>in</strong>g considered as practitioners <strong>of</strong> Austrianeconomics. It is childish to seek to def<strong>in</strong>e an <strong>in</strong>tellectual paradigm,or even to use a def<strong>in</strong>ite term to designate it, while at thesame time bemoan<strong>in</strong>g a particular def<strong>in</strong>ition because it excludes oris “<strong>in</strong>tolerant <strong>of</strong>” those whose views are essentially <strong>in</strong>consistentwith the paradigm so def<strong>in</strong>ed. It must not be forgotten that a def<strong>in</strong>ition,by def<strong>in</strong>ition, is meant to be rigidly essentialist and, hence,exclusivist.3 See Carl Menger, Problems <strong>of</strong> Economics and Sociology, Louis Schneider, ed.(Urbana: University Ill<strong>in</strong>ois Press, 1963), pp. 61, 69; idem, Investigations <strong>in</strong>to theMethod <strong>of</strong> the Social Sciences with Special Reference to Economics, Francis J. Nock,trans. (New York: New York University Press, 1985 [1883]), chaps. 4–5.4 Ludwig von Mises, Human Action: A Treatise on Economics (Chicago: ContemporaryBooks Inc., 1966), p. 201.
98 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Hav<strong>in</strong>g given a def<strong>in</strong>ition <strong>of</strong> Austrian economics, I now turn toa discussion <strong>of</strong> two problems which cloud its future. Both <strong>of</strong> theseproblems, I will argue, betray a peculiar reluctance on the part <strong>of</strong>some <strong>of</strong> its practitioners to def<strong>in</strong>e precisely what is meant by Austrianeconomics. Perhaps this reluctance is due to a fear that todef<strong>in</strong>e a science or the specific method <strong>of</strong> pursu<strong>in</strong>g it is to peremptorilyforeclose the possibility <strong>of</strong> any future progress <strong>in</strong> the discipl<strong>in</strong>e.The enormous advances that have occurred with<strong>in</strong> the praxeologicalparadigm s<strong>in</strong>ce Say and Senior first began to self-consciouslyarticulate its method, I th<strong>in</strong>k, render this fear baseless.Indeed, I would argue that it is hardly accidental that Mises, thefirst economist to deliberately utilize praxeology as a comprehensiveresearch method, was the economist who made the greatestsubstantive advances <strong>in</strong> the Austrian theoretical paradigm. However,due to a severe constra<strong>in</strong>t <strong>of</strong> time, I will not pursue this po<strong>in</strong>tany further here.AUSTRO-PUNKISMThe first problem becloud<strong>in</strong>g the future <strong>of</strong> the Austrian schoolI call “Austro-punkism.” My use <strong>of</strong> this neologism here is not<strong>in</strong>tended to evoke the older, <strong>in</strong>def<strong>in</strong>ite sense <strong>of</strong> the term “punk” asanyone, “especially a youngster, regarded as <strong>in</strong>experienced,<strong>in</strong>significant, etc.” 5 Rather, I use it <strong>in</strong> the more specific and nowwidely-accepted sense to <strong>in</strong>dicate the harbor<strong>in</strong>g <strong>of</strong> an impious attitudetoward the accomplishments <strong>of</strong> the past and, hence, towardall authority. This attitude is the driv<strong>in</strong>g force <strong>of</strong> the phenomenon<strong>of</strong> “punk” rock, which from its narrowly musical roots <strong>in</strong> the late1970s has grown <strong>in</strong>to a broad cultural movement today. The broadsocial acceptance <strong>of</strong> the punk phenomenon is exemplified by thefact that its music, now blandly but significantly entitled “alternativerock,” permeates the airwaves <strong>of</strong> even ma<strong>in</strong>stream, commercialradio stations. (I must confess I am bitter that the last rema<strong>in</strong><strong>in</strong>g“classic” rock station <strong>in</strong> New York City has recently andabruptly converted to the “alternative” rock format.)5 Webster’s New Twentieth Century Dictionary <strong>of</strong> the English Language,unabridged 2nd ed. (New York: Simon & Schuster, 1983), p. 1462.
Salerno: The Sociology <strong>of</strong> the Development <strong>of</strong> Austrian Economics — 99Now, I am not try<strong>in</strong>g to suggest here that the roots <strong>of</strong> Austropunkismlie <strong>in</strong> popular culture. I will deal with the causes thatunderlie it shortly. My immediate purpose <strong>in</strong> the allusion to punkrock is to justify my use <strong>of</strong> the “Austro-punkism” label as a nonpejorativeand mean<strong>in</strong>gfully descriptive term, which contributesprecision and clarity to our discussion <strong>of</strong> the prospects for Austrianeconomics.Austro-punkism, as I employ the term, then, identifies a movementwith<strong>in</strong> Austrian economics that recognizes no masters <strong>of</strong> thediscipl<strong>in</strong>e and that, therefore, calls all received doctr<strong>in</strong>e <strong>in</strong>to question.It views Austrian economics as a discipl<strong>in</strong>e <strong>in</strong> a state <strong>of</strong> constantand radical flux, devoid <strong>of</strong> any fundamental and constantpr<strong>in</strong>ciples but rife with a myriad <strong>of</strong> endlessly debated questions.Indeed, lead<strong>in</strong>g proponents <strong>of</strong> Austro-punkism proudly trumpetthat an Austrian economist is one for whom there should eternallyexist more questions than answers. To venture a more mean<strong>in</strong>gfuldef<strong>in</strong>ition <strong>of</strong> Austrian economics than this represents for Austropunksan attempt to <strong>in</strong>tolerantly close <strong>of</strong>f the perpetual and openendedconversation that they uphold as the hallmark <strong>of</strong> scientific<strong>in</strong>quiry. 6With no acknowledged masters, any self-proclaimed Austrian(whether equipped with formal tra<strong>in</strong><strong>in</strong>g <strong>in</strong> economics or not) isjudged fit to try his hand at radically reconstruct<strong>in</strong>g the discipl<strong>in</strong>e.In other words, Austrian economics can and should be revolutionizedon a daily basis, by anyone and everyone. This means that theworks <strong>of</strong> Mises, Hayek, and Rothbard are not treated as authoritativetexts to be learned from and built upon <strong>in</strong> the pa<strong>in</strong>stak<strong>in</strong>glabor <strong>of</strong> systematically add<strong>in</strong>g to the <strong>in</strong>herited structure <strong>of</strong> economictheory. Instead these texts provide Austro-punkism with acommon vocabulary <strong>in</strong> which to carry on their <strong>in</strong>cessant and carp<strong>in</strong>gmetaeconomic discussion about the dire need for radicalreconstruction <strong>of</strong> economic theory. But the plans for reconstruction6 See Murray N. Rothbard, “The Hermeneutical Invasion <strong>of</strong> Philosophyand Economics,” Review <strong>of</strong> Austrian Economics 3, no. 1 (1989): 45–59; <strong>Hans</strong>-Herman <strong>Hoppe</strong>, “In Defense <strong>of</strong> Extreme Rationalism: Thoughts on DonaldMcCloskey’s The Rhetoric <strong>of</strong> Economics,” Review <strong>of</strong> Austrian Economics 3 no. 1(1989): 179–214; idem, “Comment on Don Lavoie,” Mont Pèler<strong>in</strong> Society, GeneralMeet<strong>in</strong>g (1994), available at www.<strong>Hans</strong><strong>Hoppe</strong>.com.
100 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>that issue forth from such metaeconomic grip<strong>in</strong>g never amount tomore than casual and wildly implausible glosses on the texts <strong>of</strong> themasters. This expla<strong>in</strong>s the centrality <strong>of</strong> hermeneutics to Austropunkism;it provides a justification for treat<strong>in</strong>g the mean<strong>in</strong>g <strong>of</strong> thetexts as <strong>in</strong>f<strong>in</strong>itely elastic and capable <strong>of</strong> bear<strong>in</strong>g almost any <strong>in</strong>terpretation,however outlandish. Without recourse to the exercise <strong>of</strong>deconstruct<strong>in</strong>g the texts <strong>of</strong> the masters, the metaeconomic discourse<strong>of</strong> Austro-punkism would come to a screech<strong>in</strong>g halt,because it has <strong>of</strong>fered no practical alternative to praxeology as amethod for systematically elaborat<strong>in</strong>g economic theory.The treatment meted out by the Austro-punks to Mises andRothbard sharply contrasts with the pious treatment accorded bythese creative geniuses to their own masters. Mises confesses thathe felt himself competent to criticize the value and price theorythat he learned from Menger and Böhm-Bawerk only after he himselfhad reached a mature understand<strong>in</strong>g <strong>of</strong> the issues. 7 Thisoccurred only at the age <strong>of</strong> 52, after he already had published hismajor treatises on money and socialism and had achieved em<strong>in</strong>enceas one <strong>of</strong> the lead<strong>in</strong>g economists on the Cont<strong>in</strong>ent. And,despite their substantive and long-stand<strong>in</strong>g differences <strong>in</strong> politicaleconomy, the first time Murray Rothbard ever ventured to directlycriticize Mises <strong>in</strong> public was <strong>in</strong> the classic paper he presented atSouth Royalton <strong>in</strong> 1974 on “Praxeology, Value Judgments andPublic policy.” 8 Murray was then already 48 years old and yet,7 Ludwig von Mises, Notes and Recollections (South Holland, Ill.: LibertarianPress, 1978), p 60. On the moral obligation entailed <strong>in</strong> pronounc<strong>in</strong>g on aspecialized subject, Rothbard stated: “It is no crime to be ignorant <strong>of</strong> economics,which is, after all, a specialized discipl<strong>in</strong>e and one that most people considerto be a ‘dismal science.’ But it is totally irresponsible to have a loud andvociferous op<strong>in</strong>ion on economic subjects while rema<strong>in</strong><strong>in</strong>g <strong>in</strong> this state <strong>of</strong> ignorance.”Murray N. Rothbard, “Anarcho-Communism,” <strong>in</strong> Egalitarianism as aRevolt Aga<strong>in</strong>st Nature and Other <strong>Essays</strong>, 2nd ed. (Auburn, Ala.: Mises Institute,2002 [1974]), p. 202; orig<strong>in</strong>ally published as “Anarcho-Communism,” The LibertarianForum II, no. 1 (January 1, 1970).8 Murray N. Rothbard, “Praxeology, Value Judgments, and Public Policy,”<strong>in</strong> Edw<strong>in</strong> G. Dolan, ed., The Foundations <strong>of</strong> Modern Austrian Economics (KansasCity: Sheed and Ward, 1976), pp. 89–111, also published <strong>in</strong> Murray N. Rothbard,The Logic <strong>of</strong> Action One (Cheltenham, U.K.: Edward Elgar, 1997), pp.78–99.
Salerno: The Sociology <strong>of</strong> the Development <strong>of</strong> Austrian Economics — 101after his talk had ended, I remember him confid<strong>in</strong>g to a few <strong>of</strong> usthat he was still a “little shaky” from the experience <strong>of</strong> publicallydisagree<strong>in</strong>g with his mentor for the first time. (This <strong>of</strong> course isprecisely the attitude one should have when attempt<strong>in</strong>g toadvance beyond the acknowledged master <strong>of</strong> a discipl<strong>in</strong>e, even <strong>in</strong>a m<strong>in</strong>or area.)Austro-punkism itself, <strong>in</strong>deed, raises more questions than thereare answers for. Most significantly, why Austro-punkism? Why isthe neo-Austrian school—<strong>of</strong> all schools <strong>of</strong> economics past andpresent—seem<strong>in</strong>gly the only school ever to be afflicted with thescourge <strong>of</strong> punkism? Why not Ricardian-punkism or Chicagopunkism?The works <strong>of</strong> Milton Friedman, George Stigler, andGary Becker, after all, are never casually derided or subjected togrossly distorted re<strong>in</strong>terpretations by those pr<strong>of</strong>ess<strong>in</strong>g to beChicago economists. This is not to deny, <strong>of</strong> course, that almost allschools spawn radical <strong>in</strong>ternal critics. But generally such dissidents,sooner or later, promote a schism among the like-m<strong>in</strong>ded <strong>in</strong>the discipl<strong>in</strong>e. One only has to th<strong>in</strong>k <strong>of</strong> Paul Davidson and thePost-Keynesians, Robert Mundell and the Supply-siders, RobertLucas and the Rational Expectations school, Gregory Mankiw andthe other New Keynesians to recognize the pervasiveness <strong>of</strong> thisphenomenon <strong>in</strong> contemporary economics.Yet, schismatics differ from punks <strong>in</strong> three important respects.First, the promoters <strong>of</strong> schism are generally <strong>in</strong>dividuals who havecompletely absorbed and may even have substantially contributedto the orthodoxy they are now seek<strong>in</strong>g to escape. Second, they areeager to proclaim their apostasy to the world by relabel<strong>in</strong>g themselves.And, third, at least some <strong>in</strong> the ranks <strong>of</strong> the schismaticmovement are will<strong>in</strong>g and able to embark upon the arduous task<strong>of</strong> substantively reconstruct<strong>in</strong>g the edifice <strong>of</strong> the orthodox economictheory they object to. Austro-punks, <strong>in</strong> contrast, tend to be<strong>in</strong>nocent <strong>of</strong> a pr<strong>of</strong>ound understand<strong>in</strong>g <strong>of</strong> the orthodoxy they criticize.Moreover, their <strong>in</strong>terest lies not ma<strong>in</strong>ly <strong>in</strong> theoretical orapplied research <strong>in</strong> economics proper, but <strong>in</strong> promulgat<strong>in</strong>g metanormsfor economic theoriz<strong>in</strong>g and dawdl<strong>in</strong>g glosses on the texts<strong>of</strong> the masters. Most significantly, rather than seiz<strong>in</strong>g the firstopportunity to break free <strong>of</strong> the oppressive orthodoxy they disda<strong>in</strong>,Austro-punks cl<strong>in</strong>g to their proclaimed position with<strong>in</strong> Austrianeconomics like Leonidas and his Spartans at Thermopylae.
102 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>So, I ask aga<strong>in</strong>, why the peculiar phenomenon <strong>of</strong> Austropunkism?I have pondered on this question for a few years and Ith<strong>in</strong>k I have a few answers.The causes <strong>of</strong> Austro-punkism are threefold. Briefly, they arethe lack <strong>of</strong> formal graduate tra<strong>in</strong><strong>in</strong>g <strong>in</strong> Austrian economics, the<strong>in</strong>fluence <strong>of</strong> 1970s-style left-libertarianism, and the work (not theperson) <strong>of</strong> Ludwig Lachmann. I will say a few words about each <strong>of</strong>these causes <strong>in</strong> turn.1. Lack <strong>of</strong> a Graduate SchoolLack <strong>of</strong> formal graduate tra<strong>in</strong><strong>in</strong>g <strong>in</strong> Austrian economics representsthe objective or <strong>in</strong>stitutional deficiency that has bedeviledAustrian economics from the <strong>in</strong>ception <strong>of</strong> its modern renascence.Despite several laudable programs <strong>in</strong> Austrian economics associatedwith universities <strong>in</strong> the U.S., there is still not available to the<strong>in</strong>terested young scholar a conventional graduate program <strong>in</strong> whichhe or she may obta<strong>in</strong> comprehensive and rigorous tra<strong>in</strong><strong>in</strong>g <strong>in</strong> Austrianeconomic theory. But rigorous theoretical tra<strong>in</strong><strong>in</strong>g is essentialnot only to the development <strong>of</strong> the aspir<strong>in</strong>g Austrian economist butalso to the healthy flourish<strong>in</strong>g <strong>of</strong> the overall discipl<strong>in</strong>e.Graduate education is the means <strong>of</strong> foster<strong>in</strong>g respect for themasters <strong>of</strong> the science by enforc<strong>in</strong>g a discipl<strong>in</strong>ed <strong>in</strong>terpretation <strong>of</strong>their texts. The chairman <strong>of</strong> my dissertation committee, an unreconstructedIS/LM Keynesian, 9 once told me that the first time heread Pat<strong>in</strong>k<strong>in</strong>’s Money, Interest, and Prices, 10 William Fellner ledhim through it by the nose; the second time, Fellner sent himthrough it on his ear; and by the third read<strong>in</strong>g, humbled andscraped, he had begun to understand it. Needless to say, my advisorneither lacked respect for Pat<strong>in</strong>k<strong>in</strong>, nor foisted upon me anybizarre re<strong>in</strong>terpretations <strong>of</strong> his work. A similar engagement withHuman Action or Man, Economy and State 11 would work wondersfor our metaeconomists.9 IS/LM stands for “Investment Sav<strong>in</strong>g/Liquidity preference Money supply.”10 Don Pat<strong>in</strong>k<strong>in</strong>, Money, Interest, and Prices, 2nd ed. (New York: Harper &Row, Publishers, 1965).11 Mises, Human Action; Murray N. Rothbard, Man, Economy, and State: ATreatise on Economic Pr<strong>in</strong>ciples, with Power and Market: Government and the
Salerno: The Sociology <strong>of</strong> the Development <strong>of</strong> Austrian Economics — 103In fact, it is precisely the <strong>in</strong>adequacy <strong>of</strong> their ground<strong>in</strong>g <strong>in</strong> technicalAustrian economic theory that accounts for their absorption<strong>in</strong> metaeconomics. When pushed to analyze a real-world problem,Austro-punks generally resort to Chicago price theory, PublicChoice theory, Game theory, or Transactions-costs economicsdepend<strong>in</strong>g upon the era and <strong>in</strong>stitution <strong>of</strong> their graduate tra<strong>in</strong><strong>in</strong>g.Those who have not been relentlessly drilled <strong>in</strong> the technicalaspects <strong>of</strong> price theory as taught by Böhm-Bawerk, Wicksteed, andMises or compelled to master the <strong>in</strong>tricacies <strong>of</strong> Austrian productionand capital theory <strong>in</strong> their <strong>in</strong>tellectually formative years willhardly be <strong>in</strong>cl<strong>in</strong>ed to pursue mean<strong>in</strong>gful research <strong>in</strong> theoretical orapplied Austrian economics.But graduate schools are essential to a flourish<strong>in</strong>g discipl<strong>in</strong>e notonly for how they teach but also for whom they exclude. There areno other means available for weed<strong>in</strong>g out those who are unsuitedby ability or temperament to pursue research <strong>in</strong> economics andwho, therefore, are apt to develop <strong>in</strong>to sterile and punkish malcontents.This all-important exclusionary function is generally performedby rigorous drill<strong>in</strong>g <strong>in</strong> the fundamentals <strong>of</strong> the discipl<strong>in</strong>e.For example, beg<strong>in</strong>n<strong>in</strong>g with what Paul Samuelson calls the “terror”employed by V<strong>in</strong>er <strong>in</strong> his theory course <strong>in</strong> the 1930s, the University<strong>of</strong> Chicago’s Economics Department has not lacked for amechanism for screen<strong>in</strong>g out unfit candidates for advanceddegrees. Thus one rarely encounters <strong>in</strong>dividuals proclaim<strong>in</strong>g to be“Chicago economists” who seek to overturn Chicago price theoryor, for that matter, “MIT economists” who repeatedly expressdoubts about the efficacy <strong>of</strong> mathematical model<strong>in</strong>g. Would thatwe could say the same about so-called “Austrian economists” whoregard Rothbard as merely a libertarian theorist and ridicule praxeologyas a simplistic and <strong>in</strong>tolerant methodology.This s<strong>in</strong>gularly promiscuous use <strong>of</strong> the label “Austrian economist”cries out for the implementation <strong>of</strong> an <strong>in</strong>stitutionalizedexclusionary process <strong>in</strong> Austrian economics. Of course, this is nota call for ano<strong>in</strong>t<strong>in</strong>g a particular person or <strong>in</strong>stitution as f<strong>in</strong>al arbiter<strong>of</strong> who does and who does not qualify as an “Austrian economist.”Economy, Scholars edition (Auburn, Ala.: Mises Institute, 2004; Man, Economyand State orig<strong>in</strong>ally published 1962).
104 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>This would be a ridiculous and less than <strong>in</strong>genuous <strong>in</strong>ference frommy argument. Rather, the existence <strong>of</strong> a graduate program <strong>in</strong> Austrianeconomics would provide the critical objective test—a “markettest,” if you will—to facilitate the natural process <strong>of</strong> doctr<strong>in</strong>alself-exclusion, as is the case currently, for example, with Chicagoeconomists. Those <strong>in</strong>dividuals who flunk out <strong>of</strong> the Chicago graduateeconomics program or whose <strong>in</strong>terests or aptitudes divertthem <strong>in</strong>to a graduate philosophy program rarely, if ever, refer tothemselves as “Chicago economists.” Why should matters be anydifferent with Austrian economists?2. 1970s-Style Left-LibertarianismMany <strong>of</strong> those <strong>in</strong>terested <strong>in</strong> pursu<strong>in</strong>g Austrian economics arenaturally motivated by ideology. They are <strong>in</strong>tensely <strong>in</strong>terested <strong>in</strong>learn<strong>in</strong>g how to rationally defend a free society. This motivation,<strong>in</strong> and <strong>of</strong> itself, should present no difficulties for our science. Butmany <strong>of</strong> the ideologically-<strong>in</strong>cl<strong>in</strong>ed <strong>in</strong>dividuals who found theirway <strong>in</strong>to Austrian economics s<strong>in</strong>ce the beg<strong>in</strong>n<strong>in</strong>g <strong>of</strong> its revival <strong>in</strong>the 1960s have been proponents <strong>of</strong> 1970s-style left-libertarianism.This variant <strong>of</strong> libertarianism fosters a punkish worldview, s<strong>in</strong>ceits adherents tend to promote atomistic <strong>in</strong>dividualism, which neglectsthe dist<strong>in</strong>ction between State power and bureaucracy on theone hand and the necessarily hierarchical and authoritarian structuresand <strong>in</strong>stitutions <strong>of</strong> culture, religion, scholarship and bus<strong>in</strong>esson the other. They do not realize that society and all its <strong>in</strong>stitutionsare pervasively and <strong>in</strong>escapably elitist and authoritarian. 12 Theychafe aga<strong>in</strong>st the operation <strong>of</strong> the iron law <strong>of</strong> oligarchy, which12 The word “authoritarian” is not used here <strong>in</strong> its usual sense as a description<strong>of</strong> a political system or an <strong>in</strong>dividual psychological trait; rather it is used,for lack <strong>of</strong> a better term, to refer to a social process <strong>in</strong> which authority <strong>in</strong> somearea or subject is voluntarily and spontaneously <strong>in</strong>vested <strong>in</strong> specific <strong>in</strong>dividuals,families, and organizations. On the nature and constitution <strong>of</strong> authority<strong>in</strong> this sense, see Robert Nisbet, Twilight <strong>of</strong> Authority (New York: Oxford UniversityPress, 1975). For more on the topic <strong>of</strong> natural elites and related matters,see <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God That Failed: The Economicsand Politics <strong>of</strong> Monarchy, Democracy, and Natural Order (New Brunswick,N.J.: Transaction Publishers, 2001), p. 71 et pass.
Salerno: The Sociology <strong>of</strong> the Development <strong>of</strong> Austrian Economics — 105ensures that an elite will always tend to coalesce and predom<strong>in</strong>ate<strong>in</strong> any human endeavor.Accord<strong>in</strong>gly, as Mises has po<strong>in</strong>ted out, “There never lived atthe same time more than a score <strong>of</strong> men whose work contributedanyth<strong>in</strong>g to economics.” 13 Yet the Austro-punk is not humbled bythis <strong>in</strong>sight; from his perch <strong>in</strong> metaeconomics, he behaves as if literallyanyone is competent to prescribe a method <strong>of</strong> proceed<strong>in</strong>g forthe wholesale reconstruction <strong>of</strong> Austrian economics. The Austropunkis also not chastened by the fact that the great methodologists<strong>of</strong> our science were each one <strong>of</strong> the score <strong>of</strong> those then currentlyliv<strong>in</strong>g who made genu<strong>in</strong>e contributions to economic theory.Moreover, it was generally only later <strong>in</strong> their careers, after prolongedmeditation on and practice <strong>of</strong> economic theory, that mensuch as Say, Senior, Cairnes, Menger, Hayek, and Mises took upmethodological concerns.3. Ludwig LachmannWhile left-libertarian ideology goes a long way toward expla<strong>in</strong><strong>in</strong>gthe predisposition that many Austro-punks harbor to dismissthe body <strong>of</strong> theory <strong>in</strong>herited from the past masters <strong>of</strong> the science as<strong>in</strong>consistent with their prescribed meta-norms, it is the work <strong>of</strong>Ludwig Lachmann that supplies the content <strong>of</strong> these norms. Withoutembark<strong>in</strong>g on a detailed evaluation <strong>of</strong> Lachmann’s work, or <strong>of</strong>his position <strong>in</strong> Austrian economics, suffice it to say that Austropunkshave seized upon his well-known assertions that the“future is unknowable” and that “expectations, like human preferences,are autonomous.” 14 These propositions are then wieldedby Austro-punkism as a rhetorical bludgeon to bash any systematicelaboration <strong>of</strong> economic theory that employs, <strong>in</strong> however subsidiarya manner, the equilibrium construct. Thus, for example, themighty edifice <strong>of</strong> praxeological economic theory laboriously constructedover the years by economists from Menger to Rothbard is13 Mises, Human Action, p. 873.14 On this topic see <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “On Certa<strong>in</strong>ty and Uncerta<strong>in</strong>ty,Or: How Rational Can Our Expectations Be?”, Review <strong>of</strong> Austrian Economics10, no. 1 (1997): 49–78; also idem, “In Defense <strong>of</strong> Extreme Rationalism”and “Comment on Don Lavoie.”
106 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>summarily rejected as “too equilibrium” and “fail<strong>in</strong>g to mean<strong>in</strong>gfully<strong>in</strong>corporate expectations.”Of course, the Austro-punk project that seeks to formulate asystem <strong>of</strong> economic theory completely dispens<strong>in</strong>g with any referenceto the mental construct <strong>of</strong> equilibrium has not yet advancedbeyond the meta-plane. Nor will it ever, because human actionalways and everywhere embodies an <strong>in</strong>herent tendency towardequilibrium. Furthermore, Austro-punkism will never succeed <strong>in</strong>its program <strong>of</strong> expand<strong>in</strong>g economic theory to <strong>in</strong>corporate learn<strong>in</strong>gand expectations-formation processes. As Mises has demonstrated,the content <strong>of</strong> specific <strong>in</strong>dividuals’ knowledge and expectations,which renders the economist’s praxeological theorems relevantto real-world analysis, can only be derived from the historicaldiscipl<strong>in</strong>e <strong>of</strong> thymology. 15THE SOUTH ROYALTON SYNDROMEA second problem besett<strong>in</strong>g the contemporary Austrian School<strong>of</strong> economics and threaten<strong>in</strong>g to stunt its future development iswhat might be called the “South Royalton Syndrome.” It also isattributable to a failure to clearly def<strong>in</strong>e a uniquely Austrian paradigm.South Royalton, Vermont was the site <strong>in</strong> June 1974 <strong>of</strong> thefirst conference on Austrian economics held <strong>in</strong> North America.The ma<strong>in</strong> speakers at the conference were Murray Rothbard, IsraelKirzner, and Ludwig Lachmann, and its participants <strong>in</strong>cluded asurpris<strong>in</strong>gly large number <strong>of</strong> graduate students who have s<strong>in</strong>cegone on to academic careers, while cont<strong>in</strong>u<strong>in</strong>g to pursue research<strong>in</strong> Austrian economics. Together with the wholly unexpectedaward<strong>in</strong>g <strong>of</strong> the Nobel Prize <strong>in</strong> economics to Hayek later <strong>in</strong> thesame year, it was truly a def<strong>in</strong><strong>in</strong>g moment <strong>in</strong> the Austrian revivalwhose galvaniz<strong>in</strong>g effect on the young acolytes is difficult to overestimate.1615 Ludwig von Mises, Theory and History: An Interpretation <strong>of</strong> Social and EconomicEvolution (New Rochelle, N.Y.: Arl<strong>in</strong>gton House, 1969 [1957]). See alsoJoseph T. Salerno, “Ludwig von Mises on Inflation and Expectations,”Advances <strong>in</strong> Austrian Economics, vol. 2B (1995): 297–325.16 See Murray N. Rothbard, “The Present State <strong>of</strong> Austrian Economics,”paper delivered at the Tenth Anniversary Scholars’ Conference <strong>of</strong> the Ludwig
Salerno: The Sociology <strong>of</strong> the Development <strong>of</strong> Austrian Economics — 107Given these circumstances, there is an understandable,although unfortunate, tendency among those who participated <strong>in</strong>the South Royalton conference to def<strong>in</strong>e Austrian economics as aclosed network <strong>of</strong> South Royalton participants and their immediatestudents. The focus <strong>of</strong> the def<strong>in</strong>ition is thus not on a specificbody <strong>of</strong> truth and the method <strong>of</strong> advanc<strong>in</strong>g it but on a specificgroup <strong>of</strong> people, whose work is viewed as the exclusive source <strong>of</strong>new contributions to the discipl<strong>in</strong>e. Those who are afflicted withthe South Royalton syndrome, consequently, are <strong>in</strong>cl<strong>in</strong>ed to ignoreor dismiss the work <strong>of</strong> those outside the network and treat them asunwanted <strong>in</strong>terlopers <strong>in</strong>to Austrian economics. This is especiallythe case if the newcomer’s approach is fresh and diverges from thefamiliar or, even worse, directly challenges the work <strong>of</strong> a revered<strong>in</strong>sider.A liv<strong>in</strong>g science, however, requires the new blood <strong>of</strong> thosewho display the vision and drive to diverge from well-worn pathsand to venture beyond the boundaries tentatively marked out bythe current leaders <strong>of</strong> the discipl<strong>in</strong>e. These young visionariesshould be enthusiastically welcomed <strong>in</strong>to the Austrian fold andencouraged and supported <strong>in</strong> their exploration for new truth. Thiswas always Murray Rothbard’s view <strong>of</strong> how Austrian economicsshould progress. He was always urg<strong>in</strong>g others, especially theyoung, to “go beyond” his own work while adher<strong>in</strong>g to the basicpraxeological paradigm. He once wrote to me that “I welcomechange and advances <strong>in</strong> Austrian theory provided they are true,i.e., that they work from with<strong>in</strong> the basic Misesian paradigm. Sojust as I th<strong>in</strong>k that I have advanced beyond Mises <strong>in</strong> develop<strong>in</strong>gthe Misesian paradigm, [other] people … have advanced the paradigmstill further, and great!”von Mises Institute, October 9, 1992; published <strong>in</strong> Journal des Economistes et desEtudes Huma<strong>in</strong>es 6, no. 1 (March 1995), pp. 43–89 and <strong>in</strong> The Logic <strong>of</strong> ActionOne: Method, Money, and the Austrian School (Cheltenham, U.K.: Edward ElgarPublish<strong>in</strong>g, 1997); also Karen I. Vaughn, “The Rebirth <strong>of</strong> Austrian Economics:1974–99,” Journal <strong>of</strong> the Institute <strong>of</strong> Economic Affairs 20, Issue 1 (March 2000);Peter Lew<strong>in</strong>, “Biography <strong>of</strong> Ludwig Lachmann (1906–1990): Life and Work” (accessed Jan. 12, 2009).
108 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>CONCLUSIONIt is <strong>in</strong>terest<strong>in</strong>g to note that Austro-punkism and the South Royaltonsyndrome, although they appear to denote attitudes that arepolar opposites, may actually be complementary. After all, giventheir self-conscious aversion to def<strong>in</strong><strong>in</strong>g a common <strong>in</strong>tellectualparadigm, the bonds l<strong>in</strong>k<strong>in</strong>g the network <strong>of</strong> Austro-punks tend tobe personal rather than purely scientific. And their much-ballyhooeddevotion to tolerance as the beau ideal <strong>of</strong> the scientificmethod does not seem to be manifested <strong>in</strong> the treatment accordedthose young scholars who are eagerly advanc<strong>in</strong>g the frontiers <strong>of</strong>the praxeological paradigm.My purpose <strong>in</strong> mak<strong>in</strong>g these remarks is not to accuse particularpersons <strong>of</strong> error, and so I have studiously tried to avoid any referencesto particular persons. Rather my purpose is cautionary; weare all as fallible human be<strong>in</strong>gs <strong>in</strong> a shared <strong>in</strong>tellectual movementconfronted with similar temptations to err. I have been moved tospeak out because the errors <strong>in</strong> this case are capable <strong>of</strong> destroy<strong>in</strong>ga recently reborn and still fragile science with a great and glorioustradition and much to <strong>of</strong>fer the human race.
15Bus<strong>in</strong>ess Ethics: In the CrossfireBetween a Code <strong>of</strong> Conduct andBlack SheepEugen-Maria SchulakLieber <strong>Hans</strong>,Die vielen guten Gespräche, die ich bislang mit Dir führenkonnte, haben mich, nebst der Lektüre De<strong>in</strong>er Schriften, ganzaußerordentlich bereichert und beflügelt, w<strong>of</strong>ür ich Dir vonHerzen danken will. In me<strong>in</strong>er Heimatstadt Wien, deren Blütelängst Geschichte ist, fand ich im Zuge me<strong>in</strong>er philosophischenEntwicklung wohl manchen guten Lehrer, doch letztlichniemanden, der imstande war, die Welt <strong>in</strong> Form e<strong>in</strong>er grundlegendenKritik philosophisch gegen den Strich zu bürsten.Nichts hob sich wohltuend vom Üblichen und Erlaubten ab,Eugen-Maria Schulak (schulak@philosophische-praxis.at) is an entrepreneurserv<strong>in</strong>g as philosophical counselor <strong>in</strong> Vienna, Austria (www.philosophischepraxis.at).A university lecturer and author <strong>of</strong> six books, he is the director <strong>of</strong>the Department <strong>of</strong> Philosophy at the Siemens Academy <strong>of</strong> Life.This paper is an English version (translation by Ciaràn Cassidy) <strong>of</strong> a lecturedelivered on the occasion <strong>of</strong> the <strong>in</strong>augural meet<strong>in</strong>g <strong>of</strong> the Society for AustrianEconomic Thought, July 7, 2008, Hotel Imperial, Vienna.109
110 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>nichts wies <strong>in</strong> e<strong>in</strong>e neue Richtung. Die Klarheit und zw<strong>in</strong>gendeLogik De<strong>in</strong>er Gedanken haben mich, das kann ich heutesagen, aus e<strong>in</strong>er Art dogmatischem Schlummer geweckt. Eswurde mir e<strong>in</strong>e neue und wertvolle Gedankenwelt eröffnet,deren Wurzeln—und das ist die Po<strong>in</strong>te—hier <strong>in</strong> Wien zusuchen s<strong>in</strong>d. Du hast mir <strong>in</strong> gewissem S<strong>in</strong>ne me<strong>in</strong>e Heimatstadt,<strong>in</strong> der ich mich philosophisch verloren glaubte,wiederum zurückgegeben. Auch <strong>in</strong> emotionaler H<strong>in</strong>sicht istdies für mich von unschätzbarem Wert.Alles Gute und noch viel Kraft für weiteres fruchtbares Schaffen—Eugen 1Bus<strong>in</strong>ess ethics is a topic which is currently very much <strong>in</strong>fashion and which confronts us at every turn. This leadsus to ask, why should be so this; what might be the reasonfor this; and who, or what, could lie beh<strong>in</strong>d this development?But before we can hope to answer these questions, we must1 Translation (by Guido Hülsmann):Dear <strong>Hans</strong>:It is with all my heart that I thank you for the many good discussionswe have had so far, as well as for your writ<strong>in</strong>gs. They havegreatly enriched and <strong>in</strong>spired me. In my hometown <strong>of</strong> Vienna,which flourished long ago, I encountered <strong>in</strong> the course <strong>of</strong> myphilosophical development many a good teacher, but ultimatelynone <strong>of</strong> them were able to shed new philosophical light on theworld with a fundamental critique. There was no genius apartfrom conventional and licit wisdom, no new directions <strong>in</strong>thought. Today I can say that the clarity and str<strong>in</strong>gent logic <strong>of</strong>your thoughts have awakened me from dogmatic slumber. Theyhave <strong>in</strong>troduced me to a new and precious <strong>in</strong>tellectual universe,the roots <strong>of</strong> which—and that’s the irony <strong>of</strong> the story—are to befound here <strong>in</strong> Vienna. In a certa<strong>in</strong> sense, you have given back tome my hometown, <strong>in</strong> which I had felt lost as a philosopher. Froman emotional po<strong>in</strong>t <strong>of</strong> view, too, this was a priceless feat.Best wishes for many more productive years—Eugen
Schulak: Bus<strong>in</strong>ess Ethics— 111be quite clear as to what we mean by the expression “bus<strong>in</strong>essethics” and what we hope to obta<strong>in</strong> from its use. We must godeeper and ask, who was it that brought up the expression and<strong>in</strong>troduced it <strong>in</strong>to the discussion; who has the most to benefit fromits application; and who is it directed aga<strong>in</strong>st, or has most to lose?One <strong>of</strong> the most important <strong>in</strong>sights <strong>of</strong> Ludwig Wittgenste<strong>in</strong>was that the mean<strong>in</strong>g <strong>of</strong> a word depends on the context <strong>in</strong> whichit was used. The mean<strong>in</strong>g <strong>of</strong> a word can only be evaluated andunderstood when we know the purpose for which the word isused. It is especially important to understand the mean<strong>in</strong>g <strong>of</strong>words that are fashionable. Such words are used primarilybecause other people also use them. Fashionable words are governedby a certa<strong>in</strong> dynamic that is more emotional than rational;they depend on their emotional impact much more than on a carefulconsideration <strong>of</strong> what one actually wishes to say.Allow me a brief excursio <strong>in</strong>to the realm <strong>of</strong> applied psychology.When some people speak <strong>of</strong> bus<strong>in</strong>ess ethics, their expressionassumes a solemn, almost priestly characteristic. Some are so overcomewith moralistic wrath that they come across as Commissioners<strong>of</strong> the Politburo. Others, aga<strong>in</strong>, radiate hypocrisy; one gets theimpression that they feel obliged to discuss bus<strong>in</strong>ess ethics—andthey <strong>in</strong>variably end up gr<strong>in</strong>n<strong>in</strong>g self-consciously. With others, it isquite obvious that they have no idea what they are talk<strong>in</strong>g about.These are the people who always slavishly follow whatever ideasare “<strong>in</strong>” and will regurgitate whatever is deemed politically correct.And, yet aga<strong>in</strong>, there are those who know very well why theyuse this term, but who cleverly mask their true <strong>in</strong>tentions. F<strong>in</strong>ally,there are those who make no attempt to conceal their <strong>in</strong>tentionsand use this opportunity to speak once more about “capitalistpigs” and so-called “social necessity.”For more than a decade, the topic <strong>of</strong> bus<strong>in</strong>ess ethics has been amatter <strong>of</strong> <strong>in</strong>tensive discussion. This trend is still grow<strong>in</strong>g. The reasonsfor this discussion are <strong>in</strong> no sense new. We can trace similarepisodes back to the 19th century when the German economist,Gustav Schmoller, who founded the Vere<strong>in</strong> für Socialpolitik, comparedthe role <strong>of</strong> his pr<strong>of</strong>ession to that <strong>of</strong> the chorus <strong>in</strong> a classicalGreek tragedy. The role <strong>of</strong> the pr<strong>of</strong>essional economist, like that <strong>of</strong>the chorus, was to evaluate and comment on political and economicevents that took place on the world stage; it was not, however, to
112 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>actively participate on this stage. The economist, just like the choir,performed the role <strong>of</strong> an expert authority. In the modern era, theethics <strong>of</strong> the economist has thus come to be based on concepts suchas “the people,” “social justice,” “development,” “progress,”“equality” or “social compensation,” which were consequentlyadopted <strong>in</strong>to the programs <strong>of</strong> national governments.Such conceptual developments were precursors <strong>of</strong> state socialismas well as <strong>of</strong> National Socialism. That such concepts could bedeveloped with relative ease, <strong>in</strong> dictatorships <strong>of</strong> the right as wellas <strong>of</strong> the left, and cont<strong>in</strong>ue to be so developed to this day, providesample food for thought. Both Socialism and National Socialismhad this much <strong>in</strong> common: they utilized every conceivable force tomanipulate and regulate every bus<strong>in</strong>ess movement. Dictatorshipand bus<strong>in</strong>ess regulation always go hand <strong>in</strong> hand.Modern dictatorships <strong>in</strong>variably describe themselves as “peoples’democracies,” or they have evolved from democracies thathave gradually begun to manipulate the population by means <strong>of</strong>new moral precepts. In addition, they have begun to controleconomies. In this way, they manage to implement and f<strong>in</strong>ancetheir political goals without fear <strong>of</strong> h<strong>in</strong>drance.In the f<strong>in</strong>al analysis, political freedom and economic freedomamount to one and the same th<strong>in</strong>g. Politics is f<strong>in</strong>anced exclusivelyby means <strong>of</strong> compulsory payments; <strong>in</strong> other words, from taxation.The more ambitious are political <strong>in</strong>tentions, and the more farreach<strong>in</strong>gthe required policy measures, the larger the adm<strong>in</strong>istrationthat is needed and the more everyth<strong>in</strong>g costs.The revenue that is needed can only be obta<strong>in</strong>ed from thosewho create wealth, i.e., from those who produce goods and services,or who are <strong>in</strong>volved <strong>in</strong> the exchange <strong>of</strong> goods and services.These people either produce goods and services that others areprepared to pay for, or they trade <strong>in</strong> merchandise which othersare prepared to purchase voluntarily. Such people, and thesealone, create wealth. Politics cannot create wealth. For this reason,politics is cont<strong>in</strong>ually seek<strong>in</strong>g to acquire as much wealth aspossible from others through the medium <strong>of</strong> their monopoly <strong>of</strong>force.The fact is that it is hardly possible to levy any more taxes <strong>in</strong>Austria today than are currently be<strong>in</strong>g collected. Any <strong>in</strong>crease <strong>in</strong>the real tax burden would cause companies to leave the country <strong>in</strong>
Schulak: Bus<strong>in</strong>ess Ethics— 113droves and <strong>in</strong>duce private persons to flee to the black market. Inother words, we have reached the ceil<strong>in</strong>g <strong>of</strong> what is possible, oracceptable. In contrast to this, our state bureaucracy requires evermore revenue. More and more people are liv<strong>in</strong>g <strong>of</strong>f the state. Ourpublic health system is bankrupt. The public pension funds arebankrupt. The public debt is ris<strong>in</strong>g cont<strong>in</strong>uously. We still shy awayfrom public expropriations. But more and more privately-heldwealth will have to be expropriated if we are to cont<strong>in</strong>ue to f<strong>in</strong>anceour so-called socialist state.They who would gladly dispossess us are busy spread<strong>in</strong>g theop<strong>in</strong>ion that we live <strong>in</strong> an era <strong>of</strong> neo-liberalism. Apart from the factthat very few have any idea what this is supposed to mean, it isquite <strong>in</strong>appropriate to consider the present age worthy <strong>of</strong> the designation“liberal.” For one, the government’s share <strong>of</strong> GDP is currentlyabout 40 percent. At the zenith <strong>of</strong> Austrian liberalism, thetaxation <strong>of</strong> <strong>in</strong>come had just been <strong>in</strong>troduced, with a top marg<strong>in</strong>altax rate <strong>of</strong> 5 percent.They who would dispossess us cont<strong>in</strong>uously, step by step,never tire <strong>of</strong> po<strong>in</strong>t<strong>in</strong>g out that we are, apparently, a rich country.This can only be regarded as a fallacy, consider<strong>in</strong>g that anyone,mak<strong>in</strong>g a net monthly <strong>in</strong>come <strong>of</strong> €2,000 or more belongs to the top10 percent <strong>of</strong> <strong>in</strong>come-earners <strong>in</strong> Austria. In truth, we live <strong>in</strong> apaternalistic, socialist regime which has succeeded <strong>in</strong> steer<strong>in</strong>g ourviews and our behavior, and which has thus managed to producean extraord<strong>in</strong>ary uniformity <strong>of</strong> thought and consensual behavior.Slowly but <strong>in</strong>exorably, we are head<strong>in</strong>g towards a new form <strong>of</strong>communism. At the moment, we cannot say exactly where this islead<strong>in</strong>g to. Let us now turn to the numerous debates on bus<strong>in</strong>ess ethicsthat are conducted <strong>in</strong> Austria. With regard to those varied discussiongroups, it is possible to make an extraord<strong>in</strong>ary observation:Among those who are active <strong>in</strong> bus<strong>in</strong>ess, we observe a deeplyrootedconviction that the economy can only prosper <strong>in</strong> the longrun if it is driven by ethical considerations. Those who belong topr<strong>of</strong>essions far removed from daily bus<strong>in</strong>ess, tend to regard the
114 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>expressions “bus<strong>in</strong>ess success” and “ethical attitudes” as mutuallyexclusive.If we analyze these two groups more closely, we see that bothparticipate <strong>in</strong> the economy—if only as consumers. However, it isnoticeable that these groups are completely different as regardshow they earn their livelihoods; while one group is active <strong>in</strong> economicenterprises, the other is dependent on <strong>in</strong>come from the publicsector.Look<strong>in</strong>g at these two groups <strong>in</strong> terms <strong>of</strong> their relationship tothe state, we can designate them, <strong>in</strong> the <strong>in</strong>terest <strong>of</strong> simplicity, as“net recipients” or “net payers.” In public f<strong>in</strong>ance, we describe“net recipients” as “transfer payments recipients,” which makesit quite clear that each recipient is be<strong>in</strong>g subsidized by someonewho is pay<strong>in</strong>g. Transfer-payment recipients would <strong>in</strong>clude allthose who work <strong>in</strong> the public sector, such as civil servants, teachers,the police, politicians, pr<strong>of</strong>essors, scientists, employees <strong>of</strong>various trade guilds, and government employees <strong>of</strong> both the federaland regional governments, <strong>in</strong>clud<strong>in</strong>g associated tradesmenand manual workers. Quite clearly, pensioners and retireesbelong to this group also. What is significant about “recipients”is that their tax liabilities, as well as their net <strong>in</strong>comes, are a burdenon public budgets, which means that they must be met by the“net payer.”Transfer payments are payments <strong>of</strong> state <strong>in</strong>stitutions to privatepersons. They have to be f<strong>in</strong>anced either from a redistribution <strong>of</strong>national <strong>in</strong>come, or through public borrow<strong>in</strong>g. Transfer paymentrecipients are private persons who receive more from the statethan they contribute to the f<strong>in</strong>ances <strong>of</strong> the state and who dependon the state, either wholly or <strong>in</strong> part, for their livelihood.Let us pursue further the question <strong>of</strong> how the number <strong>of</strong> transferpayment recipients <strong>in</strong> Austria compares to that <strong>of</strong> contributors.22 Statistics by Herbert Unterköfler.
Schulak: Bus<strong>in</strong>ess Ethics— 115Register <strong>of</strong> electors for the parliamentary elections, 2002 5,912,592Net transfer-payment recipients (2004)Pensioners 1,842,538Public adm<strong>in</strong>istration and social <strong>in</strong>surance employees 450,300Employment <strong>in</strong> education 3 143,532Employment <strong>in</strong> health, veter<strong>in</strong>ary medic<strong>in</strong>e, andsocial services 4 171,667Unemployed/recipients <strong>of</strong> unemployment assistance 5 306,236Leave <strong>of</strong> absence (with pay) 110,489________Total (2004) 3,024,770In 2004, there were about three million net recipients <strong>of</strong> transferpayments <strong>in</strong> Austria. Persons for whom transfer payments constitutedonly a part <strong>of</strong> their <strong>in</strong>come are not <strong>in</strong>cluded. Thus, for example,we f<strong>in</strong>d groups such as recipients <strong>of</strong> children’s allowances,agricultural subsidies, or supplementary (state) pensions are not<strong>in</strong>cluded <strong>in</strong> the statistics. In consequence, we can easily imag<strong>in</strong>ethat the number <strong>of</strong> net recipients constitutes a clear majority <strong>of</strong> theelectorate. It is not too difficult to imag<strong>in</strong>e what implications thismight have for democracy.Pensioners make up about two thirds <strong>of</strong> transfer-paymentrecipients. For all <strong>of</strong> their work<strong>in</strong>g lives, they were obliged to makeregular contributions to state pension funds. The normal practice<strong>of</strong> such pension funds was, and still is, to squander this money,rather than <strong>in</strong>vest it carefully. These people were, to put it bluntly,3 A m<strong>in</strong>ute proportion <strong>of</strong> those engaged <strong>in</strong> education are remunerated bymeans <strong>of</strong> fees or contributions, or are privately employed (e.g., <strong>in</strong> privateschools).4 The f<strong>in</strong>anc<strong>in</strong>g <strong>of</strong> the health system, services <strong>of</strong> veter<strong>in</strong>ary medic<strong>in</strong>e, andsocial services occurs ma<strong>in</strong>ly by means <strong>of</strong> transfer payments. The availablestatistics cover only part <strong>of</strong> those employed <strong>in</strong> this sector.5 The data on unemployed and on unemployment assistance <strong>in</strong>cludes42,645 “unemployed” undergo<strong>in</strong>g retra<strong>in</strong><strong>in</strong>g, 27,033 recipients <strong>of</strong> advancepayments on pensions, and 2,166 recipients <strong>of</strong> “temporary payments.”
116 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>dispossessed. Their wealth was confiscated, bit by bit, over theyears. Today they are dependents—dependents <strong>of</strong> the state and atthe mercy <strong>of</strong> political developments—and are confronted by anuncerta<strong>in</strong> fate.This system, which we call an “<strong>in</strong>ter-generational contract” <strong>in</strong>Austria, is noth<strong>in</strong>g more than a pyramid scheme. Can you imag<strong>in</strong>ean <strong>in</strong>surance agent com<strong>in</strong>g <strong>in</strong>to your house and present<strong>in</strong>g youwith the follow<strong>in</strong>g proposition: “I have a fantastic <strong>of</strong>fer to make toyou. Every month, you will pay me €1,000. This money I will transferto Mr. X as he is now old and needs the money. And, when youare old, I will f<strong>in</strong>d a Ms. Y to whom I will sell a contract similar tothat which I now <strong>of</strong>fer you. The money I will receive from Ms. Y, Iwill then pay to you when you are old.”I th<strong>in</strong>k we can agree that whoever signs such a contract is acomplete idiot. Thus, the Austrian state does not <strong>of</strong>fer us such contractsfor our voluntary signatures, but compels them with thethreat <strong>of</strong> force. Basically, we are deal<strong>in</strong>g with noth<strong>in</strong>g less than apyramid scheme <strong>of</strong> the sort that, <strong>in</strong>cidentally, the state itself hasbanned. Pyramid schemes are illegal; compulsory state <strong>in</strong>surance,not so. Let us return to the many discussions and debates that nowtake place on the subject <strong>of</strong> bus<strong>in</strong>ess ethics, and focus on certa<strong>in</strong>observations one can make when one analyzes what is happen<strong>in</strong>g<strong>in</strong> these debates.First <strong>of</strong> all, it is readily apparent that the vast majority <strong>of</strong> thosepersons we might generally describe as the bus<strong>in</strong>ess ethics “moralists”belong to the category <strong>of</strong> net recipients <strong>of</strong> social transfers. It istypical <strong>of</strong> this group that they do not see themselves as part <strong>of</strong> theeconomy. Nevertheless, they claim the right to make the relevantrules. The overrid<strong>in</strong>g tenor <strong>of</strong> this discussion is that one cannotsimply accept that trade alone can organize the world, or dictatehow the world is run. Their views must also be taken on board. Inthe absence <strong>of</strong> detailed guidel<strong>in</strong>es and regulations, which they formulateand which may need to be enforced by law if necessary, theeconomic system would spiral out <strong>of</strong> control.
Schulak: Bus<strong>in</strong>ess Ethics— 117Capitalism alone, driven, as it supposedly is, by naked greedand its narrow focus on self <strong>in</strong>terest, lacks the perspective to knowwhat it is do<strong>in</strong>g. Self-regulation is a complete non-starter. For thisreason, it is necessary to guide the thought processes <strong>of</strong> the economicallyproductive, and the best way to achieve this is through“voluntary restrictions,” preferably backed by state regulation.Thus, the spirit <strong>of</strong> the times, as well as the public <strong>in</strong>terest, demandsthat they who pursue the pr<strong>of</strong>it motive possess an <strong>of</strong>ficial stamp <strong>of</strong>legitimization as, by def<strong>in</strong>ition, they are not guided by bus<strong>in</strong>essethics.Basically, it is quite obvious what this group <strong>of</strong> “moralists”wishes to achieve. Their objective is to perform an usher’s role <strong>in</strong>society, allocat<strong>in</strong>g positions and rights on the basis <strong>of</strong> <strong>of</strong>ficial certificatesand seals <strong>of</strong> approval.The “moralists’” contribution to the debate <strong>of</strong>ten displays significantshortcom<strong>in</strong>gs, both <strong>in</strong> terms <strong>of</strong> their personalities as wellas their pr<strong>of</strong>essional credibility, and rem<strong>in</strong>ds one a little <strong>of</strong> theforceful pronouncements on sexuality from a clergy liv<strong>in</strong>g a life <strong>of</strong>celibacy. In pr<strong>in</strong>ciple, one is seek<strong>in</strong>g to make authoritative statementsabout someth<strong>in</strong>g one has rejected, which, <strong>in</strong>deed, they maydespise. Their opponents may justifiably ask what right they haveto make such proposals, on what moral authority is their claimbased, and what pr<strong>of</strong>essional or specialist qualification can theyproduce to add credibility to their views? Perhaps their claim isbased on the view that, <strong>in</strong> order to observe and comment on someth<strong>in</strong>gobjectively, one must, <strong>in</strong> some sense, be an “outsider.” However,it is obvious that their claims are little more than a striv<strong>in</strong>gfor monopolistic power.Tak<strong>in</strong>g a charitable view <strong>of</strong> the matter, claim<strong>in</strong>g a right <strong>of</strong> codeterm<strong>in</strong>ation<strong>in</strong> a context where one has no experience and, <strong>in</strong>particular, no responsibility can only be regarded as be<strong>in</strong>g ratherforward, and more than a little embarrass<strong>in</strong>g. In truth, we are confrontedwith a rather blatant case <strong>of</strong> chutzpah, because those whoare most likely to argue <strong>in</strong> favor <strong>of</strong> economic regulation are preciselythe same people who obta<strong>in</strong> their <strong>in</strong>come from the tax payments<strong>of</strong> the persons they regulate. Pretty much all scientific civilservants and <strong>in</strong>tellectuals, all politicians and <strong>of</strong>ficials live <strong>of</strong>f donationsfrom the state. Those “bus<strong>in</strong>ess ethics moralists” are not at alloverjoyed to be rem<strong>in</strong>ded that their remuneration is obta<strong>in</strong>ed from
118 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>tax revenues, which are extracted from taxpayers by means <strong>of</strong> thecoercive monopolistic power <strong>of</strong> the state.The “ethics moralists” are <strong>of</strong>ten to be found <strong>in</strong> vehement oppositionto any suggestion that the state should disengage, eitherwholly or <strong>in</strong> part, from various economic activities and sectors.And it doesn’t really help to po<strong>in</strong>t to the proven <strong>in</strong>efficiencies <strong>in</strong>the adm<strong>in</strong>istration and the large-scale destruction <strong>of</strong> resourcesdur<strong>in</strong>g the 1970s and 80s <strong>in</strong> the so-called “welfare states.” The“moralists” will defend the <strong>in</strong>flated size <strong>of</strong> the government with alltheir might—much as a hunter would watch its prey.It will be very <strong>in</strong>terest<strong>in</strong>g when the “moralists” are asked abouttheir own ethical standards. Then, it is very noticeable that theywho drive the bus<strong>in</strong>ess ethics debate forward almost never considerdiscuss<strong>in</strong>g the ethics <strong>of</strong> civil servants, or <strong>of</strong> the public sector<strong>of</strong> the economy. This is all the more surpris<strong>in</strong>g when one considersthat the state, through taxation, accounts for almost half <strong>of</strong> thetotal economic activity <strong>of</strong> the country. How, then, can the “moralists”so resolutely ignore that the high rates <strong>of</strong> VAT drive by nomeans <strong>in</strong>significant groups <strong>of</strong> the population under the povertylimit? And why is it never questioned that almost all major scandals<strong>of</strong> recent decades have occurred <strong>in</strong> the state sector, or sectorsclosely associated with the state?Basically, it is perfectly obvious that the “moralists” are guidedprimarily by their own self-<strong>in</strong>terest, just like everyone else, and asnet-recipients <strong>of</strong> social transfer payments are simply concernedwith safeguard<strong>in</strong>g their <strong>in</strong>comes. That this must be couched <strong>in</strong>terms <strong>of</strong> ethics is simply an <strong>in</strong>dication that their productive performanceon the open market would probably attract no more thana fraction <strong>of</strong> what they currently earn. Their <strong>in</strong>st<strong>in</strong>ctive reaction isto cloak <strong>in</strong> moralistic terms what is, <strong>in</strong> reality, begg<strong>in</strong>g for theirsalaries.It is obvious that this questionable motivation is strong enoughto ensure that the “moralists” dom<strong>in</strong>ate just about every debateconcerned with bus<strong>in</strong>ess ethics. However, the result conta<strong>in</strong>s manycontradictions. Thus, one rejects economic growth as be<strong>in</strong>g destructiveand unethical, but <strong>in</strong>sists upon automatic wage <strong>in</strong>creases as amatter <strong>of</strong> course, however they may have to be f<strong>in</strong>anced. Onedemands security <strong>of</strong> supply <strong>in</strong> the fields <strong>of</strong> energy and food supply,but <strong>of</strong> course rejects the concomitant construction projects as be<strong>in</strong>g
Schulak: Bus<strong>in</strong>ess Ethics— 119detrimental. And, one fulm<strong>in</strong>ates aga<strong>in</strong>st globalization while look<strong>in</strong>gforward with pleasure to the next long-distance journey. Perhapsit is just not possible to build a better world without be<strong>in</strong>gactive <strong>in</strong> the construction project. Let us be <strong>in</strong> no doubt about one th<strong>in</strong>g—a bus<strong>in</strong>ess ethic is an<strong>in</strong>tegrative force. The basic ethical pr<strong>in</strong>ciples, or virtues <strong>of</strong> corporatebehavior, are perseverance (i.e., a will<strong>in</strong>gness to make greatereffort), trust <strong>in</strong> yourself and <strong>in</strong> others, ambition, curiosity, responsibilityfor capital and employees, uprightness <strong>in</strong> f<strong>in</strong>ancial matters,frugality, loyalty, be<strong>in</strong>g a man <strong>of</strong> your word, honor<strong>in</strong>g contracts,the prudence <strong>of</strong> a correct bus<strong>in</strong>essman, punctuality, a strong presenceand honorable behavior, clarity <strong>of</strong> speech, a strong sense <strong>of</strong>vision, and entrepreneurship.The fact is that bus<strong>in</strong>essmen and bus<strong>in</strong>esswomen must possessmany <strong>of</strong> these qualities if they are to persevere and succeed <strong>in</strong> themarketplace. They can be regarded as ethical, per se. They makepr<strong>of</strong>it or, <strong>in</strong> other words, they create value. They supply peoplewith goods that they need or want. They alone create genu<strong>in</strong>e jobs.And they, along with their employees, are the only ones who paytaxes.There is one clear conclusion we can draw from all <strong>of</strong> this. It isnot bus<strong>in</strong>ess, and bus<strong>in</strong>ess people, who must prove that theyadhere to adequate ethical standards. Rather, this burden <strong>of</strong> pro<strong>of</strong>rests with the net recipients <strong>of</strong> transfer payments, as it is they wholive <strong>of</strong>f the compulsory deductions that are paid by bus<strong>in</strong>esses andtheir employees. The net recipients <strong>of</strong> these payments, from whomwe naturally deduct pensioners, are the ones who are obliged tojustify their <strong>in</strong>comes and the money they receive.Commercial enterprises, and their employees, have alreadyproven their case <strong>in</strong> that they have produced goods and servicesfor sale which customers have been will<strong>in</strong>g to buy. That meansthat they have been beneficial, or provided benefit, for other people.The same cannot be said for transfer recipients, or at least theircase is not quite so clear. For this reason they ought to be obligedto try much harder to justify their entitlement to what they acquirefrom the economy. Nor should they be allowed to use the bus<strong>in</strong>ess
120 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>ethics <strong>of</strong> others as a smoke screen to distract attention from theneed to justify their own rent-seek<strong>in</strong>g activities.It is disgraceful how the bus<strong>in</strong>ess-ethic moralists <strong>of</strong> today succeed<strong>in</strong> keep<strong>in</strong>g the bus<strong>in</strong>ess community on the run. All those whowould like to regulate bus<strong>in</strong>ess are themselves “on the make” andextract<strong>in</strong>g economic rent from their activities. The means <strong>of</strong> impos<strong>in</strong>gsuch regulation is political power, through the medium <strong>of</strong> publiclaw. In the case <strong>of</strong> non-governmental organizations (NGOs),justification is based on a certa<strong>in</strong> morality, which is frequentlyrather dubious. In this way, bus<strong>in</strong>ess enterprises are paraded <strong>in</strong>public and pilloried <strong>in</strong> a manner formerly employed for politicalenemies <strong>in</strong> Stal<strong>in</strong>ist show-trials.Many enterprises play along <strong>in</strong> this ethical charade. Themotives for this are varied; some cooperate from a habitual sense<strong>of</strong> obedience; others do so out <strong>of</strong> fear; others from downright stupidity.Rarely does this arise from a sense <strong>of</strong> conviction. There areabout 250,000 SMEs (small and medium enterprises) <strong>in</strong> Austria. Itis high time that these enterprises beg<strong>in</strong> to reflect on what theyreally are, and what they actually do. Without this first step <strong>of</strong>reflection, they will never succeed <strong>in</strong> creat<strong>in</strong>g a spirit <strong>of</strong> solidarityto cast <strong>of</strong>f their yoke.Ultimately it will depend on us, friends <strong>of</strong> the Vienna School, toperform the task <strong>of</strong> open<strong>in</strong>g eyes and rais<strong>in</strong>g awareness. This pedagogictask lies before us.
16Aga<strong>in</strong>st Standard Law & Economics:Austrians and Legal Philosopherson BoardMart<strong>in</strong> Fronek and Josef Šíma<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> made a last<strong>in</strong>g impact on the firstgenerations study<strong>in</strong>g (not only) economics <strong>in</strong> the CzechRepublic and Slovakia after the fall <strong>of</strong> the Iron Curta<strong>in</strong>.We have repeatedly <strong>in</strong>vited him to be a lecturer for ourfree-market summer program, the “Liberalni Institute Summer University.”He also gave talks for journalists, academicians, and universitystudents <strong>in</strong> Prague and recently has been awarded the“Franz Cuhel Memorial Prize for Teach<strong>in</strong>g Excellence” and delivereda lecture at the open<strong>in</strong>g day <strong>of</strong> the 2009 Prague Conference onPolitical Economy. He has been mak<strong>in</strong>g an impact on Czech and Slovakstudents through his writ<strong>in</strong>gs and lectures, both <strong>in</strong> English andCzech, for more than a decade. Consequently, he made a defense <strong>of</strong>property—a central po<strong>in</strong>t <strong>of</strong> his academic focus—a keystone <strong>of</strong>Mart<strong>in</strong> Fronek (fronek@lib<strong>in</strong>st.cz) is a resident researcher at the LiberalniInstitute, Prague, focus<strong>in</strong>g on legal doctr<strong>in</strong>es. He translated Bruno Leoni’sFreedom and the Law <strong>in</strong>to Czech. Josef Šíma (sima@vse.cz) is a pr<strong>of</strong>essor andchairman <strong>of</strong> the Department <strong>of</strong> Institutional Economics, University <strong>of</strong> Economics,Prague. The authors would like to thank David Lipka for valuablecomments and suggestions.121
122 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>scholarly <strong>in</strong>vestigation for many young researchers, <strong>in</strong>clud<strong>in</strong>g thecurrent authors.h h hThe Law & Economics movement emerg<strong>in</strong>g from the University<strong>of</strong> Chicago <strong>in</strong> the 1960s revolutionized the American legalacademy. “Economic analysis <strong>of</strong> law” became a standard part <strong>of</strong>the top universities’ curricula. Brian Bix, a lead<strong>in</strong>g legal theorist,considers this particular approach to law the most <strong>in</strong>fluential l<strong>in</strong>e<strong>of</strong> thought <strong>in</strong> contemporary jurisprudence. 1 Notwithstand<strong>in</strong>g theprom<strong>in</strong>ence it has ga<strong>in</strong>ed so far, the <strong>in</strong>itial reaction <strong>of</strong> many <strong>in</strong>fluentiallegal th<strong>in</strong>kers to some assumptions and <strong>in</strong>sights <strong>of</strong> L&E wassuspicious rather than laudatory. Likewise, on the part <strong>of</strong> the economicspr<strong>of</strong>ession, it was Austrian economics and its proponentswho raised eyebrows when they first explored the writ<strong>in</strong>gs <strong>of</strong>what is here referred to as “a standard Law & Economics,” i.e.,ma<strong>in</strong>ly the thought <strong>of</strong> judge Richard Posner. 2While we appreciate the importance <strong>of</strong> alternative paradigmbuild<strong>in</strong>g and the Austrian method <strong>of</strong> deriv<strong>in</strong>g conclusions fromfirst pr<strong>in</strong>ciples, this time our aim is different and rather modest.We seek to po<strong>in</strong>t out the similarities between the criticisms <strong>of</strong> standardL&E, particularly the pr<strong>in</strong>ciple <strong>of</strong> “wealth maximization,”presented by various legal philosophers (such as Jules Coleman,Ronald Dwork<strong>in</strong>, Anthony Kronman, Benjam<strong>in</strong> Zipursky and others)on one hand, and by Austrians on the other, and hence “buildbridges.” We will <strong>in</strong>dicate that both l<strong>in</strong>es <strong>of</strong> critique are, <strong>in</strong> manyrespects, compatible, though they rarely even recognize eachother’s existence. 31 Brian Bix, Jurisprudence: Theory and Context, 4th ed. (London: Sweet &Maxwell, 2006), p. 189.2 We have argued elsewhere that Austrian praxeology provides a muchbetter framework for the study <strong>of</strong> the mutual relationship between economicsand law than the Posnerian “economic” approach. See Josef Šíma, “Praxeologyas Law & Economics,” Journal <strong>of</strong> Libertarian Studies 18, no. 2 (2004): 73–89.3 But to the contrary, see Edward Str<strong>in</strong>gham and Mark White, “EconomicAnalysis <strong>of</strong> Tort Law: Austrian and Kantian Perspectives,” <strong>in</strong> Law and Economics:Alternative Economic Approaches to Legal and Regulatory Issues, Margaret
Fronek and Šíma: Aga<strong>in</strong>st Standard Law & Economics— 123WEALTH MAXIMIZATION PRINCIPLE—POSITIVE ANALYSISBuild<strong>in</strong>g on Coase’s <strong>in</strong>sight that any conflict is <strong>of</strong> reciprocalcharacter, 4 the general idea <strong>of</strong> Posner’s Economic Analysis <strong>of</strong> Law isthat any human activity has an impact on many people “if only bychang<strong>in</strong>g the prices <strong>of</strong> other goods.” 5 However, Coasian barga<strong>in</strong><strong>in</strong>gthat would maximize the jo<strong>in</strong>t production <strong>of</strong> all parties is likelyto be prevented <strong>in</strong> the real world <strong>of</strong> transaction costs (not to mentionthe existence <strong>of</strong> the <strong>in</strong>come effect, which may spoil the “<strong>in</strong>variability<strong>of</strong> the outcome” conclusion). 6 Thus, there will be conflictsamong people due to losses <strong>in</strong>flicted on some that must be solved<strong>in</strong> non-market ways to assure an efficient outcome. Posner claimsthat this role <strong>of</strong> efficient problem solvers must be performed byjudges and the legal system. Judges must assign property rights(liability) similar to how the market would have done so if transactioncost had not existed. 7Posner considers economics to be a source <strong>of</strong> <strong>in</strong>sight regard<strong>in</strong>gcost-benefit properties <strong>of</strong> alternative legal structures, which thencan be used to mimic the market—i.e., redesign the legal system(and decide legal cases) that would lead to higher production <strong>in</strong> abroad sense. In short, Posner’s pr<strong>in</strong>cipal idea is that judges shouldmanipulate the limits <strong>of</strong> property rights <strong>in</strong> order to get an optimal—efficient—level<strong>of</strong> economic output.Oppenheimer and Nicholas Mercuro, eds. (New York: M.E. Sharpe, 2004), pp.374–92.4 Ronald H. Coase, “The Problem <strong>of</strong> Social Cost,” Journal <strong>of</strong> Law and Economics3 (October 1960).5 Richard A. Posner, Economic Analysis <strong>of</strong> Law, 5th ed. (New York: AspenLaw & Bus<strong>in</strong>ess, 1998 [1973]), p. 14.6 Walter Block, “Coase and Demsetz on Private Property Rights,” Journal <strong>of</strong>Libertarian Studies 1, no. 2 (1977); idem, “Ethics, Efficiency, Coasian PropertyRights, and Psychic Income: A Reply to Harold Demsetz,” Review <strong>of</strong> AustrianEconomics 8, no. 2 (1995).7 This <strong>in</strong>terventionism is <strong>in</strong> the Coasean-Posnerian world “obviously desirable”even “ when it is possible to change the legal delimitation <strong>of</strong> rightsthrough market transactions.” See the found<strong>in</strong>g article <strong>of</strong> the Chicagoapproach, Coase, “The Problem <strong>of</strong> Social Cost,” p. 19.
124 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>The issue is rarely property right or no property right,but rather . . . limited property rights or unlimited propertyrights, with the limitation designed to <strong>in</strong>duce thecorrect (not an <strong>in</strong>sufficient or excessive) level <strong>of</strong> <strong>in</strong>vestment<strong>in</strong> the exploitation <strong>of</strong> a valuable resource. 8The criterion that should help judges <strong>in</strong> their endeavors is the“wealth maximization pr<strong>in</strong>ciple,” which states that goods(resources, rights) should be assigned to those who value themmost, i.e., to those who are will<strong>in</strong>g and able to pay for them. Posneracknowledged that “wealth maximization,” <strong>in</strong> fact, is the sameas the well-known Kaldor-Hicks Efficiency. 9 A rule, decision oraction <strong>in</strong> general is efficient, accord<strong>in</strong>g to this view, if and only ifthose who benefit from it could potentially fully compensate thosewho loose and still have a net ga<strong>in</strong>. Whether the actual payment tothose made worse-<strong>of</strong>f eventually takes place is, <strong>in</strong> this regard, irrelevant.We shall return to this aspect later.The Role <strong>of</strong> PricesTo say anyth<strong>in</strong>g mean<strong>in</strong>gful about two states <strong>of</strong> the worldwhen us<strong>in</strong>g the Kaldor-Hicks criterion, there have to be monetaryprices to enable us to compare the actual ga<strong>in</strong>s and losses on bothsides. Without prices, we could merely observe whether any transactionstake place at all. If they do, from that very fact we could, <strong>in</strong>Rothbardian fashion, <strong>in</strong>fer that the transaction makes both partiesbetter <strong>of</strong>f, at least ex ante. 10 Noth<strong>in</strong>g more, noth<strong>in</strong>g less. We wouldnot be <strong>in</strong> a position to know whether the transaction is wealthmaximiz<strong>in</strong>g(or Kaldor-Hicks efficient) s<strong>in</strong>ce the very concept presupposesthe existence <strong>of</strong> prices. As Jules Coleman, a Yale lawphilosopher, put it, “only exchanges that <strong>in</strong>volve prices can bewealth maximiz<strong>in</strong>g.” 11 Thus, <strong>in</strong> a barter economy, a Posnerian8 Posner, Economic Analysis <strong>of</strong> Law, p. 42.9 Richard A. Posner, “The Ethical and Political Basis <strong>of</strong> the Efficiency Norm<strong>in</strong> Common Law Adjudication,” H<strong>of</strong>stra Law Review 8, no. 3 (Spr<strong>in</strong>g 1980): 491.10 Murray N. Rothbard, “Toward a Reconstruction <strong>of</strong> Utility and WelfareEconomics,” <strong>in</strong> Mary Sennholz, ed., On Freedom and Free Enterprise: <strong>Essays</strong> <strong>in</strong><strong>Honor</strong> <strong>of</strong> Ludwig von Mises (New Haven, Conn.: D. Van Nostrand 1956).11 Jules Coleman, “Efficiency, Utility, and Wealth Maximization,” H<strong>of</strong>straLaw Review 8, no. 3 (Spr<strong>in</strong>g 1980): 523.
Fronek and Šíma: Aga<strong>in</strong>st Standard Law & Economics— 125judge would have to either “refuse to decide” 12 or resort to someother pr<strong>in</strong>ciple that would guide his decision.Not only barter economies pose problems for a Posnerianjudge. This is where Austrians have a lot to say. Even if we assumethat there are relative monetary prices generated <strong>in</strong> the market, thejudge’s <strong>in</strong>ference from what he can observe at the moment is <strong>of</strong> littlevalue. Build<strong>in</strong>g on Mises’s <strong>in</strong>sight about the nature <strong>of</strong> marketprices as the mere data <strong>of</strong> economic history, Str<strong>in</strong>gham denies theusefulness <strong>of</strong> such observation for any mean<strong>in</strong>gful pro futuro decision.The will<strong>in</strong>gness to pay and the prices change constantly, “soit would make no sense to base decisions on prices that no longerhave relevance.” 13 A similar po<strong>in</strong>t was made by Coleman as well.When he wrote about the need <strong>of</strong> prices for the application <strong>of</strong> theKaldor-Hicks test, he stressed the importance <strong>of</strong> fixed relativeprices. 14 There are no fixed relative prices out there, however. One<strong>of</strong> the important <strong>in</strong>sights <strong>of</strong> Austrian economists is that <strong>in</strong>dividualactions <strong>of</strong> people on the real market generate prices <strong>in</strong> a never-end<strong>in</strong>gprocess, or as Mario Rizzo put it, a “cont<strong>in</strong>ual flux.” 15 As such,they never be assumed to be fixed.The unrealistic assumption <strong>of</strong> the “price fixedness” is essentialfor wealth maximization to hold its own. It is thus <strong>in</strong>coherent. Thechange <strong>of</strong> legal rules <strong>in</strong> the real world <strong>in</strong> the passage <strong>of</strong> time mayhave an impact on the structure <strong>of</strong> relative prices. The change <strong>of</strong>relative prices, however, affects the judge’s previous calculation.At the time <strong>of</strong> the decision, the judge might conclude that to maximizewealth it is necessary to assign a right to A. Consequently, anew price structure emerges. If the judge was forced to decide thecase aga<strong>in</strong> under the new circumstances he would assign the rightto B. The need for a shift between legal rules becomes constant and12 Which, <strong>in</strong> standard account, “is not morally acceptable, s<strong>in</strong>ce peopleexpect access to justice.” See Aleksander Peczenik, On Law and Reason, 2nd ed(Dordrecht: Spr<strong>in</strong>ger 2008), pp. 26–27.13 Edward Str<strong>in</strong>gham, “Kaldor-Hicks Efficiency and the Problem <strong>of</strong> CentralPlann<strong>in</strong>g,” Quarterly Journal <strong>of</strong> Austrian Economics 4, no. 2 (Summer 2001):43.14 Coleman, “Efficiency, Utility, and Wealth Maximization,” p. 524.15 Mario J. Rizzo, “Law amid Flux: The Economics <strong>of</strong> Negligence and StrictLiability <strong>in</strong> Tort,” Journal <strong>of</strong> Legal Studies 9, no. 2 (March 1980).
126 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>immense uncerta<strong>in</strong>ty floods the system. 16 In other words, if wetake <strong>in</strong>to consideration what Austrians have always stressed <strong>in</strong>opposition to neoclassical economics—the dynamic nature <strong>of</strong> themarket process <strong>in</strong> which no stable equilibrium can be achieved 17 —we can claim, concurr<strong>in</strong>g with legal philosophers, the wealth maximizationpr<strong>in</strong>ciple to be unworkable.Play<strong>in</strong>g the MarketThe above described criticisms <strong>of</strong> wealth maximization by bothAustrians and some legal th<strong>in</strong>kers are relevant, but th<strong>in</strong>gs are evenworse. We have so far dealt with the problem <strong>of</strong> apply<strong>in</strong>g the wealthmaximization pr<strong>in</strong>ciple as if the Posnerian judge were to operate <strong>in</strong>a real world context. 18 However, if the celebrated pr<strong>in</strong>ciple is <strong>in</strong> factthe same as the Kaldor-Hicks criterion, we enter the doma<strong>in</strong> <strong>of</strong> purefantasy—the judge is expected to weigh and compare the will<strong>in</strong>gnessto pay <strong>in</strong> the absence <strong>of</strong> the transaction itself and to consider thepotential compensations <strong>of</strong> the victims. As has been repeatedlyshown by Austrians, such a task is pla<strong>in</strong>ly impossible. 19 Posner16 Coleman calls this <strong>in</strong>convenience a “circularity-<strong>of</strong>-preferences problem.”Coleman, “Efficiency, Utility, and Wealth Maximization,” p. 525.17 Gregory Scott Crespi, “Explor<strong>in</strong>g the Complicationist Gambit: An AustrianApproach to the Economic Analysis <strong>of</strong> Law,” Notre Dame Law Review 73,no. 2 (January 1998): 325–26.18 Except for the fixed prices assumption.19 In more difficult cases the complications multiply. As Rizzo expla<strong>in</strong>s:The efficiency approach requires not only the test<strong>in</strong>g <strong>of</strong>hypotheses about the defendant’s negligence, but also<strong>in</strong>vestigation <strong>in</strong>to the (contributory) negligence <strong>of</strong> thepla<strong>in</strong>tiff. If, however, the doctr<strong>in</strong>e <strong>of</strong> contributory negligenceis to be <strong>in</strong>terpreted as a lesser-cost avoider defense,our task is still not complete. If we f<strong>in</strong>d that both defendantand pla<strong>in</strong>tiff have been negligent, we must still determ<strong>in</strong>ewhich party could have avoided the accident at less cost.Therefore, we are driven to compare two counterfactualhypotheses. . . . The issue is not to compare or evaluatewhat has happened but, rather to speculate about whatmight have happened <strong>in</strong> two alternate worlds and then tocompare the outcomes.Rizzo, “Law amid Flux,” p. 292; citations omitted.
Fronek and Šíma: Aga<strong>in</strong>st Standard Law & Economics— 127himself admits <strong>in</strong> the first edition <strong>of</strong> his textbook (p. 139) that todeterm<strong>in</strong>e who has the greater long-run accident-avoidance potentialis “an <strong>in</strong>tractable question, <strong>in</strong> most cases.” 20Ronald Dwork<strong>in</strong>, the most cited legal philosopher <strong>of</strong> our times,eloquently summarizes the position <strong>of</strong> Posner and others:They concede . . . or rather <strong>in</strong>sist, that <strong>in</strong>formation aboutwhat parties would have done <strong>in</strong> market transaction canbe obta<strong>in</strong>ed <strong>in</strong> the absence <strong>of</strong> the transaction, and thatsuch <strong>in</strong>formation can be sufficiently reliable to act on. 21Dwork<strong>in</strong>, for the sake <strong>of</strong> his particular argument aga<strong>in</strong>st wealthmaximization, accepts this. Needless to say, such concession is notvery fortunate <strong>in</strong> general. Despite Posner’s mere claims to the contrary,22 no one has ever shown how a third party, be it a judge ora central planner play<strong>in</strong>g the market, can get <strong>in</strong>to the m<strong>in</strong>ds <strong>of</strong>potential parties to the transaction, f<strong>in</strong>d out their preferences andthen do what they themselves would have done had the circumstancesbeen different.The similarity and impossibility <strong>of</strong> tasks that stand before bothPosnerian judges and socialist planners is strik<strong>in</strong>g. In both cases,someone aspires to engage <strong>in</strong> non-price (non-market) allocation <strong>of</strong>resources. It is believed <strong>in</strong> both situations that more peace and moreprosperity can be atta<strong>in</strong>ed by such a device; that someone savessome resources by know<strong>in</strong>g <strong>in</strong> advance what the result <strong>of</strong> complexsocial phenomena will be; that one can conceive <strong>of</strong> markets withoutpeople really hav<strong>in</strong>g and mak<strong>in</strong>g markets. This belief is completelyfallacious. Under socialism, as most <strong>of</strong> the economy got closer tothe “socialist ideal” <strong>of</strong> non-market allocation, the less socialist plannersknew about the real needs <strong>of</strong> the economy (the people) and themore pervasive was the ensu<strong>in</strong>g chaos. The same will be true forthe emergence <strong>of</strong> chaos and the spread <strong>of</strong> pure arbitrar<strong>in</strong>ess <strong>in</strong> law,20 Here he has been quoted by Rizzo. He also rem<strong>in</strong>ds us that Posner omitsthis phrase <strong>in</strong> subsequent editions <strong>of</strong> his book. Ibid., p. 308.21 Ronald Dwork<strong>in</strong>, “Is Wealth a Value?,” Journal <strong>of</strong> Legal Studies 9, no. 2(March 1980): 198.22 Richard A. Posner, The Economics <strong>of</strong> Justice (Cambridge, Mass.: HarvardUniversity Press, 1981), p. 62.
128 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>the closer we get to the Posnerian “ideal.” To claim otherwisewould amount to requir<strong>in</strong>g the judge to transform himself <strong>in</strong>to a“cognitive superman.” 23IMPLICATIONS OF L&E FOR INDIVIDUAL (PROPERTY) RIGHTSDeficiencies <strong>in</strong> the positive arm <strong>of</strong> the L&E approach leads usto look <strong>in</strong>to effects the Posnerian judge would br<strong>in</strong>g about <strong>in</strong> realityif he was strictly adher<strong>in</strong>g to wealth maximization.The Cont<strong>in</strong>ency <strong>of</strong> Right and WrongIn his Economics <strong>of</strong> Justice, Posner illustrated how a judicial systemwould proceed to maximize social wealth <strong>in</strong> cases whereexternal effects play a role. 24 <strong>Hoppe</strong> <strong>of</strong>fers a summary:A factory emits smoke and thereby lowers residentialproperty values. If property values are lowered by $3million and the plant relocation cost is $2 million, theplant should be held liable and forced to relocate. Yet ifthe numbers are reversed—property values fall by $2million and relocation costs are $3 million—the factorymay stay and cont<strong>in</strong>ue to emit smoke. 25The task <strong>of</strong> a judge is to reshape the exist<strong>in</strong>g structure <strong>of</strong> propertyrights. In fact, these rights do not count at all. The value <strong>of</strong> therights is at stake. As the value cannot (as prices cannot), beassumed as fixed, there is no stable criterion by which we coulddeterm<strong>in</strong>e ex ante who is go<strong>in</strong>g to prevail <strong>in</strong> each case. Whetherproperty rights are allocated <strong>in</strong> a wealth maximiz<strong>in</strong>g manner “can23 Dieter Schmidtchen, “Time, Uncerta<strong>in</strong>ty, and Subjectivism: Giv<strong>in</strong>g MoreBody to Law and Economics,” International Review <strong>of</strong> Law and Economics 13, no.1 (March 1993): 78, quot<strong>in</strong>g Bruce Ackerman, “Law, Economics, and the Problem<strong>of</strong> Legal Culture,” Duke Law Journal 1986, no. 6 (December 1986).24 Posner, The Economics <strong>of</strong> Justice, p. 62.25 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “The Ethics and Economics <strong>of</strong> Private Property,”LewRockwell.com (Oct. 11, 2004). It must be admitted that Posner usesthis example to show a possible divergence <strong>of</strong> wealth maximization from“happ<strong>in</strong>ess maximization”; nevertheless, it illustrates the alleged role <strong>of</strong>judges and how it would look like.
Fronek and Šíma: Aga<strong>in</strong>st Standard Law & Economics— 129only be determ<strong>in</strong>ed ex post.” 26 Moreover, seconds after the disputeis settled, the value <strong>of</strong> property rights changes—at that momentthe judge’s calculation might be completely different if he were todecide the case aga<strong>in</strong>. This is someth<strong>in</strong>g we would not expect <strong>of</strong>what we call law. The results <strong>of</strong> adjudication should, at least tosome extent, be predictable. The wealth maximization negates thispostulate.Austrians like <strong>Hoppe</strong> are not alone <strong>in</strong> this particular criticism <strong>of</strong>L&E. Benjam<strong>in</strong> Zipursky, a representative <strong>of</strong> so called “pragmaticconceptualism,” challenges the theory <strong>of</strong> economic analysis <strong>of</strong> tortlaw. Accord<strong>in</strong>g to him, tort law is, <strong>in</strong> essence, “backward-look<strong>in</strong>g.”27 If we turn to the factory example, the right way <strong>of</strong> look<strong>in</strong>gat the situation is to <strong>in</strong>vestigate the past, determ<strong>in</strong>e the structure <strong>of</strong>rights that was <strong>in</strong> place before the pollution, describe the actions <strong>of</strong>both pla<strong>in</strong>tiff and defendant and, on this basis, decide who is to beheld liable. On the other hand, the economic (Posnerian) approachis “forward look<strong>in</strong>g;” the <strong>in</strong>itial distribution <strong>of</strong> rights is <strong>of</strong> noimportance—“where liability should lie ultimately depends on ananswer to a question about the future, not about the past.” 28 This,unfortunately, leads us to the conclusion that, for L&E what isright and what is wrong are merely cont<strong>in</strong>gent. A just legal systemcan hardly be based on the cont<strong>in</strong>gent notions <strong>of</strong> right and wrong.The Irrelevance <strong>of</strong> (Some) Autonomous IndividualsThe reliance on the wealth maximization pr<strong>in</strong>ciple has someunwelcome implications. If the redistribution <strong>of</strong> rights is based onwill<strong>in</strong>gness and ability to pay, what about those who are at thebottom <strong>of</strong> the society, who are will<strong>in</strong>g but not able to pay? Theysimply do not count. As Anthony T. Kronman, a former dean <strong>of</strong>the Yale Law School, put it:The pr<strong>in</strong>ciple <strong>of</strong> wealth maximization necessarily favorsthose who already have money, or the resources withwhich to earn it, and are therefore able to pay more than26 Ibid.27 Benjam<strong>in</strong> Zipursky, “Pragmatic Conceptualism,” Legal Theory 6, no. 4(December 2000): 462.28 Ibid., pp. 462–23.
130 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>others to have a new legal rule def<strong>in</strong>ed <strong>in</strong> the way that isfavorable to them. 29The nature <strong>of</strong> the proposed theory was acknowledged by itsfounder too when he stated:A less welcome implication <strong>of</strong> the wealth-maximizationapproach is that people who are very poor . . . countonly if they are part <strong>of</strong> the utility function <strong>of</strong> somebodywho has wealth. 30It is no surprise that Posner’s <strong>in</strong>sights outrage legal philosophers.The theory that aspires to be universal cannot count onlysome people while mak<strong>in</strong>g others irrelevant for the sole fact thatthey are not endowed with enough wealth. This br<strong>in</strong>gs us to theproblem <strong>of</strong> the <strong>in</strong>itial assignment <strong>of</strong> rights.Accord<strong>in</strong>g to Posner, not only property rights to chattels are tobe <strong>in</strong>strumentally distributed accord<strong>in</strong>g to the wealth maximizationpr<strong>in</strong>ciple. Posner seeks to present a universal, normativebenchmark for allocation <strong>of</strong> all sorts <strong>of</strong> rights, <strong>in</strong>clud<strong>in</strong>g the selfownership<strong>of</strong> one’s own labor. In other words, the issue <strong>of</strong> <strong>in</strong>itialassignment <strong>of</strong> property rights is considered, s<strong>in</strong>ce it is “the start<strong>in</strong>gpo<strong>in</strong>t for a market system.” 31 The fact that people own their ownlives and labor is, accord<strong>in</strong>g to Posner, explicable by the wealthmaximization pr<strong>in</strong>ciple itself; assignment <strong>of</strong> these rights to “naturalowners” is a result <strong>of</strong> calculus. States Posner:29 Anthony T. Kronman, “Wealth Maximization as a Normative Pr<strong>in</strong>ciple,”Journal <strong>of</strong> Legal Studies 9, no. 2 (March 1980): 240. Despite the fact that conclusions<strong>of</strong> Kronman and Austrians <strong>in</strong> this particular normative question co<strong>in</strong>cide,we shall, for the sake <strong>of</strong> fairness, not forget that his approach to criticism<strong>of</strong> Posner is heavily <strong>in</strong>fluenced by the neoclassical notion <strong>of</strong> economics. Kronman,for example, uses utils and without hesitation engages <strong>in</strong> an <strong>in</strong>terpersonalcomparison <strong>of</strong> utility. Walter Block once rightly raised this objection <strong>in</strong>his reply to Kronman. See Walter Block, “Alienability, Inalienability, Paternalism,and the Law: Reply to Kronman,” American Journal <strong>of</strong> Crim<strong>in</strong>al Law 28,no. 3 (Summer 2001): 351–71.30 Richard A. Posner, “Utilitarianism, Economics, and Legal Theory,” Journal<strong>of</strong> Legal Studies 8, no. 1 (1979): 119.31 Posner, “Efficiency Norm,” p. 500.
Fronek and Šíma: Aga<strong>in</strong>st Standard Law & Economics— 131This is the economic reason for giv<strong>in</strong>g a worker the rightto sell his labor and a woman the right to determ<strong>in</strong>e hersexual partners. If assigned randomly to strangers theserights would generally (not <strong>in</strong>variably) be repurchasedby the worker and the woman respectively. 32Dwork<strong>in</strong> challenges this assertion by po<strong>in</strong>t<strong>in</strong>g out that we cannotsimply assume, as Posner does, the rights to be repurchased bytheir natural owners. These people must be will<strong>in</strong>g and able to payfor them what the random possessors <strong>of</strong> the right would demandon the market. But all this necessarily depends on the <strong>in</strong>itialassignment <strong>of</strong> rights itself. The reason<strong>in</strong>g is, aga<strong>in</strong>, circular. 33 AsIan Shapiro notes, the example assumes “exactly what Posner hasto establish if his theory is to make any sense.” 34The difficulty was recognized by Kronman who, build<strong>in</strong>g onColeman’s earlier work, 35 restated the problem <strong>in</strong> terms <strong>of</strong> auction.No one has anyth<strong>in</strong>g at his disposal and attends the auction wherethe rights are to be sold to the highest bidder. The result <strong>of</strong> auctionwill satisfy the wealth maximization pr<strong>in</strong>ciple, but the bids willhave a form <strong>of</strong> mere stipulation—for the time be<strong>in</strong>g the biddershave noth<strong>in</strong>g to pay with. The auction may result <strong>in</strong> enslavement<strong>of</strong> A by B if the auctioneer concludes that the work <strong>of</strong> A will be bettermanaged and allocated <strong>in</strong> more valuable uses by B than if itwas assigned to its “natural owner,” i.e., A. 36The objections <strong>of</strong> legal th<strong>in</strong>kers are very similar to those made byAustrians. <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, us<strong>in</strong>g Posner’s own example, 37showed that adherence to wealth maximization may well lead to32 Posner, “Utilitarianism, Economics, and Legal Theory,” p. 125.33 Dwork<strong>in</strong>, “Is Wealth a Value?,” p. 208. Dwork<strong>in</strong> <strong>in</strong>deed asserts thatunder present conditions, it would be for most people today “impossible torepurchase the right to their labor, because the value <strong>of</strong> that labor representsmore than half <strong>of</strong> their present wealth.” Ibid., p. 209.34 Ian Shapiro, The Flight from Reality <strong>in</strong> the Human Sciences (Pr<strong>in</strong>ceton, N.J.:Pr<strong>in</strong>ceton University Press, 2005), p. 111.35 Jules L. Coleman, “Efficiency, Exchange and Auction: PhilosophicAspects <strong>of</strong> the Economic Approach to Law,” California Law Review 68, no. 2(March 1980).36 Kronman, “Wealth Maximization as a Normative Pr<strong>in</strong>ciple,” pp. 240–41.37 Posner, The Economics <strong>of</strong> Justice, p. 77 n. 57.
132 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>the denial <strong>of</strong> self-ownership and justification <strong>of</strong> slavery. Supposean alternative universe <strong>in</strong> which Henry Ford decided not tobecome an automobile manufacturer but a Trappist monk. In thisuniverse, people would be poorer compared to our actual world;the wealth would be lowered. The notion <strong>of</strong> wealth maximizationleads us to the conclusion that we couldenslave Ford and put him <strong>in</strong>to the Ford factory and justtell him: “Hey, keep on be<strong>in</strong>g the Ford that you weresupposed to be <strong>in</strong>stead <strong>of</strong> just be<strong>in</strong>g a Trappist monk.” 38ETHICS VS. “POSNERIAN ECONOMICS”It should be clear now how crucially important it is to contrastan ethically-based approach to property (such as self-ownershipand its extension) to the efficiency theory <strong>of</strong> rights. Whereas theformer approach (built-upon by <strong>Hoppe</strong> as a lead<strong>in</strong>g exponent <strong>of</strong>the Austrian approach and other prom<strong>in</strong>ent philosophers) givesus clear guidance, a Posnerian judge cannot perform the taskassigned to him.Whereas the former approach defends property as a build<strong>in</strong>gblock <strong>of</strong> every viable social order, Posner dilutes its importanceentirely. Over time, he adopted an even less property-friendlyapproach. He refuses, as he himself states, to keep the “faith <strong>in</strong> thepower <strong>of</strong> science to take religion’s place as the deliverer <strong>of</strong> f<strong>in</strong>altruth.” 39 Soundness <strong>of</strong> theoretical arguments is not to be any moredecisive because, as Posner claims,<strong>in</strong> my view the ultimate criterion should be pragmatic;we should not worry whether cost-benefit analysis iswell grounded <strong>in</strong> any theory <strong>of</strong> value. We should askhow well it serves whatever goals we have. 4038 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “Law and Economics,” Lecture delivered atMises University, Mises Institute, Auburn, Alabama, Friday, August 5, 2005.Available at http://mises.org/multimedia/mp3/MU2005/mu05-Hopp2.mp3.39 Richard A. Posner, Overcom<strong>in</strong>g Law (Cambridge: Harvard UniversityPress, 1996), p. 394.40 Richard A. Posner, “Cost-Benefit Analysis: Def<strong>in</strong>ition, Justification, andComment on Conference Papers,” Journal <strong>of</strong> Legal Studies 29 (June 2000): 1156.
Fronek and Šíma: Aga<strong>in</strong>st Standard Law & Economics— 133The Kaldor-Hicks concept <strong>of</strong> efficiency, the concept that wasthe cornerstone <strong>of</strong> the Chicago approach to Law & Economics, hasbeen abandoned and noth<strong>in</strong>g has been put <strong>in</strong> its place. As Posnerput it:I do not want to stake my all on a defense <strong>of</strong> the Kaldor-Hicks concept <strong>of</strong> efficiency. For me the ultimate test <strong>of</strong>cost-benefit analysis employ<strong>in</strong>g that concept is a pragmaticone: whether its use improves the performance <strong>of</strong>government <strong>in</strong> any sense <strong>of</strong> improvement that theobserver th<strong>in</strong>ks appropriate. 41It is crucial to realize that “any sense <strong>of</strong> improvement that theobserver th<strong>in</strong>ks appropriate” may mean virtually anyth<strong>in</strong>g from<strong>in</strong>creas<strong>in</strong>g taxes to build<strong>in</strong>g labor camps—a sad end <strong>of</strong> a onceambitious research project.CONCLUSIONOur aim <strong>in</strong> the present paper was to show that the standardLaw & Economics approach has to be challenged due to its shortcom<strong>in</strong>gs,and that scholars <strong>in</strong> both economic and legal fieldsunderstand that. Unfortunately, while present<strong>in</strong>g their arguments,they <strong>of</strong>ten ignore scholarship which could make their casestronger. Consider this quote from Markovits, an eloquent critic <strong>of</strong>us<strong>in</strong>g efficiency criteria <strong>in</strong> law:In fact, several highly respected economists and lawand-economicsscholars have written well-known articlesthat make arguments purport<strong>in</strong>g to justify the claimthat economically efficient decisions are always justand/or desirable—arguments that they have not explicitlydisavowed and that no other economist had refuted. 42This is simply not true, and we sought to provide sufficient evidenceto support this claim. Austrian authors have written overthe years a grow<strong>in</strong>g number <strong>of</strong> publications do<strong>in</strong>g just that. The41 Ibid., pp. 1155–56.42 Richard S. Markovits, “On the Relevance <strong>of</strong> Economic Efficiency Conclusions,”Florida State University Law Review 29, no. 1 (Fall 2001): 5.
134 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Austrian broad approach to the study <strong>of</strong> social reality is someth<strong>in</strong>gwhich legal theorists could very much benefit from. Regrettably,most <strong>of</strong> them seem to be unaware <strong>of</strong> the Austrian tradition, 43 andhence—to their detriment—work with<strong>in</strong> the framework <strong>of</strong> neoclassicaleconomics.On the other hand, Austrians, too, rarely quote legal philosophersfor the support <strong>of</strong> their thoughts, even though both groupsmay, <strong>in</strong> many respects, be develop<strong>in</strong>g, <strong>in</strong> essence, the same arguments.This fact alone should encourage Austrians to study more<strong>of</strong> their works. h43 For an author prais<strong>in</strong>g the humanistic approach <strong>of</strong> the Austrian economicssee e.g. Michael Novak, “Economics as Humanism,” <strong>in</strong> EdwardYounk<strong>in</strong>s, ed., Three <strong>in</strong> One (Lanham, Md.: Rowman & Littlefield, 2001).
1991 Mises University. From left: Lew Rockwell, Yuri Maltsev,<strong>Hans</strong> <strong>Hoppe</strong>, Murray Rothbard, and Roger Garrison1992 at Jekyll IslandFrom left: <strong>Hans</strong> <strong>Hoppe</strong>,Murray Rothbard, and Lew RockwellUndated photoFrom left:Walter Block,<strong>Hans</strong> <strong>Hoppe</strong>,Roger Garrison,and RichardEbel<strong>in</strong>g
1996 Mises University Faculty. Front row, from left: <strong>Hans</strong> <strong>Hoppe</strong>, DavidGordon, Robert Batemarco, Ralph Raico, Joseph Salerno, Andy Barnett,and Jeffrey Herbener. Back row: Mark Thornton, Thomas DiLorenzo,John Sophocleus, and Guido HülsmannUndated photoUndated, with Norman S<strong>in</strong>gletonand Paul GottfriedWith Guido Hülsmannat the 1999Mises University
With Otto von Habsburgat the 1999 Mises InstituteSupporters Summit andSchlarbaum AwardpresentationLeft:With Joseph Salernoat the go<strong>in</strong>g-away partyfor Pat Barnett <strong>in</strong> 2001Below: 2002
Above: With Eugen-Maria Schulak, September 2005With his wifeGülç<strong>in</strong> Imre <strong>in</strong>Denmark, 2006With Emily andNicholas<strong>Hoppe</strong>, childrenfrom his firstmarriage,<strong>in</strong> Auburn,Alabama, 2006
With Gülç<strong>in</strong> <strong>in</strong> Bodrum, Turkey, 2007At the 2007 meet<strong>in</strong>g <strong>of</strong> the Property and Freedom Society, Bodrum, Turkey
2008 meet<strong>in</strong>g <strong>of</strong> the Property and Freedom SocietyBelow: With David Gordon
Gülç<strong>in</strong> Imre (center), with members <strong>of</strong> the Property and Freedom Societywrit<strong>in</strong>g for the German libertarian monthly magaz<strong>in</strong>e “eigentümlich frei.”From left: Bruno Bandulet, Guido Hülsmann, Carlos Gebauer, Eugen-MariaSchulak, Rahim Taghizadegan, Andreas Tögel, Paul Gottfried, AndréLichtschlag, Mart<strong>in</strong> Stefunko, Sean Gabb, Robert Gröz<strong>in</strong>ger, AnthonyDaniels, Christoph Schmidt-Krayer, and <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>,Bodrum, Turkey, 2009With Robert Higgs, Bodrum, Turkey, 2009
Lee Iglody, Doug French, <strong>Hans</strong> <strong>Hoppe</strong>, and Steve Sailer,Bodrum, Turkey, 2009From left:Andy Barnett,Anthony Deden,<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>,Andreas Acavalos, andWitold Falkowski,Bodrum, Turkey, 2009<strong>Hans</strong>, Gülç<strong>in</strong>, andPeter Duesberg,Bodrum, Turkey, 2009
Part ThreePolitical Philosophy
17Toward a Libertarian Theory <strong>of</strong> Guilt& Punishment for the Crime <strong>of</strong> StatismWalter BlockThis paper is an attempt to comb<strong>in</strong>e the <strong>in</strong>sights <strong>of</strong> VanCreveld concern<strong>in</strong>g statism 1 with libertarian theory <strong>in</strong>order to forge a theory <strong>of</strong> justified punishment for thecrime <strong>of</strong> engag<strong>in</strong>g <strong>in</strong> statist, governmental, or other gangsteractivity.GOVERNMENT VS. STATEVan Creveld beg<strong>in</strong>s his analysis by dist<strong>in</strong>guish<strong>in</strong>g between governmentsand states. In his view:The state . . . is an abstract entity which can be neitherseen, nor heard, nor touched. This entity is not identicalwith either the rulers or the ruled; neither President Cl<strong>in</strong>ton,nor citizen Smith, nor even an assembly <strong>of</strong> all the citizensact<strong>in</strong>g <strong>in</strong> common can claim that they are the state.Walter Block (WalterBlock.com; wblock@loyno.edu), a long time friend andadmirer <strong>of</strong> <strong>Hans</strong> <strong>Hoppe</strong>, is Harold E. Wirth Endowed Chair and Pr<strong>of</strong>essor <strong>of</strong>Economics, College <strong>of</strong> Bus<strong>in</strong>ess, Loyola University New Orleans and a SeniorFellow <strong>of</strong> the Ludwig von Mises Institute.1 Mart<strong>in</strong> Van Creveld, The Rise and Decl<strong>in</strong>e <strong>of</strong> the State (Cambridge: CambridgeUniversity Press, 1999).137
138 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>On the other hand, it <strong>in</strong>cludes them both and claims tostand over them both. 2The hallmark <strong>of</strong> the state, for Van Creveld, is its impersonality.There is no one <strong>in</strong>dividual who can be clearly be described, dist<strong>in</strong>ctly,as a member <strong>of</strong> the state. On the other hand, it is possibleto claim that everyone liv<strong>in</strong>g with<strong>in</strong> a certa<strong>in</strong> location is a member<strong>of</strong> the state. He goes so far as to liken this <strong>in</strong>stitution to acorporation <strong>in</strong> the sense that it possesses a legal persona<strong>of</strong> its own, which means that it has rights and duties andmay engage <strong>in</strong> various activities as if it were a real fleshand blood, liv<strong>in</strong>g <strong>in</strong>dividual. 3But if the state is a corporation, it is dist<strong>in</strong>guished from all othersuch, typically <strong>in</strong> two ways: it claims the right to <strong>in</strong>itiate violencewith<strong>in</strong> a given geographical area (e.g., taxation), and demands aterritorial monopoly <strong>in</strong> this regard (e.g., it will not tolerate theoperation <strong>of</strong> any other state with<strong>in</strong> “its” area). Van Creveld putsthe matter <strong>in</strong> this way:the state differs from other corporations . . . first, [<strong>in</strong>] thefact that it authorizes them all but is itself authorized(recognized) solely by others <strong>of</strong> its k<strong>in</strong>d; secondly, thatcerta<strong>in</strong> functions (known collectively as the attributes <strong>of</strong>sovereignty) are reserved for it alone; and, thirdly, thatit exercises those functions over a certa<strong>in</strong> territory <strong>in</strong>sidewhich its jurisdiction is both exclusive and all embrac<strong>in</strong>g.4In sharp contrast, a government is an entity that, although ittypically serves the same function as a state, consists <strong>of</strong> specificidentifiable persons. Here, there is a clear l<strong>in</strong>e <strong>of</strong> demarcation, <strong>in</strong>any geographical area, between the rulers, who are part <strong>of</strong> the government,and the ruled, who are not.2 Ibid., p. 1.3 Ibid.4 Ibid.
Block: Toward a Libertarian Theory <strong>of</strong> Guilt and Punishmentfor the Crime <strong>of</strong> Statism — 139Accord<strong>in</strong>g to Van Creveld:government and state are emphatically not the same.The former is a person or group which makes peace,wages war, enacts laws, exercises justice, raises revenue,determ<strong>in</strong>es the currency, and looks after <strong>in</strong>ternal securityon behalf <strong>of</strong> society as a whole, all the whileattempt<strong>in</strong>g to provide a focus for people’s loyalty and,perhaps, a modicum <strong>of</strong> welfare as well. The latter ismerely one <strong>of</strong> the forms which, historically speak<strong>in</strong>g, theorganization <strong>of</strong> government has assumed. 5Van Creveld further divides the government <strong>in</strong>to various types,<strong>in</strong>clud<strong>in</strong>g tribes with rulers (chiefdoms), city-states, and empires. 6To preview our f<strong>in</strong>d<strong>in</strong>gs, we shall ma<strong>in</strong>ta<strong>in</strong> that while foment<strong>in</strong>gstates and governments are equally crim<strong>in</strong>al acts under the legalcode <strong>of</strong> libertarianism, the dist<strong>in</strong>ction between them is still ahighly useful one, <strong>in</strong> that the former presents far more analytic difficultiesthan the latter.WHAT IS LIBERTARIANISM?Libertarianism is the philosophy that ma<strong>in</strong>ta<strong>in</strong>s it is illicit tothreaten or <strong>in</strong>itiate violence aga<strong>in</strong>st a person or his legitimatelyowned property. 7 Defensive force may be used to ward <strong>of</strong>f anattacker, but <strong>in</strong>vasions <strong>of</strong> person or property are strictly prohibitedby the non-aggression axiom.5 Ibid., p. 415.6 Ibid., p. 2. He actually <strong>in</strong>cludes a fourth category “tribes without rulers”but we ignore this possibility on the ground that it cannot be reconciled withour own view that all governments necessarily <strong>in</strong>itiate (legally legitimate) violenceaga<strong>in</strong>st their citizens, and demand a monopoly role <strong>in</strong> this regard.7 See on this Murray N. Rothbard, The Ethics <strong>of</strong> Liberty (Atlantic Highlands,N.J.: Humanities Press, 1982); <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialismand Capitalism (Boston-Dordrecht-London: Kluwer, 1989); idem, The Economicsand Ethics <strong>of</strong> Private Property: Studies <strong>in</strong> Political Economy and Philosophy(Boston: Kluwer, 1993); John Locke, An Essay Concern<strong>in</strong>g the True Orig<strong>in</strong>,Extent and End <strong>of</strong> Civil Government, V, pp. 27–28, <strong>in</strong> Two Treatises <strong>of</strong> Government,P. Laslett, ed. (Cambridge: Cambridge University Press, 1960).
140 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Given that both the state and government can be def<strong>in</strong>ed as amonopoly <strong>of</strong> legitimated violence with<strong>in</strong> a given geographicalarea, it may then be fairly said that any such entity, which admits<strong>of</strong> rulers and ruled, whether private gang, government or state,necessarily violates the libertarian axiom <strong>of</strong> non-aggression.Can it reasonably be objected that rul<strong>in</strong>g entities, whether statesor governments, are really embodiments <strong>of</strong> voluntary agreementsbetween consent<strong>in</strong>g adults, s<strong>in</strong>ce they are based on constitutions? 8Unfortunately for the supporters <strong>of</strong> dirigisme, such a contentioncannot be ma<strong>in</strong>ta<strong>in</strong>ed. Philosophers such as Spooner, Rothbard,and <strong>Hoppe</strong> have put paid to all such claims. 9If it is illicit to <strong>in</strong>vade the person or property <strong>of</strong> another, whatshould be the appropriate response from the forces <strong>of</strong> law andorder? 10 It is a comb<strong>in</strong>ation <strong>of</strong> mak<strong>in</strong>g the victim “whole” aga<strong>in</strong>,8 This is the position <strong>of</strong> the Public Choice School. See James M. Buchanan& Gordon Tullock, The Calculus <strong>of</strong> Consent: Logical Foundations <strong>of</strong> ConstitutionalDemocracy (Ann Arbor: University <strong>of</strong> Michigan, 1962). For criticism, see MurrayN. Rothbard, “Buchanan and Tullock’s The Calculus <strong>of</strong> Consent,” TheLogic <strong>of</strong> Action II (Glos, U.K.: Edward Elgar Publish<strong>in</strong>g, 1997), pp. 269–74; WalterBlock & Thomas J. DiLorenzo, “Constitutional Economics and the Calculus<strong>of</strong> Consent,” Journal <strong>of</strong> Libertarian Studies 15, no. 3 (Summer 2001): 37–56;idem, “Is Voluntary Government Possible? A Critique <strong>of</strong> Constitutional Economics,”Journal <strong>of</strong> Institutional and Theoretical Economics 156, no. 4 (December2000): 567–82; idem, “The Calculus <strong>of</strong> Consent Revisited,” Public F<strong>in</strong>ance andManagement 1, no. 3 (2001).9 See Lysander Spooner, No Treason: The Constitution <strong>of</strong> No Authority(repr<strong>in</strong>t Larkspur, Colo.: P<strong>in</strong>e Tree Press, [1870] 1966); Murray N. Rothbard,“The Anatomy <strong>of</strong> the State,” Rampart Journal 1, no. 2 (Summer 1965); idem,Power and Market: Government and the Economy (Menlo Park, Calif.: Institutefor Humane Studies, 1970); idem, For a New Liberty (New York: Macmillan,1973); idem, The Ethics <strong>of</strong> Liberty; <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism;idem, The Economics and Ethics <strong>of</strong> Private Property. Spooner goes on to reject theclaim that the government is really a voluntary organization, one agreed to onthe part <strong>of</strong> its citizenry, on the ground that people do vote, pay taxes, serve <strong>in</strong>the army, and so on.10 These must <strong>of</strong> necessity be private, s<strong>in</strong>ce public sector police violate thelibertarian code <strong>of</strong> law <strong>in</strong> the first place, and can thus scarcely be relied uponto uphold it.
Block: Toward a Libertarian Theory <strong>of</strong> Guilt and Punishmentfor the Crime <strong>of</strong> Statism — 141and punish<strong>in</strong>g the aggressor. 11 What this amounts to, <strong>in</strong> effect, is“two teeth for a tooth” plus costs <strong>of</strong> captur<strong>in</strong>g and scar<strong>in</strong>g. 12 Considerthe follow<strong>in</strong>g scenario: A steals a car from B. A is now captured.What is the just punishment that will restore B, as much aspossible, to his previous non-victimization state? First, the automobilemust be returned from the carjacker to its rightful owner.That is the first “tooth.” Then, what A did to B must be, <strong>in</strong>stead,done to A, on B’s behalf, by the forces <strong>of</strong> law and order. S<strong>in</strong>ce Arelieved B <strong>of</strong> a car, and took it for himself, the same must now bedone to A; that is, A’s own car (not the one he just stole from Bwhich has already been returned to B as the first tooth) must begiven to B. 13 This is the “second tooth.” 14 But more is needed if the11 On libertarian punishment theory, see Randy E. Barnett & John HagelIII, eds., Assess<strong>in</strong>g the Crim<strong>in</strong>al: Restitution, Retribution and the Legal Process(Cambridge, Mass.: Ball<strong>in</strong>ger, 1977); Walter Block, “Radical Libertarianism:Punishment Theory for the State” (forthcom<strong>in</strong>g); J. Charles K<strong>in</strong>g, “A Rationalefor Punishment,” Journal <strong>of</strong> Libertarian Studies 4, no. 2 (Spr<strong>in</strong>g 1980):151–65; <strong>Stephan</strong> K<strong>in</strong>sella, “Estoppel: A New Justification for IndividualRights,” Reason Papers no. 17 (Fall 1992): 61–74; idem, “Punishment and Proportionality:The Estoppel Approach,” Journal <strong>of</strong> Libertarian Studies 12, no. 1(Spr<strong>in</strong>g 1996): 51–73; idem, “Inalienability and Punishment: A Reply toGeorge Smith,” Journal <strong>of</strong> Libertarian Studies 14, no. 1 (W<strong>in</strong>ter 1998–99): 79–93;idem, “New Rationalist Directions <strong>in</strong> Libertarian Rights Theory,” 12 no. 2Journal <strong>of</strong> Libertarian Studies (Fall 1996): 313–26; idem, “A Libertarian Theory<strong>of</strong> Punishment and Rights,” Loyola <strong>of</strong> Los Angeles Law Review 30 (1997): 607–45;Rothbard, The Ethics <strong>of</strong> Liberty.12 See on this Block, “Radical Libertarianism”; Rothbard, The Ethics <strong>of</strong> Liberty,pp. 85–96; idem, For a New Liberty, p. 97.13 If A does not have his own vehicle <strong>of</strong> equivalent value, then its value canbe taken out <strong>of</strong> A’s hide: that is, <strong>in</strong>stead <strong>of</strong> putt<strong>in</strong>g A <strong>in</strong> a jail at B’s (and allother taxpayers’) expense, where he can spend his days <strong>in</strong> front <strong>of</strong> a color television,<strong>in</strong> cozy air conditioned circumstances, A will <strong>in</strong> effect be enslaveduntil he earns enough money to pay his debt to B. Our experience <strong>of</strong> this“curious <strong>in</strong>stitution” shows that private concerns are able to “sweat” morevalue out <strong>of</strong> their charges than the costs <strong>of</strong> feed<strong>in</strong>g and guard<strong>in</strong>g them. SeeJeffrey Hummel, Emancipat<strong>in</strong>g Slaves, Enslav<strong>in</strong>g Free Men: A History <strong>of</strong> theAmerican Civil War (LaSalle, Ill.: Open Court, 1996); Mark Thornton, “Slavery,Pr<strong>of</strong>itability and the Market Process,” Review <strong>of</strong> Austrian Economics 7, no. 2(1994): 21–47; Robert W. Fogel & Stanley L. Engerman, Time on the Cross: TheEconomics <strong>of</strong> American Negro Slavery (Ann Arbor: University <strong>of</strong> MichiganPress, 1974). So would it be, nowadays, under fully private (slave) prisons.
142 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>scales <strong>of</strong> justice are to be once aga<strong>in</strong> righted. When A engaged <strong>in</strong>his act <strong>of</strong> car jack<strong>in</strong>g, B was ordered, at the po<strong>in</strong>t <strong>of</strong> a gun, to exitfrom the automobile, and turn it over to A. B, reasonably enough,feared for his very life, not know<strong>in</strong>g whether or not compliancewith A’s orders would be sufficient to save himself. If all we do,now, is blithely turn two cars over to B from A, we will still be along way from br<strong>in</strong>g<strong>in</strong>g matters to a just conclusion. S<strong>in</strong>ce Ascared B, we must scare A, twice as much, if anyth<strong>in</strong>g. Accord<strong>in</strong>gly,to the “two teeth” penalty already imposed upon A, weadditionally scare him. How can this be done? One reasonableoption is to force him to play Russian roulette with himself, withthe number <strong>of</strong> bullets and chambers to be determ<strong>in</strong>ed by the severity<strong>of</strong> the crime perpetrated upon B by A. When we add to this areasonable amount for the costs <strong>of</strong> captur<strong>in</strong>g A, 15 our story <strong>in</strong> thisregard is complete.APPLYING LIBERTARIAN PUNISHMENT THEORYTO POLITICAL RULERSIn those branches <strong>of</strong> athletics that have as their goal the movement<strong>of</strong> a spherical object such as golf, handball, racketball, baseball,s<strong>of</strong>tball, and soccer, the road to success is to “keep your eyeon the ball.” He who fails to do so, for even the slightest moment,cannot do as well as otherwise he might. A necessary condition fororchestral play<strong>in</strong>g is to either memorize the notes—and their timevalue—or to keep your eyes glued to the musical score. Even amomentary lapse <strong>in</strong> this regard is almost a guarantee <strong>of</strong> less productivitythan otherwise, if not outright failure. There are, to besure, distractions; these account for failure to a great degree. Butthe high road to success is to strive to the utmost to focus on whatyou are do<strong>in</strong>g.14 Note that we are not talk<strong>in</strong>g about 1.9 “teeth” or 2.1 “teeth” or any otheramount <strong>of</strong> “teeth.” Justice amounts to exactly twice what the bible recommendeds<strong>in</strong>ce we first return the stolen car, and then add on a second car aspunishment.15 If A presents himself at the police station with a voluntary confession,this aspect <strong>of</strong> his punishment will be m<strong>in</strong>imized.
Block: Toward a Libertarian Theory <strong>of</strong> Guilt and Punishmentfor the Crime <strong>of</strong> Statism — 143It is the same with our present concerns. Only here, <strong>in</strong>stead <strong>of</strong>a ball or musical notes, the aphorism <strong>of</strong> keep<strong>in</strong>g your eye on theball applies to the non-aggression axiom—and its applicability tothose responsible for creat<strong>in</strong>g and runn<strong>in</strong>g states and governments.Theaim <strong>of</strong> the present paper is to apply the libertarian nonaggressionaxiom and punishment theory to the activities <strong>of</strong> thestate. It is <strong>of</strong> the utmost importance that we act consistently withthe basic build<strong>in</strong>g block <strong>of</strong> this philosophy, s<strong>in</strong>ce the distractionswill be numerous and powerful; allow<strong>in</strong>g them to deter us from anaccurate analysis will almost guarantee erroneous conclusions.The “distractions” are so numerous and deeply embedded <strong>in</strong>our societal mores that even I, the author <strong>of</strong> this paper, feel a certa<strong>in</strong>reluctance to overcome them. For one th<strong>in</strong>g, politicians are theleaders <strong>of</strong> our present society. To contemplate <strong>in</strong>carcerat<strong>in</strong>g them,particularly en masse, is more than sufficient to make the mosthardy <strong>in</strong>tellect blanch. 16 But facts are facts, and we cannot take oureye <strong>of</strong>f <strong>of</strong> the “ball” if we are to shed any sort <strong>of</strong> social scientificlight on the problems to which we are address<strong>in</strong>g ourselves: giventhat governments are illicit <strong>in</strong>vasive crim<strong>in</strong>al <strong>in</strong>stitutions, and thatpeople who aggress are justifiably punished, we must contemplateretribution, on a massive scale, aga<strong>in</strong>st all those responsible.JUST HOW MASSIVE?But just how all-encompass<strong>in</strong>g must be our vision? Suppose wewere to contemplate a Nuremberg type trial for Cuba and NorthKorea. Would all <strong>in</strong>habitants <strong>of</strong> these unhappy countries, withoutexception, be candidates for a jail sentence (or worse)? This,<strong>in</strong>deed, would be precisely the conclusion reached by what Iwould consider a rather unsympathetic <strong>in</strong>terpretation <strong>of</strong> Van16 It is also undoubtedly illegal to contemplate any such activity. Accord<strong>in</strong>gly,I hereby restrict the coverage <strong>of</strong> this discussion to the two political entitiesmost people would agree are currently rogue states, or illegitimate governments,those <strong>of</strong> North Korea and Cuba, as <strong>of</strong> the time <strong>of</strong> the present writ<strong>in</strong>g(2008). Political entities operat<strong>in</strong>g <strong>in</strong> the past which fall <strong>in</strong>to this category<strong>in</strong>clude the USSR, any <strong>of</strong> the countries <strong>of</strong> Eastern Europe until the fall <strong>of</strong> communism<strong>in</strong> that part <strong>of</strong> the world, Nazi Germany, Fascist Italy, Chile underSalvatore Allende, and Uganda under Idi Am<strong>in</strong>.
144 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Creveld, along with the premises <strong>of</strong> libertarian punishment theoryas we have adumbrated them. Specifically, this author has stated:“neither President Cl<strong>in</strong>ton, nor citizen Smith, nor even an assembly<strong>of</strong> all the citizens act<strong>in</strong>g <strong>in</strong> common can claim that they are thestate. On the other hand, it <strong>in</strong>cludes them both and claims to standover them both.” 17 The po<strong>in</strong>t is, if both Smith and Cl<strong>in</strong>ton are thestate, and the latter is guilty <strong>of</strong> crim<strong>in</strong>al behavior on this ground,then so must this apply to the former. But it would be a strangeNuremberg trial that found guilty the entire populace <strong>of</strong> Cuba; thiswould mean that there were no victims <strong>in</strong> that unhappy islandcountry, only victimizers, a manifest impossibility, s<strong>in</strong>ce the latterimplies the existence <strong>of</strong> the former. From this we deduce that theremust be at least one victim <strong>in</strong> Cuba. Further, it is only a particularlyunsympathetic read<strong>in</strong>g <strong>of</strong> Van Creveld to assume, on the basis <strong>of</strong>his analysis, that both Idi Am<strong>in</strong> and any one <strong>of</strong> his many victimswould be not only guilty <strong>of</strong> political crimes, but equally guilty.If it is not and cannot be the case that “we are all guilty” <strong>of</strong> statism,then it logically follows that some are culpable, and some arenot. Let us consider a few candidates for the criterion separat<strong>in</strong>gthe blameworthy from the <strong>in</strong>nocent.First, you are guilty <strong>of</strong> be<strong>in</strong>g part and parcel <strong>of</strong> government ifyou are employed by it, and not if not. This sounds like a good <strong>in</strong>itialstab at mak<strong>in</strong>g the dist<strong>in</strong>ction, but it is not. For one th<strong>in</strong>g, virtuallyeveryone <strong>in</strong> Cuba, North Korea, the USSR, East Germanyeither works or has worked for the state. Thus, this criterion wouldtend to collapse <strong>in</strong>to the one which claims “we are all guilty,”which has already been rejected. For another, surely there are peoplewho are not formally employees <strong>of</strong> government, and yet whoare guilty <strong>of</strong> statism to a great degree. Krupp and Messerschmitspr<strong>in</strong>g readily to m<strong>in</strong>d <strong>in</strong> the Nazi era; Armand Hammer was anAmerican bus<strong>in</strong>essman who cooperated with and effectively promotedStal<strong>in</strong>ism. Thus this criterion is both under- and over-<strong>in</strong>clusive.17 Van Creveld, The Rise and Decl<strong>in</strong>e <strong>of</strong> the State, p. 1. Aga<strong>in</strong>, let it berepeated, we are not <strong>in</strong> this paper contemplat<strong>in</strong>g punish<strong>in</strong>g any such personas William Cl<strong>in</strong>ton for the crime <strong>of</strong> be<strong>in</strong>g the President <strong>of</strong> the United States.Rather, if we are to make use <strong>of</strong> this example, we are implicitly discuss<strong>in</strong>g thepresident or dictator <strong>of</strong> a country such as Cuba or North Korea.
Block: Toward a Libertarian Theory <strong>of</strong> Guilt and Punishmentfor the Crime <strong>of</strong> Statism — 145Now consider a country where it is almost entirely a matter <strong>of</strong>choice, not physical necessity, to take a government job, for example,the U.S. 18 Use <strong>of</strong> the employment contract would condemn tocrim<strong>in</strong>ality virtually every post <strong>of</strong>fice worker, teacher, pr<strong>of</strong>essor, 19social worker, street sweeper, garbage man, welfare recipient, tollbooth collector, road repairman, and so on. 20 Aga<strong>in</strong>, we come perilouslyclose to laps<strong>in</strong>g back <strong>in</strong>to the “we are all guilty” scenario.Worse, no cognizance is taken <strong>of</strong> the dist<strong>in</strong>ction between a Marxistor leftist pr<strong>of</strong>essor who supports totalitarianism, and those whooppose it.Of course, it can be argued that even the libertarian pr<strong>of</strong>essor orpolitician 21 who accepts a salary from government is still guilty <strong>of</strong>receiv<strong>in</strong>g what, by his lights, can only be considered stolen (e.g.,taxed) property. And this cannot be denied. However, there areseveral replies open to the libertarian pr<strong>of</strong>essor employed by astate school. First, there is the claim that he is only gett<strong>in</strong>g some <strong>of</strong>his own money back from the government, and not that <strong>of</strong> otherpeople. Second, it is not exactly theft to take from a thief; 22 rather,such an act is best characterized as reliev<strong>in</strong>g a crim<strong>in</strong>al <strong>of</strong> his illgottenga<strong>in</strong>s. So, even if a post <strong>of</strong>fice worker takes a salary from the18 Let it be repeated once aga<strong>in</strong> that we are not consider<strong>in</strong>g the U.S., or any<strong>of</strong> the other western democracies as examples <strong>of</strong> countries that, if it is concludedthat a person is part <strong>of</strong> the state apparatus, then he is guilty <strong>of</strong> violat<strong>in</strong>gthe libertarian code <strong>of</strong> non-aggression, and is thus a subject fit for punishment.19 In the <strong>in</strong>terests <strong>of</strong> full disclosure, I must note that I was previouslyemployed by the University <strong>of</strong> Central Arkansas, a public <strong>in</strong>stitution <strong>of</strong> higherlearn<strong>in</strong>g.20 This is somewhat <strong>of</strong> an exaggeration s<strong>in</strong>ce some <strong>of</strong> these jobs have beenprivatized.21 Ron Paul is perhaps best known person <strong>in</strong> this latter category. Throughouthis long career <strong>in</strong> the House <strong>of</strong> Representatives, he has served as a lonebeacon for freedom.22 Actually, it is logically impossible to steal from a thief; one can only stealfrom the rightful owner, which, manifestly, the robber is not. An analogoussituation occurs with regard to money. It is only possible to counterfeit legitimatemoney, not money which is already counterfeited, such as Cuban orNorth Korean money. On this see Walter Block, Defend<strong>in</strong>g the Undefendable(New York: Fox and Wilkes, [1976] 1991), pp. 109–20; Van Creveld, The Riseand Decl<strong>in</strong>e <strong>of</strong> the State, pp. 224–29.
146 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>government, this does not mean he is guilty <strong>of</strong> a libertarian legalcode violation; far better that he, a non-thief, now has this moneythan that the government, 23 which stole it <strong>in</strong> the first place, gets tokeep it. Ragnar Danneskjold, a fictional hero <strong>in</strong> Ayn Rand’s AtlasShrugged, made a career out <strong>of</strong> liberat<strong>in</strong>g (not steal<strong>in</strong>g!) governmentproperty and return<strong>in</strong>g it to its rightful owners. 24 This was atwo stage act: first, tak<strong>in</strong>g money from the state, and second, giv<strong>in</strong>git back to those from whom the state had stolen it from <strong>in</strong> thefirst place. If this complex act, consist<strong>in</strong>g <strong>of</strong> two separate parts, wasa righteous one, then each and every part <strong>of</strong> it, too, had to be licit;there cannot be a totally legitimate act one part <strong>of</strong> which isimproper. But this means that not only return<strong>in</strong>g stolen money torightful owners should be lawful, but also tak<strong>in</strong>g it away fromthose with no valid title to it. 25Of course, the libertarian college pr<strong>of</strong>essor who does not wishto open himself up to the charge <strong>of</strong> hypocrisy is subject to the“attack” on the part <strong>of</strong> taxpayers who may approach him anddemand that he return to them those parts <strong>of</strong> their salary whichcannot be accounted for on the grounds <strong>of</strong> him merely gett<strong>in</strong>g backhis own (or his parents’) tax revenues. What response does he haveat his disposal? He has several. First, not all <strong>of</strong> these revenues (thedifference, suitably capitalized, between what was stolen fromhim and what he has recovered) are up for grabs to the irate taxpayerwho approaches him with charges <strong>of</strong> hypocrisy; it is onlythis amount subtracted from a reasonable “salvage” fee. Accord<strong>in</strong>gto the law <strong>of</strong> the sea merchant, 26 salvage fees amounted to onethird <strong>of</strong> the value <strong>of</strong> a lost or abandoned boat. Apply<strong>in</strong>g this rule<strong>of</strong> thumb to our present situation, at most only two thirds <strong>of</strong> the23 Remember, we are still talk<strong>in</strong>g here about the North Korean or Cubangovernment.24 Ayn Rand, Atlas Shrugged (New York: Random House, 1957).25 E.g., the government <strong>of</strong> North Korea, or the fictional country <strong>of</strong> the U.S.<strong>in</strong> Rand’s Atlas Shrugged.26 See “Mar<strong>in</strong>e Salvage Information For Recreational Boaters” (available atwww.safesea.com/boat<strong>in</strong>g_<strong>in</strong>fo/salvage/salvage_ma<strong>in</strong>.html, accessed Nov.19, 2008); “Salvage Law” (available at http://rms-republic.com/sal00.html,accessed Nov. 19, 2008).
Block: Toward a Libertarian Theory <strong>of</strong> Guilt and Punishmentfor the Crime <strong>of</strong> Statism — 147libertarian pr<strong>of</strong>essor’s salary is vulnerable to this charge. Second,just as Ragnar chose his own victims <strong>of</strong> the state to whom to makerestitution, so is this option open to our libertarian pr<strong>of</strong>essoremployed by a government <strong>in</strong>stitution. He need not satisfy anyand all comers. Instead, he can direct these funds to worthy groupsand organizations who have been victimized by taxation. Third,the would-be claimant’s hands must also be clean <strong>in</strong> this regard.His f<strong>in</strong>ancial records must show that he is not a rul<strong>in</strong>g class memberor net tax consumer <strong>in</strong> the light <strong>of</strong> Calhoun’s analysis. 27 Otherwise,he will be vulnerable to a counterclaim from the very personhe is “attack<strong>in</strong>g.”LIBERARTARIAN CLASS ANALYSISNo, not all <strong>in</strong>habitants <strong>of</strong> a geographical area are guilty <strong>of</strong>foment<strong>in</strong>g state <strong>in</strong>stitutions, nor are, even, all those who work forthe government. The latter may constitute a presumption <strong>of</strong> politicalcrim<strong>in</strong>ality, but this can be defeated, as we have seen. A bettercandidate for guilt and punishment emanates from libertarianclass analysis.This contention may be rejected out <strong>of</strong> hand by men <strong>of</strong> good willand good sense, because the Marxists have long polluted the conceptwith their own version <strong>of</strong> it. That is, <strong>in</strong> the more well-knownMarxian class analysis, employers are guilty <strong>of</strong> exploitation, andemployees are their victims. 28 But just because one version <strong>of</strong> classanalysis is <strong>in</strong>tellectually bankrupt does not mean that all others are.In the libertarian account, the dist<strong>in</strong>ction is, as might be imag<strong>in</strong>ed,between those who either directly or <strong>in</strong>directly engage <strong>in</strong> violentattacks on <strong>in</strong>nocent people, and those who do not. 2927 John C. Calhoun, A Disquisition on Government (New York: Liberal ArtsPress, 1953), pp. 16–18.28 For a refutation <strong>of</strong> this doctr<strong>in</strong>e, see Eugen von Böhm-Bawerk, Capitaland Interest, George D. Hunke & <strong>Hans</strong> F. Sennholz, trans. (South Holland, Ill.:Libertarian Press, [1884] 1959), particularly part I, chapter XII, “ExploitationTheory <strong>of</strong> Socialism-Communism.”29 On libertarian rul<strong>in</strong>g class theory see Rothbard, The Ethics <strong>of</strong> Liberty, pp.176–77.
148 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>The state is <strong>of</strong> course the most well-organized group <strong>of</strong>exploiters <strong>of</strong> the <strong>in</strong>nocent, but there are also non-governmentalcrim<strong>in</strong>als, gangsters, etc., who must be <strong>in</strong>cluded <strong>in</strong> the rul<strong>in</strong>g class.Every car-jacker, every two bit thief, every perpetrator <strong>of</strong> fraud,every perpetrator <strong>of</strong> rape, assault and battery or murder, is, alongwith organizers and top managers <strong>of</strong> both government and state,a member <strong>of</strong> the rul<strong>in</strong>g class from the libertarian perspective. Aswell, there are the aiders and abettors <strong>of</strong> the political system: members<strong>of</strong> the bus<strong>in</strong>ess, arts, and athletic communities who helppoliticians and bureaucrats <strong>in</strong> their mistreatment <strong>of</strong> the rest <strong>of</strong> society.Perhaps the analogy that best illustrates this concept is thatbetween <strong>of</strong>ficers and enlisted men <strong>in</strong> the army. The former are therulers, the latter, the ruled. A colonel or a general typically receivesfar better treatment than a private or a corporal. 30 Who is a member<strong>of</strong> the rul<strong>in</strong>g class: a welfare mother who accepts a check thatwould not be available to her <strong>in</strong> the free society, or the head <strong>of</strong> theFederal Reserve, an <strong>in</strong>stitution also <strong>in</strong>compatible with laissez-fairecapitalism? 31 It is clearly not the former, but rather the latter. Yes,welfare is a clear theft <strong>of</strong> the rich taxpayer, <strong>in</strong> favor <strong>of</strong> the poor taxconsumer 32 <strong>in</strong> this case, and is unjustified. But the s<strong>in</strong>gle mom ismore s<strong>in</strong>ned aga<strong>in</strong>st than a s<strong>in</strong>ner. Put it this way: if somehow the“welfare queen” and all her ilk disappeared from the scene, themixed economy, or socialism, would function pretty much as ithas always done. On the other hand, were the politicians and topbureaucrats to decamp, and not be replicated, we would be wellon our way toward the free society. 30 See Van Creveld, The Rise and Decl<strong>in</strong>e <strong>of</strong> the State, p. 161, on the differenttreatment accorded <strong>of</strong>ficers and enlisted men captured <strong>in</strong> war.31 It should not be forgotten that <strong>in</strong> this and other examples, we are discuss<strong>in</strong>gthe Cuban or North Korean equivalents; e.g., the head <strong>of</strong> the centralbank <strong>of</strong> those countries.32 Calhoun, A Disquisition on Government, pp. 16–18.
18A Note on Intellectual Property andExternalitiesHardy BouillonImet <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> <strong>in</strong> 1991, I believe. Dissatisfied with<strong>in</strong>consistencies <strong>in</strong> Hayek’s concept <strong>of</strong> <strong>in</strong>dividual freedom, Iwas look<strong>in</strong>g for an assessment that (at least) tried to avoidthese <strong>in</strong>consistencies. <strong>Hoppe</strong>’s approach was and still is a representative<strong>of</strong> this rare species. <strong>Hoppe</strong> was refresh<strong>in</strong>g. He did anddoes not take th<strong>in</strong>gs for granted, for <strong>in</strong>stance the classical liberalassumption that you cannot have <strong>in</strong>dividual freedom without government’smonopoly to protect it. If we believe <strong>in</strong> free markets,why should we easily assume that they do not work when it comesto the private production <strong>of</strong> protection? On a more philosophicallevel: if we look for a consistent political philosophy that allows fora peaceful solution <strong>of</strong> man’s most fundamental material problem,namely scarcity <strong>of</strong> resources under compet<strong>in</strong>g <strong>in</strong>terests, whyshould not we look for a set <strong>of</strong> pr<strong>in</strong>ciples that do not contradicteach other, no matter how difficult it appears to achieve these pr<strong>in</strong>ciples<strong>in</strong> practice?Hardy Bouillon (hardy.bouillon@publicpartners.de) teaches philosophy at theUniversity <strong>of</strong> Trier; is Hayek Institute Endowed Guest Pr<strong>of</strong>essor at the ViennaUniversity <strong>of</strong> Economics and Bus<strong>in</strong>ess; and is a Fellow <strong>of</strong> the InternationalCentre for Economic Research (ICER) <strong>in</strong> Tur<strong>in</strong>. His books <strong>in</strong>clude Government:Servant or Master? (1993), Libertarians and Liberalism (1997), and Ordered Anarchy(2007).149
150 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>The anarcho-capitalism <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> is a modeldeveloped along this guidel<strong>in</strong>e. <strong>Hoppe</strong>’s pr<strong>in</strong>ciples <strong>of</strong> orig<strong>in</strong>alappropriation <strong>of</strong> free goods and <strong>of</strong> production and trade <strong>of</strong> privategoods are perfectly compatible. As long as goods are identifiable,all questions regard<strong>in</strong>g their proper ownership can be solved—<strong>in</strong>pr<strong>in</strong>ciple. Of course, goods which are difficult to identify pose aproblem—a problem that exists apparently for each approach thattries to solve the above-mentioned, most fundamental, materialproblem <strong>of</strong> man.Material goods are identifiable, at least <strong>in</strong> pr<strong>in</strong>ciple. The placewhere you park your car cannot be taken by another car, at leastnot at the same time, because matter has extension. On a more generallevel: matter, whatever form it has or extension it takes, fills aspot <strong>in</strong> time and space. One and the same po<strong>in</strong>t <strong>in</strong> the time-spacecoord<strong>in</strong>ate-systemcannot be taken more than once. This exclusiverelationship between matter, time, and space helps to identify, i.e.,locate, material goods: material goods can exist side by side, butthey cannot collide, e.g., take simultaneously the same spot <strong>in</strong> thetime-space-coord<strong>in</strong>ate-system. Hence a society <strong>in</strong> which onlymaterial goods exist can solve its material conflicts without anycollisions or conflict as long as we apply coherent pr<strong>in</strong>ciples <strong>of</strong>legitimate acquisition <strong>of</strong> property.Th<strong>in</strong>gs become more difficult if we <strong>in</strong>clude property <strong>in</strong> immaterialgoods. To say the least, the ontological status <strong>of</strong> immaterialgoods is not the same as that <strong>of</strong> material goods. Whether immaterialgoods fill spots <strong>in</strong> time and space, as material goods do, ismuch debated. It is also disputed whether or not it is possible toclaim mean<strong>in</strong>gfully that someth<strong>in</strong>g exists if its alleged existencehas no material form at all.Accord<strong>in</strong>g to Popperian ontology, ideas have an immaterialstatus and began with language. 1 They are entities <strong>of</strong> World 3 andcan be the subject <strong>of</strong> mental processes. These processes, <strong>in</strong> turn,belong to World 2. Of course, if we do not claim <strong>of</strong> ideas, problems,theories, arguments, etc. that they fill spots <strong>in</strong> time and1 Karl Popper, The Open Universe: An Argument for Indeterm<strong>in</strong>ism [The Postscriptto The Logic <strong>of</strong> Scientific Discovery, vol. II] (Totowa, N.J., Rowman & Littlefield,1982), p. 116.
Bouillon: A Note on Intellectual Property and Externalities — 151space, what are they after all? Where do they go, when nobodyth<strong>in</strong>ks <strong>of</strong> them? Where have they been <strong>in</strong> the meantime, whensomeone “remembers” them? Do they disappear with mank<strong>in</strong>d?These questions address either deep philosophical problems orpseudo-problems. Whatever we th<strong>in</strong>k <strong>of</strong> the characteristics <strong>of</strong> theseproblems, it is clear that any mean<strong>in</strong>gful concept <strong>of</strong> <strong>in</strong>tellectualproperty presupposes that it is dist<strong>in</strong>ct from material property,hence immaterial. A further dist<strong>in</strong>ction between material goods andimmaterial goods is that the former, <strong>in</strong> most cases, are tangiblegoods, whereas immaterial goods, for <strong>in</strong>stance <strong>in</strong>tellectual property,are <strong>in</strong>tangible. 2 Ideas, melodies, and theories have no materialextension per se as material goods do. Therefore, we cannot withoutfurther assumptions claim for them what we can claim for materialgoods, namely that they cannot collide with other material goods.Intellectual property turns out to be a cumbersome element <strong>in</strong>an otherwise perfectly consistent political philosophy. Of course,<strong>Hoppe</strong> provides a solution to this problem. His solution rests onthe <strong>in</strong>troduction <strong>of</strong> a normative-functional explanation <strong>of</strong> privateproperty <strong>in</strong>to the debate and on the fact that immaterial goodsare—unlike material goods—not scarce. As <strong>Hoppe</strong> has put it:[O]nly because scarcity exists is there even a problem <strong>of</strong>formulat<strong>in</strong>g moral laws; <strong>in</strong>s<strong>of</strong>ar as goods are superabundant(“free” goods), no conflict over the use <strong>of</strong> goods ispossible and no action-coord<strong>in</strong>ation is needed. Hence, itfollows that any ethic, correctly conceived, must be formulatedas a theory <strong>of</strong> property, i.e., a theory <strong>of</strong> theassignment <strong>of</strong> rights <strong>of</strong> exclusive control over scarcemeans. Because only then does it become possible toavoid otherwise <strong>in</strong>escapable and irresolvable conflict. 32 Though some speak exclusively <strong>of</strong> tangible and non-tangible goods, Iprefer to talk <strong>of</strong> material and immaterial goods. See, for <strong>in</strong>stance, <strong>Stephan</strong>K<strong>in</strong>sella, “Aga<strong>in</strong>st Intellectual Property,” Journal <strong>of</strong> Libertarian Studies 15, no. 2(Spr<strong>in</strong>g 2001): 2. The po<strong>in</strong>t about material goods is not that they are tangible,for some are not. For <strong>in</strong>stance, atoms and many other small material units arenot tangible; they are identifiable only <strong>in</strong>directly, though this does not preventus from call<strong>in</strong>g them material.3 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism (Boston:Kluwer Academic Publishers, 1989), p. 235 n. 9.
152 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>In other words, assum<strong>in</strong>g that scarcity is the reason for conflictover goods with compet<strong>in</strong>g <strong>in</strong>terests 4 and that the very function <strong>of</strong>property rights is to solve these conflicts peacefully, there is noneed to provide property rights for <strong>in</strong>tellectual property, because<strong>in</strong>tellectual goods are not scarce.I shall return to this argument later. Until then we should keep<strong>in</strong> m<strong>in</strong>d that <strong>in</strong>tellectual property (if it exists at all) is, contrary tomaterial property, difficult to identify and, hence, its philosophicaltreatment asks for special care. Before we address the analysis <strong>of</strong><strong>in</strong>tellectual property, let us look at some aspects <strong>of</strong> the role <strong>of</strong> def<strong>in</strong>itions.TYPES OF STATEMENTS:ANALYTICAL, EMPIRICAL, AND NORMATIVEIt goes without say<strong>in</strong>g that statements <strong>in</strong> the sciences can havedifferent forms. Three are <strong>of</strong> importance here: some statements arepurely analytical (for <strong>in</strong>stance def<strong>in</strong>itions, tautologies), while othersare ma<strong>in</strong>ly empirical (theories, hypotheses) or normative(imperatives, rules, laws). It also goes without further notice that itis sometimes quite complicated to tell whether a statement ismeant to be (purely) analytical, empirical, or normative. Sometimesstatements serve two or more masters. Take for <strong>in</strong>stanceyour wife’s message: “Darl<strong>in</strong>g, the garbage can is full.” Not onlydo you suppose that she made an empirical statement (an assumptionwhich is obvious because <strong>of</strong> the grammatical structure used <strong>in</strong>this sentence), you also clearly understand the implicit imperative:“Get the trash out <strong>of</strong> the kitchen and return with an empty bucket,please!”4 Ibid., p. 10:[B]ecause <strong>of</strong> the scarcity <strong>of</strong> body and time, even <strong>in</strong> the Garden<strong>of</strong> Eden property regulations would have to be established.Without them, and assum<strong>in</strong>g now that more than one personexists, that their range <strong>of</strong> action overlaps, and that there is nopreestablished harmony and synchronization <strong>of</strong> <strong>in</strong>terests amongthese persons, conflicts over the use <strong>of</strong> one’s own bodywould be unavoidable. (emphasis added)
Bouillon: A Note on Intellectual Property and Externalities — 153Leav<strong>in</strong>g the peculiarities <strong>of</strong> our language aside, it appears to becommon sense among all scientists that language—despite all itsimperfections—should be used as precisely as necessary for thetheories <strong>in</strong> question and that analytical, descriptive, and prescriptivesentences should not be confused. It also appears to me that allthree types <strong>of</strong> sentences have their dist<strong>in</strong>ct functions <strong>in</strong> all academicdiscipl<strong>in</strong>es: def<strong>in</strong>itions, be<strong>in</strong>g analytical statements, providea field with abbreviations and mean<strong>in</strong>g analyzes <strong>of</strong> the most centraland frequently used concepts or terms, 5 while descriptivestatements are ma<strong>in</strong>ly used for empirical assertions and prescriptivestatements for normative recommendations.Thus, when the existence or absence <strong>of</strong> some private propertyis either claimed or proposed, it is the def<strong>in</strong>ition <strong>of</strong> private propertythat tells us how private property, <strong>in</strong> either the empirical ornormative context, is to be understood. Obviously, without know<strong>in</strong>ghow private property is to be understood, we can neither def<strong>in</strong>itelysay what is empirically asserted, nor what the norm recommends.In order to set the stage for the discussion <strong>of</strong> the role <strong>of</strong> functionalism<strong>in</strong> <strong>in</strong>tellectual property rights, to which we turn later,we should mention here that some def<strong>in</strong>itions look rather functionalwhile others do not. The reason is quite simple. It rests onthe fact that some concepts are ma<strong>in</strong>ly—if not exclusively—usedto describe a functional relation while others do not. For <strong>in</strong>stance,we usually def<strong>in</strong>e a wife by the relation to her husband (and viceversa).The fact <strong>of</strong> bondage by marriage is constitutional for thedef<strong>in</strong>ition <strong>of</strong> a wife—as it is for the def<strong>in</strong>ition <strong>of</strong> a husband. However,not for all terms are functional relations constitutional.Look<strong>in</strong>g for a functional relation <strong>of</strong> the term that is to be def<strong>in</strong>edmight lead to the erroneous belief that this function, if found, isconstitutional for the term.For <strong>in</strong>stance, it would be mislead<strong>in</strong>g to def<strong>in</strong>e private goodsby their relation to public goods. Thus, it would be fallacious toconclude that unlike public goods, for which most authors claim5 On the role <strong>of</strong> def<strong>in</strong>itions see Gerard Radnitzky, “Def<strong>in</strong>ition,” <strong>in</strong> Handlexikonzur Wissenschaftstheorie, Helmut Seiffert & Gerard Radnitzky, eds.(Munich: Ehrenwirth, 1989), pp. 22–33.
154 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>non-exclusivity, 6 private goods are exclusive. Whether or not agood is exclusive is a co<strong>in</strong>cidental character rather than a constitutionalcharacter <strong>of</strong> the good <strong>in</strong> question. Of course, this co<strong>in</strong>cidentalcharacter comes along with most <strong>of</strong> the private goods. However,it all depends on the way the good is treated by its owner andothers. If an owner shares his good with others, it loses its exclusivity.7 Take for <strong>in</strong>stance a boat that you share with your friendsfor a trip along the coast. Though, strictly speak<strong>in</strong>g, it is not exclusivefor the time <strong>of</strong> the trip, it is still your boat throughout the trip. 8Consequently, an appropriate def<strong>in</strong>ition <strong>of</strong> private propertypresupposes identify<strong>in</strong>g the subject who privatized the good. Thisis because the reason for a good to become private is not <strong>in</strong> thegood itself, but rather than <strong>in</strong> the relationship between the good<strong>in</strong> question and its “relator,” i.e., someone who owns it privately,namely the owner. If the owner is sovereign over it, then the good<strong>in</strong> question is a private good, his private good. In other words: it6 We cannot deal here with the related question <strong>of</strong> how to def<strong>in</strong>e publicgoods appropriately. It seems, however, obvious that non-exclusion is anappropriate constitutional character <strong>of</strong> public goods. So while a likely concomitant<strong>of</strong> public goods, it is only co<strong>in</strong>cidental. For <strong>in</strong>stance: for the time apublic library is used by just one person, it is, strictly speak<strong>in</strong>g, not non-exclusive.7 Br<strong>in</strong>g<strong>in</strong>g <strong>in</strong> the owner’s right to exclude others shifts the story ontoanother level for which different conditions hold. Foremost, talk<strong>in</strong>g <strong>of</strong> rightsrequires the <strong>in</strong>clusion <strong>of</strong> normative sentences <strong>in</strong> the debate, while the aforesaidoperates with descriptive sentences exclusively.8 Analogously, it would be mislead<strong>in</strong>g to say that a private good is a goodfor which the owner has solved the exclusion problem, or paid the exclusioncosts. Although this may hold for many private goods, it is accidental, but notconstitutional. Some private goods do not have any exclusion costs, simplybecause there is nobody <strong>in</strong>terested <strong>in</strong> be<strong>in</strong>g <strong>in</strong>cluded. Th<strong>in</strong>k <strong>of</strong> bulky wastethat nobody wishes to have. If placed on no-man’s-land it becomes a commongood (or a bad, for that matter); if placed on a public good (street) it becomesa public good (or bad, for that matter); if thrown <strong>in</strong> the neighbor’s garden, itcont<strong>in</strong>ues be<strong>in</strong>g private—and most likely becomes the subject <strong>of</strong> a fierce disputeamong neighbors. However, it seems appropriate at least to <strong>in</strong>dicate thatan explication <strong>of</strong> the term “public good” would show that one <strong>of</strong> its ma<strong>in</strong>characteristics is non-sovereignty.
Bouillon: A Note on Intellectual Property and Externalities — 155is sovereignty rather than exclusivity that def<strong>in</strong>es private property.9Hav<strong>in</strong>g said this, it seems appropriate to add an observation onthe exclusion and its costs. There are but two necessary preconditionsfor the existence <strong>of</strong> exclusion costs <strong>of</strong> a private good:1. The owner is <strong>in</strong>terested <strong>in</strong> exclud<strong>in</strong>g others fromhis property; and2. Others covet his property.Obviously, if the owner is un<strong>in</strong>terested <strong>in</strong> exclud<strong>in</strong>g others,then his property is likely to be taken away by someone who covetsit. Nevertheless his exclusion costs are nil. 10 If the owner is<strong>in</strong>terested <strong>in</strong> the exclusion <strong>of</strong> his property, whereas nobody covetsit, he too faces no exclusion costs.Though it may seem so at first, it is <strong>in</strong> fact not trivial to notethat private property is appreciated by its owner ma<strong>in</strong>ly, if notexclusively, for the positive externalities that come with it. Alsoimportant is the <strong>in</strong>sight that not all positive externalities that maycome with a private good necessarily belong to the owner <strong>of</strong> thatgood. Th<strong>in</strong>k <strong>of</strong> a trumpet player <strong>in</strong> the street. His play might9 As Anthony de Jasay has put it: “Sovereignty may be delegated revocably,or transferred for good, but it cannot be shared, and that is why there is no trueproperty that, after cancell<strong>in</strong>g out agents, delegates and <strong>in</strong>termediaries, is notm<strong>in</strong>e, yours, his or hers.” Anthony de Jasay, Choice, Contract, Consent: ARestatement <strong>of</strong> Liberalism (London: Institute <strong>of</strong> Economic Affairs, 1991), p. 75.10 Talk<strong>in</strong>g <strong>of</strong> the exclusion costs for goods, from which the owner does notwant to exclude others, is po<strong>in</strong>tless. In any case, talk<strong>in</strong>g <strong>of</strong> costs is mean<strong>in</strong>gfulonly if there exists at least one possible cost-bearer. It is equally po<strong>in</strong>tlessto speak <strong>of</strong> the costs or the price <strong>of</strong> a good for which there is no demand. Theseller might have some clear ideas on the amount <strong>of</strong> money he wishes to get<strong>in</strong> return for the good, but he cannot determ<strong>in</strong>e the price alone. The price isdeterm<strong>in</strong>ed by supply and demand, and this determ<strong>in</strong>ation f<strong>in</strong>ds its expression<strong>in</strong> the market transaction.To put it <strong>in</strong> Lockean terms, “costly” is a secondary quality <strong>of</strong> a good, butnot a primary one. Pla<strong>in</strong>ly speak<strong>in</strong>g, secondary qualities <strong>of</strong> any object presupposea possible relation between the object and a subject. Accord<strong>in</strong>g toLocke, the primary qualities <strong>of</strong> an object exist with the object, for <strong>in</strong>stancegravity, while secondary qualities, like color, come <strong>in</strong>to existence through therelation <strong>of</strong> the object and an observer.
156 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>cause positive externalities (as long as it pleases the passers-by).However, we most likely do not view him as the owner <strong>of</strong> theseexternalities, not to mention hav<strong>in</strong>g an associated right to ask forcompensation for the positive externalities <strong>in</strong>itiated.We may list five reasons to be reluctant to ma<strong>in</strong>ta<strong>in</strong> that themusician has a right <strong>in</strong> these externalities. First, implicitly weassume that the busker, though the unopposed owner <strong>of</strong> his<strong>in</strong>strument, is not the owner <strong>of</strong> the public space or the air <strong>in</strong> whichhe performs and that, hence, he has no privilege to use that sphereexclusively or ask for compensation if others use it. He uses thepublic space and the free good “air,” and so do the passers-by.Second, though the musician while play<strong>in</strong>g <strong>in</strong>itiates the soundwaves, the listen<strong>in</strong>g <strong>of</strong> the passers-by is required <strong>in</strong> order to producethe full effect <strong>of</strong> listen<strong>in</strong>g to and enjoy<strong>in</strong>g music. In otherwords, though the musician is sufficient to produce the good“music,” he is not sufficient to produce the positive externality thatmay accompany it. Third, the passers-by could also—per impossibile—claima property right to remuneration <strong>of</strong> positive sideeffects, because their form<strong>in</strong>g an audience attracts others to jo<strong>in</strong>the event and, hence, enlarge the group <strong>of</strong> possible donators.Fourth, the <strong>in</strong>ternalization <strong>of</strong> positive externalities is a problem<strong>of</strong> its <strong>in</strong>itiator. To the extent positive externalities are created withoutagreement (that would allow for compensation) and not <strong>in</strong>ternalizedby its producer, these effects are noth<strong>in</strong>g but free goodswhich can be <strong>in</strong>ternalized by anybody as he or she th<strong>in</strong>ks fit. Fifth,s<strong>in</strong>ce there is no agreement between the busker and the passers-bythat would allow for compensation, the positive externalities generatedby the guitar-player are at best an <strong>of</strong>fer that one is free toaccept or reject, and, if accepted, can be treated as a gift while thepassers-by are free to respond to it by a return gift, i.e., throw<strong>in</strong>g afew co<strong>in</strong>s <strong>in</strong> the cap.However one may view these considerations <strong>in</strong>dividually, theyall seem to rest on the assumptions that property cannot generatenew property for the owner if, <strong>in</strong> the process <strong>of</strong> this creation, property<strong>of</strong> others is <strong>in</strong>cluded <strong>in</strong> one way or another; and that this holdstrue if the new “would-be property” is an externality. In otherwords, many positive externalities come <strong>in</strong>to existence only by<strong>in</strong>term<strong>in</strong>gl<strong>in</strong>g with property <strong>of</strong> others; and only if they don’t, canthe <strong>in</strong>itiator claim a right <strong>in</strong> these without fac<strong>in</strong>g awkward queries.
Bouillon: A Note on Intellectual Property and Externalities — 157These considerations are closely l<strong>in</strong>ked with the topic <strong>of</strong> <strong>in</strong>tellectualproperty rights, although this might be not obvious at firstsight. In order to become aware <strong>of</strong> this l<strong>in</strong>kage, one might reviewthe current debate on <strong>in</strong>tellectual property rights.LIBERTARIAN VIEWS OF INTELLECTUAL PROPERTYLibertarians differ on the po<strong>in</strong>t whether <strong>in</strong>tellectual propertyrights can be expla<strong>in</strong>ed and legitimized <strong>in</strong> the same way as propertyrights <strong>in</strong> material goods and services. 11 Some, like Ayn Rand,argue that the orig<strong>in</strong> <strong>of</strong> property rights lies <strong>in</strong> the creative processthat leads to private goods and thus conclude that <strong>in</strong>tellectualgoods, as results <strong>of</strong> a creative process, are also private andendowed with property rights. In other words, the legitimacy <strong>of</strong>patent rights, copyrights, etc. rests on the creative act <strong>of</strong> the authoror <strong>in</strong>ventor. 12Others argue that the creative act as such would not <strong>in</strong>itiatenew property. 13 They rest their criticism on the fact that ideas canbe reproduced without any loss <strong>of</strong> quality and can be shared bymany without creat<strong>in</strong>g any scarcity problems. As mentionedbefore, assum<strong>in</strong>g that scarcity is the potential reason <strong>of</strong> conflictand that the very idea <strong>of</strong> property rights is to solve these conflictspeacefully, they see no need to provide property rights for <strong>in</strong>tellectualproperty. 14However we might judge these compet<strong>in</strong>g views, it is quite<strong>in</strong>terest<strong>in</strong>g that both camps br<strong>in</strong>g <strong>in</strong> functional explanations <strong>of</strong> privateproperty, not functional def<strong>in</strong>itions or any other sort <strong>of</strong> def<strong>in</strong>ition,as def<strong>in</strong>ed <strong>in</strong> the “Types <strong>of</strong> Statements” section, above. From11 The best account on the different libertarian perspectives on this topic isgiven by K<strong>in</strong>sella <strong>in</strong> “Aga<strong>in</strong>st Intellectual Property.”12 Ayn Rand, “Patents and Copyrights,” Capitalism: The Unknown Ideal(New York: The New American Library, 1967), pp. 130–34. “Patents and copyrightsare the legal implementation <strong>of</strong> the base <strong>of</strong> all property rights: a man’sright to the product <strong>of</strong> his m<strong>in</strong>d.” Ibid., p. 130.13 For <strong>in</strong>stance Boudewijn Bouckaert, Henri Lepage, Wendy McElroy, Benjam<strong>in</strong>Tucker and—partially—Murray Rothbard. See K<strong>in</strong>sella, “Aga<strong>in</strong>st IntellectualProperty,” p. 11.14 See note 2, above.
158 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>the proposed function <strong>of</strong> private property (be it “to give a man theright to the product <strong>of</strong> his m<strong>in</strong>d” or “to assign rights <strong>of</strong> exclusivecontrol over scarce means”) they either defend or deny <strong>in</strong>tellectualproperty rights. However successful these approaches may be,they do not provide def<strong>in</strong>itions <strong>of</strong> <strong>in</strong>tellectual property <strong>in</strong> terms <strong>of</strong>an exclusively analytical statement. In the above-mentioned cases,the def<strong>in</strong>itions <strong>of</strong> private property serve at the same time descriptiveand normative functions, i.e., they also say how private propertyis and ought be used <strong>in</strong> society.Be this as it may, follow<strong>in</strong>g the dist<strong>in</strong>ctions made here<strong>in</strong>, a def<strong>in</strong>ition<strong>of</strong> <strong>in</strong>tellectual property has to take account <strong>of</strong> at least twoimplications. Assum<strong>in</strong>g that talk<strong>in</strong>g <strong>of</strong> <strong>in</strong>tellectual property ismean<strong>in</strong>gful at all, the def<strong>in</strong>ition <strong>of</strong> <strong>in</strong>tellectual property seems toimply that it shares with all other sorts <strong>of</strong> property the constitutionalcharacteristic <strong>of</strong> property, namely be<strong>in</strong>g owned <strong>in</strong> a sovereignway by its owner. Another implication comes from the factthat <strong>in</strong>tellectual goods are immaterial, hence not to be confusedwith material goods.INTELLECTUAL PROPERTY, MATERIAL PROPERTY, AND EXTERNALITIESLet us keep <strong>in</strong> m<strong>in</strong>d that the most fundamental objection to<strong>in</strong>tellectual property rights seems to be the follow<strong>in</strong>g argument: assoon as we agree to the idea to establish <strong>in</strong>tellectual propertyrights, we agree to the fact that they can collide pr<strong>in</strong>cipally withproperty rights <strong>in</strong> material goods. The reason for this collision isobvious: a patent forbids everybody, with the exception <strong>of</strong> the patenteeand his licensees, from us<strong>in</strong>g their material property <strong>in</strong> waysthat are forestalled by the patent. Thus a patent to bake a plumcake—given to a baker—would prohibit all (non-licensee) housewivesfrom bak<strong>in</strong>g the cake <strong>in</strong> the patented way despite the factthat they would do it with their own <strong>in</strong>gredients. Hence, patentscan collide pr<strong>in</strong>cipally with property rights <strong>in</strong> material goods(assum<strong>in</strong>g that the patentee and the owner <strong>of</strong> the material goods<strong>in</strong> question are not identical).Consequently, as soon as we <strong>in</strong>clude <strong>in</strong>tellectual entities amongthe goods that can be private we end up with a political philosophythat has <strong>in</strong>coherent elements, while the very same politicalphilosophy was coherent before this <strong>in</strong>clusion. In order to avoid
Bouillon: A Note on Intellectual Property and Externalities — 159this unpleasant problem, it seems to be necessary either to demonstratethat <strong>in</strong>tellectual property and/or the right <strong>in</strong> it is non-existentor to show that the aforementioned collision does not exist atall. <strong>Hoppe</strong>’s approach <strong>in</strong>cludes the former demonstration whilethe latter does not need to presuppose the non-existence <strong>of</strong> <strong>in</strong>tellectualproperty and/or <strong>in</strong>tellectual property rights.In fact, aga<strong>in</strong>st the background <strong>of</strong> some arguments mentionedearlier and some to come it appears to me that the alleged collisiondoes not exist at all and that we can talk mean<strong>in</strong>gfully <strong>of</strong> <strong>in</strong>tellectualproperty and <strong>in</strong>tellectual property rights. In order to show this, it ishelpful to look at the widespread dist<strong>in</strong>ction <strong>of</strong> the three k<strong>in</strong>ds <strong>of</strong>usage <strong>of</strong> goods, namely usus, usus fructus, and abusus. Follow<strong>in</strong>g thiscategorization, we dist<strong>in</strong>guish the use <strong>of</strong> a good, its fruits, and itssale or transformation. I may use my apple tree by sitt<strong>in</strong>g under it(usus), eat<strong>in</strong>g its apples (usus fructus), or by sell<strong>in</strong>g it to a neighbor(abusus). Material usus, usus fructus, and abusus <strong>of</strong> the apple treeare possible without any further material good added to it.Obviously, when it comes to immaterial goods, th<strong>in</strong>gs becomedifferent. The material usus <strong>of</strong> any immaterial good is not possiblewithout material added to it. Take a melody. It takes a voice, a guitar,or any other <strong>in</strong>strument to use it materially. 15 Mix<strong>in</strong>g themelody with an <strong>in</strong>strument makes for a usus fructus. Neither anidea nor its fruits are per se material. Even if transformed <strong>in</strong>toanother idea, an idea stays immaterial. The material “extension” <strong>of</strong>an idea, so to speak, comes <strong>in</strong>to existence not prior to the mixture<strong>of</strong> the idea with matter.That <strong>in</strong>tellectual property alone cannot “breed” material propertyhas far-reach<strong>in</strong>g consequences. If it holds for <strong>in</strong>tellectual propertywhat holds for all private property, 16 namely that the sovereigntythat comes with it does not go beyond the borders <strong>of</strong> thatgood, then no collision between <strong>in</strong>tellectual property and materialproperty is possible. Such a collision would require that the sovereigntythat comes with an <strong>in</strong>tellectual good would extend overmaterial property.15 Of course, this change the fact that you may use it immaterially, namelymentally by th<strong>in</strong>k<strong>in</strong>g <strong>of</strong> it.16 In fact, this must hold for <strong>in</strong>tellectual property if <strong>in</strong>tellectual property isto be understood as a sort <strong>of</strong> private property.
160 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Whatever <strong>in</strong>tellectual property is (<strong>in</strong> ontological terms), thesovereignty over it does not extend to any material property. Thusan idea, whether patented or not, does not provide the owner <strong>of</strong>the idea with an extra sovereignty over any material property, beit his or the material property <strong>of</strong> somebody else. 17 That a patentedidea (or any other <strong>in</strong>tellectual good) cannot collide with materialproperty means that the collision between the right <strong>of</strong> <strong>in</strong>tellectualproperty and the homestead<strong>in</strong>g pr<strong>in</strong>ciple simply does not exist. Toput it differently, <strong>in</strong>tellectual property rights and material propertyrights are <strong>in</strong> pr<strong>in</strong>ciple compatible.SUMMARYThe alleged collision between the two rights (material propertyrights and <strong>in</strong>tellectual property rights) seems to rest on a mis<strong>in</strong>terpretation<strong>of</strong> <strong>in</strong>tellectual property. As some reflection on the differenttypes <strong>of</strong> usage <strong>of</strong> goods shows, this mis<strong>in</strong>terpretation rests onthe confusion <strong>of</strong> <strong>in</strong>tellectual property and its (material) externalities.These externalities are not, as shown, per se property <strong>of</strong> theowner <strong>of</strong> the idea. Only those externalities belong to him thatderive from material goods he owned before or from free goods heappropriated. In particular he is not the owner <strong>of</strong> the materialgoods owned by others. Hence the owner <strong>of</strong> the plum cake reciperema<strong>in</strong>s the owner <strong>of</strong> “his” idea but cannot claim sovereignty overthe <strong>in</strong>gredients owned by housewives. There is no collision withhis <strong>in</strong>tellectual property and their “us<strong>in</strong>g his” recipe <strong>of</strong> bak<strong>in</strong>g aplum cake.To put it differently, we can talk mean<strong>in</strong>gfully <strong>of</strong> <strong>in</strong>tellectualproperty and <strong>in</strong>tellectual property rights. However, <strong>in</strong>tellectualproperty as such—be<strong>in</strong>g free <strong>of</strong> any material “extension”—is <strong>of</strong> noimmediate importance to bus<strong>in</strong>ess life. What counts <strong>in</strong> the marketare the externalities that can be derived from <strong>in</strong>tellectual property.How to deal with these externalities is, <strong>of</strong> course, a different matter.17 The only sovereignty over his material property comes with that verymaterial property, and with noth<strong>in</strong>g else.
19Classical Liberalism versusAnarcho-CapitalismJesús Huerta de SotoIn this first decade <strong>of</strong> the twenty-first century, liberal thought,<strong>in</strong> both its theoretical and political aspects, has reached a historiccrossroads. Although the fall <strong>of</strong> the Berl<strong>in</strong> Wall and <strong>of</strong>real socialism beg<strong>in</strong>n<strong>in</strong>g <strong>in</strong> 1989 appeared to herald “the end<strong>of</strong> history” (to use Francis Fukuyama’s unfortunate and overblownphrase), today, and <strong>in</strong> many respects more than ever, statism prevailsthroughout the world, accompanied by the demoralization <strong>of</strong>freedom lovers. Therefore, an “aggiornamento” <strong>of</strong> liberalism isJesús Huerta de Soto (huertadesoto@dimas<strong>of</strong>t.es) is Pr<strong>of</strong>essor <strong>of</strong> PoliticalEconomy, Universidad Rey Juan Carlos, Madrid. This article was first published<strong>in</strong> Spanish as “Liberalismo Versus Anarcocapitalismo,” Procesos de Mercado:Revista Europea de Economía Política 4, no. 2 (2007): 13–32, and is based ontwo separate lectures given under the same title, one at the summer university<strong>of</strong> the Universidad Rey Juan Carlos (Aranjuez, Friday, July 6, 2007) and theother at the summer university <strong>of</strong> the Universidad Complutense (San Lorenzode El Escorial, Monday, July 16, 2007). In these lectures, I formalized my theoreticaland political “break” with classical liberalism, itself a mere step <strong>in</strong> thenatural evolution toward anarcho-capitalism. Back <strong>in</strong> September <strong>of</strong> 2000, atthe general meet<strong>in</strong>g <strong>of</strong> the Mont Pèler<strong>in</strong> Society <strong>in</strong> Santiago, Chile, <strong>in</strong> a speechI gave as part <strong>of</strong> a jo<strong>in</strong>t presentation with James Buchanan and Bruno Frei, Iclearly h<strong>in</strong>ted at this break. Jesús Huerta de Soto, “El Desmantelamiento delEstado y la Democracia Directa,” Nuevos Estudios de Economía Política, 2nd ed.(Madrid: Unión Editorial, 2007): chap. 10, pp. 239–45.161
162 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>imperative. It is time to thoroughly revise liberal doctr<strong>in</strong>e and br<strong>in</strong>git up to date <strong>in</strong> light <strong>of</strong> the latest advances <strong>in</strong> economic science andthe experience the latest historical events have provided. This revisionmust beg<strong>in</strong> with an acknowledgement that classical liberalshave failed <strong>in</strong> their attempt to limit the power <strong>of</strong> the state and thattoday economic science is <strong>in</strong> a position to expla<strong>in</strong> why this failurewas <strong>in</strong>evitable. The next step is to focus on the dynamic theory <strong>of</strong> theentrepreneurship-driven processes <strong>of</strong> social cooperation which giverise to the spontaneous order <strong>of</strong> the market. This theory can beexpanded and transformed <strong>in</strong>to a full-fledged analysis <strong>of</strong> the anarcho-capitalistsystem <strong>of</strong> social cooperation, which reveals itself as theonly system that is truly viable and compatible with human nature.In this article, we will analyze these issues <strong>in</strong> detail, along with aseries <strong>of</strong> additional, practical considerations regard<strong>in</strong>g scientific andpolitical strategy. Moreover, we will make use <strong>of</strong> this analysis to correctcerta<strong>in</strong> common misunderstand<strong>in</strong>gs and errors <strong>of</strong> <strong>in</strong>terpretation.THE FATAL ERROR OF CLASSICAL LIBERALISMThe fatal error <strong>of</strong> classical liberals lies <strong>in</strong> their failure to realizethat their ideal is theoretically impossible, as it conta<strong>in</strong>s the seed <strong>of</strong>its own destruction, precisely to the extent that it <strong>in</strong>cludes the necessaryexistence <strong>of</strong> a state (even a m<strong>in</strong>imal one), understood as thesole agent <strong>of</strong> <strong>in</strong>stitutional coercion.Therefore, classical liberals commit their great error <strong>in</strong> theirapproach: they view liberalism as a plan <strong>of</strong> political action and aset <strong>of</strong> economic pr<strong>in</strong>ciples, the goal <strong>of</strong> which is to limit the power<strong>of</strong> the state while accept<strong>in</strong>g its existence and even deem<strong>in</strong>g it necessary.However, today (<strong>in</strong> the first decade <strong>of</strong> the twenty-first century)economic science has already shown: (a) that the state isunnecessary; (b) that statism (even if m<strong>in</strong>imal) is theoreticallyimpossible; and (c) that, given human nature, once the state exists,it is impossible to limit its power. We will comment on each <strong>of</strong>these matters separately.THE STATE AS AN UNNECESSARY BODYFrom a scientific perspective, only the mistaken paradigm <strong>of</strong>equilibrium could encourage belief <strong>in</strong> a category <strong>of</strong> “public goods”
Huerta de Soto: Classical Liberalism versus Anarcho-Capitalism — 163<strong>in</strong> which satisfaction <strong>of</strong> the criteria <strong>of</strong> jo<strong>in</strong>t supply and non-rivalry<strong>in</strong> consumption would justify, prima facie, the existence <strong>of</strong> a bodywith a monopoly on <strong>in</strong>stitutional coercion (the state) that wouldoblige everyone to f<strong>in</strong>ance those goods.Nevertheless, the dynamic, Austrian conception <strong>of</strong> the spontaneousorder entrepreneurship drives has demolished this entiretheory put forward to justify the state: the emergence <strong>of</strong> any case(real or apparent) <strong>of</strong> a “public good,” i.e., jo<strong>in</strong>t supply and nonrivalry<strong>in</strong> consumption, is accompanied by the <strong>in</strong>centives necessaryfor the impetus <strong>of</strong> entrepreneurial creativity to f<strong>in</strong>d a bettersolution via technological and legal <strong>in</strong>novations and entrepreneurialdiscoveries which make it possible to overcome any problemthat may arise (as long as the resource is not declared “public”and the free exercise <strong>of</strong> entrepreneurship is permitted, along withthe accompany<strong>in</strong>g private appropriation <strong>of</strong> the fruits <strong>of</strong> each creative,entrepreneurial act). For <strong>in</strong>stance, <strong>in</strong> the United K<strong>in</strong>gdom,the lighthouse system was for many years privately owned andf<strong>in</strong>anced, and private procedures (sailors’ associations, port fees,spontaneous social monitor<strong>in</strong>g, etc.) <strong>of</strong>fered an effective solutionto the “problem” <strong>of</strong> what “statist” economics textbooks depict asthe most typical example <strong>of</strong> a “public good.” Likewise, <strong>in</strong> theAmerican Far West, the problem arose <strong>of</strong> def<strong>in</strong><strong>in</strong>g and defend<strong>in</strong>gproperty rights concern<strong>in</strong>g, for <strong>in</strong>stance, head <strong>of</strong> cattle <strong>in</strong> vastexpanses <strong>of</strong> land. Various entrepreneurial <strong>in</strong>novations whichresolved the problems as they arose were gradually <strong>in</strong>troduced(cattle brand<strong>in</strong>g, constant supervision by armed cowboys onhorseback, and f<strong>in</strong>ally, the discovery and <strong>in</strong>troduction <strong>of</strong> barbedwire, which, for the first time, permitted the effective separation <strong>of</strong>great stretches <strong>of</strong> land at a very affordable price). This creativeflow <strong>of</strong> entrepreneurial <strong>in</strong>novation would have been completelyblocked if the resources had been declared “public,” excludedfrom private ownership, and bureaucratically managed by a stateagency. (Today, for <strong>in</strong>stance, most streets and highways are closedto the adoption <strong>of</strong> <strong>in</strong>numerable entrepreneurial <strong>in</strong>novations—thecollection <strong>of</strong> a toll per vehicle and hour, the private management<strong>of</strong> security and noise pollution, etc.—despite the fact that mostsuch <strong>in</strong>novations no longer pose any technological problem. Nevertheless,the goods <strong>in</strong> question have been declared “public,”
164 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>which precludes their privatization and creative entrepreneurialmanagement.)Furthermore, most people believe the state is necessary becausethey confuse its existence (unnecessary) with the essential nature<strong>of</strong> many <strong>of</strong> the services and resources it currently (and poorly) provides,and over the provision <strong>of</strong> which it exercises a monopoly(almost always under the pretext <strong>of</strong> their public nature). Peopleobserve that today highways, hospitals, schools, public order, etc.are largely supplied by the state, and s<strong>in</strong>ce these are highly necessary,people conclude without further analysis that the state is aswell. They fail to realize that the above-mentioned resources canbe produced to a much higher standard <strong>of</strong> quality as well as moreefficiently, economically, and <strong>in</strong> tune with the varied and chang<strong>in</strong>gneeds <strong>of</strong> each <strong>in</strong>dividual, through the spontaneous market order,entrepreneurial creativity, and private property. Moreover, peoplemake the mistake <strong>of</strong> believ<strong>in</strong>g the state is also necessary to protectthe defenseless, poor, and destitute (“small” stockholders, ord<strong>in</strong>aryconsumers, workers, etc.), yet people do not understand thatsupposedly protective measures have the systematic result, as economictheory demonstrates, <strong>of</strong> harm<strong>in</strong>g <strong>in</strong> each case preciselythose they are claimed to protect, and thus one <strong>of</strong> the clumsiestand stalest justifications for the existence <strong>of</strong> the state disappears.Rothbard ma<strong>in</strong>ta<strong>in</strong>ed that the set <strong>of</strong> goods and services the statecurrently supplies can be divided <strong>in</strong>to two subsets: those goodsand services which should be elim<strong>in</strong>ated, and those which shouldbe privatized. Clearly, the goods mentioned <strong>in</strong> the above paragraphbelong to the second group, and the disappearance <strong>of</strong> thestate, far from mean<strong>in</strong>g the disappearance <strong>of</strong> highways, hospitals,schools, public order, etc., would mean their provision <strong>in</strong> greaterabundance, at higher standards, and at a more reasonable price(always with respect to the actual cost citizens currently pay viataxes). In addition, we must po<strong>in</strong>t out that the historical episodes <strong>of</strong><strong>in</strong>stitutional chaos and public disorder we could cite (for example,many <strong>in</strong>stances dur<strong>in</strong>g the years prior to and dur<strong>in</strong>g the SpanishCivil War and Second Republic, or today <strong>in</strong> broad areas <strong>of</strong> Colombiaor <strong>in</strong> Iraq) stem from a vacuum <strong>in</strong> the provision <strong>of</strong> these goods,a situation created by the states themselves, which neither do with am<strong>in</strong>imum <strong>of</strong> efficiency what <strong>in</strong> theory they should do, accord<strong>in</strong>gto their own supporters, nor let the private, entrepreneurial sector do,
Huerta de Soto: Classical Liberalism versus Anarcho-Capitalism — 165s<strong>in</strong>ce the state prefers disorder (which also appears to morestrongly legitimize its coercive presence) to its dismantl<strong>in</strong>g andprivatization at all levels.It is particularly important to understand that the def<strong>in</strong>ition,acquisition, transmission, exchange, and defense <strong>of</strong> the propertyrights which coord<strong>in</strong>ate and drive the social process do not requirea body with a monopoly on violence (the state). On the contrary,the state <strong>in</strong>variably acts by trampl<strong>in</strong>g on numerous legitimateproperty titles, defend<strong>in</strong>g them very poorly, and corrupt<strong>in</strong>g the(moral and legal) behavior <strong>of</strong> <strong>in</strong>dividuals with respect to the privateproperty rights <strong>of</strong> others.The legal system is the evolutionary manifestation <strong>of</strong> the generallegal pr<strong>in</strong>ciples (especially regard<strong>in</strong>g ownership) compatiblewith human nature. Therefore, the state does not determ<strong>in</strong>e thelaw (democratically or otherwise). Instead, the law is conta<strong>in</strong>ed <strong>in</strong>human nature, though it is discovered and consolidated <strong>in</strong> an evolutionarymanner, <strong>in</strong> terms <strong>of</strong> precedent and, ma<strong>in</strong>ly, doctr<strong>in</strong>e.(We view the Roman, cont<strong>in</strong>ental legal tradition, with its moreabstract and doctr<strong>in</strong>al nature, as far superior to the Anglo-Saxonsystem <strong>of</strong> common law, which orig<strong>in</strong>ates from disproportionatestate support for legal rul<strong>in</strong>gs or judgments. These judgments,through b<strong>in</strong>d<strong>in</strong>g case law, <strong>in</strong>troduce <strong>in</strong>to the legal system all sorts<strong>of</strong> dysfunctions that spr<strong>in</strong>g from the specific and prevail<strong>in</strong>g circumstancesand <strong>in</strong>terests <strong>in</strong> each case.) Law is evolutionary andrests on custom, and hence, it precedes and is <strong>in</strong>dependent <strong>of</strong> thestate, and it does not require, for its def<strong>in</strong>ition and discovery, anyagency with a monopoly on coercion.Not only is the state unnecessary to def<strong>in</strong>e the law; it is alsounnecessary to enforce and defend it. This should be especiallyobvious these days, when the use—even, paradoxically, by manygovernment agencies—<strong>of</strong> private security companies has becomequite common.This is not the place to present a detailed account <strong>of</strong> how theprivate provision <strong>of</strong> what today are considered “public goods”would work (though the lack <strong>of</strong> a priori knowledge <strong>of</strong> how themarket would solve countless specific problems is the naïve, facileobjection <strong>of</strong> those who favor the current status quo under the pretext,“better the devil you know than the devil you don’t”). In fact,we cannot know today what entrepreneurial solutions an army <strong>of</strong>
166 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>enterpris<strong>in</strong>g <strong>in</strong>dividuals would f<strong>in</strong>d for particular problems—ifthey were allowed to do so. Nevertheless, even the most skepticalperson must admit that “we now know” that the market, driven bycreative entrepreneurship, works, and it works precisely to theextent that the state does not coercively <strong>in</strong>tervene <strong>in</strong> this socialprocess. It is also essential to recognize that difficulties and conflicts<strong>in</strong>variably arise precisely <strong>in</strong> areas where the free, spontaneousorder <strong>of</strong> the market is h<strong>in</strong>dered. Thus, regardless <strong>of</strong> theefforts made from the time <strong>of</strong> Gustav de Mol<strong>in</strong>ari to the present toimag<strong>in</strong>e how an anarcho-capitalist network <strong>of</strong> private security anddefense agencies, each <strong>in</strong> support <strong>of</strong> more or less marg<strong>in</strong>ally alternativelegal systems, would work, freedom theorists must neverforget that what prevents us from know<strong>in</strong>g what a stateless futurewould be like, the creative nature <strong>of</strong> entrepreneurship, is preciselywhat <strong>of</strong>fers us the peace <strong>of</strong> know<strong>in</strong>g that any problem will tend tobe overcome, as the people <strong>in</strong>volved will devote all <strong>of</strong> their effortand creativity to solv<strong>in</strong>g it. 1 Economic science has taught us notonly that the market works, but also that statism is theoreticallyimpossible.WHY STATISM IS THEORETICALLY IMPOSSIBLEThe Austrian economic theory <strong>of</strong> the impossibility <strong>of</strong> socialismcan be expanded 2 and transformed <strong>in</strong>to a complete theory on theimpossibility <strong>of</strong> statism, understood as the attempt to organize anysphere <strong>of</strong> life <strong>in</strong> society via coercive commands which <strong>in</strong>volve<strong>in</strong>tervention, regulation, and control and emanate from the bodywith a monopoly on <strong>in</strong>stitutional aggression (the state). The statecannot possibly achieve its coord<strong>in</strong>ation goals <strong>in</strong> any part <strong>of</strong> thesocial-cooperation process <strong>in</strong> which it attempts to <strong>in</strong>tervene, especiallythe spheres <strong>of</strong> money and bank<strong>in</strong>g, 3 the discovery <strong>of</strong> law, the1 Israel M. Kirzner, Discovery and the Capitalist Process (Chicago and London:University <strong>of</strong> Chicago Press, 1985), p. 168.2 Jesús Huerta de Soto, Socialismo, Cálculo Económico, y Función Empresarial,3rd ed. (Madrid: Unión Editorial, 2005), pp. 151–53.3 Jesús Huerta de Soto, Money, Bank Credit, and Economic Cycles, Mel<strong>in</strong>da A.Stroup, trans. (Auburn, Ala.: Mises Institute, 2006) (orig<strong>in</strong>ally published <strong>in</strong>
Huerta de Soto: Classical Liberalism versus Anarcho-Capitalism — 167dispens<strong>in</strong>g <strong>of</strong> justice, and public order (understood as the prevention,suppression, and punishment <strong>of</strong> crim<strong>in</strong>al acts), for the follow<strong>in</strong>gfour reasons:(a) The state would need a huge volume <strong>of</strong> <strong>in</strong>formation, and this<strong>in</strong>formation is only found <strong>in</strong> a dispersed or diffuse form <strong>in</strong>the m<strong>in</strong>ds <strong>of</strong> the millions <strong>of</strong> people who participate each day<strong>in</strong> the social process.(b) The <strong>in</strong>formation the <strong>in</strong>terven<strong>in</strong>g body would need for itscommands to exert a coord<strong>in</strong>at<strong>in</strong>g effect is predom<strong>in</strong>antlytacit and <strong>in</strong>articulable <strong>in</strong> nature, and thus it cannot be transmittedwith absolute clarity.(c) The <strong>in</strong>formation society uses is not “given;” it changes constantlyas a result <strong>of</strong> human creativity. Hence, there is obviouslyno possibility <strong>of</strong> transmitt<strong>in</strong>g today <strong>in</strong>formation whichwill only be created tomorrow and which is precisely the<strong>in</strong>formation the agent <strong>of</strong> state <strong>in</strong>tervention needs to achieveits objectives tomorrow.(d) F<strong>in</strong>ally and above all, to the extent state commands areobeyed and exert the desired effect on society, their coercivenature blocks the entrepreneurial creation <strong>of</strong> the very <strong>in</strong>formationthe <strong>in</strong>terven<strong>in</strong>g state body most desperately needs tomake its own commands coord<strong>in</strong>at<strong>in</strong>g (rather than maladjust<strong>in</strong>g).Not only is statism theoretically impossible, but it also producesa whole series <strong>of</strong> distort<strong>in</strong>g and highly damag<strong>in</strong>g peripheral effects:the encouragement <strong>of</strong> irresponsibility (as the authorities do notknow the true cost <strong>of</strong> their <strong>in</strong>tervention, they act irresponsibly); thedestruction <strong>of</strong> the environment when it is declared a public goodand its privatization is prevented; the corruption <strong>of</strong> the traditionalconcepts <strong>of</strong> law and justice, which are replaced by commands and“social” justice; 4 and the imitative corruption <strong>of</strong> <strong>in</strong>dividuals’Spanish <strong>in</strong> 1998 as D<strong>in</strong>ero, Crédito Bancario, y Ciclos Económicos, 3rd ed.(Madrid: Unión Editorial, 2006).4 F.A. Hayek, Law, Legislation, and Liberty: A New Statement <strong>of</strong> the LiberalPr<strong>in</strong>ciples <strong>of</strong> Justice and Political Economy, 3 vols. (Chicago: University <strong>of</strong>Chicago Press, 1973–79).
168 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>behavior, which becomes more and more aggressive and less andless respectful <strong>of</strong> morality and law.The above analysis also permits us to conclude that if certa<strong>in</strong>societies thrive nowadays, they do so not because <strong>of</strong> the state, but<strong>in</strong> spite <strong>of</strong> it. 5 For many people are still accustomed to behavior patternsthat are subject to substantive laws; areas <strong>of</strong> greater relativefreedom rema<strong>in</strong>; and the state tends to be very <strong>in</strong>efficient at impos<strong>in</strong>gits <strong>in</strong>variably clumsy, bl<strong>in</strong>d commands. Furthermore, even themost marg<strong>in</strong>al <strong>in</strong>creases <strong>in</strong> freedom provide great boosts to prosperity,which illustrates how far civilization could advance withoutthe h<strong>in</strong>drance <strong>of</strong> statism.F<strong>in</strong>ally, we have already commented on the false belief held byall those who identify the state with the provision <strong>of</strong> the (“public”)goods it now provides (poorly and at great cost) and who wronglyconclude that the disappearance <strong>of</strong> the state would necessarilymean the disappearance <strong>of</strong> its valuable services. This conclusion isdrawn <strong>in</strong> an environment <strong>of</strong> constant political <strong>in</strong>doctr<strong>in</strong>ation at alllevels (especially <strong>in</strong> the educational system, which no state wishesto lose control <strong>of</strong>, for obvious reasons), an environment wherestandards <strong>of</strong> “political correctness” are dictatorially imposed, andthe status quo is rationalized by a complacent majority whichrefuses to see the obvious: that the state is noth<strong>in</strong>g but an illusioncreated by a m<strong>in</strong>ority to live at others’ expense, others who are firstexploited, then corrupted, and then paid with outside resources(taxes) for all sorts <strong>of</strong> political “favors.”THE IMPOSSIBILITY OF LIMITING THE POWER OF THE STATE: ITS“LETHAL” CHARACTER IN COMBINATION WITH HUMAN NATUREOnce the state exists, it is impossible to limit the expansion <strong>of</strong>its power. Granted, as <strong>Hoppe</strong> <strong>in</strong>dicates, certa<strong>in</strong> forms <strong>of</strong> government(like absolute monarchies, <strong>in</strong> which the k<strong>in</strong>g-owner will,ceteris paribus, be more careful <strong>in</strong> the long term to avoid “kill<strong>in</strong>g thegoose that lays the golden eggs”) will tend to expand their powerand <strong>in</strong>tervene somewhat less than others (like democracies, <strong>in</strong>5 Carlos Rodríguez Braun, A Pesar Del Gobierno: 100 Críticas al Intervencionismocon Nombres y Apellidos (Madrid: Unión Editorial, 1999).
Huerta de Soto: Classical Liberalism versus Anarcho-Capitalism — 169which there are no real <strong>in</strong>centives to worry about what will happenafter the next elections). It is also true that <strong>in</strong> certa<strong>in</strong> historicalcircumstances, the <strong>in</strong>terventionist tide has appeared to have beendammed to a certa<strong>in</strong> extent. Nevertheless, the historical analysis isirrefutable: the state has not ceased to grow. 6 And it has not ceasedto grow because the mixture <strong>of</strong> human nature and the state, as an<strong>in</strong>stitution with a monopoly on violence, is “explosive.” The stateacts as an irresistibly powerful magnet which attracts and propelsthe basest passions, vices, and facets <strong>of</strong> human nature. Peopleattempt to sidestep the state’s commands yet take advantage <strong>of</strong> itsmonopolistic power as much as possible. Moreover, <strong>in</strong> democraticcontexts particularly, the comb<strong>in</strong>ed effect <strong>of</strong> the action <strong>of</strong> privileged<strong>in</strong>terest groups, the phenomena <strong>of</strong> government shortsightednessand vote buy<strong>in</strong>g, the megalomaniacal nature <strong>of</strong> politicians, and theirresponsibility and bl<strong>in</strong>dness <strong>of</strong> bureaucracies amounts to a dangerouslyunstable and explosive cocktail. This mixture is cont<strong>in</strong>uallyshaken by social, economic, and political crises which, paradoxically,politicians and social “leaders” never fail to use as justificationfor subsequent doses <strong>of</strong> <strong>in</strong>tervention, and these merely createnew problems while exacerbat<strong>in</strong>g exist<strong>in</strong>g ones even further.The state has become the “idol” everyone turns to and worships.Statolatry is without a doubt the most serious and dangeroussocial disease <strong>of</strong> our time. We are taught to believe all problemscan and should be detected <strong>in</strong> time and solved by the state.Our dest<strong>in</strong>y lies <strong>in</strong> the hands <strong>of</strong> the state, and the politicians whogovern it must guarantee us everyth<strong>in</strong>g our well-be<strong>in</strong>g demands.Human be<strong>in</strong>gs rema<strong>in</strong> immature and rebel aga<strong>in</strong>st their own creativenature (an essential quality which makes their future<strong>in</strong>escapably uncerta<strong>in</strong>). They demand a crystal ball to ensure notonly that they know what will happen <strong>in</strong> the future, but also thatany problems which arise will be resolved. This “<strong>in</strong>fantilization”<strong>of</strong> the masses is deliberately fostered by politicians and social leaders,s<strong>in</strong>ce <strong>in</strong> this way they publicly justify their existence and guaranteetheir popularity, predom<strong>in</strong>ance, and govern<strong>in</strong>g capacity.6 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God that Failed: The Economicsand Politics <strong>of</strong> Monarchy, Democracy, and Natural Order (New Brunswick, N.J.:Transaction Publishers, 2001).
170 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Furthermore, a legion <strong>of</strong> <strong>in</strong>tellectuals, pr<strong>of</strong>essors, and social eng<strong>in</strong>eersjo<strong>in</strong> <strong>in</strong> this arrogant b<strong>in</strong>ge <strong>of</strong> power.Not even the most respectable churches and religious denom<strong>in</strong>ationshave reached an accurate diagnosis <strong>of</strong> the problem: thattoday statolatry poses the ma<strong>in</strong> threat to free, moral, and responsiblehuman be<strong>in</strong>gs; that the state is an enormously powerful falseidol which is worshipped by all and which will not countenanceanyone’s free<strong>in</strong>g himself from its control nor hav<strong>in</strong>g moral or religiousloyalties outside its own sphere <strong>of</strong> dom<strong>in</strong>ance. In fact, thestate has managed someth<strong>in</strong>g which might appear impossible apriori: it has slyly and systematically distracted the citizenry fromthe fact that the true orig<strong>in</strong> <strong>of</strong> social conflicts and evils lies with thegovernment itself, by creat<strong>in</strong>g scapegoats everywhere (“capitalism,”the desire for pr<strong>of</strong>it, private property). The state then placesthe blame for problems on these scapegoats and makes them thetarget <strong>of</strong> popular anger and <strong>of</strong> the severest and most emphatic condemnationfrom moral and religious leaders, almost none <strong>of</strong>whom has seen through the deception nor dared until now todenounce that <strong>in</strong> this century, statolatry represents the chief threatto religion, morality, and thus, human civilization. 77 Perhaps the most recent notable exception appears <strong>in</strong> Pope BenedictXVI’s brilliant work on Jesus <strong>of</strong> Nazareth. That the state and political power arethe <strong>in</strong>stitutional embodiment <strong>of</strong> the Antichrist must be obvious to anyonewith the slightest knowledge <strong>of</strong> history who reads the Pope’s reflections onthe most dangerous temptation the devil can put <strong>in</strong> our way:The tempter is not so crude as to suggest to us directly thatwe should worship the devil. He merely suggests that weopt for the reasonable decision, that we choose to give priorityto a planned and thoroughly organized world, whereGod may have his place as a private concern but must not<strong>in</strong>terfere <strong>in</strong> our essential purposes. Soloviev attributes tothe Antichrist a book entitled The Open Way to World Peaceand Welfare. This book becomes someth<strong>in</strong>g <strong>of</strong> a new Bible,whose real message is the worship <strong>of</strong> well-be<strong>in</strong>g andrational plann<strong>in</strong>g.Joseph Ratz<strong>in</strong>ger, Jesus <strong>of</strong> Nazareth, Adrian J. Walker, trans. (London:Bloomsbury, 2007), p. 41. Redford makes similar, though much more categorical,comments. James Redford, “Jesus Is an Anarchist,” Anti-state.com (2001).
Huerta de Soto: Classical Liberalism versus Anarcho-Capitalism — 171Just as the fall <strong>of</strong> the Berl<strong>in</strong> Wall <strong>in</strong> 1989 provided the best historicalillustration <strong>of</strong> the theorem <strong>of</strong> the impossibility <strong>of</strong> socialism,the huge failure <strong>of</strong> classical-liberal theorists and politicians to limitthe power <strong>of</strong> the state perfectly illustrates the theorem <strong>of</strong> theimpossibility <strong>of</strong> statism, specifically the fact that the liberal state isself-contradictory (as it is coercive, even if “limited”) and theoreticallyimpossible (s<strong>in</strong>ce once we accept the existence <strong>of</strong> the state, itis impossible to limit the expansion <strong>of</strong> its power). In short, the“law-based state” is an unatta<strong>in</strong>able ideal and a contradiction <strong>in</strong>terms as flagrant as that <strong>of</strong> “hot snow, wanton virg<strong>in</strong>, fat skeleton,round square,” 8 or that evident <strong>in</strong> the ideas <strong>of</strong> “social eng<strong>in</strong>eers”and neoclassical economists when they refer to a “perfect market”or the so-called “perfect-competition model.” 9ANARCHO-CAPITALISM AS THE ONLY POSSIBLE SYSTEM OF SOCIALCOOPERATION TRULY COMPATIBLE WITH HUMAN NATUREStatism runs counter to human nature, s<strong>in</strong>ce it consists <strong>of</strong> thesystematic, monopolistic exercise <strong>of</strong> a coercion which, <strong>in</strong> all areaswhere it is felt (<strong>in</strong>clud<strong>in</strong>g those correspond<strong>in</strong>g to the def<strong>in</strong>ition <strong>of</strong>law and the ma<strong>in</strong>tenance <strong>of</strong> public order), blocks the creativity andentrepreneurial coord<strong>in</strong>ation which are precisely the most typicaland essential manifestations <strong>of</strong> human nature. Furthermore, as wehave already seen, statism fosters and drives irresponsibility andmoral corruption, as it diverts the focus <strong>of</strong> human behavior towarda privileged pull<strong>in</strong>g on the re<strong>in</strong>s <strong>of</strong> political power, with<strong>in</strong> a context<strong>of</strong> <strong>in</strong>eradicable ignorance that makes it impossible to know thecosts <strong>of</strong> each government action. The above effects <strong>of</strong> statismappear whenever a state exists, even if every attempt is made tolimit its power, an unatta<strong>in</strong>able goal which renders classical liberalisma scientifically unfeasible utopia.8 Anthony de Jasay, Market Socialism: A Scrut<strong>in</strong>y: This Square Circle (Occasionalpaper 84) (London: Institute <strong>of</strong> Economic Affairs, 1990), p. 35.9 Jesús Huerta de Soto, “The Essence <strong>of</strong> the Austrian School,” lecture deliveredat the Bundesm<strong>in</strong>isterium für Wissenschart und Forchung, March 26,2007, <strong>in</strong> Vienna; published <strong>in</strong> Procesos de Mercado: Revista Europea de EconomíaPolítica 4, no. 1 (Spr<strong>in</strong>g 2007): 343–50, see esp. 347–48.
172 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>It is absolutely necessary to overcome the “utopian liberalism”<strong>of</strong> our predecessors, the classical liberals, who were both naïve <strong>in</strong>th<strong>in</strong>k<strong>in</strong>g the state could be limited, and <strong>in</strong>coherent <strong>in</strong> fail<strong>in</strong>g tocarry their ideas to their logical conclusion and accept the implications.Hence, today, with the twenty-first century well underway, our top priority should be to allow the (utopian and naïve)classical liberalism <strong>of</strong> the n<strong>in</strong>eteenth century to be superseded byits new, truly scientific, and modern formulation, which we couldcall libertarian capitalism, private property anarchism, or simply,anarcho-capitalism. For it makes no sense for liberals to cont<strong>in</strong>uesay<strong>in</strong>g the same th<strong>in</strong>gs they said one hundred fifty years agowhen, well <strong>in</strong>to the twenty-first century, and despite the fall <strong>of</strong> theBerl<strong>in</strong> Wall nearly twenty years ago, states have not ceased togrow and encroach upon people’s <strong>in</strong>dividual freedoms <strong>in</strong> allareas.Anarcho-capitalism (or “libertarianism”) is the purest representation<strong>of</strong> the spontaneous market order <strong>in</strong> which all services,<strong>in</strong>clud<strong>in</strong>g those <strong>of</strong> def<strong>in</strong><strong>in</strong>g law, justice, and public order, are providedthrough an exclusively voluntary process <strong>of</strong> social cooperationwhich thus becomes the focal po<strong>in</strong>t <strong>of</strong> research <strong>in</strong> modern economicscience. In this system, no area is closed to the drive <strong>of</strong>human creativity and entrepreneurial coord<strong>in</strong>ation, and henceefficiency and fairness <strong>in</strong>crease <strong>in</strong> the solution <strong>of</strong> problems, and all<strong>of</strong> the conflicts, <strong>in</strong>efficiencies, and maladjustments which bodieswith a monopoly on violence (states) <strong>in</strong>variably cause simply byvirtue <strong>of</strong> exist<strong>in</strong>g, are eradicated. Moreover, the proposed systemelim<strong>in</strong>ates the corrupt<strong>in</strong>g <strong>in</strong>centives created by the state, and <strong>in</strong>contrast fosters the most moral and responsible human behaviors,while prevent<strong>in</strong>g the emergence <strong>of</strong> any monopolistic body (state)which legitimizes the systematic use <strong>of</strong> violence and the exploitation<strong>of</strong> certa<strong>in</strong> social groups (those which have no choice but toobey) by others (those which at any time have the tightest hold onthe re<strong>in</strong>s <strong>of</strong> state power).Anarcho-capitalism is the only system which fully recognizesthe free, creative nature <strong>of</strong> human be<strong>in</strong>gs and their perpetualcapacity to <strong>in</strong>ternalize <strong>in</strong>creas<strong>in</strong>gly moral behavior patterns <strong>in</strong> anenvironment <strong>in</strong> which, by def<strong>in</strong>ition, no one can arrogate to himselfthe right to exercise monopolistic, systematic coercion. Inshort, <strong>in</strong> an anarcho-capitalist system, any entrepreneurial project
Huerta de Soto: Classical Liberalism versus Anarcho-Capitalism — 173can be tried if it attracts enough voluntary support, and thereforemany possible creative solutions can be devised <strong>in</strong> a dynamic andconstantly chang<strong>in</strong>g environment <strong>of</strong> voluntary cooperation.The progressive replacement <strong>of</strong> states by a dynamic network <strong>of</strong>private agencies which back different legal systems and also provideall sorts <strong>of</strong> security, crime prevention, and defense servicesconstitutes the most important item on the political and scientificagenda, as well as the most momentous social change to take place<strong>in</strong> the twenty-first century.CONCLUSION:THE REVOLUTIONARY IMPLICATIONS OF THE NEW PARADIGMThe revolution spearheaded <strong>in</strong> the eighteenth and n<strong>in</strong>eteenthcenturies by the old classical liberals aga<strong>in</strong>st the ancien régime f<strong>in</strong>dsits natural cont<strong>in</strong>uity today <strong>in</strong> the anarcho-capitalist revolution <strong>of</strong>the twenty-first century. Fortunately, we have discovered the reasonbeh<strong>in</strong>d the failure <strong>of</strong> utopian liberalism as well as the need toovercome it with scientific liberalism. Also, we know that the oldrevolutionaries were naïve and mistaken <strong>in</strong> pursu<strong>in</strong>g an unatta<strong>in</strong>ableideal which, throughout the twentieth century, opened thedoor to the worst statist tyrannies humanity has ever known.The message <strong>of</strong> anarcho-capitalism is markedly revolutionary.It is revolutionary <strong>in</strong> its end: the dismantl<strong>in</strong>g <strong>of</strong> the state and itsreplacement by a competitive market process <strong>in</strong> which a network<strong>of</strong> private agencies, associations, and organizations take part. It isalso revolutionary <strong>in</strong> its means, particularly <strong>in</strong> the scientific, economic-social,and political spheres.(a) Scientific Revolution. On the one hand, economic sciencebecomes the general theory <strong>of</strong> the spontaneous market orderextended to all social realms. On the other hand, it <strong>in</strong>corporatesthe analysis <strong>of</strong> the social discoord<strong>in</strong>ation statism produces<strong>in</strong> any area it <strong>in</strong>fluences (<strong>in</strong>clud<strong>in</strong>g law, justice, andpublic order). In addition, the different methods for dismantl<strong>in</strong>gthe state, the transition processes <strong>in</strong>volved, and theways and effects <strong>of</strong> wholly privatiz<strong>in</strong>g all services now considered“public” comprise an essential field <strong>of</strong> research forour discipl<strong>in</strong>e.
174 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>(b) Economic and Social Revolution. One cannot even imag<strong>in</strong>e thespectacular human achievements, advances, and discoveriesthat will be possible <strong>in</strong> an entrepreneurial environment completelyfree from statism. Even today, despite cont<strong>in</strong>ual governmentharassment, a hitherto unknown civilization hasbegun to develop <strong>in</strong> an <strong>in</strong>creas<strong>in</strong>gly globalized world. It is acivilization with a degree <strong>of</strong> complexity for which the power<strong>of</strong> statism is no match, and once it is totally rid <strong>of</strong> statism, itwill expand without limit. For the force <strong>of</strong> creativity <strong>in</strong>human nature is such that it <strong>in</strong>evitably sprouts up througheven the th<strong>in</strong>nest cracks <strong>in</strong> the government’s armor. As soonas people ga<strong>in</strong> a greater awareness <strong>of</strong> the fundamentallyperverse nature <strong>of</strong> the state that restricts them, and oncethey perceive the tremendous opportunities removed dailyfrom their reach when the state blocks the driv<strong>in</strong>g force <strong>of</strong>their entrepreneurial creativity, they will <strong>in</strong> large numbersjo<strong>in</strong> <strong>in</strong> the social clamor for reform, the dismantl<strong>in</strong>g <strong>of</strong> thestate, and the advancement toward a future which rema<strong>in</strong>sentirely unknown to us but is bound to raise human civilizationto heights unimag<strong>in</strong>able today.(c) Political Revolution. The daily political struggle becomes secondaryto that described <strong>in</strong> (a) and (b) above. It is true thatwe must always support the least <strong>in</strong>terventionist alternatives,<strong>in</strong> clear keep<strong>in</strong>g with the efforts <strong>of</strong> classical liberals todemocratically limit the state. However, the anarcho-capitalistdoes not stop at that; he knows, and must also do,much more. He knows that the ultimate goal is the total dismantl<strong>in</strong>g<strong>of</strong> the state, and this fires his entire imag<strong>in</strong>ationand fuels all <strong>of</strong> his political action on a daily basis. Smalladvances <strong>in</strong> the right direction are certa<strong>in</strong>ly welcome, butwe must never slip <strong>in</strong>to a pragmatism that forsakes the ultimategoal <strong>of</strong> putt<strong>in</strong>g an end to the state. For purposes <strong>of</strong>teach<strong>in</strong>g and <strong>in</strong>fluenc<strong>in</strong>g the general public, we must alwayspursue this objective <strong>in</strong> a systematic, transparent manner. 1010 Jesús Huerta de Soto, “El Economista Liberal y la Política,” <strong>in</strong> ManuelFraga: Homenaje Académico, vol. 2 (Madrid: Fundación Cánovas del Castillo), pp.763–88; repr<strong>in</strong>ted at pp. 163–92 <strong>of</strong> Nuevos Estudios de Economía Política. Forexample, one <strong>in</strong>dication <strong>of</strong> the grow<strong>in</strong>g importance <strong>of</strong> libertarian capitalism on
Huerta de Soto: Classical Liberalism versus Anarcho-Capitalism — 175For <strong>in</strong>stance, the anarcho-capitalist political agenda will<strong>in</strong>clude ever reduc<strong>in</strong>g the size and power <strong>of</strong> states. Throughregional and local decentralization <strong>in</strong> all areas, libertariannationalism, the re<strong>in</strong>troduction <strong>of</strong> city-states, and secession,11 the aim will be to block the dictatorship <strong>of</strong> the majorityover the m<strong>in</strong>ority and to permit people to <strong>in</strong>creas<strong>in</strong>gly“vote with their feet” rather than with ballots. In short, thegoal is for people to be able to collaborate with each other ona worldwide scale and across borders, to achieve the mostvaried ends without regard to states (religious organizations,private clubs, Internet networks, etc.). 12Moreover, let us remember that political revolutions neednot be bloody. This is especially true when they result fromthe necessary process <strong>of</strong> social education and development,as well as from popular clamor and the widespread desire tostop the deception, lies, and coercion that prevent peoplefrom fulfill<strong>in</strong>g their aims. For example, the fall <strong>of</strong> the Berl<strong>in</strong>Wall and the Velvet Revolution, which brought an end tosocialism <strong>in</strong> Eastern Europe, were both basically bloodless.Along the path to this important f<strong>in</strong>al result, we must use all<strong>of</strong> the peaceful 13 and legal 14 means that current political systemspermit.the current political agenda is the article “Libertarians Ris<strong>in</strong>g,” whichappeared <strong>in</strong> the Essay section <strong>of</strong> Time magaz<strong>in</strong>e <strong>in</strong> 2007. Michael K<strong>in</strong>sley,“Libertarians Ris<strong>in</strong>g,” Time (October 29, 2007), p. 112.11 Jesús Huerta de Soto, “Teoría del Nacionalismo Liberal,” <strong>in</strong> Estudios deEconomía Política, 2nd ed. (Madrid: Unión Editorial, 2004); idem, “El Desmantelamientodel Estado y la Democracia Directa.”12 Bruno S. Frey, “A Utopia? Government Without Territorial Monopoly,”The Independent Review 6, no. 1 (Summer 2001): 99–112.13 We must never forget the prescriptions <strong>of</strong> the Spanish scholastics <strong>of</strong> theGolden Age regard<strong>in</strong>g the strict conditions an act <strong>of</strong> violence must satisfy tobe “just”: (1) all possible peaceful means and procedures must first have beenexhausted; (2) the act must be defensive (a response to concrete acts <strong>of</strong> violence)and never aggressive; (3) the means used must be proportional (e.g. theideal <strong>of</strong> <strong>in</strong>dependence is not worth the life or liberty <strong>of</strong> even one humanbe<strong>in</strong>g); (4) every attempt must be made to avoid claim<strong>in</strong>g <strong>in</strong>nocent victims; (5)there must be a reasonable chance <strong>of</strong> success (if not, it would be unjustifiable
176 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>An excit<strong>in</strong>g future is open<strong>in</strong>g up, <strong>in</strong> which we will cont<strong>in</strong>uallydiscover new roads that will lead us, <strong>in</strong> keep<strong>in</strong>g with fundamentalpr<strong>in</strong>ciples, toward the anarcho-capitalist ideal. Though this futuremay seem distant today, at any moment we may witness giantsteps forward which will surprise even the most optimistic. Whowas able to predict five years <strong>in</strong> advance that <strong>in</strong> 1989 the Berl<strong>in</strong>Wall would collapse, and with it communism itself <strong>in</strong> EasternEurope? History has entered <strong>in</strong>to an accelerated process <strong>of</strong> change,and although it will never come to a halt, it will beg<strong>in</strong> an entirelynew chapter when humanity, for the first time <strong>in</strong> modern history,manages to rid itself <strong>of</strong> the state once and for all and reduce it tonoth<strong>in</strong>g more than a dark and tragic historical relic.h h hCOMMENTS ON THE SPANISH ANARCHIST TRADITIONThe chart shows the different political systems and how theyevolve naturally <strong>in</strong>to each other. They are grouped accord<strong>in</strong>g tothe degree to which they favor statism or antistatism, and supportor oppose private property.We see how the <strong>in</strong>itial (mistaken and utopian) revolutionarymovement <strong>of</strong> the classical liberals aga<strong>in</strong>st the old regime slips <strong>in</strong>tothe pragmatism <strong>of</strong> accept<strong>in</strong>g the state and opens the door to forms<strong>of</strong> socialist totalitarianism (communism and fascism-Nazism). Thefall <strong>of</strong> real socialism ushers <strong>in</strong> social democracy, which today prevailsfar and wide (group-th<strong>in</strong>k).The liberal revolution, which owes its failure to error andnaïveté on the part <strong>of</strong> classical liberals, has a still-pend<strong>in</strong>g stage,suicide). These are wise pr<strong>in</strong>ciples, to which I would add that participationand f<strong>in</strong>anc<strong>in</strong>g must be entirely voluntary. Any act <strong>of</strong> violence which goesaga<strong>in</strong>st one <strong>of</strong> these pr<strong>in</strong>ciples is automatically delegitimized and becomesthe worst enemy <strong>of</strong> the pr<strong>of</strong>essed objective. F<strong>in</strong>ally, Father Juan de Mariana’swhole theory <strong>of</strong> tyrannicide is also relevant here. Juan de Mariana, De Rege etRegis Institutione (Toledo: Pedro Rodríguez, 1599).14 As Rothbard <strong>in</strong>dicated, it is not advisable to violate current laws (basicallyadm<strong>in</strong>istrative commands), because <strong>in</strong> the vast majority <strong>of</strong> cases, thecosts outweigh the benefits.
Huerta de Soto: Classical Liberalism versus Anarcho-Capitalism — 177which will consist precisely <strong>of</strong> the evolution toward anarcho-capitalism.One consequence which followed the failure <strong>of</strong> the liberal revolutionwas the appearance <strong>of</strong> libertarian communism, which wasunanimously reviled and combated by supporters <strong>of</strong> the otherpolitical systems (particularly the most left-lean<strong>in</strong>g ones), preciselydue to its antistatist nature. Libertarian communism is alsoutopian, because its rejection <strong>of</strong> private property compels the use<strong>of</strong> systematic (i.e., “state”) violence aga<strong>in</strong>st it, thus reveal<strong>in</strong>g an<strong>in</strong>superable logical contradiction and block<strong>in</strong>g the entrepreneurialsocial process which drives the only anarchist order scientificallyconceivable: that <strong>of</strong> the capitalist libertarian market.Spa<strong>in</strong> has a long-established anarchist tradition. While we mustnot forget the great crimes committed by its supporters (<strong>in</strong> anycase qualitatively and quantitatively less serious than those <strong>of</strong>communists and socialists), nor the contradictions <strong>in</strong> their th<strong>in</strong>k<strong>in</strong>g,it is true that, especially dur<strong>in</strong>g the Spanish Civil War, anarchismwas an experiment which enjoyed great popular support,though it was dest<strong>in</strong>ed to fail. Just as with the old liberal revolution,today anarchists have before them their second great opportunity,which lies <strong>in</strong> overcom<strong>in</strong>g their errors (the utopian quality<strong>of</strong> an anarchism which rejects private property) and accept<strong>in</strong>g the
178 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>market order as the sole, def<strong>in</strong>itive path toward abolish<strong>in</strong>g thestate. If the Spanish anarchists <strong>of</strong> the twenty-first century can <strong>in</strong>ternalizethese teach<strong>in</strong>gs from theory and history, Spa<strong>in</strong> will verylikely surprise the world aga<strong>in</strong> (this time for good, and on a largescale) by lead<strong>in</strong>g the theoretical and practical vanguard <strong>of</strong> the newanarcho-capitalist revolution. h
20What Libertarianism Is<strong>Stephan</strong> K<strong>in</strong>sellaPROPERTY, RIGHTS, AND LIBERTYLibertarians tend to agree on a wide array <strong>of</strong> policies andpr<strong>in</strong>ciples. Nonetheless it is not easy to f<strong>in</strong>d consensus onwhat libertarianism’s def<strong>in</strong><strong>in</strong>g characteristic is, or on whatdist<strong>in</strong>guishes it from other political theories and systems.Various formulations abound. It is said that libertarianism isabout: <strong>in</strong>dividual rights; property rights; 1 the free market; capitalism;justice; the non-aggression pr<strong>in</strong>ciple. Not all these will do,<strong>Stephan</strong> K<strong>in</strong>sella (stephan@stephank<strong>in</strong>sella.com) is Editor <strong>of</strong> LibertarianPapers. He thanks Juan Fernando Carpio, Paul Edwards, Gil Guillory, ManuelLora, Johan Ridenfeldt, and Patrick T<strong>in</strong>sley for helpful comments.1 The term “private property rights” is sometimes used by libertarians,which I have always found odd, s<strong>in</strong>ce property rights are necessarily public,not private, <strong>in</strong> the sense that the borders or boundaries <strong>of</strong> property must bepublicly visible so that non-owners can avoid trespass. For more on this aspect<strong>of</strong> property borders, see <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism:Economics, Politics, and Ethics (Boston: Kluwer Academic Publishers,1989), pp. 140–41; <strong>Stephan</strong> K<strong>in</strong>sella, “A Theory <strong>of</strong> Contracts: B<strong>in</strong>d<strong>in</strong>g Promises,Title Transfer, and Inalienability,” Journal <strong>of</strong> Libertarian Studies 17, no. 2(Spr<strong>in</strong>g 2003): n. 32 and accompany<strong>in</strong>g text; idem, Aga<strong>in</strong>st Intellectual Property(Auburn, Ala.: Ludwig von Mises Institute, 2008), pp. 30–31, 49; also Randy E.Barnett, “A Consent Theory <strong>of</strong> Contract,” Columbia Law Review 86 (1986): 303.179
180 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>however. Capitalism and the free market describe the catallacticconditions that arise or are permitted <strong>in</strong> a libertarian society, butdo not encompass other aspects <strong>of</strong> libertarianism. And <strong>in</strong>dividualrights, justice, and aggression collapse <strong>in</strong>to property rights. AsMurray Rothbard expla<strong>in</strong>ed, <strong>in</strong>dividual rights are propertyrights. 2 And justice is just giv<strong>in</strong>g someone his due, which dependson what his rights are. 3The non-aggression pr<strong>in</strong>ciple is also dependent on propertyrights, s<strong>in</strong>ce what aggression is depends on what our (property)rights are. If you hit me, it is aggression because I have a propertyright <strong>in</strong> my body. If I take from you the apple you possess, this istrespass, aggression, only because you own the apple. One cannotidentify an act <strong>of</strong> aggression without implicitly assign<strong>in</strong>g a correspond<strong>in</strong>gproperty right to the victim.So capitalism and the free market are too narrow, and justice,<strong>in</strong>dividual rights, and aggression all boil down to, or are def<strong>in</strong>ed<strong>in</strong> terms <strong>of</strong>, property rights. What <strong>of</strong> property rights, then? Is thiswhat differentiates libertarianism from other political philosophies—thatwe favor property rights, and all others do not? Surelysuch a claim is untenable. After all, a property right is simply theexclusive right to control a scarce resource. 4 Property rights specify2 Murray N. Rothbard, “‘Human Rights’ as Property Rights,” <strong>in</strong> The Ethics<strong>of</strong> Liberty (New York and London: New York University Press, 1998); idem,For A New Liberty: The Libertarian Manifesto (rev. ed.; New York: LibertarianReview Foundation, 1985), pp. 42 et pass.3 “Justice is the constant and perpetual wish to render every one his due. . . .The maxims <strong>of</strong> law are these: to live honestly, to hurt no one, to give every onehis due.” The Institutes <strong>of</strong> Just<strong>in</strong>ian: Text, Translation, and Commentary, trans. J.A.C.Thomas (Amsterdam: North-Holland, 1975).4 As Pr<strong>of</strong>essor Yiannopoulos expla<strong>in</strong>s:Property may be def<strong>in</strong>ed as an exclusive right to control an economicgood . . .; it is the name <strong>of</strong> a concept that refers to therights and obligations, privileges and restrictions that governthe relations <strong>of</strong> man with respect to th<strong>in</strong>gs <strong>of</strong> value. Peopleeverywhere and at all times desire the possession <strong>of</strong>th<strong>in</strong>gs that are necessary for survival or valuable by culturaldef<strong>in</strong>ition and which, as a result <strong>of</strong> the demand placed uponthem, become scarce. Laws enforced by organized society
K<strong>in</strong>sella: What Libertarianism Is — 181which persons own—have the right to control—various scarceresources <strong>in</strong> a given region or jurisdiction. Yet everyone and everypolitical theory advances some theory <strong>of</strong> property. None <strong>of</strong> the variousforms <strong>of</strong> socialism deny property rights; each socialism willspecify an owner for every scarce resource. 5 If the state nationalizesan <strong>in</strong>dustry, it is assert<strong>in</strong>g ownership <strong>of</strong> these means <strong>of</strong> production.If the state taxes you, it is implicitly assert<strong>in</strong>g ownership<strong>of</strong> the funds taken. If my land is transferred to a private developerby em<strong>in</strong>ent doma<strong>in</strong> statutes, the developer is now the owner. If thelaw allows a recipient <strong>of</strong> racial discrim<strong>in</strong>ation to sue his employerfor a sum <strong>of</strong> money—he is the owner <strong>of</strong> the money. 6Protection <strong>of</strong> and respect for property rights is thus not uniqueto libertarianism. What is dist<strong>in</strong>ctive about libertarianism is its particularproperty assignment rules—its view as to who is the owner <strong>of</strong>each contestable resource, and how to determ<strong>in</strong>e this.control the competition for, and guarantee the enjoyment<strong>of</strong>, these desired th<strong>in</strong>gs. What is guaranteed to be one’s ownis property. . . . [Property rights] confer a direct and immediateauthority over a th<strong>in</strong>g.A.N. Yiannopoulos, Louisiana Civil Law Treatise, Property (West Group, 4th ed.2001), §§ 1, 2 (first emphasis <strong>in</strong> orig<strong>in</strong>al; rema<strong>in</strong><strong>in</strong>g emphasis added). See alsoLouisiana Civil Code (http://t<strong>in</strong>yurl.com/lacivcode), Art. 477 (“Ownership isthe right that confers on a person direct, immediate, and exclusive authorityover a th<strong>in</strong>g. The owner <strong>of</strong> a th<strong>in</strong>g may use, enjoy, and dispose <strong>of</strong> it with<strong>in</strong> thelimits and under the conditions established by law”).5 For a systematic analysis <strong>of</strong> various forms <strong>of</strong> socialism, from SocialismRussian-Style, Socialism Social-Democratic Style, the Socialism <strong>of</strong> Conservatism,the Socialism <strong>of</strong> Social Eng<strong>in</strong>eer<strong>in</strong>g, see <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialismand Capitalism, chaps. 3–6. Recogniz<strong>in</strong>g the common elements <strong>of</strong> variousforms <strong>of</strong> socialism and their dist<strong>in</strong>ction from libertarianism (capitalism),<strong>Hoppe</strong> <strong>in</strong>cisively def<strong>in</strong>es socialism as “an <strong>in</strong>stitutionalized <strong>in</strong>terference withor aggression aga<strong>in</strong>st private property and private property claims.” Ibid., p.2. See also the quote from <strong>Hoppe</strong> <strong>in</strong> note 9, below.6 Even the private thief, by tak<strong>in</strong>g your watch, is implicitly act<strong>in</strong>g on themaxim that he has the right to control it—that he is its owner. He does notdeny property rights—he simply differs from the libertarian as to who theowner is. In fact, as Adam Smith observed: “If there is any society among robbersand murderers, they must at least, accord<strong>in</strong>g to the trite observation,absta<strong>in</strong> from robb<strong>in</strong>g and murder<strong>in</strong>g one another.” Adam Smith, The Theory<strong>of</strong> Moral Sentiments (Indianapolis: Liberty Fund, [1759] 1982), II.II.3.
182 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>PROPERTY IN BODIESA system <strong>of</strong> property rights assigns a particular owner to everyscarce resource. These resources obviously <strong>in</strong>clude naturalresources such as land, fruits <strong>of</strong> trees, and so on. Objects found <strong>in</strong>nature are not the only scarce resources, however. Each humanactor has, controls, and is identified and associated with a uniquehuman body, which is also a scarce resource. 7 Both human bodiesand non-human scarce resources are desired for use as means byactors <strong>in</strong> the pursuit <strong>of</strong> various goals.Accord<strong>in</strong>gly, any political theory or system must assign ownershiprights <strong>in</strong> human bodies as well as <strong>in</strong> external th<strong>in</strong>gs. Let usconsider first the libertarian property assignment rules withrespect to human bodies, and the correspond<strong>in</strong>g notion <strong>of</strong> aggressionas it perta<strong>in</strong>s to bodies. Libertarians <strong>of</strong>ten vigorously assertthe non-aggression pr<strong>in</strong>ciple. As Ayn Rand said, “So long as mendesire to live together, no man may <strong>in</strong>itiate—do you hear me? Noman may start—the use <strong>of</strong> physical force aga<strong>in</strong>st others.” 8 Or, asRothbard put it:7 As <strong>Hoppe</strong> observes, even <strong>in</strong> a paradise with a superabundance <strong>of</strong> goods,every person’s physical body would still be a scarceresource and thus the need for the establishment <strong>of</strong> propertyrules, i.e., rules regard<strong>in</strong>g people’s bodies, would exist.One is not used to th<strong>in</strong>k<strong>in</strong>g <strong>of</strong> one’s own body <strong>in</strong> terms <strong>of</strong> ascarce good, but <strong>in</strong> imag<strong>in</strong><strong>in</strong>g the most ideal situation onecould ever hope for, the Garden <strong>of</strong> Eden, it becomes possibleto realize that one’s body is <strong>in</strong>deed the prototype <strong>of</strong> ascarce good for the use <strong>of</strong> which property rights, i.e., rights<strong>of</strong> exclusive ownership, somehow have to be established, <strong>in</strong>order to avoid clashes.<strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism, pp. 8–9. See also <strong>Stephan</strong> K<strong>in</strong>sella& Patrick T<strong>in</strong>sley, “Causation and Aggression,” Quarterly Journal <strong>of</strong> AustrianEconomics 7, no. 4 (W<strong>in</strong>ter 2004): 111–12 (discuss<strong>in</strong>g the use <strong>of</strong> other humans’bodies as means).8 Ayn Rand, “Galt’s Speech,” <strong>in</strong> For the New Intellectual, quoted <strong>in</strong> The AynRand Lexicon, “Physical Force” entry (www. aynrandlexicon.com). Ironically,Objectivists <strong>of</strong>ten excoriate libertarians for hav<strong>in</strong>g a “context-less” concept <strong>of</strong>aggression—that is, that “aggression” or “rights” is mean<strong>in</strong>gless unless theseconcepts are embedded <strong>in</strong> the larger philosophical framework <strong>of</strong> Objectivism
K<strong>in</strong>sella: What Libertarianism Is — 183The libertarian creed rests upon one central axiom: thatno man or group <strong>of</strong> men may aggress aga<strong>in</strong>st the personor property <strong>of</strong> anyone else. This may be called the“nonaggression axiom.” “Aggression” is def<strong>in</strong>ed as the<strong>in</strong>itiation <strong>of</strong> the use or threat <strong>of</strong> physical violence aga<strong>in</strong>stthe person or property <strong>of</strong> anyone else. Aggression istherefore synonymous with <strong>in</strong>vasion. 9In other words, libertarians ma<strong>in</strong>ta<strong>in</strong> that the only way to violaterights is by <strong>in</strong>itiat<strong>in</strong>g force—that is, by committ<strong>in</strong>g aggression.(Libertarianism also holds that, while the <strong>in</strong>itiation <strong>of</strong> force aga<strong>in</strong>stanother person’s body is impermissible, force used <strong>in</strong> response toaggression—such as defensive, restitutive, or retaliatory/punitiveforce—is justified. 10 ) Now <strong>in</strong> the case <strong>of</strong> the body, it is clear what—despite Galt’s straightforward def<strong>in</strong>ition <strong>of</strong> aggression as the <strong>in</strong>itiation <strong>of</strong>physical force aga<strong>in</strong>st others.9 Rothbard, For A New Liberty, p. 23. See also idem, The Ethics <strong>of</strong> Liberty:“The fundamental axiom <strong>of</strong> libertarian theory is that each person must be aself-owner, and that no one has the right to <strong>in</strong>terfere with such self-ownership”(p. 60), and “What . . . aggressive violence means is that one man<strong>in</strong>vades the property <strong>of</strong> another without the victim’s consent. The <strong>in</strong>vasionmay be aga<strong>in</strong>st a man’s property <strong>in</strong> his person (as <strong>in</strong> the case <strong>of</strong> bodilyassault), or aga<strong>in</strong>st his property <strong>in</strong> tangible goods (as <strong>in</strong> robbery or trespass)”(p. 45). <strong>Hoppe</strong> writes:If . . . an action is performed that un<strong>in</strong>vitedly <strong>in</strong>vades orchanges the physical <strong>in</strong>tegrity <strong>of</strong> another person’s body andputs this body to a use that is not to this very person’s ownlik<strong>in</strong>g, this action . . . is called aggression. . . . Next to the concept<strong>of</strong> action, property is the most basic category <strong>in</strong> thesocial sciences. As a matter <strong>of</strong> fact, all other concepts to be<strong>in</strong>troduced <strong>in</strong> this chapter—aggression, contract, capitalismand socialism—are def<strong>in</strong>able <strong>in</strong> terms <strong>of</strong> property: aggressionbe<strong>in</strong>g aggression aga<strong>in</strong>st property, contract be<strong>in</strong>g anonaggressive relationship between property owners,socialism be<strong>in</strong>g an <strong>in</strong>stitutionalized policy <strong>of</strong> aggressionaga<strong>in</strong>st property, and capitalism be<strong>in</strong>g an <strong>in</strong>stitutionalizedpolicy <strong>of</strong> the recognition <strong>of</strong> property and contractualism.<strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism, pp. 12, 7.10 See <strong>Stephan</strong> K<strong>in</strong>sella, “A Libertarian Theory <strong>of</strong> Punishment and Rights,”Loyola <strong>of</strong> Los Angeles Law Review 30 (1997): 607–45; idem, “Punishment andProportionality: The Estoppel Approach,” Journal <strong>of</strong> Libertarian Studies 12, no.1 (Spr<strong>in</strong>g 1996): 51–73.
184 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>aggression is: <strong>in</strong>vad<strong>in</strong>g the borders <strong>of</strong> someone’s body, commonlycalled battery, or, more generally, us<strong>in</strong>g the body <strong>of</strong> another withouthis or her consent. 11 The very notion <strong>of</strong> <strong>in</strong>terpersonal aggression presupposesproperty rights <strong>in</strong> bodies—more particularly, that eachperson is, at least prima facie, the owner <strong>of</strong> his own body. 12Non-libertarian political philosophies have a different view.Each person has some limited rights <strong>in</strong> his own body, but not completeor exclusive rights. Society or the state, purport<strong>in</strong>g to be society’sagent, has certa<strong>in</strong> rights <strong>in</strong> each citizen’s body, too. This partialslavery is implicit <strong>in</strong> state actions and laws such as taxation,conscription, and drug prohibitions. The libertarian says that eachperson is the full owner <strong>of</strong> his body: he has the right to control hisbody, to decide whether or not he <strong>in</strong>gests narcotics, jo<strong>in</strong>s an army,and so on. Those various non-libertarians who endorse any suchstate prohibitions, however, necessarily ma<strong>in</strong>ta<strong>in</strong> that the state, orsociety, is at least a partial owner <strong>of</strong> the body <strong>of</strong> those subject tosuch laws—or even a complete owner <strong>in</strong> the case <strong>of</strong> conscriptees ornon-aggressor “crim<strong>in</strong>als” <strong>in</strong>carcerated for life. Libertariansbelieve <strong>in</strong> self-ownership. Non-libertarians—statists—<strong>of</strong> all stripesadvocate some form <strong>of</strong> slavery.SELF-OWNERSHIP AND CONFLICT AVOIDANCEWithout property rights, there is always the possibility <strong>of</strong> conflictover contestable (scarce) resources. By assign<strong>in</strong>g an owner toeach resource, legal systems make possible conflict-free use <strong>of</strong>11 The follow<strong>in</strong>g terms and formulations may be considered as roughlysynonymous, depend<strong>in</strong>g on context: aggression; <strong>in</strong>itiation <strong>of</strong> force; trespass;<strong>in</strong>vasion; unconsented to (or un<strong>in</strong>vited) change <strong>in</strong> the physical <strong>in</strong>tegrity (oruse, control or possession) <strong>of</strong> another person’s body or property.12 “Prima facie,” because some rights <strong>in</strong> one’s body are arguably forfeitedor lost <strong>in</strong> certa<strong>in</strong> circumstances, e.g. when one commits a crime, thus authoriz<strong>in</strong>gthe victim to at least use defensive force aga<strong>in</strong>st the body <strong>of</strong> the aggressor(imply<strong>in</strong>g the aggressor is to that extent not the owner <strong>of</strong> his body). Formore on this see K<strong>in</strong>sella, “A Theory <strong>of</strong> Contracts,” pp. 11–37; idem, “Inalienabilityand Punishment: A Reply to George Smith,” 14, no. 1 Journal <strong>of</strong> LibertarianStudies (W<strong>in</strong>ter 1998–99): 79–93; and idem, “Knowledge, Calculation,Conflict, and Law,” Quarterly Journal <strong>of</strong> Austrian Economics 2, no. 4 (W<strong>in</strong>ter1999): n. 32.
K<strong>in</strong>sella: What Libertarianism Is — 185resources, by establish<strong>in</strong>g visible boundaries that non-owners canavoid. Libertarianism does not endorse just any property assignmentrule, however. 13 It favors self-ownership over other-ownership(slavery).The libertarian seeks property assignment rules because he valuesor accepts various grundnorms such as justice, peace, prosperity,cooperation, conflict-avoidance, civilization. 14 The libertarian13 On the importance <strong>of</strong> the concept <strong>of</strong> scarcity and the possibility <strong>of</strong> conflictfor the emergence <strong>of</strong> property rules, see <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism andCapitalism, p. 134; and the discussion there<strong>of</strong> <strong>in</strong> <strong>Stephan</strong> K<strong>in</strong>sella, “Thoughtson the Latecomer and Homestead<strong>in</strong>g Ideas; or, Why the Very Idea <strong>of</strong> ‘Ownership’Implies that only Libertarian Pr<strong>in</strong>ciples are Justifiable,” Mises EconomicsBlog (Aug. 15, 2007).14 “Grundnorm” was legal philosopher <strong>Hans</strong> Kelsen’s term for the hypotheticalbasic norm or rule that serves as the basis or ultimate source for thelegitimacy <strong>of</strong> a legal system. See <strong>Hans</strong> Kelsen, General Theory <strong>of</strong> Law and State,trans. Anders Wedberg (Cambridge, Mass.: Harvard University Press, 1949).I employ this term to refer to the fundamental norms presupposed by civilizedpeople, e.g., <strong>in</strong> argumentative discourse, which <strong>in</strong> turn imply libertariannorms.That the libertarian grundnorms are, <strong>in</strong> fact, necessarily presupposed by allcivilized people to the extent they are civilized—dur<strong>in</strong>g argumentative justification,that is—is shown by <strong>Hoppe</strong> <strong>in</strong> his “argumentation ethics” defense <strong>of</strong>libertarian rights. See on this <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism, chap.7; <strong>Stephan</strong> K<strong>in</strong>sella, “New Rationalist Directions <strong>in</strong> Libertarian Rights Theory,”Journal <strong>of</strong> Libertarian Studies 12, no. 2 (Fall 1996): 313–26; idem, “Defend<strong>in</strong>gArgumentation Ethics,” Anti-state.com (Sept. 19, 2002).For discussion <strong>of</strong> why people (to one extent or the other) do value theseunderly<strong>in</strong>g norms, see <strong>Stephan</strong> K<strong>in</strong>sella, “The Division <strong>of</strong> Labor as the Source<strong>of</strong> Grundnorms and Rights,” Mises Economics Blog (April 24, 2009), and idem,“Empathy and the Source <strong>of</strong> Rights,” Mises Economics Blog (Sept. 6, 2006). Seealso idem, “Punishment and Proportionality,” pp. 51 & 70:People who are civilized are . . . concerned about justify<strong>in</strong>gpunishment. They want to punish, but they also want toknow that such punishment is justified—they want to legitimatelybe able to punish. . . . Theories <strong>of</strong> punishment areconcerned with justify<strong>in</strong>g punishment, with <strong>of</strong>fer<strong>in</strong>g decentmen who are reluctant to act immorally a reason why theymay punish others. This is useful, <strong>of</strong> course, for <strong>of</strong>fer<strong>in</strong>gmoral men guidance and assurance that they may properlydeal with those who seek to harm them.
186 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>view is that self-ownership is the only property assignment rulecompatible with these grundorms; it is implied by them. As Pr<strong>of</strong>essor<strong>Hoppe</strong> has shown, the assignment <strong>of</strong> ownership to a givenresource must not be random, arbitrary, particularistic, or biased,if it is to actually be a property norm that can serve the function <strong>of</strong>conflict-avoidance. 15 Property title has to be assigned to one <strong>of</strong>compet<strong>in</strong>g claimants based on “the existence <strong>of</strong> an objective, <strong>in</strong>tersubjectivelyascerta<strong>in</strong>able l<strong>in</strong>k between owner and the” resourceclaimed. 16 In the case <strong>of</strong> one’s own body, it is the unique relationshipbetween a person and his body—his direct and immediate controlover his body, and the fact that, at least <strong>in</strong> some sense, a bodyis a given person and vice versa—that constitutes the objective l<strong>in</strong>ksufficient to give that person a claim to his body superior to typicalthird party claimants.Moreover, any outsider who claims another’s body cannotdeny this objective l<strong>in</strong>k and its special status, s<strong>in</strong>ce the outsideralso necessarily presupposes this <strong>in</strong> his own case. This is sobecause <strong>in</strong> seek<strong>in</strong>g dom<strong>in</strong>ion over the other, <strong>in</strong> assert<strong>in</strong>g ownershipover the other’s body, he has to presuppose his own ownership<strong>of</strong> his body, which demonstrates he does place a certa<strong>in</strong> significanceon this l<strong>in</strong>k, at the same time that he disregards the significance<strong>of</strong> the other’s l<strong>in</strong>k to his own body. 17Libertarianism realizes that only the self-ownership rule is universalizableand compatible with the goals <strong>of</strong> peace, cooperation,and conflict avoidance. We recognize that each person is prima faciethe owner <strong>of</strong> his own body because, by virtue <strong>of</strong> his unique l<strong>in</strong>k toand connection with his own body—his direct and immediate controlover it—he has a better claim to it than anyone else.15 See <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism, pp. 131–38. See also K<strong>in</strong>sella,“A Libertarian Theory <strong>of</strong> Punishment and Rights,” pp. 617–25; idem,“Defend<strong>in</strong>g Argumentation Ethics.”16 <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism, p. 12.17 For elaboration on this po<strong>in</strong>t, see <strong>Stephan</strong> K<strong>in</strong>sella, “How We Come ToOwn Ourselves,” Mises Daily (Sept. 7, 2006); idem, “Defend<strong>in</strong>g ArgumentationEthics”; <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism, chaps. 1, 2, and 7.
K<strong>in</strong>sella: What Libertarianism Is — 187PROPERTY IN EXTERNAL THINGSLibertarians apply similar reason<strong>in</strong>g <strong>in</strong> the case <strong>of</strong> other scarceresources—namely external objects <strong>in</strong> the world that, unlike bodies,were at one po<strong>in</strong>t unowned. In the case <strong>of</strong> bodies, the idea <strong>of</strong>aggression be<strong>in</strong>g impermissible immediately implies self-ownership.In the case <strong>of</strong> external objects, however, we must identifywho the owner is before we can determ<strong>in</strong>e what constitutesaggression.As <strong>in</strong> the case with bodies, humans need to be able to use externalobjects as means to achieve various ends. Because these th<strong>in</strong>gsare scarce, there is also the potential for conflict. And as <strong>in</strong> the casewith bodies, libertarians favor assign<strong>in</strong>g property rights so as topermit the peaceful, conflict-free, productive use <strong>of</strong> suchresources. As <strong>in</strong> the case with bodies, then, property is assigned tothe person with the best claim or l<strong>in</strong>k to a given scarce resource—with the “best claim” standard based on the goals <strong>of</strong> permitt<strong>in</strong>gpeaceful, conflict-free human <strong>in</strong>teraction and use <strong>of</strong> resources.Unlike human bodies, however, external objects are not parts <strong>of</strong>one’s identity, are not directly controlled by one’s will—and, significantly,they are <strong>in</strong>itially unowned. 18 Here, the libertarian realizesthat the relevant objective l<strong>in</strong>k is appropriation—the transformationor emborder<strong>in</strong>g <strong>of</strong> a previously unowned resource, Lockeanhomestead<strong>in</strong>g, the first use or possession <strong>of</strong> the th<strong>in</strong>g. 19 Under this18 For further discussion <strong>of</strong> the difference between bodies and th<strong>in</strong>gshomesteaded for purposes <strong>of</strong> rights, see K<strong>in</strong>sella, “A Theory <strong>of</strong> Contracts,”pp. 29 et seq.; and idem, “How We Come To Own Ourselves.”19 On the nature <strong>of</strong> appropriation <strong>of</strong> unowned scarce resources, see<strong>Hoppe</strong>’s and de Jasay’s ideas quoted and discussed <strong>in</strong> K<strong>in</strong>sella, “Thoughts onthe Latecomer and Homestead<strong>in</strong>g Ideas,” and note 24, below. In particular, see<strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism, pp. 13, 134–36, 142–44; andAnthony de Jasay, Aga<strong>in</strong>st Politics: On Government, Anarchy, and Order (London& New York: Routledge, 1997), pp. 158 et seq., 171 et seq., et pass. De Jasay is alsodiscussed extensively <strong>in</strong> my “Book Review <strong>of</strong> Anthony de Jasay, Aga<strong>in</strong>st Politics:On Government, Anarchy, and Order,” Quarterly Journal <strong>of</strong> Austrian Economics1, no. 3 (Fall 1998): 85–93. De Jasay’s argument presupposes the value <strong>of</strong> justice,efficiency, and order. Given these goals, he argues for three pr<strong>in</strong>ciples <strong>of</strong>politics: (1) if <strong>in</strong> doubt, absta<strong>in</strong> from political action (pp. 147 et seq.); (2) the feasibleis presumed free (pp. 158 et seq.); and (3) let exclusion stand (pp. 171 et
188 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>approach, the first (prior) user <strong>of</strong> a previously unowned th<strong>in</strong>g hasa prima facie better claim than a second (later) claimant solely byvirtue <strong>of</strong> his be<strong>in</strong>g earlier.Why is appropriation the relevant l<strong>in</strong>k for determ<strong>in</strong>ation <strong>of</strong>ownership? First, keep <strong>in</strong> m<strong>in</strong>d that the question with respect tosuch scarce resources is: who is the resource’s owner? Recall thatownership is the right to control, use, or possess, 20 while possessionis actual control—“the factual authority that a person exercisesover a corporeal th<strong>in</strong>g.” 21 The question is not who has physicalpossession; it is who has ownership. Thus, ask<strong>in</strong>g who is theowner <strong>of</strong> a resource presupposes a dist<strong>in</strong>ction between ownershipand possession—between the right to control, and actual control.And the answer has to take <strong>in</strong>to account the nature <strong>of</strong> previouslyunownedth<strong>in</strong>gs: to-wit, that they must at some po<strong>in</strong>t becomeowned by a first owner.The answer must also take <strong>in</strong>to account the presupposed goals<strong>of</strong> those seek<strong>in</strong>g this answer: rules that permit conflict-free use <strong>of</strong>resources. For this reason, the answer cannot be whoever has theresource or whoever is able to take it is its owner. To hold such a viewis to adopt a might makes right system where ownership collapsesseq.). In connection with pr<strong>in</strong>ciple (3), “let exclusion stand,” de Jasay <strong>of</strong>fers<strong>in</strong>sightful comments about the nature <strong>of</strong> homestead<strong>in</strong>g or appropriation <strong>of</strong>unowned goods. De Jasay equates property with its owner’s “exclud<strong>in</strong>g” othersfrom us<strong>in</strong>g it, for example by enclos<strong>in</strong>g or fenc<strong>in</strong>g <strong>in</strong> immovable property(land) or f<strong>in</strong>d<strong>in</strong>g or creat<strong>in</strong>g (and keep<strong>in</strong>g) movable property (corporeal, tangibleobjects). He concludes that s<strong>in</strong>ce an appropriated th<strong>in</strong>g has no otherowner, prima facie no one is entitled to object to the first possessor claim<strong>in</strong>gownership. Thus, the pr<strong>in</strong>ciple means “let ownership stand,” i.e., that claimsto ownership <strong>of</strong> property appropriated from the state <strong>of</strong> nature or acquiredultimately through a cha<strong>in</strong> <strong>of</strong> title trac<strong>in</strong>g back to such an appropriationshould be respected. This is consistent with <strong>Hoppe</strong>’s defense <strong>of</strong> the “natural”theory <strong>of</strong> property. <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism, pp. 10–14 &chap. 7. For further discussion <strong>of</strong> the nature <strong>of</strong> appropriation, see Jörg GuidoHülsmann, “The A Priori Foundations <strong>of</strong> Property Economics,” QuarterlyJournal <strong>of</strong> Austrian Economics 7, no. 4 (W<strong>in</strong>ter 2004): 51–57.20 See note 4 and accompany<strong>in</strong>g text, above.21 Yiannopoulos, Property, § 301 (emphasis added); see also Louisiana CivilCode, Art. 3421 (“Possession is the detention or enjoyment <strong>of</strong> a corporeal th<strong>in</strong>g,movable or immovable, that one holds or exercises by himself or by anotherwho keeps or exercises it <strong>in</strong> his name”; emphasis added).
K<strong>in</strong>sella: What Libertarianism Is — 189<strong>in</strong>to possession for want <strong>of</strong> a dist<strong>in</strong>ction. 22 Such a “system,” farfrom avoid<strong>in</strong>g conflict, makes conflict <strong>in</strong>evitable. 2322 See, <strong>in</strong> this connection, the quote from Adam Smith <strong>in</strong> note 6, above.23 This is also, <strong>in</strong>cidentally, the reason the mutualist “occupancy” positionon land ownership is unlibertarian. As mutualist Kev<strong>in</strong> Carson writes:For mutualists, occupancy and use is the only legitimate standardfor establish<strong>in</strong>g ownership <strong>of</strong> land, regardless <strong>of</strong> howmany times it has changed hands. An exist<strong>in</strong>g owner maytransfer ownership by sale or gift; but the new owner mayestablish legitimate title to the land only by his own occupancyand use. A change <strong>in</strong> occupancy will amount to achange <strong>in</strong> ownership. . . . The actual occupant is considered theowner <strong>of</strong> a tract <strong>of</strong> land, and any attempt to collect rent by aself-styled [“absentee”] landlord is regarded as a violent<strong>in</strong>vasion <strong>of</strong> the possessor’s absolute right <strong>of</strong> property.Kev<strong>in</strong> A. Carson, Studies <strong>in</strong> Mutualist Political Economy (Self-published: Fayetteville,Ark., 2004, http://mutualist.org/id47.html), chap. 5, sec. A (emphasisadded). Thus, for mutualism, the “actual occupant” is the “owner”; the “possessor”has the right <strong>of</strong> property. If a homesteader <strong>of</strong> land stops personallyus<strong>in</strong>g or occupy<strong>in</strong>g it, he loses his ownership. Carson contends this is compatiblewith libertarianism:[A]ll property rights theories, <strong>in</strong>clud<strong>in</strong>g Lockean, makeprovision for adverse possession and constructive abandonment<strong>of</strong> property. They differ only <strong>in</strong> degree, rather than k<strong>in</strong>d: <strong>in</strong>the “stick<strong>in</strong>ess” <strong>of</strong> property. . . . There is a large element <strong>of</strong>convention <strong>in</strong> any property rights system—Georgist, mutualist,and both proviso and nonproviso Lockeanism—<strong>in</strong>determ<strong>in</strong><strong>in</strong>g what constitutes transfer and abandonment.Kev<strong>in</strong> A. Carson, “Carson’s Rejo<strong>in</strong>ders,” Journal <strong>of</strong> Libertarian Studies 20, no. 1(W<strong>in</strong>ter 2006): 133 (emphasis added). In other words, Lockeanism, Georgism,mutualism are all types <strong>of</strong> libertarianism, differ<strong>in</strong>g only <strong>in</strong> degree. In Carson’sview, the gray areas <strong>in</strong> issues like adverse possession and abandonment leaveroom for mutualism’s “occupancy” requirement for ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g land ownership.But the concepts <strong>of</strong> adverse possession and abandonment cannot bestretched to cover the mutualist occupancy requirement. The mutualist occupancyview is essentially a use or work<strong>in</strong>g requirement, which is dist<strong>in</strong>ct fromdoctr<strong>in</strong>es <strong>of</strong> adverse possession and abandonment. The doctr<strong>in</strong>e <strong>of</strong> abandonment<strong>in</strong> positive law and <strong>in</strong> libertarian theory is based on the idea that ownershipacquired by <strong>in</strong>tentionally appropriat<strong>in</strong>g a previously unowned th<strong>in</strong>g
190 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Instead <strong>of</strong> a might-makes-right approach, from the <strong>in</strong>sightsnoted above it is obvious that ownership presupposes the prior-latermay be lost when the owner’s <strong>in</strong>tent to own term<strong>in</strong>ates. Ownership isacquired by a merger <strong>of</strong> possession and <strong>in</strong>tent to own. Likewise, when the<strong>in</strong>tent to own ceases, ownership does too—this is the case with both abandonment<strong>of</strong> ownership and transfer <strong>of</strong> title to another person, which is basicallyan abandonment <strong>of</strong> property “<strong>in</strong> favor” <strong>of</strong> a particular new owner. SeeK<strong>in</strong>sella, “A Theory <strong>of</strong> Contracts,” pp. 26–29; also Louisiana Civil Code, Art.3418 (“A th<strong>in</strong>g is abandoned when its owner rel<strong>in</strong>quishes possession with the<strong>in</strong>tent to give up ownership”) and Art. 3424 (“To acquire possession, onemust <strong>in</strong>tend to possess as owner and must take corporeal possession <strong>of</strong> the th<strong>in</strong>g”;emphasis added).The legal system must therefore develop rules to determ<strong>in</strong>e when propertyhas been abandoned, <strong>in</strong>clud<strong>in</strong>g default rules that apply <strong>in</strong> the absence <strong>of</strong>clear evidence. Acquisitive prescription is based on an implicit presumptionthat the owner has abandoned his property claims if he does not defend itwith<strong>in</strong> a reasonable time period aga<strong>in</strong>st an adverse possessor. But such rulesapply to adverse possessors—those who possess the property with the <strong>in</strong>tent toown and <strong>in</strong> a sufficiently public fashion that the owner knows or should know<strong>of</strong> this. See Yiannopoulos, Property, § 316; see also Louisiana Civil Code, Art.3424 (“To acquire possession, one must <strong>in</strong>tend to possess as owner and musttake corporeal possession <strong>of</strong> the th<strong>in</strong>g”; emphasis added) and Art. 3476 (toacquire title by acquisitive prescription, “The possession must be cont<strong>in</strong>uous,un<strong>in</strong>terrupted, peaceable, public, and unequivocal”; emphasis added); see alsoArt. 3473. The “public” requirement means that the possessor possesses theproper openly as owner, adverse or hostile to the owner’s ownership—whichis not the case when, for example, a lessee or employee uses an apartment ormanufactur<strong>in</strong>g facility under color <strong>of</strong> title and permission from the owner.Rules <strong>of</strong> abandonment and adverse possession are default rules that applywhen the owner has not made his <strong>in</strong>tention sufficiently clear—by neglect,apathy, death, absence, or other reason.(In fact, the very idea <strong>of</strong> abandonment rests on the dist<strong>in</strong>ction betweenownership and possession. Property is more than possession; it is a right topossess, orig<strong>in</strong>at<strong>in</strong>g and susta<strong>in</strong>ed by the owner’s <strong>in</strong>tention to possess asowner. And abandonment occurs when the <strong>in</strong>tent to own term<strong>in</strong>ates. Thishappens even when the (immediately preced<strong>in</strong>g) owner temporarily ma<strong>in</strong>ta<strong>in</strong>spossession but has lost ownership, as when he gives or sells the th<strong>in</strong>g toanother party (as I argue <strong>in</strong> K<strong>in</strong>sella, “A Theory <strong>of</strong> Contracts,” pp. 26–29).)Clearly, default abandonment and adverse possession rules are categoricallydifferent from a work<strong>in</strong>g requirement, whereby ownership is lost <strong>in</strong> theabsence <strong>of</strong> use. See, e.g., Louisiana M<strong>in</strong>eral Code, § 27 (http://law.justia.com/louisiana/codes/21/87935.html) (“A m<strong>in</strong>eral servitude is ext<strong>in</strong>guished by: . . .prescription result<strong>in</strong>g from nonuse for ten years”). Loss <strong>of</strong> ownership is not l ostby nonuse, however, and a work<strong>in</strong>g requirement is not implied by default rules
K<strong>in</strong>sella: What Libertarianism Is — 191dist<strong>in</strong>ction: whoever any given system specifies as the owner <strong>of</strong> aresource, he has a better claim than latecomers. 24 If he does not, thenhe is not an owner, but merely the current user or possessor, <strong>in</strong> amight-makes-right world <strong>in</strong> which there is no such th<strong>in</strong>g as ownership—whichcontradicts the presuppositions <strong>of</strong> the <strong>in</strong>quiryitself. If the first owner does not have a better claim than latecomers,then he is not an owner, but merely a possessor, and there isno such th<strong>in</strong>g as ownership. More generally, latecomers’ claimsare <strong>in</strong>ferior to those <strong>of</strong> prior possessors or claimants, who eitherregard<strong>in</strong>g abandonment and adverse possession. See, e.g., Louisiana CivilCode, Art. 481 (“The ownership and the possession <strong>of</strong> a th<strong>in</strong>g are dist<strong>in</strong>ct. . . .Ownership exists <strong>in</strong>dependently <strong>of</strong> any exercise <strong>of</strong> it and may not be lost bynonuse. Ownership is lost when acquisitive prescription accrues <strong>in</strong> favor <strong>of</strong> anadverse possessor”; emphasis added). Carson is wrong to imply that abandonmentand adverse possession rules can yield a work<strong>in</strong>g (or use or occupancy)requirement for ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g ownership. In fact, these are dist<strong>in</strong>ct and<strong>in</strong>dependent legal doctr<strong>in</strong>es. Thus, when a factory owner contractually allowsworkers to use it, or a landlord permits tenants to live <strong>in</strong> an apartment, thereis no question that the owner does not <strong>in</strong>tend to abandon the property, and thereis no adverse possession (and if there were, the owner could <strong>in</strong>stitute theappropriate action to eject them and rega<strong>in</strong> possession; see Yiannopoulos,Property, §§ 255, 261, 263–66, 332–33, 335 et pass.; Louisiana Code <strong>of</strong> Civil Procedure(http://t<strong>in</strong>yurl.com/lacodecivproc), Arts. 3651, 3653 & 3655; LouisianaCivil Code, Arts. 526 & 531). There is no need for “default” rules here to resolvean ambiguous situation. (For another critique <strong>of</strong> Carson, see Roderick T.Long, “Land-Locked: A Critique <strong>of</strong> Carson on Property Rights,” Journal <strong>of</strong> LibertarianStudies 20, no. 1 (W<strong>in</strong>ter 2006): 87–95.)A f<strong>in</strong>al note here: I cite positive law here not as an argument from authority,but as an illustration that even the positive law carefully dist<strong>in</strong>guishesbetween possession and ownership; and also between a use or work<strong>in</strong>grequirement to ma<strong>in</strong>ta<strong>in</strong> ownership, and the potential to lose title by abandonmentor adverse possession, to illustrate the flaws <strong>in</strong> Carson’s view thatan occupancy requirement is just one variant <strong>of</strong> adverse possession or defaultabandonment rules. Furthermore, the civilian legal rules cited derive fromlegal pr<strong>in</strong>ciples developed over the ages <strong>in</strong> largely decentralized fashion, andcan thus be useful <strong>in</strong> our own libertarian efforts to develop concrete applications<strong>of</strong> abstract libertarian pr<strong>in</strong>ciples. See <strong>Stephan</strong> K<strong>in</strong>sella, “Legislation andthe Discovery <strong>of</strong> Law <strong>in</strong> a Free Society,” Journal <strong>of</strong> Libertarian Studies 11, no. 2(Summer 1995): 132–81; also idem, “Knowledge, Calculation, Conflict, andLaw,” pp. 60–63 (discuss<strong>in</strong>g Randy Barnett’s views on the dist<strong>in</strong>ction betweenabstract legal rights and more concrete rules that serve as guides to action).24 See K<strong>in</strong>sella, “Thoughts on the Latecomer and Homestead<strong>in</strong>g Ideas.”
192 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>homesteaded the resource or who can trace their title back to thehomesteader or earlier owner. 25 The crucial importance <strong>of</strong> theprior-later dist<strong>in</strong>ction to libertarian theory is why Pr<strong>of</strong>essor <strong>Hoppe</strong>repeatedly emphasizes it <strong>in</strong> his writ<strong>in</strong>g. 2625 See Louisiana Code <strong>of</strong> Civil Procedure, Art. 3653, provid<strong>in</strong>g:To obta<strong>in</strong> a judgment recogniz<strong>in</strong>g his ownership <strong>of</strong> immovable property. . ., the pla<strong>in</strong>tiff . . . shall:(1) Prove that he has acquired ownership from a previous owner orby acquisitive prescription, if the court f<strong>in</strong>ds that the defendant is<strong>in</strong> possession there<strong>of</strong>; or(2) Prove a better title thereto than the defendant, if the court f<strong>in</strong>dsthat the latter is not <strong>in</strong> possession there<strong>of</strong>.When the titles <strong>of</strong> the parties are traced to a common author, he is presumedto be the previous owner.See also Louisiana Civil Code, Arts. 526, 531–32; Yiannopoulos, Property, §§255–79 & 347 et pass.26 See, e.g., <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism, pp. 141 –44; idem,The Economics and Ethics <strong>of</strong> Private Property: Studies <strong>in</strong> Political Economy and Philosophy(Boston: Kluwer, 1993), pp. 191–93; see also discussion <strong>of</strong> these andrelated matters <strong>in</strong> <strong>in</strong> K<strong>in</strong>sella, “Thoughts on the Latecomer and Homestead<strong>in</strong>gIdeas”; idem, “Defend<strong>in</strong>g Argumentation Ethics”; and idem, “HowWe Come To Own Ourselves.” See also, <strong>in</strong> this connection, Anthony de Jasay,Aga<strong>in</strong>st Politics, further discussed and quoted <strong>in</strong> K<strong>in</strong>sella, “Thoughts on theLatecomer and Homestead<strong>in</strong>g Ideas,” as well as <strong>in</strong> K<strong>in</strong>sella, “Book Review <strong>of</strong>Anthony de Jasay, Aga<strong>in</strong>st Politics.” See also de Jasay’s argument (note 17,above) that s<strong>in</strong>ce an appropriated th<strong>in</strong>g has no other owner, prima facie no oneis entitled to object to the first possessor claim<strong>in</strong>g ownership. De Jasay’s “letexclusion stand” idea, along with the <strong>Hoppe</strong>an emphasis on the prior-laterdist<strong>in</strong>ction, sheds light on the nature <strong>of</strong> homestead<strong>in</strong>g itself. Often the questionis asked as to what types <strong>of</strong> acts constitute or are sufficient for homestead<strong>in</strong>g(or “emborder<strong>in</strong>g” as <strong>Hoppe</strong> sometimes refers to it); what type <strong>of</strong>“labor” must be “mixed with” a th<strong>in</strong>g; and to what property does the homestead<strong>in</strong>gextend? What “counts” as “sufficient” homestead<strong>in</strong>g? We can seethat the answer to these questions is related to the issue <strong>of</strong> what is the th<strong>in</strong>g<strong>in</strong> dispute. In other words, if B claims ownership <strong>of</strong> a th<strong>in</strong>g possessed (or formerlypossessed) by A, then the very fram<strong>in</strong>g <strong>of</strong> the dispute helps to identifywhat the th<strong>in</strong>g is <strong>in</strong> dispute, and what counts as possession <strong>of</strong> it. If B claimsownership <strong>of</strong> a given resource, he wants the right to control it, to a certa<strong>in</strong>extent, and accord<strong>in</strong>g to its nature. Then the question becomes, did someone
K<strong>in</strong>sella: What Libertarianism Is — 193Thus, the libertarian position on property rights is that, <strong>in</strong> orderto permit conflict-free, productive use <strong>of</strong> scarce resources, propertytitles to particular resources are assigned to particular owners.As noted above, however, the title assignment must not be random,arbitrary, or particularistic; <strong>in</strong>stead, it has to be assignedbased on “the existence <strong>of</strong> an objective, <strong>in</strong>tersubjectively ascerta<strong>in</strong>ablel<strong>in</strong>k between owner and the” resource claimed. 27 As can beseen from the considerations presented above, the l<strong>in</strong>k is the physicaltransformation or emborder<strong>in</strong>g <strong>of</strong> the orig<strong>in</strong>al homesteader, ora cha<strong>in</strong> <strong>of</strong> title traceable by contract back to him. 28CONSISTENCY AND PRINCIPLENot only libertarians are civilized. Most people give some weightto some <strong>of</strong> the above considerations. In their eyes, a person is theowner <strong>of</strong> his own body—usually. A homesteader owns the resourcehe appropriates—unless the state takes it from him “by operation <strong>of</strong>law.” 29 This is the pr<strong>in</strong>cipal dist<strong>in</strong>ction between libertarians andelse previously control “it” (whatever is <strong>in</strong> dispute), accord<strong>in</strong>g to its nature;i.e., did someone else already homestead it, so that B is only a latecomer? Thisties <strong>in</strong> with de Jasay’s “let exclusion stand” pr<strong>in</strong>ciple, which rests on the ideathat if someone is actually able to control a resource such that others areexcluded, then this exclusion should “stand.” Of course, the physical nature<strong>of</strong> a given scarce resource and the way <strong>in</strong> which humans use such resourceswill determ<strong>in</strong>e the nature <strong>of</strong> actions needed to “control” it and exclude others.27 <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism, p. 12.28 On the title transfer theory <strong>of</strong> contract, see Williamson M. Evers,“Toward a Reformulation <strong>of</strong> the Law <strong>of</strong> Contracts,” Journal <strong>of</strong> Libertarian Studies1, no. 1 (W<strong>in</strong>ter 1977): 3–13; Rothbard, “Property Rights and the Theory <strong>of</strong>Contracts,” chap. 19 <strong>in</strong> idem, The Ethics <strong>of</strong> Liberty; K<strong>in</strong>sella, “A Theory <strong>of</strong> Contracts.”29 State laws and constitutional provisions <strong>of</strong>ten pay lip service to the existence<strong>of</strong> various personal and property rights, but then take it back by recogniz<strong>in</strong>gthe right <strong>of</strong> the state to regulate or <strong>in</strong>fr<strong>in</strong>ge the right so long as it is “bylaw” or “not arbitrary.” See, e.g., Constitution <strong>of</strong> Russia, Art. 25 (“The homeshall be <strong>in</strong>violable. No one shall have the right to get <strong>in</strong>to a house aga<strong>in</strong>st thewill <strong>of</strong> those liv<strong>in</strong>g there, except for the cases established by a federal law orby court decision”) and Art. 34 (“Everyone shall have the right to freely usehis or her abilities and property for entrepreneurial or any other economicactivity not prohibited by the law”); Constitution <strong>of</strong> Estonia, Art. 31 (“Estonian
194 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>non-libertarians: libertarians are consistently opposed to aggression,def<strong>in</strong>ed <strong>in</strong> terms <strong>of</strong> <strong>in</strong>vasion <strong>of</strong> property borders, whereproperty rights are understood to be assigned on the basis <strong>of</strong> selfownership,<strong>in</strong> the case <strong>of</strong> bodies; and on the basis <strong>of</strong> prior possessionor homestead<strong>in</strong>g and contractual transfer <strong>of</strong> title, <strong>in</strong> the case<strong>of</strong> other th<strong>in</strong>gs.This framework for rights is motivated by the libertarian’s consistentand pr<strong>in</strong>cipled valu<strong>in</strong>g <strong>of</strong> peaceful <strong>in</strong>teraction and cooperation—<strong>in</strong>short, <strong>of</strong> civilized behavior. A parallel to the Misesianview <strong>of</strong> human action may be illum<strong>in</strong>at<strong>in</strong>g here. Accord<strong>in</strong>g toMises, human action is aimed at alleviat<strong>in</strong>g some felt uneas<strong>in</strong>ess. 30Thus, means are employed, accord<strong>in</strong>g to the actor’s understand<strong>in</strong>g<strong>of</strong> causal laws, to achieve various ends—ultimately, the removal <strong>of</strong>some felt uneas<strong>in</strong>ess.Civilized man feels uneasy at the prospect <strong>of</strong> violent struggleswith others. On the one hand, he wants, for some practical reason,to control a given scarce resource and to use violence aga<strong>in</strong>stanother person, if necessary, to achieve this control. On the otherhand, he also wants to avoid a wrongful use <strong>of</strong> force. Civilizedman, for some reason, feels reluctance, uneas<strong>in</strong>ess, at theprospect <strong>of</strong> violent <strong>in</strong>teraction with his fellow man. Perhaps hehas reluctance to violently clash with others over certa<strong>in</strong> objectsbecause he has empathy with them. 31 Perhaps the <strong>in</strong>st<strong>in</strong>ct to cooperatehas is a result <strong>of</strong> social evolution. As Mises noted,citizens shall have the right to engage <strong>in</strong> commercial activities and to formpr<strong>of</strong>it-mak<strong>in</strong>g associations and leagues. The law may determ<strong>in</strong>e conditionsand procedures for the exercise <strong>of</strong> this right”); Universal Declaration <strong>of</strong> HumanRights, Art. 17 (“Everyone has the right to own property alone as well as <strong>in</strong>association with others. . . . No one shall be arbitrarily deprived <strong>of</strong> his property”);Art. 29(2) (“In the exercise <strong>of</strong> his rights and freedoms, everyone shallbe subject only to such limitations as are determ<strong>in</strong>ed by law solely for the purpose<strong>of</strong> secur<strong>in</strong>g due recognition and respect for the rights and freedoms <strong>of</strong>others and <strong>of</strong> meet<strong>in</strong>g the just requirements <strong>of</strong> morality, public order and thegeneral welfare <strong>in</strong> a democratic society”).30 Ludwig von Mises, Human Action, 4th ed. (Irv<strong>in</strong>gton-on-Hudson, N.Y.:Foundation for Economic Education, 1996), pp. 13–14, et pass.31 For further discussion <strong>of</strong> the role <strong>of</strong> empathy <strong>in</strong> the adoption <strong>of</strong> libertariangrundnorms, see note 14, above.
K<strong>in</strong>sella: What Libertarianism Is — 195There are people whose only aim is to improve the condition<strong>of</strong> their own ego. There are other people withwhom awareness <strong>of</strong> the troubles <strong>of</strong> their fellow mencauses as much uneas<strong>in</strong>ess as or even more uneas<strong>in</strong>essthan their own wants. 32Whatever the reason, because <strong>of</strong> this uneas<strong>in</strong>ess, when there isthe potential for violent conflict, the civilized man seeks justificationfor the forceful control <strong>of</strong> a scarce resource which he desiresbut which some other person opposes. Empathy—or whateverspurs man to adopt the libertarian grundnorms—gives rise to a certa<strong>in</strong>form <strong>of</strong> uneas<strong>in</strong>ess, which gives rise to ethical action. Civilizedman may be def<strong>in</strong>ed as he who seeks justification for the use <strong>of</strong><strong>in</strong>terpersonal violence. When the <strong>in</strong>evitable need to engage <strong>in</strong> violencearises—for defense <strong>of</strong> life or property—civilized man seeksjustification. Naturally, s<strong>in</strong>ce this justification-seek<strong>in</strong>g is done bypeople who are <strong>in</strong>cl<strong>in</strong>ed to reason and peace (justification is afterall a peaceful activity that necessarily takes place dur<strong>in</strong>g discourse),33 what they seek are rules that are fair, potentially acceptableto all, grounded <strong>in</strong> the nature <strong>of</strong> th<strong>in</strong>gs, universalizable, andthat permit conflict-free use <strong>of</strong> resources. Libertarian propertyrights pr<strong>in</strong>ciples emerge as the only candidate that satisfies thesecriteria. Thus, if civilized man is he who seeks justification for theuse <strong>of</strong> violence, the libertarian is he who is serious about thisendeavor. He has a deep, pr<strong>in</strong>cipled, <strong>in</strong>nate opposition to violence,and an equally deep commitment to peace and cooperation.For the forego<strong>in</strong>g reasons, libertarianism may be said to be thepolitical philosophy that consistently favors social rules aimed atpromot<strong>in</strong>g peace, prosperity, and cooperation. It recognizes thatthe only rules that satisfy the civilized grundnorms are the selfownershippr<strong>in</strong>ciple and the Lockean homestead<strong>in</strong>g pr<strong>in</strong>ciple,applied as consistently as possible.32 Ibid, p. 14.33 As <strong>Hoppe</strong> expla<strong>in</strong>s, “Justification—pro<strong>of</strong>, conjecture, refutation—isargumentative justification.” <strong>Hoppe</strong>, The Economics and Ethics <strong>of</strong> Private Property,p. 384; also ibid, p. 413, and also <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism,p. 130 et pass.
196 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>And as I have argued elsewhere, because the state necessarilycommits aggression, the consistent libertarian, <strong>in</strong> oppos<strong>in</strong>g aggression,is also an anarchist. 34 34 See <strong>Stephan</strong> K<strong>in</strong>sella, “What it Means to be an Anarcho-Capitalist,”LewRockwell.com (Jan. 20, 2004); also Jan Narveson, “The Anarchist’s Case,” <strong>in</strong>Respect<strong>in</strong>g Persons <strong>in</strong> Theory and Practice (Lanham, Md.: Rowman & Littlefield,2002).
21Classical Natural Law andLibertarian TheoryCarlo LottieriNATURAL RIGHTS AND LIVING LAW:TOWARD AN INTEGRATION OF ROTHBARD AND LEONIIf libertarianism wishes to give up modern political categories,it has to th<strong>in</strong>k about law <strong>in</strong> a different way.Murray N. Rothbard, the most important exponent <strong>of</strong> theradical libertarian school, is right when he rejects the historicismand relativism <strong>of</strong> legal realism and when—for the same reasons—hecriticizes Hayek and Leoni. But unfortunately, he doesnot really grasp the function <strong>of</strong> the evolution <strong>in</strong>to classic naturallaw. Furthermore, his idea <strong>of</strong> build<strong>in</strong>g a libertarian code is completely<strong>in</strong>consistent with his frequent references to the Greek andChristian legal heritage. 1 197Carlo Lottieri (lottieri@tiscal<strong>in</strong>et.it) is an Italian political philosopher with theUniversity <strong>of</strong> Siena and Istituto Bruno Leoni whose ma<strong>in</strong> <strong>in</strong>terests are <strong>in</strong> contemporarylibertarian thought. Most recently he edited an anthology <strong>of</strong> writ<strong>in</strong>gsby Bruno Leoni, Law, Liberty and the Competitive Market (New Brunswick,N.J.: Transaction, 2009).1 The notion <strong>of</strong> code—<strong>in</strong> despotic Prussia as well as <strong>in</strong> Napoleonic France—was connected to the needs <strong>of</strong> a sovereign power oriented to absorb<strong>in</strong>g thelegal order and chang<strong>in</strong>g any norm <strong>in</strong> a simple political decision.
198 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>In For a New Liberty, Rothbard po<strong>in</strong>ts out that the history <strong>of</strong> achang<strong>in</strong>g and evolv<strong>in</strong>g law can be useful <strong>in</strong> order to f<strong>in</strong>d just rules:“s<strong>in</strong>ce we have a body <strong>of</strong> common law pr<strong>in</strong>ciples to draw on, however,the task <strong>of</strong> reason <strong>in</strong> correct<strong>in</strong>g and amend<strong>in</strong>g the commonlaw would be far easier than try<strong>in</strong>g to construct a body <strong>of</strong> systematiclegal pr<strong>in</strong>ciples de novo out <strong>of</strong> the th<strong>in</strong> air.” 2 But the relationshipbetween common law and natural law must be seen differently.Common law is not only an <strong>in</strong>terest<strong>in</strong>g tool for discover<strong>in</strong>gnatural law: it has its specific role. Positive law needs to <strong>in</strong>teractwith natural law pr<strong>in</strong>ciples, but even the latter cannot be consideredas self-sufficient.Moreover, <strong>in</strong> his defense <strong>of</strong> rationality, Rothbard does not realizethat law cannot be entirely read <strong>in</strong>to the praxeological framework,which is axiomatic and deductive. The division <strong>of</strong> theoryand history puts some discipl<strong>in</strong>es <strong>in</strong>to opposition with others, butabove all it makes a dist<strong>in</strong>ction with<strong>in</strong> any s<strong>in</strong>gle field <strong>of</strong> study.Economics, for <strong>in</strong>stance, is a theoretical science if considered aspolitical economics, but a historical and empiric activity if it analyzeswhat happened <strong>in</strong> the past. 3 This is also true for legal studies,because they have a theoretical part but, at the same time,<strong>in</strong>clude many other aspects which are, on the contrary, historicaland cannot be exam<strong>in</strong>ed us<strong>in</strong>g logical and a priori methods.In his methodological writ<strong>in</strong>gs, Rothbard dist<strong>in</strong>guishes betweenempiricism and experience, and remarks that the refusal <strong>of</strong> the firstdoes not imply a devaluation <strong>of</strong> the second. When he criticizesMises for his Kantian approach, he f<strong>in</strong>ds <strong>in</strong> human experienceexactly the ma<strong>in</strong> source <strong>of</strong> the axioms, the fundamental truths thatare the start<strong>in</strong>g po<strong>in</strong>t <strong>of</strong> a theory based on deductive logic. 4 But2 Murray N. Rothbard, For a New Liberty: The Libertarian Manifesto (Lanham,Maryland: University Press <strong>of</strong> America, 1973), p. 318.3 See Ludwig von Mises, Theory and History (Auburn, Ala.: Mises Institute,1985).4 See Murray N. Rothbard “In Defense <strong>of</strong> ‘Extreme Apriorism’,” The Logic<strong>of</strong> Action One (London: Edward Elgar, 1997), pp. 100–08. Exactly <strong>in</strong> this senseLarry Sechrest outl<strong>in</strong>es that a “careful exam<strong>in</strong>ation <strong>of</strong> Austrian thought willreveal that the praxeological method itself is fundamentally empirical.” SeeLarry J. Sechrest, “Praxeology, Economics, and Law: Issues and Implications,”
Lottieri: Classical Natural Law and Libertarian Theory — 199before the law, Rothbard seems to m<strong>in</strong>imize the contextual andnon-theoretical dimension <strong>of</strong> a large part <strong>of</strong> legal controversiesand especially <strong>of</strong> positive law.Us<strong>in</strong>g the Thomist framework, <strong>in</strong> this essay I will emphasizethe importance <strong>of</strong> the lex naturalis, at the same time highlight<strong>in</strong>g alex humana deeply rooted <strong>in</strong> the complexity <strong>of</strong> different ages andsocieties, related to the subjectivity and specificity <strong>of</strong> op<strong>in</strong>ionswhich cannot be fruitfully exam<strong>in</strong>ed by a praxeological approach.Many problems, and even some <strong>in</strong>consistencies <strong>of</strong> Rothbardiantheory are a consequence <strong>of</strong> it.Moreover, the way Rothbard deals with the arguments <strong>of</strong>causality and liability shows an <strong>in</strong>adequate understand<strong>in</strong>g <strong>of</strong> theanthropology <strong>of</strong> the Austrian School, which moves from a study <strong>of</strong>human action (<strong>in</strong>tentional and rational) and not by a simple behavioristanalysis.In <strong>in</strong>tegrat<strong>in</strong>g Rothbardian libertarianism with positive law, animportant contribution comes from Bruno Leoni, who <strong>in</strong> Freedomand the Law and other writ<strong>in</strong>gs developed an orig<strong>in</strong>al contributionto classical liberalism. The Italian scholar can help to improvesome parts <strong>of</strong> Rothbard’s libertarian theory <strong>of</strong> law. If the author <strong>of</strong>The Ethics <strong>of</strong> Liberty is much more grounded <strong>in</strong> natural law andeven less naïve before Wertfreiheit, 5 Leoni can correct some limits<strong>of</strong> the Rothbardian approach and its <strong>in</strong>capacity to perceive thespecificity <strong>of</strong> law: a practical and largely empirical science, historicallysituated and essentially oriented to f<strong>in</strong>d<strong>in</strong>g reasonable solutionsfor very specific cases.Quarterly Journal <strong>of</strong> Austrian Economics 7, no. 4 (W<strong>in</strong>ter 2004): 22. In the Aristotelian-Thomisttradition, experience is a source <strong>of</strong> knowledge: we meet theworld (which is common to all us) and we have experiences with a mean<strong>in</strong>g.Rothbard shares this perspective when he dist<strong>in</strong>guishes his position and that<strong>of</strong> Mises. For this reason, Sechrest opposes <strong>Hoppe</strong> (and Mises) because <strong>of</strong>their Kantianism and shares the Rothbardian perspective, embrac<strong>in</strong>g the project<strong>of</strong> “posit<strong>in</strong>g an empirical base for the Austrian School.” Ibid., p. 23.5 See, <strong>in</strong> particular, Murray N. Rothbard, “The Symposium on Relativism:A Critique,” 1960, memo conserved <strong>in</strong> the Ludwig von Mises Archives, now<strong>in</strong> Murray N. Rothbard, Diritto, natura e ragione. Scritti <strong>in</strong>editi versus Hayek,Mises, Strauss e Polanyi, Roberta Modugno, ed. (Soveria Mannelli: Rubbett<strong>in</strong>o,2005), pp. 125–45.
200 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>If philosophy <strong>of</strong> law has to <strong>in</strong>vestigate the eternal andimmutable pr<strong>in</strong>ciples <strong>of</strong> justice, juridical scholarship must f<strong>in</strong>d thebest translation <strong>of</strong> these for the specific problems <strong>of</strong> a society. Forthis reason, tak<strong>in</strong>g Leoni seriously means imag<strong>in</strong><strong>in</strong>g a meet<strong>in</strong>gpo<strong>in</strong>t <strong>of</strong> natural law doctr<strong>in</strong>e and the requirements <strong>of</strong> a positivelaw as a reality <strong>in</strong> evolution. And, it implies an effort to transfer<strong>in</strong>to the legal context the Misesian methodology and its radicalseparation <strong>of</strong> theory and history: the sphere <strong>of</strong> axiomatic anddeductive studies (praxeology) and the sphere <strong>of</strong> research based onexperience (history).We have to remember that specific attention to the historicaland evolv<strong>in</strong>g features <strong>of</strong> legal orders has been a crucial element <strong>of</strong>the Austrian School s<strong>in</strong>ce its orig<strong>in</strong>s. In his Investigations <strong>in</strong>to theMethod <strong>of</strong> the Social Sciences, Carl Menger praises the HistoricalSchool <strong>of</strong> Jurisprudence (Gustav Hugo, Friedrich Carl von Savigny,Barthold Georg Niebuhr), whose orig<strong>in</strong>s he dated back toEdmund Burke. Menger also highlights the <strong>in</strong>dividualistic content<strong>of</strong> evolutionary law with the goal <strong>of</strong> help<strong>in</strong>g the classical liberaltradition to rediscover its lost roots: “law, like language, is (at leastorig<strong>in</strong>ally) not the product <strong>in</strong> general <strong>of</strong> an activity <strong>of</strong> publicauthorities aimed at produc<strong>in</strong>g it, nor <strong>in</strong> particular is it the product<strong>of</strong> positive legislation. It is, <strong>in</strong>stead, the un<strong>in</strong>tended result <strong>of</strong> ahigher wisdom, <strong>of</strong> the historical development <strong>of</strong> the nations.” 6It is exactly <strong>in</strong> this sense that we can understand Leoni’s preferencefor evolutionary law (Anglo-Saxon law and Roman juscivile): a law not oriented to preserve tradition or spontaneousorder per se. On the contrary, Leoni th<strong>in</strong>ks that a polycentric andevolutionary order is <strong>in</strong> a better position to safeguard <strong>in</strong>dividualrights. Rules that emerge from the <strong>in</strong>terpersonal exchange <strong>of</strong>claims are tools that can effectively protect society from the rulers.As student <strong>of</strong> English legal history, Leoni shows a strong <strong>in</strong>terest<strong>in</strong> the common law <strong>of</strong> nature that was at the heart <strong>of</strong> EdwardCoke’s perspective. In fact, <strong>in</strong> that theory law does not express ananti-rationalist attitude, but on the contrary, embodies natural reasonemerg<strong>in</strong>g <strong>in</strong> an evolutionary way. This legal culture is6 Carl Menger, Investigations <strong>in</strong>to the Method <strong>of</strong> the Social Sciences, Francis J.Nock, trans. (New York: New York University Press, 1985), pp. 174–75.
Lottieri: Classical Natural Law and Libertarian Theory — 201improved by various contributions (practical, pragmatic, pr<strong>of</strong>essional)<strong>of</strong> many people. In this way, law is the consequence <strong>of</strong> ahuman activity oriented towards better<strong>in</strong>g reality us<strong>in</strong>g <strong>in</strong>telligenceand experience.Criticiz<strong>in</strong>g modern legal systems, Leoni remarks thatthere is far more legislation, there are far more groupdecisions, far more rigid choices, and far fewer “lawswritten <strong>in</strong> liv<strong>in</strong>g tables,” far fewer <strong>in</strong>dividual decisions,far fewer free choices <strong>in</strong> all contemporary political systemsthat would be necessary <strong>in</strong> order to preserve <strong>in</strong>dividualfreedom <strong>of</strong> choice. 7Even if he never adhered to a consistent natural law theory, Leonitried a sort <strong>of</strong> reconciliation <strong>of</strong> natural law and legal realism (positivelaw rightly understood), explor<strong>in</strong>g the possibility <strong>of</strong> conjugat<strong>in</strong>gthe flexibility <strong>of</strong> ancient common law and the just pr<strong>in</strong>ciples<strong>of</strong> a universal moral theory.Leoni had a strong <strong>in</strong>terest <strong>in</strong> the exploration <strong>of</strong> the libertarianpotentialities <strong>of</strong> a similar perspective. In his writ<strong>in</strong>gs, there aremany elements <strong>of</strong> a radical libertarianism refus<strong>in</strong>g any coercion.When some participants <strong>of</strong> the Claremont sem<strong>in</strong>ar about Freedomand the Law asked him who should choose the judges <strong>in</strong> a free society,he answered: “it is rather immaterial to establish <strong>in</strong> advancewho will appo<strong>in</strong>t the judges, for, <strong>in</strong> a sense, everybody could doso, as happens to a certa<strong>in</strong> extent when people resort to privatearbiters to settle their own quarrels.” 8 In his op<strong>in</strong>ion, the contemporary,statist system should disappear, leav<strong>in</strong>g room for a competitiveorder <strong>of</strong> private courts. The convergence <strong>of</strong> Leoni andRothbard is evident on many levels, because both imag<strong>in</strong>e the end<strong>of</strong> the state monopoly on justice and security, with the purpose <strong>of</strong>open<strong>in</strong>g the road to an <strong>in</strong>stitutional competition between people <strong>in</strong>charge to avoid crim<strong>in</strong>al behaviors. 97 Bruno Leoni, Freedom and the Law, 3rd ed. (Indianapolis: Liberty Fund,1991), p. 131; my italics.8 Ibid., p. 129.9 The notion <strong>of</strong> polycentric order—as it has been formulated by MichaelPolanyi—can be useful to appreciate the complexity <strong>of</strong> a system based on
202 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>It is also for this reason that Rothbardian libertarian theory canf<strong>in</strong>d <strong>in</strong> Leoni and, above all, <strong>in</strong> his understand<strong>in</strong>g <strong>of</strong> law, the wayto overcome its theoretical and practical difficulties.FROM PRAXEOLOGY TO THYMOLOGY:THE ROLE OF POSITIVE LAWIn its daily development, law refers back to pr<strong>in</strong>ciples, but atthe same time it concerns modest but not negligible disputes.Legal reason<strong>in</strong>g lives essentially <strong>in</strong> this pragmatic context and itleaves the specific topics <strong>of</strong> natural law <strong>in</strong> the background.In Mises’s thought, there is a notion that is extremely useful <strong>in</strong>help<strong>in</strong>g us grasp the relationship between theory and practice <strong>in</strong>the law. In fact, <strong>in</strong> Theory and History, he opposes praxeology tothymology, which is <strong>in</strong> close relationship with history. 10 Thymologyis a branch <strong>of</strong> history and “derives its knowledge from historicalexperience.” 11 It stands for that set <strong>of</strong> empirical knowledge <strong>of</strong>psychological, sociological and even factual character that we useto f<strong>in</strong>d our way <strong>in</strong> relationships with other people. This “literarypsychology” is the condition <strong>of</strong> a rational behavior: “for lack <strong>of</strong>any better tool, we must take recourse to thymology if we want toanticipate other people’s future attitudes and actions.” 12When Leoni returns to the legal realism tradition (to the law <strong>in</strong>action that Roscoe Pound opposes to the law <strong>in</strong> books) and remarkson a correspondence between positive law and what is foreseeablechecks and balances and operat<strong>in</strong>g without a written constitution imposed byan authority. Polanyi po<strong>in</strong>ts out that the <strong>in</strong>visible hand push<strong>in</strong>g towards afree-market order is not so different from the forces def<strong>in</strong><strong>in</strong>g common law andscientific research. The progress <strong>of</strong> knowledge is grounded on the pr<strong>in</strong>ciplesthat “every proposed addition to the body <strong>of</strong> science is subjected to a regularprocess <strong>of</strong> scrut<strong>in</strong>y.” We f<strong>in</strong>d a similar logic <strong>in</strong> the legal order, because commonlaw “constitutes a sequence <strong>of</strong> adjustments between succeed<strong>in</strong>g judges,guided by a parallel <strong>in</strong>teraction between the judges and the general public.”Michael Polanyi, The Logic <strong>of</strong> Liberty (Chicago: University <strong>of</strong> Chicago Press,1980), pp. 163, 162.10 Follow<strong>in</strong>g Mises, “thymology is a historical discipl<strong>in</strong>e.” Mises, Theoryand History, p. 313.11 Ibid., p. 272.12 Ibid., p. 313.
Lottieri: Classical Natural Law and Libertarian Theory — 203(<strong>of</strong>ten us<strong>in</strong>g the formula id quod plerumque accidit), 13 he highlightsthat the positive law is always <strong>in</strong>telligible <strong>in</strong> a thymologic perspective.In his explicit purpose <strong>of</strong> apply<strong>in</strong>g Misesian methodologyto law, Leoni discovers a praxeological dimension (the mosttheoretical part, co<strong>in</strong>cid<strong>in</strong>g with the analysis <strong>of</strong> the <strong>in</strong>dividualclaims and their <strong>in</strong>teraction), but also another thymological dimension(entirely depend<strong>in</strong>g on experience, common op<strong>in</strong>ions and traditions).His idea is that positive law has a strong relationship with customs.As practical activity, law must reduce uncerta<strong>in</strong>ty: it is forthis reason that a creditor’s claim is legal, because generally adebtor pays back what he has received, while the thief’s claim isillegal, because generally people do not steal. The probabilisticanalysis is purely empirical, but it is not unreasonable. Our behavioris led very <strong>of</strong>ten by the rationality <strong>of</strong> our past experiences andby our prejudices.In this sense, Leonian theory <strong>of</strong> the <strong>in</strong>dividual claim is at thesame time praxeological and thymological.It is praxeological because it draws <strong>in</strong> a deductive way the theoreticalconditions <strong>of</strong> the exchange and the meet<strong>in</strong>g <strong>of</strong> different<strong>in</strong>dividual claims. When, <strong>in</strong> his writ<strong>in</strong>gs, he opposes the po<strong>in</strong>t <strong>of</strong>view <strong>of</strong> the legal pr<strong>of</strong>essionals (mov<strong>in</strong>g from the norms) and theperspective <strong>of</strong> the philosophers (<strong>in</strong>terested <strong>in</strong> the orig<strong>in</strong> <strong>of</strong> therules), his aim is to reject the positivism prevalent <strong>in</strong> legal theory.He has the project <strong>of</strong> grasp<strong>in</strong>g the a priori categories—à laRe<strong>in</strong>ach—subtend<strong>in</strong>g all legal orders. When he f<strong>in</strong>ds <strong>in</strong> the <strong>in</strong>dividualclaim the start<strong>in</strong>g po<strong>in</strong>t <strong>of</strong> a juridical relation, Leoni th<strong>in</strong>kshe has understood a universal datum: his “demand and supplylaw.” If prices emerge from the meet<strong>in</strong>g <strong>of</strong> the actions <strong>of</strong> peoplesupply<strong>in</strong>g and demand<strong>in</strong>g, the norms are the effect <strong>of</strong> the <strong>in</strong>teraction<strong>of</strong> different claims. This is a universal regularity and, on thisground, he also develops his theoretical (praxeological) remarksabout the relationship between legislation and liv<strong>in</strong>g law, certa<strong>in</strong>tyand law, and so on.But—as <strong>in</strong> Mises—this positive evaluation <strong>of</strong> praxeology doesnot imply a negative op<strong>in</strong>ion <strong>of</strong> history or <strong>of</strong> the competence <strong>of</strong>13 Translation: “what usually happens.”
204 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>lawyers. On the contrary, Leoni has the ambition <strong>of</strong> describ<strong>in</strong>g thedist<strong>in</strong>ct but connected roles <strong>of</strong> every sphere.For this reason, his theory is largely thymological when heremarks that, if it is true—as Mises says—that “thymology tells nomore than that man is driven by various <strong>in</strong>nate <strong>in</strong>st<strong>in</strong>cts, variouspassions, and various ideas,” 14 then it is evident that norms areaccepted when they satisfy the claims, the pr<strong>in</strong>ciples and thedesires largely shared <strong>in</strong> a specific society; and the law pr<strong>of</strong>essionalsare exactly well-<strong>in</strong>formed about this peculiar and “local” environment.When Leoni emphasizes the qualities <strong>of</strong> the ius civile andthe ancient common law, he aims to highlight the role <strong>of</strong> thelawyers and <strong>of</strong> all the people engaged <strong>in</strong> the solution to specificand concrete disputes.Positive Law and HistoryThis is a very important po<strong>in</strong>t <strong>in</strong> a large part <strong>of</strong> the philosophicaltradition. The ma<strong>in</strong> Greek and medieval th<strong>in</strong>kers were clearabout the l<strong>in</strong>k between natural law (universal) and the cont<strong>in</strong>gent(historically def<strong>in</strong>ed and, lato sensu, subjective) dimension <strong>of</strong> situationsthat we can understand only <strong>in</strong> specific contexts, as result <strong>of</strong>the cross <strong>of</strong> <strong>in</strong>dividual preferences.In Aristotle, for <strong>in</strong>stance, it is clear that there are some universalpr<strong>in</strong>ciples judg<strong>in</strong>g every positive law. This passage is very outspokenat this regard:Universal law is the law <strong>of</strong> nature. For there really is, asevery one to some extent div<strong>in</strong>es, a natural justice and<strong>in</strong>justice that is b<strong>in</strong>d<strong>in</strong>g on all men, even on those whohave no association or covenant with each other. It isthis that Sophocles’s Antigone clearly means when shesays that the burial <strong>of</strong> Polyneices was a just act <strong>in</strong> spite<strong>of</strong> the prohibition: she says that it was just by nature.Not <strong>of</strong> to-day or yesterday it is,But lives eternal: none can date its birth. 1514 Mises, Theory and History, p. 313.15 Aristotle, Rhetoric, 1373b.
Lottieri: Classical Natural Law and Libertarian Theory — 205At the same time, Aristotle holds the op<strong>in</strong>ion that “there aretwo k<strong>in</strong>ds <strong>of</strong> right and wrong conduct towards others, one providedfor by written ord<strong>in</strong>ances, the other by unwritten.” In thesecond group, a class “spr<strong>in</strong>gs from exceptional goodness or badness”and it is related to honor, gratitude, friendship, and so on.But the other “makes up for the defects <strong>of</strong> a community’s writtencode <strong>of</strong> law. This is what we call equity.” This Aristotelian notion<strong>of</strong> equity is very important. And, at the same time, we have to perceivethe relationship between this idea <strong>of</strong> equity (“the sort <strong>of</strong> justicewhich goes beyond the written law”) 16 and the idea <strong>of</strong> phronesis,as prudence and practical wisdom.Equity and phronesis do not destroy the universal natural law,but they give us a way to understand how it can be possible toarrange some (difficult) situations. We can build a bridge from thenatural law and the positive law <strong>of</strong> our—imperfect—relationshipwith the others. The perception <strong>of</strong> the human limits and the complexity<strong>of</strong> the world push us to appreciate the knowledge preservedby a complex system <strong>of</strong> legal notions, as developed throughcenturies <strong>of</strong> legal history.For Aristotle, it was clear that a purely deductive methodwould not suffice to satisfy our exigencies.Aqu<strong>in</strong>as’s lesson moves <strong>in</strong> the same direction, as is clear <strong>in</strong> hisdist<strong>in</strong>guish<strong>in</strong>g between Natural Law (Lex naturalis) and HumanLaw (Lex humana). If the moral pr<strong>in</strong>ciples <strong>of</strong> natural law areunchangeable and can be rationally <strong>in</strong>vestigated by mov<strong>in</strong>g fromsome solid axioms, human law is the consequence <strong>of</strong> cultural andhistoric cont<strong>in</strong>gencies. As Summa Theologiae says, “the natural lawconta<strong>in</strong>s certa<strong>in</strong> universal precepts which are everlast<strong>in</strong>g, whereashuman law conta<strong>in</strong>s certa<strong>in</strong> particular precepts accord<strong>in</strong>g to variousemergencies.” At the same time, “noth<strong>in</strong>g can be absolutelyunchangeable <strong>in</strong> th<strong>in</strong>gs that are subject to change. And, therefore,human law cannot be altogether unchangeable.” 1716 Ibid., 1374a.17 Sa<strong>in</strong>t Thomas Aqu<strong>in</strong>as, On Law, Morality, and Politics, William P. Baumgarthand Richard J. Regan, eds. (Indianapolis-Cambridge: Hackett Publish<strong>in</strong>gCompany, 1988), p. 77.
206 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Aqu<strong>in</strong>as adds that “custom has the force <strong>of</strong> law, abolishes law,and is the <strong>in</strong>terpreter <strong>of</strong> law.” 18 He accepts customary law becauseit has the approval <strong>of</strong> <strong>in</strong>dividuals: “because, by the very fact thatthey tolerate it, they seem to approve <strong>of</strong> that which is <strong>in</strong>troducedby custom.” 19 This law that is dissolved <strong>in</strong> custom is not naturallaw, because Aqu<strong>in</strong>as does not believe we can accept a legal orderthat has historically emerged if it is aga<strong>in</strong>st justice; but historicalevolution modifies positive law and even opens room for different<strong>in</strong>terpretations. 20Law and InterpretationIn positive law, there is an essential function <strong>of</strong> <strong>in</strong>terpretation,because there is always a distance between the norm and the cases<strong>in</strong> po<strong>in</strong>t. As Giorgio Agamben expla<strong>in</strong>s, “<strong>in</strong> the case <strong>of</strong> law, theapplication <strong>of</strong> a norm is no way conta<strong>in</strong>ed with<strong>in</strong> the norm andcannot be derived from it; otherwise, there would have been theneed to create the grand edifice <strong>of</strong> trial law. Just as between languageand world, so between the norm and its application there isno external nexus that allows one to be derived immediately fromthe other.” 21What’s the mean<strong>in</strong>g <strong>of</strong> this? Us<strong>in</strong>g general rules <strong>in</strong> concrete andspecific situations always implies a decision, and (at least hypothetically)an arbitrary power. The difference between the law <strong>in</strong>the books and the law <strong>in</strong> action is largely a consequence <strong>of</strong> this.In many writ<strong>in</strong>gs, Chaïm Perelmen remarks that legal logic is:18 Ibid., p. 80.19 Ibid., p. 81. As Anthony Lysska has po<strong>in</strong>ted out, Aqu<strong>in</strong>as “was aware <strong>of</strong>cultural diversity regard<strong>in</strong>g mores.” Anthony J. Lysska, Aqu<strong>in</strong>as’s Theory <strong>of</strong>Natural Law: An Analytic Reconstruction (Oxford: Clarendon Press, 1996), p.112.20 In the latest development <strong>of</strong> his theory, Leoni <strong>in</strong>troduced an <strong>in</strong>terest<strong>in</strong>gnotion when he spoke about the a-legal claims (<strong>in</strong> Italian, pretese agiuridiche).Thus, we have not only legal and illegal claims, but also some claims not completelyaccepted today, that <strong>in</strong> the future might be considered lawful andlegitimate. See Bruno Leoni, “Appunti di filos<strong>of</strong>ia del diritto,” <strong>in</strong> Il diritto comepretesa (Macerata: Liberilibri, 2004), p. 200.21 Giorgio Agamben, State <strong>of</strong> Exception (Chicago: The University <strong>of</strong> ChicagoPress, 2005), p. 40.
Lottieri: Classical Natural Law and Libertarian Theory — 207a very elaborated, <strong>in</strong>dividual case <strong>of</strong> practical reason<strong>in</strong>g,which is not a formal demonstration, but an argumentationaim<strong>in</strong>g to persuade and conv<strong>in</strong>ce those whom itaddresses that such a choice, decision or attitude ispreferable to concurrent choices, decisions and attitudes.Perelman adds: “what characterizes an argumentation is itsnon-constra<strong>in</strong><strong>in</strong>g character.” 22 So, legal reason<strong>in</strong>g “is not presentedas a formally valid deduction from non-temporal truths,”because “reasons considered good at one period <strong>of</strong> time or <strong>in</strong> onemilieu are not <strong>in</strong> another; they are socially and culturally conditionedas are the convictions and the aspirations <strong>of</strong> the audiencethey must conv<strong>in</strong>ce.” 23In spite <strong>of</strong> his disputable skepticism, Perelman is right when hepo<strong>in</strong>ts out that positive law is a “practical” activity, because it is acase-solv<strong>in</strong>g operation and <strong>of</strong>ten emerges from a transaction <strong>of</strong> different<strong>in</strong>terests. To a large extent, law is not a science: it is a techniqueoriented to solv<strong>in</strong>g specific problems, because lawyers andjudges do not search for the truth, but only the legal truth.Law and IntentionalityIf we analyze liability and causality <strong>in</strong> Rothbard, we have torecall the fundamental pr<strong>in</strong>ciples <strong>of</strong> the Austrian tradition.In a recent article, <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> criticized his mentorand highlighted how it is contradictory to focus attention on thebirth <strong>of</strong> property (with the homestead<strong>in</strong>g <strong>of</strong> land) and then toexclude it, accept<strong>in</strong>g a strict liability theory whose positivist andbehaviorist orig<strong>in</strong>s are evident. <strong>Hoppe</strong> remarks that “homestead<strong>in</strong>gimplies <strong>in</strong>tent,” a subjective element; on the contrary,Rothbard’s theory <strong>of</strong> causation and liability ignores this aspect. 24Austrian School scholars emphasize the role <strong>of</strong> <strong>in</strong>tentionality as a22 Chaïm Perelman, Justice, Law and Argument. <strong>Essays</strong> on Moral and LegalReason<strong>in</strong>g, with an Introduction by Harold J. Berman (Dordrecht: Reidel,1980), p. 129.23 Ibid., p. 131.24 For <strong>Hoppe</strong>, <strong>in</strong> Rothbard there is “a strict liability theory.” <strong>Hans</strong>-<strong>Hermann</strong><strong>Hoppe</strong>, “Property, Causality, and Liability,” Quarterly Journal <strong>of</strong> AustrianEconomics 7, no. 4 (W<strong>in</strong>ter 2004): 88–89.
208 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>crucial element at the moment <strong>of</strong> the orig<strong>in</strong> <strong>of</strong> private property and<strong>of</strong> its negation (theft, aggression, etc.).Not all physical <strong>in</strong>vasions imply liability and, to the contrary,some actions are liable even if there is no physical <strong>in</strong>vasion. In economics,Rothbard was perfectly aware <strong>of</strong> this and was always verycritical <strong>of</strong> economic schools with positivistic lean<strong>in</strong>gs. In 1985, <strong>in</strong>the Preface to Theory and History by Mises, he attacks ma<strong>in</strong>streampositivism, remark<strong>in</strong>g that “to become truly scientific like physicsand the other natural sciences, then, economics must shun suchconcepts as purposes, goals and learn<strong>in</strong>g: it must abandon man’sm<strong>in</strong>d and write only <strong>of</strong> mere events.” 25 But the ma<strong>in</strong> mistake <strong>of</strong> theAmerican scholar is <strong>in</strong> analyz<strong>in</strong>g only simple events, avoid<strong>in</strong>g theproblem <strong>of</strong> <strong>in</strong>tentionality and subjective liability, and the consequentneed to understand a specific action—made by a particular person,<strong>in</strong> that one moment and context.<strong>Hoppe</strong> is right when he notes a contradiction <strong>in</strong> Rothbardbetween this theory <strong>of</strong> strict liability and the defense <strong>of</strong> homestead<strong>in</strong>g,which implies another vision <strong>of</strong> ethics and a differentanthropology. When Rothbard condemns as aggression the act <strong>of</strong>a man claim<strong>in</strong>g and occupy<strong>in</strong>g a land previously “homesteaded”by other people, his arguments call for a well-def<strong>in</strong>ed idea <strong>of</strong>morality that it is not consistent with that oversimplified andbehaviorist theory <strong>of</strong> causality and liability.AN ARISTOTELIAN-THOMIST LIBERTARIANISMFor all these reasons, the Thomist dist<strong>in</strong>ction between naturallaw and human law is fundamental, especially if by lex humana wedo not conceive <strong>of</strong> the state law, but our ever-imperfect translation,<strong>in</strong>to norms, <strong>of</strong> our aspiration to live <strong>in</strong> a just society. As Paul Sigmundcorrectly remarked, “human law is the application to specificcircumstances <strong>of</strong> the precepts <strong>of</strong> reason conta<strong>in</strong>ed <strong>in</strong> the naturallaw.” 26 This mediation is always unsatisfy<strong>in</strong>g, but at the same timenecessary.25 Murray N. Rothbard, “Preface” to Mises, Theory and History, p. iii.26 Paul E. Sigmund, Natural Law <strong>in</strong> Political Thought (Cambridge Mass.:W<strong>in</strong>throp, 1971), p. 39; the italics are m<strong>in</strong>e.
Lottieri: Classical Natural Law and Libertarian Theory — 209Rothbard and Perelman make the symmetrically opposite mistake,because neither admits the autonomy <strong>of</strong> natural law and positivelaw. If Perelman reduces natural law to positive law (and reasonto reasonableness), Rothbard reduces positive law to naturallaw (and reasonableness to reason). However, we have to admitthe existence <strong>of</strong> a higher and objective dimension <strong>of</strong> law (wherethe rational method <strong>of</strong> Rothbard is justified) and <strong>of</strong> a much moreprosaic and lower level, which can obta<strong>in</strong> many advantages fromthe dialogical and rhetorical approach used by Perelman.The awareness <strong>of</strong> the need to mediate between the a priori pr<strong>in</strong>ciples<strong>of</strong> natural law and a largely <strong>in</strong>ductive knowledge <strong>of</strong> thelegal experience is not always present <strong>in</strong> Rothbard. But that’s whythe <strong>in</strong>tellectual heritage <strong>of</strong> Leoni can be useful <strong>in</strong> the attempt todevelop a libertarian legal theory aim<strong>in</strong>g to protect the dignity andfreedom <strong>of</strong> the <strong>in</strong>dividual. 27If, <strong>in</strong> Rothbard, there is the risk <strong>of</strong> ignor<strong>in</strong>g the specificity <strong>of</strong>legal reason<strong>in</strong>g, Leoni remarks on the empirical features <strong>of</strong> the lawand adopts a Misesian standpo<strong>in</strong>t <strong>in</strong> putt<strong>in</strong>g <strong>in</strong>to the right perspectivehuman experience and the role it plays <strong>in</strong> the practicalunfold<strong>in</strong>g <strong>of</strong> our existence.Leoni perceives the importance <strong>of</strong> the positive law, also <strong>in</strong> a libertarianand anti-statist perspective. The vision <strong>of</strong> what is just bynature has to be rooted <strong>in</strong> a particular time, embodied <strong>in</strong> specific<strong>in</strong>stitutions and recognizable <strong>in</strong> many different situations. But theItalian th<strong>in</strong>ker was quite aware that this proposal was a return tothe old tradition <strong>of</strong> natural law. In a very <strong>in</strong>terest<strong>in</strong>g passage, hecriticizes Kelsen, say<strong>in</strong>g that sociology <strong>of</strong> law is “the modern heir<strong>of</strong> the natural law.” 28 And he specifies his idea <strong>in</strong> this way:27 In this sense, natural law has to be ever conceived <strong>in</strong> a strict relationshipwith the cont<strong>in</strong>gency <strong>of</strong> social reality. If all were governed by dest<strong>in</strong>y, therewould be no room for natural law (because its normative features implyhuman liberty). But at the same time it is true that the ever-chang<strong>in</strong>g character<strong>of</strong> social relationships forces natural law to have a specific l<strong>in</strong>k with history.28 Bruno Leoni, Lezioni di filos<strong>of</strong>ia del diritto (Soveria Mannelli: Rubbett<strong>in</strong>o,2004), p. 160.
210 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>contemporary sociology <strong>of</strong> law schools can be considered,<strong>in</strong> a limited sense, and without the derogatory featuresused by Kelsen, the “modern heirs <strong>of</strong> natural law,”exactly because they are <strong>in</strong>cl<strong>in</strong>ed to re-evaluate <strong>in</strong> “law”the element <strong>of</strong> the “persuasions” lead<strong>in</strong>g the action <strong>of</strong>people, <strong>in</strong>stead <strong>of</strong> the “legal order” conceived as dogmaticsdid. 29CONCLUSIONIn spite <strong>of</strong> his positivism, Leoni can help us grasp the truenature <strong>of</strong> classical natural law, because he does not prospect for a“libertarian code” like the one envisioned by Rothbard, somewhatconceived on the model <strong>of</strong> the state legal systems. On the contrary,Freedom and the Law can be the start<strong>in</strong>g-po<strong>in</strong>t for a more “classical”understand<strong>in</strong>g <strong>of</strong> libertarian natural law actually rooted <strong>in</strong> theAristotelian-Thomistic tradition.In other words, <strong>in</strong> Leoni there is a wide scope for juridicalresearch and for historical evolution, because <strong>of</strong> his belief <strong>in</strong> a liv<strong>in</strong>glaw <strong>in</strong> cont<strong>in</strong>uous and close <strong>in</strong>teraction with reality. The legalorder has some “essential” elements, but it changes through time,and for this reason it requires constant and challeng<strong>in</strong>g work toadjust rules and behavior.If we return to the classics, we can better understand the ma<strong>in</strong>problems.Thomist rationalism moves from the awareness <strong>of</strong> reason’s limits.Sigmund highlights exactly this when he says that “Aqu<strong>in</strong>as’ssystem <strong>of</strong> natural law is and must be <strong>in</strong>complete. He could notadmit the Aristotelian possibility that nature could provide fullyfor man’s fulfillment.” 30 Rothbard himself is not far from this whenhe po<strong>in</strong>ts out that a rational approach needs an understand<strong>in</strong>g <strong>of</strong>the structural imperfection <strong>of</strong> our m<strong>in</strong>ds: “No man is omniscient or<strong>in</strong>fallible—a law, by the way, <strong>of</strong> man’s nature.” 31 But this observationhas to have significant consequences for legal theory. 29 Bruno Leoni, “Oscurità ed <strong>in</strong>congruenze nella dottr<strong>in</strong>a kelseniana deldiritto,” <strong>in</strong> Scritti di scienza politica e teoria del diritto (Milan: Giuffrè, 1980) p. 202.30 Sigmund, Natural Law <strong>in</strong> Political Thought, p. 46.31 Murray Rothbard, The Ethics <strong>of</strong> Liberty (Atlantic Highlands, N.J.:Humanities Press, 1982), p. 11.
22Why We Have RightsChristian MichelRights are the means by which we can reasonably predicthuman behavior. Without predictability, the existence <strong>of</strong>higher life forms would be impossible. The water sourceshould be found at the end <strong>of</strong> the same track beaten eachmorn<strong>in</strong>g; berries which have always been edible should not suddenlybecome poisonous; species which have never posed a threatshould not suddenly become predatory. When humans or animalsexperience someth<strong>in</strong>g that goes directly aga<strong>in</strong>st fundamental expectations,stress and anxiety ensue, even when the consequences arenot life threaten<strong>in</strong>g. The purpose <strong>of</strong> science and <strong>of</strong> ga<strong>in</strong><strong>in</strong>g personalexperience is to establish a cha<strong>in</strong> <strong>of</strong> cause and effect with which wecan then anticipate events. We can count on the bridge to bear ourweight, the plane to defy gravity, and on drugs to cure us. Scienceboosts our sense <strong>of</strong> confidence <strong>in</strong> the world even if, through chang<strong>in</strong>gour environment, it itself, <strong>in</strong> turn, creates the unexpected.The degree <strong>of</strong> confidence we have <strong>in</strong> our predictions dim<strong>in</strong>isheswhen we are deal<strong>in</strong>g with the behavior <strong>of</strong> higher life forms. Evolutionprograms <strong>in</strong> freedom; <strong>in</strong>deed freedom is fundamental to evolution.If <strong>in</strong> flee<strong>in</strong>g, antelope always veered to the right, their predatorsChristian Michel (cmichel@cmichel.com) is a f<strong>in</strong>ancial consultant <strong>in</strong> Londonand Geneva. He is president <strong>of</strong> Libertarian International and a director <strong>of</strong> ISILand <strong>of</strong> the Libertarian Alliance.211
212 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>would have already wiped out the species. We humans are programmedto f<strong>in</strong>d <strong>in</strong>dividual and orig<strong>in</strong>al solutions to our problems;it is both the elevation and the tragedy <strong>of</strong> the human condition.NATURAL RIGHTSAnticipat<strong>in</strong>g human behavior is therefore a risky bus<strong>in</strong>ess. Weare one <strong>of</strong> many species whose members kill one another. Prey<strong>in</strong>gon our fellows is a fundamental feature <strong>of</strong> humanity that falls <strong>in</strong>todirect conflict however with another feature—man as a social animal.How can we reconcile our violent impulses with the need tolive together? Society demands that predation be checked. As agroup member, we have reasonable expectations concern<strong>in</strong>g othermembers: that they will not murder us <strong>in</strong> our sleep; that they willnot assault us when we go out at night, for <strong>in</strong>stance. These expectationsdo not only concern our person but our property as well.All human languages have a concept <strong>of</strong> a personal pronoun and agerund. These <strong>in</strong>dicate the bond that a human be<strong>in</strong>g establishesbetween herself and another, between himself and an object: notjust any man, but my friend; not just any tool, but m<strong>in</strong>e, one whichI have made, which I have used and which I can reasonably expectto use aga<strong>in</strong>. That bond is established through birth (my child),between consent<strong>in</strong>g adults (my spouse), through homestead<strong>in</strong>g(my land, which I settled before anybody else did), through transferby mutual consent (my book for which I have paid the priceasked by the seller). Who could make a stronger claim? Those whoare not the parents? Those who have not first tilled the soil? Thosewho have not paid for the book?By publicly declar<strong>in</strong>g this bond, we are count<strong>in</strong>g on others torespect it. We are count<strong>in</strong>g on reap<strong>in</strong>g the harvest from the fieldwe went to all the trouble <strong>of</strong> sow<strong>in</strong>g. This expectation is reasonableand when it is dashed, especially through the deliberate actions <strong>of</strong>other members <strong>of</strong> our society (confiscat<strong>in</strong>g an owner’s dwell<strong>in</strong>g,tak<strong>in</strong>g a child away from her mother) we feel stress, anxiety anddeep resentment.A society that placed no bounds on rape, pillage, and murderwould dis<strong>in</strong>tegrate. Its members would defect. Without these limitations,society would be impossible. It is <strong>in</strong>tr<strong>in</strong>sic to the nature<strong>of</strong> every social group that each member can rely on others not to
Michel: Why We Have Rights — 213arbitrarily rob them <strong>of</strong> their lives or their assets. Each <strong>of</strong> us reasonablydeclares this as a right. Humans are fundamentally socialanimals (there is no such th<strong>in</strong>g as a non-socialized human be<strong>in</strong>g),and it is <strong>in</strong> the nature <strong>of</strong> society for these rights to be at least partiallyrespected. This is why these are termed natural rights—notthat it is <strong>in</strong> the nature <strong>of</strong> human be<strong>in</strong>gs to have rights (I am notgo<strong>in</strong>g to open this debate), but that it is <strong>in</strong> the nature <strong>of</strong> humansocieties.These rights were not <strong>in</strong>vented by governments, as the proponents<strong>of</strong> positive rights ma<strong>in</strong>ta<strong>in</strong>, nor have they arisen on the back<strong>of</strong> noth<strong>in</strong>g more than convention. They are the very stuff <strong>of</strong> socialexistence. A ragtag bunch <strong>of</strong> shipwreck survivors dragg<strong>in</strong>g themselvesashore on a desert island would have to respect these rightsfrom the outset, simply <strong>in</strong> order to function as a social unit, evenbefore establish<strong>in</strong>g any <strong>in</strong>stitution. The purpose <strong>of</strong> politics is tocreate exceptions to rights, so that rights are no longer shared identicallyby all members <strong>of</strong> society.There are two forms <strong>of</strong> exception:Everyone is exempted from respect<strong>in</strong>g another person’srights <strong>in</strong> certa<strong>in</strong> clearly def<strong>in</strong>ed circumstances(for <strong>in</strong>stance, each <strong>of</strong> us has the right to kill ouraggressor if we are act<strong>in</strong>g <strong>in</strong> self-defense).Certa<strong>in</strong> clearly def<strong>in</strong>ed persons are exempted fromrespect<strong>in</strong>g other people’s rights <strong>in</strong> all circumstances.They are the government. The government may roband kill with impunity when they declare this transgressionto be <strong>in</strong> the name <strong>of</strong> “taxation,” “just war,”or “reasons <strong>of</strong> state.”IMPLEMENTING RIGHTSWe not only demand <strong>of</strong> people that they refra<strong>in</strong> from attack<strong>in</strong>gus, we base our own set <strong>of</strong> reasonable expectations on their behavior.Should their behavior fail to meet our expectations—we experiencedisappo<strong>in</strong>tment, stress, and anxiety; we feel wronged.A custom is a good example <strong>of</strong> a behavior that it would be reasonableto assume will be perpetuated. In many societies, custom
214 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>dictates the giv<strong>in</strong>g <strong>of</strong> gifts, for <strong>in</strong>stance, at a wedd<strong>in</strong>g. A relativefail<strong>in</strong>g to respect this custom would <strong>of</strong>fend, or at least annoy, thebride and groom. It would be appropriate to sanction this failureto comply with their reasonable expectations through a wellplacedremark or by neglect<strong>in</strong>g to <strong>in</strong>vite the <strong>of</strong>fend<strong>in</strong>g relative tothe next family occasion. By the same token, if for years a villagerhas been tak<strong>in</strong>g a shortcut across a neighbor’s field without anyopposition on the neighbor’s part, she would feel resentment anda sense <strong>of</strong> loss, should the neighbor suddenly bar her route.These expectations would have been perfectly legitimate, justas the stress and anxiety at see<strong>in</strong>g them disappo<strong>in</strong>ted is understandable.They would have been even better founded, and wouldhave become <strong>in</strong>disputable rights, had, for example, the villagersigned an agreement accord<strong>in</strong>g her the right <strong>of</strong> way across herneighbor’s field.The parties’ <strong>in</strong>tentions and their reasonable expectations concern<strong>in</strong>gtheir respective behavior suffice to create a right. But aspopular wisdom rem<strong>in</strong>ds us: “that which goes without say<strong>in</strong>g ismuch better said, and even better written down!”Rights born <strong>of</strong> such contracts and agreements are no longer natural,nor <strong>in</strong>herent, nor common to all societies (as is respect for lifeand property). They illustrate the wide breadth <strong>of</strong> human commitmentsaccord<strong>in</strong>g to their historical context and level <strong>of</strong> development(the sale <strong>of</strong> a radio frequency would have made scant sense<strong>in</strong> medieval times). Parties devise strategies, base <strong>in</strong>vestments, andenter <strong>in</strong>to further agreements with other parties on the strengths <strong>of</strong>these promises. Were the contract<strong>in</strong>g party to renege on their obligations,those rely<strong>in</strong>g on them would be disappo<strong>in</strong>ted and sometimesgravely <strong>in</strong>jured.THE TRANSFERENCE OF RIGHTSConflict<strong>in</strong>g desires reign <strong>in</strong> every human heart. These desirescompete fiercely for a human be<strong>in</strong>g’s limited resources: his time,his body, his energy, the use <strong>of</strong> his material possessions. Ourmoral life centers on sett<strong>in</strong>g priorities for these irreconcilabledesires (to work or laze around, to dr<strong>in</strong>k or drive, to have an affairor to stay faithful, to focus on career ambitions or to br<strong>in</strong>g up afamily). The majority <strong>of</strong> our choices <strong>in</strong>dicate the value that we
Michel: Why We Have Rights — 215place on bonds, as each bond has a value, even if that value is“priceless” as when people say: “I wouldn’t part with that for loveor money.” Value is that which one acts to ga<strong>in</strong> and/or keep, as <strong>in</strong>the words <strong>of</strong> Ayn Rand. 1 We cannot make a dist<strong>in</strong>ction concern<strong>in</strong>gthe nature <strong>of</strong> the value we place on bonds—only concern<strong>in</strong>g their<strong>in</strong>tensity. The death <strong>of</strong> a child, the loss <strong>of</strong> an object, <strong>of</strong> a job, <strong>of</strong> ahope, causes us vastly different levels <strong>of</strong> anxiety and suffer<strong>in</strong>g, butthat sense <strong>of</strong> loss is always felt. The best evidence for the commonnature <strong>of</strong> these bonds is our ability to substitute one for another.Values are fungible. Some would refuse and others would jump atthe chance <strong>of</strong> a juicy promotion at the expense <strong>of</strong> a colleagueaccord<strong>in</strong>g to the respective value they place on loyalty and money.Each <strong>of</strong> us has the right to attempt to create a bond—or tochoose not to do so. Charlotte has the right to reject the bond thatWerther would like to create between them, even if it drives theyoung Werther to commit suicide. He is expect<strong>in</strong>g a form <strong>of</strong> happ<strong>in</strong>essfrom this bond which is not what she has <strong>in</strong> m<strong>in</strong>d. She is look<strong>in</strong>gto achieve this happ<strong>in</strong>ess through creat<strong>in</strong>g a bond with someoneelse, Albert (whilst runn<strong>in</strong>g the <strong>in</strong>evitable risk <strong>of</strong> be<strong>in</strong>g disappo<strong>in</strong>ted).In much the same way, the owners <strong>of</strong> the Cherry Orchard<strong>in</strong> Chekhov’s play <strong>of</strong> the same name reject Lopakh<strong>in</strong>’s crass <strong>of</strong>fer todivide it <strong>in</strong>to build<strong>in</strong>g lots. They badly need the money, but theyplace even a greater value on the orchard’s magical beauty.Therefore, the only limit to our creat<strong>in</strong>g new bonds with people(both <strong>in</strong> relation to themselves and to objects) is their right <strong>of</strong> refusal.We do not want to be forced <strong>in</strong>to a marriage, friendship, employment,or to be forced to buy or sell, and we f<strong>in</strong>d it reasonable not toimpose these demands on others. We <strong>in</strong>tr<strong>in</strong>sically believe that each<strong>of</strong> us should have the possibility <strong>of</strong> evaluat<strong>in</strong>g his exist<strong>in</strong>g ties, toexchange these or not to do so, <strong>in</strong> accordance with what hebelieves will be the satisfaction that he and his counterpart willeach derive from that exchange.However, this is not always the case, as can be seen <strong>in</strong> the follow<strong>in</strong>gdiscussion.1 The Ayn Rand Lexicon: Objectivism from A to Z, Harry B<strong>in</strong>swanger, ed.(New York: New American Library, 1986), “values” entry.
216 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>FALSE RIGHTS—POSSESSIONIn the 1970s, I was a frequent visitor to New York. There, Cornell,a young man from the South Bronx, took me under his w<strong>in</strong>g.His sense <strong>of</strong> property was highly selective: <strong>in</strong>violable if it was acase <strong>of</strong> one <strong>of</strong> his acqua<strong>in</strong>tances—he wouldn’t have walked <strong>of</strong>fwith my <strong>in</strong>k pen; anyone else’s was fair game. One day, when Imade a pass<strong>in</strong>g remark about how nice it would be to cyclethrough Central Park, he immediately suggested he should get mea bike. “How many gears do you want? What color?” No doubt hewould have got me the bike <strong>of</strong> my dreams with<strong>in</strong> 48 hours.My friend Cornell would have been bound by his promise. Wewould have entered <strong>in</strong>to a contract, but concern<strong>in</strong>g an articlewhich did not belong to him, and consequently one which wouldnot have belonged to me either. The cha<strong>in</strong> <strong>of</strong> transfers by mutualconsent would have been broken. Someone’s deliberate act wouldhave deprived a man, somewhere or other, <strong>of</strong> the bicycle hecounted on. His bicycle. His travel plans thwarted, both the bike’susage value and its expected resale value gone.What if Cornell had been a trickster trumped? Surely he wouldhave felt the same anger and frustration as his victim if, look<strong>in</strong>gforward to deliver<strong>in</strong>g to me what he had promised, one <strong>of</strong> his ilkhad p<strong>in</strong>ched that bike. But, <strong>in</strong> tak<strong>in</strong>g possession <strong>of</strong> that bicycle,Cornell had not been assigned the right to sever the bond betweenthis object and its owner. Only through the parties’ consent may abond to an object be assigned, without disappo<strong>in</strong>t<strong>in</strong>g their expectationsand caus<strong>in</strong>g them suffer<strong>in</strong>g.Only rights are transferable, not property itself. Those who takepossession <strong>of</strong> a piece <strong>of</strong> property disregard<strong>in</strong>g the owner’s <strong>in</strong>tentionto transfer his right do not break the bond between that propertyand its owner. 2 What grounds would I have had to object, had2 <strong>Hoppe</strong> discusses the importance <strong>of</strong> objective (“<strong>in</strong>tersubjectively ascerta<strong>in</strong>able”)l<strong>in</strong>ks between owners and scarce resources <strong>in</strong> <strong>Hans</strong>-<strong>Hermann</strong><strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism: Economics, Politics, and Ethics(Boston: Kluwer Academic Publishers, 1989), pp. 12, 212 n.2, et pass; idem,Eigentum, Anarchie und Staat: Studien zur Theorie des Kapitalismus (Opladen:Westdeutscher Verlag, 1987), pp. 98–100); idem, “Four Critical Replies,” <strong>in</strong>
Michel: Why We Have Rights — 217the owner come and reclaimed what had never stopped be<strong>in</strong>g hisbicycle? 3FALSE RIGHTS—THE LEGALIZATION OF THEFTIn others, we hope to f<strong>in</strong>d certa<strong>in</strong> behaviors, although thesebehaviors neither stem from their personal commitment, nor areset <strong>in</strong> stone by custom: we would like them to be polite, helpful,and hospitable. If my car breaks down, I would like a driver togive me a lift to the next village, but it would be unreasonable toassume that the first one who comes along will be the one to do it;I do not have any right to assistance. I have a reasonable expectationthat the employees <strong>of</strong> an establishment open to the public willtreat me with courtesy, but is it my right? Precedents would implyso, but the right to demand deference towards customers belongsto the employer, if she has taken care to <strong>in</strong>corporate this specificwritten clause <strong>in</strong>to her employment contracts.On the other hand, if I pay pension contributions or health<strong>in</strong>surance premiums, I am “count<strong>in</strong>g” on the service providers todeliver. As far as I am concerned, I am covered for these eventualities.I would feel seriously let down were these organizations torenege on their obligations through either dishonesty or bankruptcy.But can I reasonably require <strong>of</strong> people who do not knowme, and who do not have any personal obligation to me, to care forme <strong>in</strong> my old age; to cover the cost <strong>of</strong> my hospitalization or to supportme whilst unemployed?Governments claim a quasi-monopoly on social support whichlends them the legitimacy <strong>of</strong> their power. They create and fulfillexpectations by forc<strong>in</strong>g taxpayers to bail out social security andpension systems.The Economics and Ethics <strong>of</strong> Private Property: Studies <strong>in</strong> Political Economy and Philosophy(Boston: Kluwer, 1993), p. 242. See also discussion <strong>of</strong> same <strong>in</strong> <strong>Stephan</strong>K<strong>in</strong>sella, “How We Come to Own Ourselves,” Mises.org Daily Article (September7, 2006).3 On the importance <strong>of</strong> the prior-later dist<strong>in</strong>ction, see <strong>Hoppe</strong>, A Theory <strong>of</strong>Socialism and Capitalism, chaps. 1, 2, 7 et pass.; K<strong>in</strong>sella, “How We Come toOwn Ourselves,” text at n. 4.
218 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>But, <strong>in</strong> fulfill<strong>in</strong>g this expectation, doesn’t this place them <strong>in</strong> thesame position as Cornell, <strong>of</strong>fer<strong>in</strong>g me someth<strong>in</strong>g that doesn’tbelong to him? What’s the difference? From him as well, I was certa<strong>in</strong><strong>of</strong> receiv<strong>in</strong>g the bike, but at the cost <strong>of</strong> the owner’s frustrationand resentment and by thwart<strong>in</strong>g his travel plans, a cost that neitherI nor Cornell were will<strong>in</strong>g to bear, so how come we wouldimpose it on someone else? Does not forced redistribution makeeach beneficiary a receiver <strong>of</strong> stolen goods?COMMANDSThis br<strong>in</strong>gs us to the other obvious ways <strong>of</strong> creat<strong>in</strong>g predictability<strong>in</strong> society: not through rights, but through commands.After all, as Benjam<strong>in</strong> Frankl<strong>in</strong> famously remarked, there are onlytwo certa<strong>in</strong>ties <strong>in</strong> this mortal coil: death and taxes. The governmentsends out tax demands to millions <strong>of</strong> households and canwith reasonable certa<strong>in</strong>ty expect that at least 95% <strong>of</strong> people willcomply. This predictability is even greater when members <strong>of</strong>another form <strong>of</strong> racket threaten to nail your kneecaps to the floorshould you fail to stump up your protection money with<strong>in</strong> threedays.Thus, there are two means <strong>of</strong> creat<strong>in</strong>g predictability <strong>in</strong> humansocieties: commands (to do someth<strong>in</strong>g) and rights (that we maynot be subjected to someth<strong>in</strong>g). The fundamental difference betweenliberalism and all other political philosophies is that, <strong>in</strong> all <strong>in</strong>stances, liberalsaccord rights precedence over commands.THE MORAL ORDERA command works better when it is <strong>in</strong>ternalized. Rather thanwait<strong>in</strong>g for the master to give an order, the <strong>in</strong>dividual carries thatmaster with<strong>in</strong> herself at all times. Information no longer needs totravel up and down the hierarchy. The <strong>in</strong>dividual is deemed tohave already accepted the existence <strong>of</strong> commands to apply <strong>in</strong> eachand every circumstance. This is the goal <strong>of</strong> morality.But a moral code is <strong>in</strong>tr<strong>in</strong>sically a personal commitment. Itcreates predictability for that <strong>in</strong>dividual. We can hope that agreat number <strong>of</strong> <strong>in</strong>dividuals <strong>in</strong>ternalize certa<strong>in</strong> core values, butjust as we have seen with hospitality and mutual aid we cannot
Michel: Why We Have Rights — 219legitimately demand it. The confusion <strong>of</strong> morality with legislationforms the root <strong>of</strong> fundamentalism. Politics based on moral order isa contradiction <strong>in</strong> terms and are doomed to failure.In a complex world where no situation ever presents itself <strong>in</strong>exactly the same fashion, rights foster negotiation to adjust <strong>in</strong>dividualactions. The market is the medium for these adjustments.But when the law has been <strong>in</strong>ternalized, the <strong>in</strong>dividual has no onewith whom to negotiate adjustments (can one negotiate with oneself?).Faced with a new situation, an <strong>in</strong>dividual would be <strong>in</strong>flict<strong>in</strong>ga useless privation on himself and/or his loved ones were heto apply a more rigorous moral criterion than his own moralitywould demand; on the other hand, he would end up experienc<strong>in</strong>gguilt were he to act with laxity. Economists recognize that <strong>in</strong> thissituation where dialogue is absent, contracts are impossible: it iscalled a command economy. Prices are set outside the market: toohigh—and production surplus results <strong>in</strong> wastage; too low—anddemand will rema<strong>in</strong> unsatisfied. In all cases, commands, either<strong>in</strong>ternal or external, <strong>in</strong> the moral realm or <strong>in</strong> the economy, coupledwith the impossibility <strong>of</strong> negotiations weaken the social fabric.There is no island left <strong>in</strong> our globalized world, no place to hide.History engages all. Those human groups where dialogue andnegotiation are stifled are extremely vulnerable now that they are<strong>in</strong> contact with other groups that have reached a higher more liberalstage <strong>of</strong> development. Societies that are <strong>in</strong>sufficiently complexadapt through violent transformation, as, say, many Muslimsocieties today, or are shattered out <strong>of</strong> existence, as are “firstnations.”Of course, a fraught relationship exists between centers andmarg<strong>in</strong>s, majorities and m<strong>in</strong>orities, dom<strong>in</strong>ant and subord<strong>in</strong>ate cultures,with the realization that dissidence may not only be repressed bythe dom<strong>in</strong>ant, but <strong>in</strong> a sense actually created by it. In other words, herdmorality, be<strong>in</strong>g <strong>in</strong>tr<strong>in</strong>sically reactive, is def<strong>in</strong>ed by what it is not,by what it fears, and by what it excludes. It is the State police itselfwhich produces the figure <strong>of</strong> the dissident; religion (<strong>of</strong> whateverpersuasion) that <strong>of</strong> the heretic; the Moral Order, that <strong>of</strong> the pervert.Let us celebrate dissidents! Strength may preserve, but it is dissidenceand transgression that advance man as a species.
220 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>THE “GOOD SOCIETY” AND ITS ENEMIESThe “Good Society” creates reasonable expectations through its<strong>in</strong>stitutions, its customs, and respect for contracts. It dim<strong>in</strong>ishesthe stress and anxiety placed on its members. Through not subjugat<strong>in</strong>gthem to any bond (no forced marriages, no castes, no legalmonopoly <strong>of</strong> “public services” providers), people are allowed t<strong>of</strong>orm ones they choose: among themselves personally (friendships,partnerships); and among themselves concern<strong>in</strong>g objects (propertyrights). In this way, the “Good Society” maximizes each person’schances <strong>of</strong> creat<strong>in</strong>g the most beneficial and strongest bonds.The “Good Society” never <strong>of</strong>fers the best possible circumstancesfor all its members from the outset. For how could its leaderspossibly anticipate each person’s wants? Particularly as humandesires evolve. Each <strong>of</strong> us wants the ability to better our conditionthrough substitut<strong>in</strong>g one bond with another that we believe to be<strong>of</strong> greater value (divorc<strong>in</strong>g <strong>in</strong> order to marry a more consideratespouse, switch<strong>in</strong>g hold<strong>in</strong>gs <strong>in</strong> a securities portfolio, chang<strong>in</strong>g jobs,plac<strong>in</strong>g our children <strong>in</strong> a better school). Even if some people aremistaken <strong>in</strong> their expectations, others will not know this with completecerta<strong>in</strong>ty and, hav<strong>in</strong>g prevented or forbidden the transaction,they could not compensate those who had wanted it <strong>in</strong> the firstplace and are now proven right <strong>in</strong> their assessment (time lost andopportunity costs cannot be compensated for). Therefore, any<strong>in</strong>tervention that would ru<strong>in</strong> the parties’ expectations perta<strong>in</strong><strong>in</strong>gto the exercise and formation <strong>of</strong> these bonds constitutes the mostdirect and the most harmful attack on the “Good Society.” Wehave seen that two types <strong>of</strong> <strong>in</strong>dividuals commit this aggression.In the first <strong>in</strong>stance, we f<strong>in</strong>d those who cannot or will not obta<strong>in</strong>someone’s consent to transfer a bond to an object to them. Murderers,rapists, robbers, sw<strong>in</strong>dlers, these all know they will neverbe granted this bond, but nevertheless choose to attack a personand to dispossess her <strong>of</strong> her rights to her body or possessionsaga<strong>in</strong>st her will.The other group consists <strong>of</strong> a party with somewhat starkerambition, those who are aware that to simply seize an asset wouldmake them noth<strong>in</strong>g more than thieves. This gang <strong>in</strong>stead forbidsthe creation <strong>of</strong> certa<strong>in</strong> bonds between people and <strong>in</strong>validates those
Michel: Why We Have Rights — 221which people have been able to create between themselves andobjects.Governments (they alone can harbor this outrageous pretension)impose restrictions on marriage contracts, employment andbus<strong>in</strong>ess contracts, on the free movement <strong>of</strong> people, on the construction<strong>of</strong> build<strong>in</strong>gs, on what people can eat, dr<strong>in</strong>k, smoke, read,view, say, pr<strong>in</strong>t and broadcast, what clothes we can wear, andwhat medic<strong>in</strong>es we can use. They seize all or part <strong>of</strong> the assets <strong>of</strong><strong>in</strong>dividuals and companies at will.Yet, the desire to create new bonds underp<strong>in</strong>s our <strong>in</strong>itiatives,and as these bonds strengthen they br<strong>in</strong>g us ever-greater satisfaction.So conversely, their violation causes us ever-greater distress.This is why the common good <strong>of</strong> the “Good Society” is to protectthese bonds without which it would not exist and to protectthem especially aga<strong>in</strong>st those who have the political power to<strong>in</strong>fr<strong>in</strong>ge on them.Will we ever achieve a “Good Society”? There is <strong>of</strong>ten cause fordespair, I agree. It seems the battle is never won. But let me quotea wonderful Bulgarian poet, Blaga Dimitrova, with words thathave <strong>in</strong>spired me for many years:I’m not afraidthey’ll stamp me flat.Grass stamped flatsoon becomes a path. 4 4 Blaga Dimitrova, “Grass,” quoted <strong>in</strong> Harold B. Segel, The Columbia Guideto the Literatures <strong>of</strong> Eastern Europe S<strong>in</strong>ce 1945 (New York: Columbia UniversityPress, 2003 [1974]), p. 146.
23Freedom and Property:Where They ConflictFrank van DunFREEDOM AS PROPERTY AND THENON-AGGRESSION PRINCIPLELibertarian theorists like to trace social and economic problemsto coercive, usually government-imposed or sanctioned<strong>in</strong>terventions <strong>in</strong> the free market or restrictions onthe exercise <strong>of</strong> the libertarian rights <strong>of</strong> self-ownership, privateappropriation and use <strong>of</strong> material resources, and exchange bymutual consent. This sort <strong>of</strong> analysis <strong>of</strong> social and economic problemssuggests, and is <strong>of</strong>ten meant to suggest, that <strong>in</strong> a situationwhere those rights are fully respected the problems would notarise or that they could and would be solved efficiently and peacefullyby negotiation, mediation or arbitration. In other words, neithereconomic nor personal freedom is the cause <strong>of</strong> those problems;freedom is the condition for their solution.Frank van Dun (Frank.vanDun@Ugent.be) teaches philosophy <strong>of</strong> law at theUniversity <strong>of</strong> Ghent. He is the author <strong>of</strong> Het Fundamenteel Rechtsbeg<strong>in</strong>sel (1983,2008), a Dutch-language book that uses argumentation ethics as the basis for anon-positivist, libertarian theory <strong>of</strong> law.223
224 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>This is f<strong>in</strong>e as far as it goes—but how far does it go? As weshall see below, respect for the above-mentioned libertarianrights is not <strong>in</strong> itself sufficient to guarantee the freedom <strong>of</strong> everyperson. There may be cases where there is a conflict betweenclaims on behalf <strong>of</strong> one person’s freedom and claims on behalf <strong>of</strong>another person’s private property. In such cases, the questionarises, which claims should prevail. Unquestionably, the libertariananswer should be: freedom before property. Unfortunately,many libertarians are reluctant to give up the conception <strong>of</strong> “freedomas property” that (1) serves them so well <strong>in</strong> their critiques <strong>of</strong><strong>in</strong>terventionism and collectivism and (2) underp<strong>in</strong>s their notionthat the law <strong>of</strong> a libertarian order is merely the rigorous application<strong>of</strong> the so-called non-aggression pr<strong>in</strong>ciple.The logical l<strong>in</strong>k between “freedom as property” and the nonaggressionpr<strong>in</strong>ciple is the def<strong>in</strong>ition <strong>of</strong> aggression as an <strong>in</strong>vasion<strong>of</strong> another person’s property for any purpose other than gett<strong>in</strong>grestitution <strong>of</strong> one’s property from, or secur<strong>in</strong>g compensation fordamages result<strong>in</strong>g from a previous aggression committed by, thatperson. Thus, accord<strong>in</strong>g to the non-aggression pr<strong>in</strong>ciple, onlyaggressive <strong>in</strong>vasions <strong>of</strong> another’s property are unlawful and everyact <strong>of</strong> any other k<strong>in</strong>d is lawful. In practical terms, libertarian judgeshave no right to authorize <strong>in</strong>terference with non-aggressive acts,and libertarian enforcement agencies have no right to enforce anyunilateral prohibition or restriction <strong>of</strong> such acts. However, if freedomis the supreme libertarian value, this will not do.HOSTILE ENCIRCLEMENT ON LIBERTARIAN QUASI-EARTHFor the sake <strong>of</strong> the argument, let us suppose that, somewhere<strong>in</strong> the universe, there is a planet—let us call it Quasi-Earth—thatis <strong>in</strong> all physical respects like our own planet Earth. In particular,Quasi-Earth is populated by be<strong>in</strong>gs that are <strong>in</strong> all respects like us,except that they are all law-abid<strong>in</strong>g libertarians. Thus, unlike usEarthl<strong>in</strong>gs, the Quasi-Earthl<strong>in</strong>gs (1) unconditionally respect everyperson’s rights <strong>of</strong> self-ownership, private appropriation <strong>of</strong>unowned resources, unrestricted non-<strong>in</strong>vasive use his own property,and exchange by mutual consent, and (2) unconditionallyabide by the non-aggression pr<strong>in</strong>ciple when it comes to deal<strong>in</strong>gwith <strong>in</strong>terpersonal problems. In other words, there is no crime
van Dun: Freedom and Property: Where They Conflict — 225and every property owner is free to do with, to, and on his propertywhatever he likes provided his actions have no significant 1physical effects on others or their properties. Consequently, thereis no need for any political government and we may assume thatstates, if they ever existed over there, have long s<strong>in</strong>ce witheredaway. In short, Quasi-Earth is the very model <strong>of</strong> a libertarian orderaccord<strong>in</strong>g to the “freedom as property” paradigm. Nevertheless, itis easy to imag<strong>in</strong>e how a person could lose his freedom because <strong>of</strong>non-<strong>in</strong>vasive actions performed by others.The most obvious case is encirclement. Suppose that everypo<strong>in</strong>t on Quasi-Earth is privately owned by one or another <strong>in</strong>dividualperson <strong>in</strong> such a way that every owner <strong>of</strong> a piece <strong>of</strong> the surface<strong>of</strong> Quasi-Earth f<strong>in</strong>ds that his property is surrounded by theproperties <strong>of</strong> other persons, possibly by the property <strong>of</strong> a s<strong>in</strong>gleother person. Because the <strong>in</strong>habitants <strong>of</strong> that planet are very similarto us, we may expect that at least some people may f<strong>in</strong>d themselvessurrounded by personal enemies or rivals or spiteful <strong>in</strong>dividualswho like to annoy or <strong>in</strong>timidate others. However, s<strong>in</strong>cethey are all law-abid<strong>in</strong>g people, they judiciously absta<strong>in</strong> fromaggressive, <strong>in</strong>vasive actions.Clearly, a person’s ability to move himself or his goods beyondthe conf<strong>in</strong>es <strong>of</strong> his own property without trespass<strong>in</strong>g on the property<strong>of</strong> others depends on their will<strong>in</strong>gness to grant him a right <strong>of</strong>way. However, noth<strong>in</strong>g <strong>in</strong> the Quasi-Earthl<strong>in</strong>gs’ system <strong>of</strong> propertyrights obliges them either to grant him right <strong>of</strong> way or to permitthird parties to cross their properties to reach his (if he has any).Consequently, because <strong>of</strong> a co<strong>in</strong>cidence <strong>of</strong> decisions by his neighborsor because <strong>of</strong> an agreement among them, any person may f<strong>in</strong>dhimself locked up on his own property or prevented from deal<strong>in</strong>gwith others outside the circle <strong>of</strong> his immediate neighbors.Because, accord<strong>in</strong>g to the libertarian conception <strong>of</strong> freedom asproperty, deny<strong>in</strong>g a person access to one’s property does not count1 I shall not discuss the problem <strong>of</strong> draw<strong>in</strong>g a l<strong>in</strong>e between significant and<strong>in</strong>significant effects, although it is obviously a pervasive practical problem. Alibertarian order cannot be viable unless it recognizes that a few particles <strong>of</strong>smoke cross<strong>in</strong>g the boundary between two properties are different from athick cloud <strong>of</strong> black smoke, a fa<strong>in</strong>t smell is different from an unbearablestench, and so on.
226 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>as a crime, his neighbors must be assumed to rema<strong>in</strong> with<strong>in</strong> theirrights if they act <strong>in</strong> this manner. They do not <strong>in</strong>fr<strong>in</strong>ge his propertyrights. Moreover, they must be assumed to rema<strong>in</strong> with<strong>in</strong> theirrights if they then go on to grant him a right <strong>of</strong> way on conditionthat he complies with their demands, however onerous ordemean<strong>in</strong>g these may be. Nevertheless, it would be absurd toregard their actions as respectful <strong>of</strong> his freedom, if by refus<strong>in</strong>g hima right <strong>of</strong> way they turn encirclement <strong>in</strong>to imposed isolation andhis property <strong>in</strong>to a prison (if he is on his property) or <strong>in</strong>to an <strong>in</strong>accessibleresource (if he is not). In addition, we should rememberthat on Quasi-Earth encirclement is the normal condition <strong>of</strong> anyperson. Thus, given the assumed similarities between our planetand that supposed ideal planet, we should consider the possibilitythat entire groups may be made to suffer imposed isolation.Some libertarians would argue that noth<strong>in</strong>g <strong>in</strong> such a situationposes a threat to anybody’s freedom. They would po<strong>in</strong>t out, forexample, that the encircled person might tunnel under the adjacentproperties or get a helicopter to fly over them. 2 However, suchsolutions are also available (if they are available at all) to peoplelocked up <strong>in</strong> a regular prison—and it would be ridiculous to saythat lock<strong>in</strong>g up a person <strong>in</strong> a prison does not deprive him <strong>of</strong> hisfreedom merely because he might have opportunities for mak<strong>in</strong>gan escape. Moreover, the encirclement <strong>of</strong> a person could be threedimensional,for example if some <strong>of</strong> the neighbors run m<strong>in</strong><strong>in</strong>goperations under his property and others fill the airspace above itwith antenna wires, power l<strong>in</strong>es or weather balloons.Other libertarians tend to belittle the problem with a generalreference to the free market, not<strong>in</strong>g, for example, that hostile encirclementis not without opportunity costs for those who practice itand that these costs will deter pr<strong>of</strong>it-maximiz<strong>in</strong>g <strong>in</strong>dividuals fromengag<strong>in</strong>g <strong>in</strong> the practice for any extended period. This argument ispurely academic. First, we are not talk<strong>in</strong>g about people be<strong>in</strong>gexcluded from one or a few bars or shopp<strong>in</strong>g malls but from theonly means <strong>of</strong> access to their own property or to other places wherethey are welcome. Second, even if true, the argument only supports2 Thus, with respect to a related problem, see Walter Block, “Roads,Bridges, Sunlight and Private Property: Reply to Gordon Tullock,” Journal desEconomistes et des Etudes Huma<strong>in</strong>es 8, no. 2/3 (June-September 1998): 315–26.
van Dun: Freedom and Property: Where They Conflict — 227the proposition that, other th<strong>in</strong>gs rema<strong>in</strong><strong>in</strong>g the same, hostile encirclementtends to disappear over time. It does not support the propositionthat it will ever actually disappear. Moreover, the reality isthat pr<strong>of</strong>it-maximiz<strong>in</strong>g <strong>in</strong>dividuals <strong>of</strong>ten enough drift along withthe prejudices <strong>of</strong> the majority <strong>of</strong> the population <strong>in</strong> their area, nomatter what these prejudices are, no matter whether they themselvesshare them. All too <strong>of</strong>ten, the “sovereign consumer” is a herdor a mob. Accept<strong>in</strong>g for the purpose <strong>of</strong> economic analysis that “allvalues are subjective,” we should not expect market outcomes to bealways and necessarily <strong>in</strong> support <strong>of</strong> objective, libertarian ethicalvalues, such as freedom. Thus, we should not underestimate thelengths to which some people are will<strong>in</strong>g to go to pester or boycottothers, especially when they are emboldened by the cheers andnods <strong>of</strong> sympathizers. Neither should we make light <strong>of</strong> the easewith which a th<strong>in</strong>g such as a privately owned road can be turnedfrom a mere revenue-generat<strong>in</strong>g commercial asset <strong>in</strong>to a means forexercis<strong>in</strong>g unilateral control over others and their properties.Still other libertarians have been known to blame the victim:anybody can know that there is a risk <strong>of</strong> be<strong>in</strong>g surrounded byunfriendly neighbors; therefore, one should know that it is unwisenot to take precautions aga<strong>in</strong>st this eventuality. This may not be anunreasonable stance on a planet such as ours, which is not a modellibertarian order. Here, few properties are surrounded on all sidesby other private properties and even fewer are at a great distancefrom unowned open or public space. However, on Quasi-Earth, all<strong>of</strong> the accessible space can be converted <strong>in</strong>to private property orpass <strong>in</strong>to the hands <strong>of</strong> another owner at any moment. So, what sort<strong>of</strong> precautions aga<strong>in</strong>st unfriendly encirclement could any <strong>in</strong>dividualtake? Does be<strong>in</strong>g the owner <strong>of</strong> a road or canal imply that oneshould never be able to convert one’s property to some other use, ifthe orig<strong>in</strong>al owner <strong>of</strong> the road gave assurance <strong>of</strong> access to the firstbuyers or owners <strong>of</strong> the properties abutt<strong>in</strong>g it? Does hav<strong>in</strong>g “guaranteed”access to a road imply that the road itself will rema<strong>in</strong> connectedto other roads, owned by the same or another road owner?FREEDOM AND PROPERTY: CONFLICTING CLAIMSSuppose a person compla<strong>in</strong>s about be<strong>in</strong>g isolated from the rest<strong>of</strong> the world by his neighbors’ non-<strong>in</strong>vasive actions and presents
228 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>his case to a judge. Which judge is closer to the libertarian spiritand more likely to contribute to conditions <strong>of</strong> peaceful co-existence?One who dismisses the compla<strong>in</strong>t because the neighbors donot trespass on the property <strong>of</strong> the compla<strong>in</strong>ant, or one who iswill<strong>in</strong>g to hear the compla<strong>in</strong>t and, if it turns out to be justified,will<strong>in</strong>g to decide that the neighbors are under an obligation togrant a right <strong>of</strong> way to the compla<strong>in</strong>ant? One who merely looks atobservable movements across property boundaries, or one whoconsiders that the protection <strong>of</strong> property, however vital to thepreservation <strong>of</strong> freedom it may be, is nevertheless only a means t<strong>of</strong>reedom and not its fulfillment? Which argument is more likely tobe universalizable? That property rights are sacrosanct, or thatfreedom is sacrosanct?We have assumed that on Quasi-Earth respect for private propertyis universal. Therefore, those who happen to become victims<strong>of</strong> imposed isolation must be assumed to bear their lot with equanimity,peacefully wither<strong>in</strong>g away <strong>in</strong> their ghettos and endur<strong>in</strong>gbe<strong>in</strong>g exploited by others. Surely, this assumption is not particularlyplausible. However, should we weaken it then we mustenvisage the possibility that isolated groups resort to violence tobreak out <strong>of</strong> their conf<strong>in</strong>ement and rega<strong>in</strong> their freedom. Shouldwe condemn their revolt as crim<strong>in</strong>al? Would we? Is isolation byhostile encirclement a just cause for resort<strong>in</strong>g to violence or waraga<strong>in</strong>st those who impose and refuse to lift it?Freedom is not served by war, and neither is property. Just asaggressive violence threatens these values, acts that are prone toprovoke violent reactions as well as wide-spread sympathy forthose reactions among more or less distant observers similarlythreaten the prospects for secur<strong>in</strong>g freedom and property, even ifthey are not <strong>in</strong> themselves ‘aggressions,’ i.e. <strong>in</strong>vasions <strong>of</strong> property.Human nature be<strong>in</strong>g what it is, we should not overlook the irritabilityand irascibility <strong>of</strong> the “human animal.” The pr<strong>in</strong>ciples <strong>of</strong>libertarian law should be entirely rational <strong>in</strong> the sense <strong>of</strong> be<strong>in</strong>gprovably irrefutable “dictates <strong>of</strong> reason.” 3 Both <strong>in</strong> formulat<strong>in</strong>g and3 This is the basic idea <strong>of</strong> <strong>Hans</strong> <strong>Hoppe</strong>’s ethical justification <strong>of</strong> capitalism<strong>in</strong> his A Theory <strong>of</strong> Socialism and Capitalism (Boston-Dordrecht-London: Kluwer,1989).
van Dun: Freedom and Property: Where They Conflict — 229<strong>in</strong> apply<strong>in</strong>g them we should nevertheless be aware that <strong>in</strong> therough-and-tumble <strong>of</strong> life the voice <strong>of</strong> reason has many competitors—andthat some people know how to take advantage <strong>of</strong> thatfact for the purpose <strong>of</strong> manipulat<strong>in</strong>g and provok<strong>in</strong>g others to “firethe first shot.” In other words, we should not adopt the stance <strong>of</strong>other-worldly sanctimonious sa<strong>in</strong>ts ignor<strong>in</strong>g the pervasive causal,physical and psychological aspects <strong>of</strong> the human condition.If, as many libertarians believe, freedom is a natural right thenwe should be clear about whether it entitles one to destroy thefreedom <strong>of</strong> others if only <strong>in</strong> ways that do not <strong>in</strong>volve direct <strong>in</strong>terferencewith their property. If it does then freedom can hardlycount as a fundamental value <strong>in</strong> the sense <strong>of</strong> political philosophy;if it does not then the non-aggression pr<strong>in</strong>ciple can hardly count asthe basic pr<strong>in</strong>ciple <strong>of</strong> libertarian law. Either way, there seems to besometh<strong>in</strong>g wrong with equat<strong>in</strong>g libertarian law with the rigorousapplication <strong>of</strong> the non-aggression pr<strong>in</strong>ciple.That should not come as a surprise. The pr<strong>in</strong>ciple does not referto freedom, only to property; it would be adequate as theaxiomatic law <strong>of</strong> freedom only if “freedom” and “property” weresynonymous—but they are not. To paraphrase Anthony de Jasay, 4we do not need a theory <strong>of</strong> “freedom as private property” anymorethan we need any other theory <strong>of</strong> “freedom as someth<strong>in</strong>gelse.”RESTRICTING PROPERTY RIGHTS ON BEHALF OF FREEDOMThere is a straightforward solution to the problems <strong>of</strong> hostileencirclement or imposed isolation. The usual statement <strong>of</strong> the rights<strong>of</strong> a property owner already <strong>in</strong>dicates that these rights are not“absolute” <strong>in</strong> the literal sense <strong>of</strong> the word. There is an “externaleffects” proviso that libertarians have come to take for granted.Even from the perspective <strong>of</strong> the non-aggression pr<strong>in</strong>ciple, one doesnot have the right to do what one wants with, to or on one’s property.Such proprietary actions are with<strong>in</strong> the law <strong>of</strong> a libertarian4 See the Antony de Jasay, “Justice as Someth<strong>in</strong>g Else,” <strong>in</strong> Justice and ItsSurround<strong>in</strong>gs (Indianapolis, Ind.: Liberty Fund, 2002), orig<strong>in</strong>ally published <strong>in</strong>Cato Journal 16, no. 2 (Fall 1996): 161–73.
230 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>order only if they do not have significant physical effects on otherpersons or their properties. 5 The external effects proviso is necessaryto l<strong>in</strong>k the concepts <strong>of</strong> property and freedom together <strong>in</strong>to aplausible conception <strong>of</strong> an <strong>in</strong>terpersonal order <strong>in</strong>volv<strong>in</strong>g a multitude<strong>of</strong> diverse people <strong>in</strong>habit<strong>in</strong>g a world <strong>of</strong> scarce resources.However, it is still firmly with<strong>in</strong> the “freedom as property” conceptionbecause it merely restricts the property rights <strong>of</strong> one personby <strong>in</strong>vok<strong>in</strong>g those <strong>of</strong> others.As we have seen, the external effects proviso is not sufficient ifit is <strong>in</strong>tended to serve a libertarian purpose, i.e., to safeguardeverybody’s freedom, rather than a proprietorial one. At the veryleast, it needs to be supplemented to guarantee every person 6 notonly access to his own property but also a way to go from there toany other place where he is welcome. In short, <strong>in</strong> addition to theexternal effects proviso, there is need to have a “free movement”proviso regard<strong>in</strong>g ownership <strong>of</strong> material resources, to the effectthat the rights <strong>of</strong> a property owner do not <strong>in</strong>clude the right todeprive others <strong>of</strong> the possibility <strong>of</strong> mov<strong>in</strong>g between their ownproperty and any place where they are welcome. Of course,‘deprive’ is too absolute for practical purposes: freedom <strong>of</strong> movementimplies that there are no significant or unreasonable manmadeobstacles to mov<strong>in</strong>g about.Two logical po<strong>in</strong>ts should be stressed here. The first is that ifthrow<strong>in</strong>g an <strong>in</strong>nocent person <strong>in</strong> a cell deprives him <strong>of</strong> his freedomthen so does build<strong>in</strong>g a cell around him even on those occasionswhen one succeeds <strong>in</strong> do<strong>in</strong>g so without touch<strong>in</strong>g him or his property.Thus, the free movement proviso appears implied <strong>in</strong> the veryidea <strong>of</strong> freedom itself. The other po<strong>in</strong>t is that the new proviso no5 Unilaterally perform<strong>in</strong>g an action with significant physical effects on othersor their properties is unlawful. I have argued elsewhere that certa<strong>in</strong> non<strong>in</strong>vasiveactions, such as misrepresent<strong>in</strong>g [oneself as] another person and unilaterallychang<strong>in</strong>g the conventional mean<strong>in</strong>g <strong>of</strong> the terms <strong>of</strong> a contract, shouldalso be considered unlawful, if libertarian law is to serve its purpose <strong>of</strong> generat<strong>in</strong>ga viable order <strong>of</strong> human affairs rather than be<strong>in</strong>g a source <strong>of</strong> resentment,distrust and conflict. See my “Aga<strong>in</strong>st Libertarian Legalism,” Journal <strong>of</strong>Libertarian Studies 17, no. 3 (2003).6 Exceptions may no doubt be made, say, for crim<strong>in</strong>als and the dangerously<strong>in</strong>sane.
van Dun: Freedom and Property: Where They Conflict — 231longer fits with<strong>in</strong> the “freedom as property” paradigm. It is thereforelikely to be controversial among libertarians—but at the veryleast, it has the merit <strong>of</strong> focuss<strong>in</strong>g their attention on the concept <strong>of</strong>freedom, forc<strong>in</strong>g them to be much clearer and more explicit abouttheir understand<strong>in</strong>g <strong>of</strong> it. 7THINKING ABOUT PUBLIC SPACE IN A LIBERTARIAN ORDERAssum<strong>in</strong>g that the free movement proviso could be enforced, itwould have the effect <strong>of</strong> steer<strong>in</strong>g the development and geographicalarrangement <strong>of</strong> properties <strong>in</strong>to the familiar pattern <strong>of</strong> a network<strong>of</strong> routes, trails and paths across open unowned space (forexample, the seas, un<strong>in</strong>habited, uncultivated land) and streets,roads, canals, and so on, connect<strong>in</strong>g everyone’s property witheverybody else’s. Let us use “route” as a catch-all term to designateany <strong>of</strong> the elements <strong>of</strong> this right-<strong>of</strong>-way network. It wouldappear that such a network is the most, perhaps even the only, efficientway for reconcil<strong>in</strong>g the rights <strong>of</strong> way demanded by the freemovement proviso and the condition <strong>of</strong> exclusive control associatedwith private ownership.Without the free movement proviso, under the “freedom asproperty” doctr<strong>in</strong>e, routes would eventually be supplied as privatelyheld property. This is what we should expect to see onQuasi-Earth, because we cannot very well imag<strong>in</strong>e how a humancivilization would function without such th<strong>in</strong>gs as streets, roadsand navigable waterways. However, the route owners would thenhave exactly the same rights as owners <strong>of</strong> the land, private housesor factories alongside the routes. They would have rights toexclude anybody for any reason or for no reason at all from us<strong>in</strong>g7 For other libertarian discussion <strong>of</strong> similar issues, see <strong>Stephan</strong> K<strong>in</strong>sella,“The Blockean Proviso,” Mises Economics Blog (Sept. 11, 2007); and Roderick T. Long, “Easy Rider,”Austro-Athenian Empire (Sept. 11, 2007), both discuss<strong>in</strong>g Walter Block’s view that someone whohomesteads land that “encircles” unowned land must grant an easement topermit potential homesteaders access the unowned property. See, e.g, WalterBlock, “Libertarianism, Positive Obligations and Property Abandonment:Children’s Rights,” International Journal <strong>of</strong> Social Economics 31, no. 3 (2004):275–86.
232 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>their property, to demand any price or service <strong>in</strong> return for a permissionto use it even <strong>in</strong> the most <strong>in</strong>nocuous ways and for the mostharmless purposes, and to form cartels with the owners <strong>of</strong> nearbyroutes to strengthen their barga<strong>in</strong><strong>in</strong>g positions.In short, without the free movement proviso, private ownership<strong>of</strong> routes would exacerbate the problem <strong>of</strong> hostile encirclement andthe risk <strong>of</strong> exploitation <strong>of</strong> some by others. It would jeopardize thefreedom <strong>of</strong> every other person and provide the route owners witha basis <strong>in</strong> libertarian law for impos<strong>in</strong>g all sorts <strong>of</strong> requirements onanybody who wishes to make use <strong>of</strong> their property. It would setthem up as prospective “lords” or rulers with an effective lawfulpower to control the movements and trades <strong>of</strong> other property ownerslocated <strong>in</strong> the area served by their routes. Indeed, <strong>in</strong> the past, thek<strong>in</strong>g’s “sovereign right” was based, among other th<strong>in</strong>gs, on his selfproclaimedor perceived role as the provider <strong>of</strong> “peace” <strong>in</strong> publicspace: unowned land, rivers, roads, and the like, that were availablefor use by all <strong>of</strong> his subjects. 8 The free movement proviso thusundercuts one <strong>of</strong> the most frequently <strong>of</strong>fered justifications for theexistence <strong>of</strong> state-power, as it derives the status <strong>in</strong> law <strong>of</strong> publicspaces entirely from every person’s right <strong>of</strong> freedom rather thanfrom the k<strong>in</strong>gs’ tak<strong>in</strong>g possession <strong>of</strong> those spaces.With the free movement proviso <strong>in</strong> place, the ownership <strong>of</strong>routes would amount to no more than quasi-ownership, a right tomanage an asset to guarantee the <strong>in</strong>violable right <strong>of</strong> way for everylaw-abid<strong>in</strong>g person. Such quasi-ownership would presumably<strong>in</strong>clude the right to claim the residual or pr<strong>of</strong>it from the management<strong>of</strong> routes. It would certa<strong>in</strong>ly not <strong>in</strong>clude the right to restrictaccess to the routes for lawful purposes, unless the restrictions arefor sound technical or safety reasons (e.g., limitations <strong>of</strong> weight,length and width <strong>of</strong> vehicles; transportation <strong>of</strong> explosive or poisonousmaterials; etc.), or unless the routes have become redundantand are no longer <strong>in</strong> use.Note that the proviso does not exclude the construction <strong>of</strong> fullyprivately owned routes, the owners <strong>of</strong> which would have the full8 This was a major element <strong>in</strong> Jean Bod<strong>in</strong>’s natural history <strong>of</strong> the genesis <strong>of</strong>“absolute sovereignty” (<strong>in</strong> his Six Livres de la République [Six Books <strong>of</strong> the Commonwealth],1576).
van Dun: Freedom and Property: Where They Conflict — 233range <strong>of</strong> rights <strong>of</strong> exclusion and pric<strong>in</strong>g that the owners <strong>of</strong> othertypes <strong>of</strong> property have. Such routes may be useful (and pr<strong>of</strong>itable)additions to the right-<strong>of</strong>-way network available under the freemovement proviso. However, the proviso applies also to them. Inother words, while permitted <strong>in</strong> a libertarian order, fully privatelyowned routes would not be allowed to break up the right-<strong>of</strong>-waynetwork <strong>in</strong>to disconnected segments, as this would constitute aviolation <strong>of</strong> the free movement proviso and therefore the freedom<strong>of</strong> others.The most important implication <strong>of</strong> the free movement provisois the <strong>in</strong>troduction or re-<strong>in</strong>troduction <strong>in</strong>to libertarian theory <strong>of</strong> theconcept <strong>of</strong> public space as dist<strong>in</strong>ct from privately owned exclusivespace. This is a neglected area <strong>in</strong> libertarian theoriz<strong>in</strong>g, <strong>in</strong> partbecause the conventional theory simply assumes away the existence<strong>of</strong> public spaces, except as sources <strong>of</strong> problems that woulddisappear without ill side-effects as soon as such spaces are “privatized.”Indeed, under the <strong>in</strong>fluence <strong>of</strong> the “freedom as property”conception, which does not recognize the free movement proviso,libertarian theorists are prone to endorse the position that <strong>in</strong> publicspaces people should be allowed to do as they wish, as long asthey do not assault or physically harm others. Inclusion <strong>of</strong> the freemovement proviso, <strong>in</strong> contrast, would <strong>in</strong>vite libertarians to considerthe proper use <strong>of</strong> the right-<strong>of</strong>-way network (“public space”),which is freedom <strong>of</strong> peaceful movement, and the dangers <strong>of</strong> otheruses, such as dissem<strong>in</strong>at<strong>in</strong>g propaganda, provok<strong>in</strong>g confrontations,and the like. S<strong>in</strong>ce travelers and users <strong>of</strong> the right-<strong>of</strong>-waynetwork are not its owners, it is appropriate to ask just which libertiesthey can legitimately claim and which obligations they <strong>in</strong>curwhile “on the road.” Similar questions can be raised with respectto the quasi-owners or managers <strong>of</strong> the right-<strong>of</strong>-way network. Thetheoretical basis from which one should address these questions is,<strong>of</strong> course, the obligation to respect the freedom <strong>of</strong> movement <strong>of</strong>every person (more exactly, <strong>of</strong> every person who is not lawfullyconf<strong>in</strong>ed on account <strong>of</strong> his own crim<strong>in</strong>al actions or his dangerous<strong>in</strong>sanity).There are, <strong>of</strong> course, other implications <strong>of</strong> the free movementproviso, e.g., concern<strong>in</strong>g libertarian discussions <strong>of</strong> issues such asmigration, but my aim here is not to explore all <strong>of</strong> its ramifications;
234 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>it is merely to draw attention to it and to suggest that it be seen asan <strong>in</strong>tegral part <strong>of</strong> the libertarian concept <strong>of</strong> ownership rights.Obviously, the free movement proviso is a far-reach<strong>in</strong>g restriction<strong>of</strong> the property right <strong>of</strong> route owners as it would be def<strong>in</strong>edaccord<strong>in</strong>g to the “freedom as property” conception, but it is not anarbitrary restriction—<strong>in</strong> fact, it is rooted the idea <strong>of</strong> freedom,which is, or should be, the supreme libertarian value. Besides, thewhole po<strong>in</strong>t <strong>of</strong> libertarian theoriz<strong>in</strong>g is to come up with a conception<strong>of</strong> an order <strong>of</strong> conviviality and cooperation <strong>in</strong> which peoplecan enjoy their freedom and face the sl<strong>in</strong>gs and arrows <strong>of</strong> life withouthav<strong>in</strong>g to worry that virtually every step they take requiresthem to agree to do another’s bidd<strong>in</strong>g.
Part FourDemocracy Reconsidered
24The Trouble with Democracy:Maslow Meets <strong>Hoppe</strong>Doug FrenchH.L. Mencken described politicians as “men who, atsome time or other, have compromised with their honour,either by swallow<strong>in</strong>g their convictions or bywhoop<strong>in</strong>g for what they believe to be untrue.” 1 “Vanityrema<strong>in</strong>s to him,” Mencken wrote, “but not pride.” 2The Sage <strong>of</strong> Baltimore had it correct, that to be elected and stayelected <strong>in</strong> American politics to any full-time position requires thesuspension <strong>of</strong> any ethics or good sense a person may possess. Eventhose who beg<strong>in</strong> political careers with the best <strong>in</strong>tentions and havemeasurable abilities that would make them successful <strong>in</strong> any fieldsoon realize that the skills required to succeed <strong>in</strong> politics are notthose required outside politics.Doug French (douglas<strong>in</strong>vegas@gmail.com) received his Masters degree <strong>in</strong>economics from the University <strong>of</strong> Nevada Las Vegas under Murray Rothbardwith Pr<strong>of</strong>essor <strong>Hoppe</strong> serv<strong>in</strong>g on his thesis committee. He, along withDeanna Forbush, was a benefactor for the publication <strong>of</strong> the second edition <strong>of</strong><strong>Hoppe</strong>’s The Economics and Ethics <strong>of</strong> Private Property. French is the President <strong>of</strong>the Ludwig von Mises Institute <strong>in</strong> Auburn, Alabama.1 H.L. Mencken, Notes on Democracy (New York: Alfred A. Knopf, 1926), pp.114–15.2 Ibid., p. 115.237
238 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Lew Rockwell expla<strong>in</strong>s that, while competition <strong>in</strong> the marketplaceimproves quality, competition <strong>in</strong> politics does just the opposite:The only improvements take place <strong>in</strong> the process <strong>of</strong>do<strong>in</strong>g bad th<strong>in</strong>gs: ly<strong>in</strong>g, cheat<strong>in</strong>g, manipulat<strong>in</strong>g, steal<strong>in</strong>g,and kill<strong>in</strong>g. The price <strong>of</strong> political services is constantly<strong>in</strong>creas<strong>in</strong>g, whether <strong>in</strong> tax dollars paid or <strong>in</strong> thebribes owed for protection (also known as campaigncontributions). There is no obsolescence, planned or otherwise.And as Hayek famously argued, <strong>in</strong> politics, theworst get on top. And there is no accountability: thehigher the <strong>of</strong>fice, the more crim<strong>in</strong>al wrongdo<strong>in</strong>g a personcan get away with. 3Thus it becomes “a psychic impossibility for a gentleman tohold <strong>of</strong>fice under the Federal Union,” 4 wrote Mencken. Democracymakes it possible for the demagogue to <strong>in</strong>flame the childishimag<strong>in</strong>ation <strong>of</strong> the masses, “by virtue <strong>of</strong> his talent for nonsense.” 5The k<strong>in</strong>g can do the same th<strong>in</strong>g <strong>in</strong> a monarchy but only by virtue<strong>of</strong> his birth.In stark contrast, <strong>in</strong> the natural order, as <strong>Hans</strong>-<strong>Hermann</strong><strong>Hoppe</strong> expla<strong>in</strong>s <strong>in</strong> his monumental work, Democracy—The Godthat Failed, it is “private property, production, and voluntaryexchange that are the ultimate sources <strong>of</strong> human civilization.” 6This natural order, <strong>Hoppe</strong> notes, must be ma<strong>in</strong>ta<strong>in</strong>ed by a naturalelite which would come by these positions <strong>of</strong> “natural authority,”not by election as <strong>in</strong> the case <strong>of</strong> democracy, or birth as <strong>in</strong> the case<strong>of</strong> monarchy, but by their “superior achievements, <strong>of</strong> wealth, wisdom,bravery or a comb<strong>in</strong>ation there<strong>of</strong>.” 7 This is just the opposite3 Llewellyn H. Rockwell, Jr., “Two K<strong>in</strong>ds <strong>of</strong> Competition,” LewRockwell.com (August 12, 2004).4 Mencken, Notes on Democracy, p. 115.5 H.L. Mencken, The Gist <strong>of</strong> Mencken: Quotations from America’s Critic, MayoDuBasky, ed. (Metuchen, N.J.: Scarecrow Press, 1990), p. 352; orig<strong>in</strong>ally fromH.L. Mencken, “Off Aga<strong>in</strong>, On Aga<strong>in</strong>,” Smart Set (March 1922), p. 50.6 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God that Failed: The Economicsand Politics <strong>of</strong> Monarchy, Democracy, and Natural Order (New Brunswick, N.J.:Transaction Publishers, 2001), p. 71.7 Ibid.
French: The Trouble with Democracy: Maslow Meets <strong>Hoppe</strong> — 239<strong>of</strong> what Mencken and Rockwell describe as a characteristic <strong>of</strong>democracy.Instead, democracy affords the opportunity for anyone to pursuepolitics as a career. There is no need for the masses to recognizea person as “wise” or “successful,” as <strong>Hoppe</strong>’s natural orderwould require. Nor does one have to be born <strong>in</strong>to the rul<strong>in</strong>g family,as <strong>in</strong> the case <strong>of</strong> monarchy. As the great American comedian,Bob Hope, who was actually born <strong>in</strong> England, once quipped, “I leftEngland at the age <strong>of</strong> four when I found out I couldn’t be k<strong>in</strong>g.”Maybe because he knows he can never have Pr<strong>in</strong>ce Charles’s job,Sir Richard Branson—knighted for “services to entrepreneurship”—sticksto bus<strong>in</strong>ess and reportedly owns 360 companies.But, as <strong>Hoppe</strong> expla<strong>in</strong>s, democracies have expanded, and s<strong>in</strong>ceWorld War I have been viewed as the only legitimate form <strong>of</strong> government.In turn, more people who have been successful at otherpursuits are runn<strong>in</strong>g for political <strong>of</strong>fice or becom<strong>in</strong>g politicallyactive. For <strong>in</strong>stance, more and more wealthy billionaires are enter<strong>in</strong>gthe political arena. While the wealthy tycoons <strong>of</strong> a previousgeneration were private and tended to covet seclusion, today’scapta<strong>in</strong>s <strong>of</strong> <strong>in</strong>dustry such as Ross Perot, Michael Bloomberg, andJon Corz<strong>in</strong>e are runn<strong>in</strong>g for <strong>of</strong>fice. And while Warren Buffett, BillGates, and George Soros haven’t sought public <strong>of</strong>fice personally,they spend millions <strong>of</strong> dollars on political contributions and arevisible <strong>in</strong> try<strong>in</strong>g to sway the public debate on political issues, whentheir time would obviously be more productively spent (both forthem and everyone else) on other, wealth-creat<strong>in</strong>g endeavors.Plus, a quarter <strong>of</strong> all House members and a third <strong>of</strong> all members <strong>of</strong>the Senate are millionaires. 8There may be politicians that pursue elected <strong>of</strong>fice for themoney, but many elected <strong>of</strong>ficials are already wealthy by mostpeople’s standards. What makes the wealthy and otherwise successfulwant to hold <strong>of</strong>fice? Is it as Charles Derber describes <strong>in</strong> The8 See “Net Worth, 2007,” OpenSecrets.org (accessed December 15, 2008); also “Millionaires Fill US CongressHalls,” Agence France Presse (June 30, 2004); Sean Loughl<strong>in</strong> and Robert Yoon, “MillionairesPopulate U.S. Senate,” CNN.com (June 13, 2003).
240 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Pursuit <strong>of</strong> Attention: Power and Ego <strong>in</strong> Everyday Life, that politicianss<strong>in</strong>ce “Caesar and Napoleon have been driven by overween<strong>in</strong>gegos and an <strong>in</strong>satiable hunger for public adulation”? 9The work <strong>of</strong> psychologist Abraham Maslow may provide anunderstand<strong>in</strong>g as to why even successful entrepreneurs wouldseek public <strong>of</strong>fice. Maslow is famous for his “hierarchy <strong>of</strong> needs”theory that is taught <strong>in</strong> most management classes <strong>in</strong> American universities.The theory is generally presented visually as a pyramid,with the lowest or most basic human need—physiological need—shown as a layer along the base <strong>of</strong> the pyramid.Maslow’s view was that the basic human needs—thirst,hunger, breath<strong>in</strong>g—must be satisfied before humans could accomplishor worry about anyth<strong>in</strong>g else. The next tranche with<strong>in</strong> thepyramid, shown on top <strong>of</strong> the physiological need, is the safetyneed. After satisfy<strong>in</strong>g thirst and hunger, humans are concernedabout their cont<strong>in</strong>ued survival. If a man is constantly worriedabout be<strong>in</strong>g eaten by a tiger, he doesn’t concern himself with muchelse.The next layer presented with<strong>in</strong> Maslow’s pyramid is thebelong<strong>in</strong>g need, which lies just above safety need. After the satisfaction<strong>of</strong> the two lower needs—physiological and safety—a personseeks love, friendships, companionship and community. Oncethis need is satisfied, accord<strong>in</strong>g to Maslow, humans seek theesteem need. These first four needs were considered deficit needs.If a person is lack<strong>in</strong>g, there is a motivation to fill that need. Oncethe particular need is filled, the motivation abates. This makesthese needs different than the need at the top <strong>of</strong> Maslow’s pyramid,the need for self-actualization. The need for self-actualizationis never satisfied, and Maslow referred to it as a be<strong>in</strong>g need, or tobe all you can be.Thus, humans cont<strong>in</strong>ually strive to satisfy their needs, and asthe more basic needs are satisfied, humans move up the pyramid,if you will, to satisfy higher level needs. Of course, differenthumans achieve different levels, and it was Maslow’s view thatonly two percent <strong>of</strong> humans become self-actualiz<strong>in</strong>g. Maslow9 Charles Derber, The Pursuit <strong>of</strong> Attention: Power and Ego <strong>in</strong> Everyday Life,2nd ed. (New York: Oxford University Press, 2000), p. xxii.
French: The Trouble with Democracy: Maslow Meets <strong>Hoppe</strong> — 241studied some famous people along with a dozen not-so-famousfolks and developed some personality traits that were consistentwith people he judged to be self-actualiz<strong>in</strong>g. Besides be<strong>in</strong>g creativeand <strong>in</strong>ventive, self-actualizers have strong ethics, a self-deprecat<strong>in</strong>gsense <strong>of</strong> humor, humility and respect for others, resistance toenculturation, enjoyment <strong>of</strong> autonomy and solitude <strong>in</strong>stead <strong>of</strong>shallow relationships with many people. They believe the endsdon’t necessarily justify the means and that the means can be ends<strong>in</strong> themselves.One readily sees that Maslow’s self-actualizers have noth<strong>in</strong>g <strong>in</strong>common with politicians <strong>in</strong> a democracy, but closely fit the pr<strong>of</strong>ilethat <strong>Hoppe</strong> describes <strong>of</strong> the natural elite that would lead a naturalorder. But a step down from the top <strong>of</strong> the hierarchy <strong>of</strong> needs pyramidis the need for esteem. Maslow described two types <strong>of</strong> esteemneeds accord<strong>in</strong>g to Maslow expert Dr. C. George Boeree, a loweresteem need and a higher one. And while the higher form <strong>of</strong>esteem calls for healthy attributes such as freedom, <strong>in</strong>dependence,confidence and achievement, the lower form “is the need for therespect <strong>of</strong> others, the need for status, fame, glory, recognition,attention, reputation, appreciation, dignity, even dom<strong>in</strong>ance.”“The negative version <strong>of</strong> these needs is low self-esteem and<strong>in</strong>feriority complexes,” Dr. Boeree writes. “Maslow felt [Alfred]Adler was really onto someth<strong>in</strong>g when he proposed that thesewere at the roots <strong>of</strong> many, if not most, <strong>of</strong> our psychological problems.”10Now we see the qualities displayed by virtually all politicians<strong>in</strong> democracy: the constant need for status and recognition. Theends—compensat<strong>in</strong>g for an <strong>in</strong>feriority complex—justify whateverMachiavellian means.Because democracy is open to any and all who can get themselveselected, either through connections, personality, or personalwealth, it is a social system where leadership positions become ahotbed for sociopaths. Maslow’s self-actualiz<strong>in</strong>g man won’t havean <strong>in</strong>terest <strong>in</strong> politics. But those stuck on the need for esteem aredrawn to it like flies to dung.10 C. George Boeree, “Abraham Maslow,” www.ship.edu/~cgboeree/maslow.html (accessed December 15, 2008).
242 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>With leadership <strong>in</strong> such dysfunctional hands, it is no wonder.“In comparison to the n<strong>in</strong>eteenth century, the cognitive prowess <strong>of</strong>the political and <strong>in</strong>tellectual elites and the quality <strong>of</strong> public educationhave decl<strong>in</strong>ed,” <strong>Hoppe</strong> writes <strong>in</strong> Democracy. 11 “And the rates<strong>of</strong> crime, structural unemployment, welfare dependency, parasitism,negligence, recklessness, <strong>in</strong>civility, psychopathy, and hedonismhave <strong>in</strong>creased.” 12So while the electorate recognizes that they are elect<strong>in</strong>g, at best<strong>in</strong>competents, and at worst crooks, the constant, naïve, prodemocracymantra is that “we just need to elect the right people.”But, the “right people” aren’t (and won’t be) runn<strong>in</strong>g for <strong>of</strong>fice.Instead, we will cont<strong>in</strong>ue to have “the average American legislator[who] is not only an ass,” as Mencken wrote, “but also an oblique,s<strong>in</strong>ister, depraved and knavish fellow. . .” 13 11 <strong>Hoppe</strong>, Democracy, p. 42.12 Ibid., p. 43.13 The Gist <strong>of</strong> Mencken, p. 423; orig<strong>in</strong>ally from H.L. Mencken, “The FreeLance,” Baltimore Even<strong>in</strong>g Sun (January 10, 1913).
25An Epistemic Justification <strong>of</strong>Democracy?David GordonIn his great book Democracy—The God that Failed, <strong>Hans</strong> <strong>Hoppe</strong>argued that democracy leads to a growth <strong>in</strong> state power. In hisview, the transition <strong>in</strong> European history from monarchy todemocracy was a blow to liberty: “I [<strong>Hoppe</strong>] will expla<strong>in</strong> therapid growth <strong>in</strong> state power lamented by Mises and Rothbard asthe systematic outcome <strong>of</strong> the democratic m<strong>in</strong>dset, i.e., the (erroneous)belief <strong>in</strong> the efficiency and/or justice <strong>of</strong> public property andpopular (majority) rule.” 1This conclusion put <strong>Hoppe</strong> <strong>in</strong> polar opposition to the dom<strong>in</strong>antop<strong>in</strong>ion <strong>in</strong> contemporary Anglo-American political philosophy. Inthe ma<strong>in</strong>stream, justifications for democracy abound. It is taken forgranted that democracy, at least for modern Western political societies,is the only justifiable system <strong>of</strong> government. The question upfor discussion is only how the justification is to be accomplished. IDavid Gordon (dgordon@mises.com) is a Senior Fellow at the Ludwig vonMises Institute, the author <strong>of</strong> numerous books, <strong>in</strong>clud<strong>in</strong>g Resurrect<strong>in</strong>g Marx,The Philosophical Orig<strong>in</strong>s <strong>of</strong> Austrian Economics, and An Introduction to EconomicReason<strong>in</strong>g, and editor <strong>of</strong> The Mises Review.1 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God that Failed (New Brunswick,N.J.: Transaction Publishers, 2001), p. xxiii. See my review <strong>in</strong> The Mises Review8, no. 2 (Spr<strong>in</strong>g 2002).243
244 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>propose to exam<strong>in</strong>e a recent endeavor to justify democracy, onethat has already won for its author considerable acclaim. David M.Estlund, <strong>in</strong> Democratic Authority: A Philosophical Framework 2 <strong>of</strong>fersan “epistemic justification” for democracy. I shall endeavor toshow that a crucial step <strong>in</strong> his argument fails.Estlund wishes to show that democratic decision mak<strong>in</strong>g hasboth authority and legitimacy:By authority I [Estlund] will mean the moral power <strong>of</strong>one agent (emphasiz<strong>in</strong>g especially the state) to morallyrequire or forbid actions by others through commands.. . . By legitimacy I will mean the moral permissibility <strong>of</strong>the state’s issu<strong>in</strong>g and enforc<strong>in</strong>g its commands ow<strong>in</strong>g tothe process by which they were produced. (p. 2)One way to show that the state has authority and legitimacywould be to claim that the rulers possess expert knowledge thatothers lack. The rulers know, e.g., how to run a complex economyand the proper foreign policy to adopt, while those not <strong>in</strong> authoritylack such knowledge. (Such a claim would <strong>of</strong> course be risible<strong>in</strong> the actual world; but we are here concerned only with the structure<strong>of</strong> this particular argument, not the factual basis <strong>of</strong> its premise.)As Estlund rightly recognizes, this argument cannot beaccepted. Even if rulers did have superior knowledge, this wouldnot suffice to generate an obligation by others to obey them.It is important to see that authority does not simply followfrom expertise. Even if we grant that there are betterand worse political decisions (which I th<strong>in</strong>k wemust), and that some people know better what shouldbe done that others), it simply does not follow from theirexpertise that they have authority over us, or that theyought to. . . . You might be correct, but what makes youboss? (p. 3)2 Pr<strong>in</strong>ceton University Press, 2008. All subsequent references to this bookwill be by page numbers <strong>in</strong> parentheses <strong>in</strong> the text.
Gordon: An Epistemic Justification <strong>of</strong> Democracy? — 245If expert knowledge does not ground authority and legitimacy,what does? One natural alternative would be to say that someonehas authority over another only by consent. Unless people voluntarilyhave accepted the authority <strong>of</strong> the state, they stand under noobligation to obey its dictates. Libertarian anarchists would readilyembrace this thesis, but Estlund is decidedly not <strong>of</strong> this persuasion.What then is he to do? If he rejects the necessity <strong>of</strong> consent,has he not committed himself to authoritarian rule? The questionbecomes more press<strong>in</strong>g because, as we have seen, he rejects themost natural basis for a claim to rule without consent, i.e., thesuperior knowledge <strong>of</strong> the rulers.Estlund extricates himself from this difficulty by deny<strong>in</strong>g thathe wishes to dispense with consent altogether.A traditional view says that there is no authority withoutconsent. The state is not <strong>in</strong> a position to lay obligationson me unless I voluntarily and know<strong>in</strong>gly agree totheir hav<strong>in</strong>g this moral power. The ma<strong>in</strong> weakness <strong>of</strong>this approach is that it does not seem to account for thestate’s authority over very many people, s<strong>in</strong>ce most peoplenever consent to the authority <strong>of</strong> the state. 3 . . . [But]If there were some conditions that nullified non-consent,the result would be morally equivalent to consent . . .perhaps if the non-consent is morally wrong it should bewithout moral effect. (p. 9)Estlund’s conclusion does not follow. Suppose that you need toconsult some documents that I own <strong>in</strong> order to complete your dissertation.Let us stipulate that I bear you no ill will and that itwould cost me noth<strong>in</strong>g to allow you to consult the documents. Wemight even suppose that you <strong>of</strong>fer me a generous fee if I allow youto exam<strong>in</strong>e them. Unfortunately for your work, I refuse you accessto them on no better grounds than a whim. Clearly, I have actedbadly: I ought not to have impeded your project without cause. Itdoes not follow, though, that because I acted badly, you now may3 Libertarians will not fail to note that for Estlund, it must turn out that thestate is justified. Because strict consent fails to justify the state, it cannot beaccepted as a criterion.
246 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>consult the documents, my wishes to the contrary notwithstand<strong>in</strong>g.In like fashion, I suggest, it does not follow that if you failedto consent to a political decision when you ought to have, thatyour mistaken failure may be taken as equivalent to consent.Let us put this po<strong>in</strong>t to one side and, arguendo, assume thatEstlund’s project <strong>of</strong> rule without actual consent rema<strong>in</strong>s <strong>in</strong> the field.Under what conditions ought people to consent to political decisions?Estlund, one will not be surprised to learn, f<strong>in</strong>ds the answer<strong>in</strong> democracy. In a political community, choices on certa<strong>in</strong> matters<strong>of</strong> concern to all must be made. Everyone <strong>in</strong> the community has achance to have his say on these matters, and the deliberations <strong>of</strong> ademocratic community are likely to arrive at good decisions morethan randomly. In these circumstances, people ought to consent tothe results, even if they f<strong>in</strong>d themselves <strong>in</strong> the m<strong>in</strong>ority.One might at first sight th<strong>in</strong>k that Estlund has retreated to aposition he has already rejected. He appeals to the likelihood <strong>of</strong>correct decisions; but has he not rightly acknowledged that correctnessdoes not generate authority? “You might be correct, butwhat makes you boss?” (p. 3) Further, has he not set his standardvery low? All that he asks <strong>of</strong> democracy is that it leads to gooddecisions more than randomly. If one appeals to the authority <strong>of</strong>knowledge, should one not demand more?But Estlund has not <strong>in</strong> fact embraced what he previously dismissed.It is not the epistemic merits <strong>of</strong> democracy by themselvesthat result <strong>in</strong> the claim to authority; it is these merits comb<strong>in</strong>edwith mass participation <strong>in</strong> decision mak<strong>in</strong>g.Democratically produced laws are legitimate andauthoritative because they are produced by a procedurewith a tendency to make correct decisions. It is not an<strong>in</strong>fallible procedure, and there might even be more accurateprocedures. But democracy is better than randomand epistemically the best among those that are generallyacceptable <strong>in</strong> the way that political legitimacyrequires. (p. 8)Estlund argues for his claim about democratic decision mak<strong>in</strong>g<strong>in</strong> two stages. First, he contends that <strong>in</strong> an ideal system <strong>of</strong> democraticdeliberation, decisions are likely to be right more than randomly.Second, even though actually exist<strong>in</strong>g democracy falls
Gordon: An Epistemic Justification <strong>of</strong> Democracy? — 247short <strong>of</strong> the ideal situation, it is still likely that it reta<strong>in</strong>s therequired epistemic authority.The pr<strong>in</strong>cipal fail<strong>in</strong>g <strong>of</strong> the argument lies <strong>in</strong> the first step.Estlund rightly calls attention to the advantages <strong>of</strong> deliberationand multiple po<strong>in</strong>ts <strong>of</strong> view when one is try<strong>in</strong>g to reach a decision.Has not Hayek taught us the advantages <strong>of</strong> dispersed knowledge,albeit his argument was for the free market rather than for democracy?If we ask why it is that two heads are better than one, orwhy th<strong>in</strong>k<strong>in</strong>g together <strong>in</strong> a communicative way is epistemicallybetter than th<strong>in</strong>k<strong>in</strong>g alone, one element thatdeserves more discussion is the dispersal <strong>of</strong> knowledge.The idea <strong>of</strong> dispersed knowledge is central to Hayek’swork on economic markets, and it is worth look<strong>in</strong>g tohis work for clues to how to use this idea to support theepistemic value <strong>of</strong> democracy. (p. 177)Estlund has fallen <strong>in</strong>to a glar<strong>in</strong>g non sequitur. It seems entirelyreasonable to say that deliberation that takes advantage <strong>of</strong> dispersedknowledge is better than decision that lacks this feature: <strong>in</strong>many cases, two heads are <strong>in</strong>deed better than one. But how doesthis <strong>in</strong> any way establish the conclusion that Estlund wants, i.e.,that democratic decisions have a more than random chance <strong>of</strong>be<strong>in</strong>g right? From the fact that one method is better than another,noth<strong>in</strong>g follows about whether either method is superior tochance.There is a further problem with Estlund’s assertion. In order toknow how “good” democratic decision-mak<strong>in</strong>g is, one wouldneed to compare particular democratic decisions with the correctdecisions. But Estlund nowhere presents any <strong>in</strong>dependent criteriafor the correctness <strong>of</strong> political decisions. Even if he were right, wewould have no way <strong>of</strong> know<strong>in</strong>g this.Estlund’s epistemic argument does not succeed. Given thesorry record <strong>of</strong> democracy that <strong>Hans</strong> <strong>Hoppe</strong> has abundantly documented,this failure was to be expected. 44 Estlund never refers to <strong>Hoppe</strong>.
26Democracy and Faits AccomplisRobert HiggsNo <strong>in</strong>stitution <strong>of</strong> modern life commands as much venerationas democracy. It comes closer than anyth<strong>in</strong>g elseto be<strong>in</strong>g the supreme object <strong>of</strong> adoration <strong>in</strong> a global religion.Anyone who denies its righteousness and desirabilitysoon f<strong>in</strong>ds himself a pariah. One may get away withdenounc<strong>in</strong>g motherhood and apple pie, but not with speak<strong>in</strong>g ill <strong>of</strong>democracy, which is now the pr<strong>in</strong>cipal icon <strong>of</strong> political and sociallife throughout the world. Many people are atheists, but few areanti-democrats.Worship <strong>of</strong> this particular political arrangement has emergedrelatively recently, however, and <strong>in</strong> earlier ages political philosopherswere more apt to condemn democracy than to praise it. Aristotle,whose views received great weight for millennia, did not recommenddemocracy highly. Along with many other criticisms <strong>of</strong>this type <strong>of</strong> government, he wrote <strong>in</strong> his Politics:1313b: 32-41: The f<strong>in</strong>al form <strong>of</strong> democracy has characteristics<strong>of</strong> tyranny: women dom<strong>in</strong>ate <strong>in</strong> the household sothat they can denounce their husbands, slaves lack discipl<strong>in</strong>e,and flatterers—demagogues—are held <strong>in</strong> honor.The people wish to be a monarch.Robert Higgs (RHiggs2377@aol.com) is a Senior Fellow <strong>in</strong> Political Economyfor the Independent Institute and editor <strong>of</strong> The Independent Review: A Journal <strong>of</strong>Political Economy.249
250 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>1295b: 39-1296a5: It is best for citizens <strong>in</strong> a city-state topossess a moderate amount <strong>of</strong> wealth because wheresome have a lot and some have none the result is theultimate democracy or unmixed oligarchy. Tyranny canresult from both these extremes. It is much less likely tospr<strong>in</strong>g from moderate systems <strong>of</strong> government.1276a: 12-14: Some democracies, like tyrannies, rest onforce and are not directed toward the common advantage.1312b: 35-38: Ultimate democracy, like unmixed andf<strong>in</strong>al oligarchy, is really a tyranny divided [among amultitude <strong>of</strong> persons]. 1The founders <strong>of</strong> the United States <strong>of</strong> America had mixed viewsabout democracy. Nearly all <strong>of</strong> them seem to have feared it morethan they respected it. They recognized that concessions to fairlywide participation <strong>in</strong> politics might have to be made to placate themasses—who, after all, had served as cannon fodder <strong>in</strong> therecently concluded war <strong>of</strong> secession from the British Empire—butthey designed a system <strong>in</strong> which vot<strong>in</strong>g would be hobbled and circumscribed,so that the common people would be kept from giv<strong>in</strong>gdirect vent to their passions by seiz<strong>in</strong>g control <strong>of</strong> the governmentand us<strong>in</strong>g it to plunder the rich. The founders conspicuouslyfeared “mob rule” and associated it with untrammeled democracy.All <strong>of</strong> the newly <strong>in</strong>dependent states required property-hold<strong>in</strong>gand other qualifications for vot<strong>in</strong>g, and, <strong>in</strong> practice, the franchisewas limited <strong>in</strong> most places to a small m<strong>in</strong>ority <strong>of</strong> the population—a subset <strong>of</strong> the adult, white males. The Constitution <strong>of</strong> the UnitedStates does not conta<strong>in</strong> the word democracy, although it stipulatescerta<strong>in</strong> protocols for the election <strong>of</strong> <strong>of</strong>ficials, and it relies <strong>in</strong>stead onfederalism and the separation <strong>of</strong> powers to preserve liberty.Although democracy made giant ideological strides <strong>in</strong> the n<strong>in</strong>eteenthcentury, a few writers had the courage to condemn it evenwell <strong>in</strong>to the twentieth century. Among the most astute <strong>of</strong> them1 Thomas R. Mart<strong>in</strong>, with Neel Smith and Jennifer F. Stuart, “Democracy<strong>in</strong> the Politics <strong>of</strong> Aristotle,” <strong>in</strong> Demos· Classical Athenian Democracy· a Stoa Publication(July 26, 2003). Available at: http://www.stoa.org/projects/demos/article_aristotle_democracy?page=2&greekEncod<strong>in</strong>g=.
Higgs: Democracy and Faits Accomplis — 251was Joseph A. Schumpeter. In Capitalism, Socialism and Democracy,he posits as a po<strong>in</strong>t <strong>of</strong> departure for analysis the classical conception<strong>of</strong> democracy: “the democratic method is that <strong>in</strong>stitutionalarrangement for arriv<strong>in</strong>g at political decisions which realizes thecommon good by mak<strong>in</strong>g the people itself decide issues throughthe election <strong>of</strong> <strong>in</strong>dividuals who are to assemble <strong>in</strong> order to carryout its will.” 2 He then proceeds to demolish the pretension thatthis conception makes sense. “If we are to argue that the will <strong>of</strong> thecitizens per se is a political factor entitled to respect,” Schumpeterargues, “it must first exist. That is to say, it must be someth<strong>in</strong>gmore than an <strong>in</strong>determ<strong>in</strong>ate bundle <strong>of</strong> vague impulses looselyplay<strong>in</strong>g about given slogans and mistaken impressions.” 3 Schumpetercalls attention to “the ord<strong>in</strong>ary citizen’s ignorance and lack<strong>of</strong> judgment <strong>in</strong> matters <strong>of</strong> domestic and foreign policy” and adds,anticipat<strong>in</strong>g the rational ignorance concept <strong>of</strong> public choice theory,that “without the <strong>in</strong>itiative that comes from immediate responsibility,ignorance will persist <strong>in</strong> the face <strong>of</strong> masses <strong>of</strong> <strong>in</strong>formationhowever complete and correct.” 4Moreover, “even if there were no political groups try<strong>in</strong>g to<strong>in</strong>fluence him, the typical citizen would <strong>in</strong> political matters tend toyield to extrarational or irrational prejudice and impulse.” Mattersare even worse once we recognize the “opportunities for groupswith an ax to gr<strong>in</strong>d,” who “are able to fashion and, with<strong>in</strong> verywide limits, even to create the will <strong>of</strong> the people,” leav<strong>in</strong>g politicalanalysts to ponder “not a genu<strong>in</strong>e but a manufactured will” that is“the product and not the motive power <strong>of</strong> the political process.” 5Schumpeter conceded that, <strong>in</strong> the long run, the general publicmay come to hold a more perceptive view <strong>of</strong> the world and to2 Joseph A. Schumpeter, Capitalism, Socialism and Democracy, 3rd ed. (NewYork: Harper and Brothers, 1950), p. 250.3 Ibid., p. 253.4 Ibid., pp. 261, 262.5 Ibid., p. 263. For a recent study that grapples with this problem, seeRobert Higgs and Anthony Kilduff, “Public Op<strong>in</strong>ion: A Powerful Predictor <strong>of</strong>U.S. Defense Spend<strong>in</strong>g,” <strong>in</strong> Robert Higgs, Depression, War, and Cold War: Studies<strong>in</strong> Political Economy (New York: Oxford University Press, 2006), pp.195–207.
252 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>reward or punish <strong>of</strong>ficeholders <strong>in</strong> its light when they cast their ballots,but this eventual adjustment itself has a fatal flaw, becausehistory “consists <strong>of</strong> a succession <strong>of</strong> short-run situations that mayalter the course <strong>of</strong> events for good:” 6If all the people can <strong>in</strong> the short run be “fooled” step bystep <strong>in</strong>to someth<strong>in</strong>g they do not really want, and if thisis not an exceptional case which we could afford to neglect,then no amount <strong>of</strong> retrospective common sense willalter the fact that <strong>in</strong> reality they neither raise nor decideissues but that the issues that shape their fate are normallyraised and decided for them. 7Because “electorates normally do not control their political leaders<strong>in</strong> any way except by refus<strong>in</strong>g to reelect them or the parliamentarymajorities that support them,” 8 the dist<strong>in</strong>ct possibility—nay, thegreat likelihood—exists that the voters will f<strong>in</strong>d themselves timeafter time concerned about a horse that has already fled the barn,never to be retrieved.This bleak view <strong>of</strong> the political process under representativedemocracy becomes even bleaker once we recognize that <strong>of</strong>ficeseekerstypically either speak <strong>in</strong> vague, emotion-laden generalitiesor simply lie about their <strong>in</strong>tentions. After tak<strong>in</strong>g <strong>of</strong>fice, they mayact <strong>in</strong> complete disregard <strong>of</strong> their campaign promises, trust<strong>in</strong>g thatwhen they run for reelection, they will be able to concoct a plausibleexcuse for their <strong>in</strong>fidelity and betrayal <strong>of</strong> trust. Thus, the votersrema<strong>in</strong> permanently immersed <strong>in</strong> a fog <strong>of</strong> dis<strong>in</strong>formation, emotionalmanipulation, and bald-faced mendacity. No matter what acandidate promises, the voters have no means <strong>of</strong> hold<strong>in</strong>g him tothose promises or <strong>of</strong> punish<strong>in</strong>g his misbehavior until it may be toolate to matter. In many cases, unfortunately, the <strong>of</strong>ficeholders’decisions give rise to irreversible consequences—outcomes thatcannot possibly be undone ex post.Garet Garrett had a similar vision <strong>of</strong> the uselessness <strong>of</strong> democracyas a means <strong>of</strong> mak<strong>in</strong>g government accountable to the “will <strong>of</strong>the people” (or to anyth<strong>in</strong>g else except the rulers’ own desires).6 Ibid., p. 264; emphasis added.7 Ibid.8 Ibid., p. 272.
Higgs: Democracy and Faits Accomplis — 253Writ<strong>in</strong>g at mid-century, shortly after Schumpeter’s death, <strong>in</strong> anessay titled “Ex America,” Garrett posed the follow<strong>in</strong>g hypotheticalscenario:Suppose a true image <strong>of</strong> the present world had been presentedto them <strong>in</strong> 1900, the future as <strong>in</strong> a crystal ball,together with the question, “Do you want it?” No onecan imag<strong>in</strong>e that they would have said yes—that theycould have been tempted by the comforts, the gadgets,the automobiles and all the fabulous satisfactions <strong>of</strong>midcentury existence, to accept the coils <strong>of</strong> octopeangovernment, the dim-out <strong>of</strong> the <strong>in</strong>dividual, the atomicbomb, a life <strong>of</strong> sicken<strong>in</strong>g fear, the nightmare <strong>of</strong> ext<strong>in</strong>ction.Their answer would have been no, terrifically. 9Hav<strong>in</strong>g set the scene, he asked: “Then how do you account forthe fact that everyth<strong>in</strong>g that has happened to change their worldfrom what it was to what it is has taken place with their consent?”To which he added: “More accurately, first it happened and thenthey consented.” 10Garrett proceeded to list and to discuss briefly a series <strong>of</strong> cataclysmic,course-alter<strong>in</strong>g political events <strong>in</strong> the United States,<strong>in</strong>clud<strong>in</strong>g gett<strong>in</strong>g <strong>in</strong>to World War I, launch<strong>in</strong>g the New Deal, gett<strong>in</strong>g<strong>in</strong>to World War II, and jo<strong>in</strong><strong>in</strong>g the United Nations, not<strong>in</strong>g that<strong>in</strong> each <strong>in</strong>stance the people did not vote for the government’saction, yet “to all <strong>of</strong> this the people have consented, not beforehandbut afterward.” 11One might object at this po<strong>in</strong>t by ask<strong>in</strong>g, “What difference doesit make whether the people consent beforehand or afterward, solong as they consent?” Indeed, Bruce Ackerman has written anentire book to argue precisely that the most pr<strong>of</strong>ound constitutionalchanges <strong>in</strong> U.S. history occurred not when the people formallyamended the Constitution, but when the government acted outsideits constitutional authority <strong>in</strong> a crisis and later received electoral andjudicial validation <strong>of</strong> its actions, and that these de facto constitutional9 Garet Garrett, Ex America: The 50th Anniversary <strong>of</strong> The People’s Pottage,Introduction by Bruce Ramsey (Caldwell, Idaho: Caxton Press, 2004), p. 70.10 Ibid.11 Ibid., p. 72.
254 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>revolutions deserve our approbation; <strong>in</strong>deed, they ought to serveas models for future constitutional revolutions. 12Ackerman’s view may be challenged by not<strong>in</strong>g the frequencywith which constitutional revolutionaries eng<strong>in</strong>eer the alleged expost validation <strong>of</strong> their actions. People <strong>in</strong> power have the greatestability to gerrymander the vot<strong>in</strong>g districts, bias the electoral rules,buy votes with taxpayers’ money, stuff the ballot boxes, and otherwiseensure that those <strong>in</strong> power—regardless <strong>of</strong> how they gotthere—rema<strong>in</strong> <strong>in</strong> power. Similarly, people <strong>in</strong> power have thegreatest ability to appo<strong>in</strong>t new judges, alter judicial jurisdictions,and change the size or number <strong>of</strong> courts <strong>of</strong> appeal to ensure thatthose <strong>in</strong> power—regardless <strong>of</strong> how they got there—ga<strong>in</strong> judicialv<strong>in</strong>dication <strong>of</strong> their (heret<strong>of</strong>ore unconstitutional) actions. 13Despite the force <strong>of</strong> the preced<strong>in</strong>g objections, Ackerman mightrefuse to consider them a knockout blow to his thesis. Sooner orlater, he might <strong>in</strong>sist, the people will be able to vote aga<strong>in</strong>st policiesthey f<strong>in</strong>d <strong>of</strong>fensive, and judges will be able to overturn theconstitutionality <strong>of</strong> laws that transcend the government’s true constitutionalauthority. The political w<strong>in</strong>ners can’t rig the game forever,so if the people and the judges never avail themselves <strong>of</strong>opportunities to express their aversion to the constitutional revolutionariesand their policies, we may presume that they actuallyapprove <strong>of</strong> what has been done—<strong>in</strong> Garrett’s words, “first it happenedand then they consented.”In a sense, this <strong>in</strong>terpretation may be correct, but I doubt thatthe sense I have <strong>in</strong> m<strong>in</strong>d is one that Ackerman would welcome. Ifthe people never avail themselves <strong>of</strong> the opportunity to overturnwhat was done <strong>in</strong>itially without their consent, they may therebyreveal only that people who have been fed th<strong>in</strong> gruel for a longtime get used to eat<strong>in</strong>g it and even come to consider it nutritious. 1412 Bruce Ackerman, We the People 2: Transformations (Cambridge, Mass.:Belknap Press <strong>of</strong> Harvard University Press, 1998).13 Robert Higgs, “On Ackerman’s Justification <strong>of</strong> Irregular ConstitutionalChange: Is Any Vice You Get Away With a Virtue?” Constitutional PoliticalEconomy 10 (November 1999): 375–83.14 For visual representation <strong>of</strong> this phenomenon, noth<strong>in</strong>g can surpass theSpartan regimen depicted <strong>in</strong> early scenes <strong>of</strong> the splendid film Babbette’s Feast(1987).
Higgs: Democracy and Faits Accomplis — 255In less metaphorical terms, my claim is that ideological change is<strong>of</strong>ten path-dependent: where a dom<strong>in</strong>ant ideology stands andwhere it is most likely to go <strong>in</strong> the future depend significantly onwhere it has been <strong>in</strong> the past. 15Bear<strong>in</strong>g <strong>in</strong> m<strong>in</strong>d this aspect <strong>of</strong> political, social, and economicdynamics, we may come to understand better how, for example, <strong>in</strong>each decisive episode <strong>in</strong> the great transformation <strong>of</strong> America’spolitical economy between 1900 and 1950, “first it happened andthen they consented,” and afterward the people looked back onthese episodes not so much with regret as with pride and a sensethat the nation had overcome great challenges. Moreover, the peoplesubsequently elevated to the pantheon <strong>of</strong> “greatness” the presidentswho had taken it upon themselves to plunge the nation <strong>in</strong>tothese cauldrons and endowed them with sa<strong>in</strong>thood <strong>in</strong> the Church<strong>of</strong> Democracy—thus, Woodrow Wilson and Frankl<strong>in</strong> D. Roosevelt,and earlier, <strong>in</strong> the same mold, Abraham L<strong>in</strong>coln. 16After World War I erupted <strong>in</strong> Europe <strong>in</strong> August 1914, the overwhelm<strong>in</strong>gmajority <strong>of</strong> Americans preferred that their governmentrema<strong>in</strong> neutral and not become engaged <strong>in</strong> the fight<strong>in</strong>g. “Aversionto jo<strong>in</strong><strong>in</strong>g <strong>in</strong> the carnage,” writes Walter Karp, “was virtuallyunanimous.” 17 President Wilson represented himself as striv<strong>in</strong>gabove all to end the fight<strong>in</strong>g and to resist the temptation to enterthe war <strong>in</strong> reaction to various provocations by both warr<strong>in</strong>g sides.We may well doubt the s<strong>in</strong>cerity <strong>of</strong> his avowals <strong>of</strong> neutrality, however.Thomas Flem<strong>in</strong>g writes that “<strong>in</strong> an unguarded moment, Wilsonconfessed to a friend that he hoped for an Allied victory <strong>in</strong> the15 Robert Higgs, “The Complex Course <strong>of</strong> Ideological Change,” AmericanJournal <strong>of</strong> Economics and Sociology 67 (October 2008): 547–65.16 Robert Higgs, “Great Presidents?” <strong>in</strong> Aga<strong>in</strong>st Leviathan: GovernmentPower and a Free Society (Oakland, Calif.: The Independent Institute, 2004), pp.53–56.17 Walter Karp, The Politics <strong>of</strong> War: The Story <strong>of</strong> Two Wars Which Altered Foreverthe Political Life <strong>of</strong> the American Republic (1890–1920) (New York: Harperand Row, 1979), p. 169.
256 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>war but was not permitted by his public neutrality to say so.” 18There is no doubt, however, that the president and his electionmanagers perceived that the best way for him to ga<strong>in</strong> reelection <strong>in</strong>1916 was by cont<strong>in</strong>u<strong>in</strong>g to represent himself as a man <strong>of</strong> peace;hence, the campaign slogan “He kept us out <strong>of</strong> war.”Yet, less than a month after beg<strong>in</strong>n<strong>in</strong>g his second term, Wilsonasked Congress for a declaration <strong>of</strong> war, rest<strong>in</strong>g his request on theastonish<strong>in</strong>g ground that Americans had an absolute right to travelunmolested on the high seas on ships carry<strong>in</strong>g munitions to a warr<strong>in</strong>gpower. “Even after Wilson broke <strong>of</strong>f relations with Germany<strong>in</strong> February 1917,” Karp writes, “an overwhelm<strong>in</strong>g majority <strong>of</strong>Americans still opposed enter<strong>in</strong>g the war. Even when the UnitedStates had already been at war for some months, a majority <strong>of</strong>Americans rema<strong>in</strong>ed a sullen, silenced opposition, more pr<strong>of</strong>oundlyalienated from their own government than any Americanmajority has ever been before or s<strong>in</strong>ce.” 19 Karp concludes: “Representativegovernment had failed them at every turn.” 20 Democracy<strong>in</strong> action?Probably no s<strong>in</strong>gle event <strong>of</strong> the past century has been such aprodigious source <strong>of</strong> evils as the U.S. entry <strong>in</strong>to World War I andthe Versailles Treaty that U.S. entry made possible. The conquests<strong>of</strong> Bolshevism, Nazism, and Fascism and the manifold catastrophesknown collectively as World War II, not to mention endlesstroubles <strong>in</strong> the Middle East, arguably, may be traced directly tothis source. 21 In the United States, World War I prompted the governmentto embrace what contemporaries called “war socialism”(though it was, <strong>in</strong> more precise language, “war fascism” for themost part), which provided bluepr<strong>in</strong>ts for an immense variety <strong>of</strong>government <strong>in</strong>terventions <strong>in</strong> the economy and society, many <strong>of</strong>18 Thomas Flem<strong>in</strong>g, The Illusion <strong>of</strong> Victory: America <strong>in</strong> World War I (NewYork: Basic Books, 2003), p. 75.19 Karp, The Politics <strong>of</strong> War, p. 169.20 Ibid., p. 324.21 Among recent sources, see, for example, Jim Powell, Wilson’s War: HowWoodrow Wilson’s Great Blunder Led to Hitler, Len<strong>in</strong>, Stal<strong>in</strong> & World War II (NewYork: Crown Forum, 2005); and Patrick J. Buchanan, Churchill, Hitler, and theUnnecessary War: How Brita<strong>in</strong> Lost Its Empire and the West Lost the World (NewYork: Crown, 2008).
Higgs: Democracy and Faits Accomplis — 257which cont<strong>in</strong>ue to impoverish Americans and to crush their libertiesn<strong>in</strong>ety years later. 22 The war could have such extreme andendur<strong>in</strong>g consequences because it had also brought about abruptideological changes: many Americans became conv<strong>in</strong>ced by theirperception <strong>of</strong> the wartime controls that the government was capable<strong>of</strong> successfully engag<strong>in</strong>g <strong>in</strong> socio-economic eng<strong>in</strong>eer<strong>in</strong>g on awide front. Thus, the war put the f<strong>in</strong>al nail <strong>in</strong>to the c<strong>of</strong>f<strong>in</strong> <strong>of</strong> n<strong>in</strong>eteenth-centuryliberalism, at least <strong>in</strong> the eyes <strong>of</strong> the major politicalplayers. As Bernard Baruch, the wartime head <strong>of</strong> the War IndustriesBoard, declared, “We helped <strong>in</strong>ter the extreme dogmas <strong>of</strong> laissez-faire,which had for so long molded American economic andpolitical thought.” 23Democracy’s next colossal failure <strong>in</strong> the United States occurred<strong>in</strong> 1932. By the time <strong>of</strong> the presidential election <strong>in</strong> November, thecountry had experienced more than three years <strong>of</strong> worsen<strong>in</strong>g economicperformance: fall<strong>in</strong>g output, ris<strong>in</strong>g unemployment, <strong>in</strong>creas<strong>in</strong>gnumbers <strong>of</strong> bus<strong>in</strong>ess failures, and grow<strong>in</strong>g numbers <strong>of</strong> homesand bus<strong>in</strong>esses lost to foreclosure or to seizure for failure to paytaxes. Not without plausible reasons, people blamed PresidentHerbert Hoover for these dreadful developments and gaveFrankl<strong>in</strong> D. Roosevelt, the Democratic challenger, the benefit <strong>of</strong> thedoubt.Roosevelt campaigned on a platform that the old Grover Cleveland-styleDemocrats <strong>of</strong> the n<strong>in</strong>eteenth century might haveendorsed comfortably. As Jesse Walker summarizes it:The very first plank calls for “an immediate and drasticreduction <strong>of</strong> governmental expenditures by abolish<strong>in</strong>guseless commissions and <strong>of</strong>fices, consolidat<strong>in</strong>g departmentsand bureaus, and elim<strong>in</strong>at<strong>in</strong>g extravagance toaccomplish a sav<strong>in</strong>g <strong>of</strong> not less than twenty-five per cent<strong>in</strong> the cost <strong>of</strong> the Federal Government.” (It also asks “thestates to make a zealous effort to achieve a proportionateresult.”) Subsequent planks demand a balanced22 Robert Higgs, Crisis and Leviathan: Critical Episodes <strong>in</strong> the Growth <strong>of</strong> AmericanGovernment (New York: Oxford University Press, 1987).23 Bernard M. Baruch, Baruch: The Public Years (New York: Holt, R<strong>in</strong>ehartand W<strong>in</strong>ston, 1960), p. 74.
258 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>budget, a low tariff, the repeal <strong>of</strong> Prohibition, “a soundcurrency to be preserved at all hazards,” “no <strong>in</strong>terference<strong>in</strong> the <strong>in</strong>ternal affairs <strong>of</strong> other nations,” and “theremoval <strong>of</strong> government from all fields <strong>of</strong> private enterpriseexcept where necessary to develop public worksand natural resources <strong>in</strong> the common <strong>in</strong>terest.” The documentconcludes with a quote from Andrew Jackson:“equal rights to all; special privilege to none.” 24Hav<strong>in</strong>g made these promises, Roosevelt swept to a lopsided victoryat the polls.Yet, the merest child knows that his New Deal, a huge hodgepodge<strong>of</strong> domestic <strong>in</strong>terventions, controls, subsidies, taxes, threats,seizures, and other troublemak<strong>in</strong>g amounted to nearly the exactopposite <strong>of</strong> what he had promised the voters dur<strong>in</strong>g the campaign.So what, we may hear Pr<strong>of</strong>essor Ackerman ask<strong>in</strong>g <strong>of</strong>fstage;didn’t the people endorse these actions by reelect<strong>in</strong>g Rooseveltwith an even greater marg<strong>in</strong> <strong>of</strong> victory <strong>in</strong> 1936? Yes, <strong>of</strong> course, theydid. But, by that time, the president and his party had turned thefederal government <strong>in</strong>to a vast vote-buy<strong>in</strong>g apparatus that coveredthe entire country and penetrated every county, town, andvillage. As John T. Flynn described the situation:Roosevelt’s billions, adroitly used, had broken downevery political mach<strong>in</strong>e <strong>in</strong> America. The patronage theyonce lived on and the local money they once had to disburseto help the poor was trivial compared to the vastfloods <strong>of</strong> money Roosevelt controlled. And no politicalboss could compete with him <strong>in</strong> any county <strong>in</strong> America<strong>in</strong> the distribution <strong>of</strong> money and jobs. 25Nor was this garden-variety political corruption the worst <strong>of</strong> it.Far more significant <strong>in</strong> the long run was the loss <strong>of</strong> faith <strong>in</strong> the freemarket among the masses and the boost given to ideological supportfor economic fascism. Ow<strong>in</strong>g to the Great Depression and the24 Jesse Walker, “The New Frankl<strong>in</strong> Roosevelts: Don’t Count on a Candidate’sCampaign Stances to Tell You How He’ll Behave <strong>in</strong> Office,” ReasonOnl<strong>in</strong>e, April 10, 2008, at http://www.reason.com/news/show/125921.html.25 John T. Flynn, The Roosevelt Myth (Garden City, N.Y.: Garden CityBooks, 1949), p. 65.
Higgs: Democracy and Faits Accomplis — 259New Deal, later generations would live <strong>in</strong> chronic fear <strong>of</strong> economicprivation and rest their hopes for security <strong>in</strong> a fervent belief that ifthe economy turned down, the government could and would rescuethem. The Employment Act <strong>of</strong> 1946 codified this publicdependency. Rugged <strong>in</strong>dividualism, to the extent that it had everreally existed, died a cruel death at the hands <strong>of</strong> the New Deal—precisely the opposite <strong>of</strong> what Roosevelt had promised when hefirst campaigned for the presidency. Democracy <strong>in</strong> action?Roosevelt was still <strong>in</strong> <strong>of</strong>fice when the next great travesty <strong>of</strong>democracy occurred, <strong>in</strong> 1940. War between the great powers hadresumed <strong>in</strong> Europe, as everyone had expected it eventually wouldafter the Versailles Treaty was signed <strong>in</strong> 1919. Just as the greatmajority <strong>of</strong> Americans had wished to keep away from the fight<strong>in</strong>g<strong>in</strong> 1914, so a great majority aga<strong>in</strong> wanted noth<strong>in</strong>g to do with theEuropean bloodlett<strong>in</strong>g. Roosevelt, as the leader <strong>of</strong> the small m<strong>in</strong>oritythat favored go<strong>in</strong>g to war—to save the British and (dare weconjecture?) to permit him to achieve the “greatness” that onlywartime leadership br<strong>in</strong>gs—had to play his cards carefully. Fortwo years, mendacity would be his major political device, as hesought to maneuver Germany and Japan <strong>in</strong>to an “<strong>in</strong>cident” so<strong>in</strong>flammatory that it would shock the public <strong>in</strong>to support<strong>in</strong>g U.S.entry <strong>in</strong>to the war. 26Roosevelt’s vault<strong>in</strong>g ambition fed his quest for reelection to anunprecedented third term. Given the massive public opposition towar—opposition, that is, to the very objective whose atta<strong>in</strong>ment hesought above all others—the president, who had already begun to<strong>in</strong>volve the country <strong>in</strong> the war <strong>in</strong> discreet ways, lifted his dishonestyto a higher level as the election approached. In a campaignspeech at Boston on October 30, 1940, he declared bluntly: “I havesaid this before, but I shall say it aga<strong>in</strong> and aga<strong>in</strong>: Your boys arenot go<strong>in</strong>g to be sent <strong>in</strong>to any foreign wars.” As David M. Kennedynotes, “Conspicuously, Roosevelt omitted the qualify<strong>in</strong>g phrase26 Among the many sources relevant to this maneuver<strong>in</strong>g, see the recentworks by Robert B. St<strong>in</strong>nett, Day <strong>of</strong> Deceit: The Truth about FDR and Pearl Harbor(New York: Free Press, 2000); Thomas Flem<strong>in</strong>g, The New Dealers’ War:F.D.R. and the War with<strong>in</strong> World War II (New York: Basic Books, 2001); andGeorge Victor, The Pearl Harbor Myth: Reth<strong>in</strong>k<strong>in</strong>g the Unth<strong>in</strong>kable (Dulles, Va.:Potomac Books, 2007).
260 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>that he had used on previous occasions: ‘except <strong>in</strong> case <strong>of</strong>attack.’“ 27 Rely<strong>in</strong>g on this seem<strong>in</strong>gly frank promise, the electoratereturned Roosevelt to <strong>of</strong>fice for another term.In return, <strong>of</strong> course, they found themselves be<strong>in</strong>g pushed fartherand farther toward open U.S. belligerency, until f<strong>in</strong>ally theJapanese attack on Pearl Harbor gave the president what he, hischief subord<strong>in</strong>ates, and his closest supporters had been seek<strong>in</strong>gfrom the start: declared engagement <strong>in</strong> the greatest armed conflict<strong>of</strong> all time. Democracy <strong>in</strong> action?By the time it ended, Americans had suffered more than a millioncasualties, <strong>in</strong>clud<strong>in</strong>g more than 400,000 servicemen’s deaths,and four years <strong>of</strong> economic fascism on the home front, with extensivecontrols and government takeovers that dwarfed those <strong>of</strong> anycomparable episode <strong>in</strong> the United States before or s<strong>in</strong>ce. Moreover,the entire world had been altered, as the Soviet Union, America’swartime ally, now stood astride all <strong>of</strong> eastern Europe and much <strong>of</strong>central Europe, too, as far west as Czechoslovakia, so that whenthe violence ended <strong>in</strong> 1945, only a tense pseudo-peace took itsplace, and the world was condemned to live <strong>in</strong> fear <strong>of</strong> nuclearannihilation <strong>in</strong>def<strong>in</strong>itely.For this dismal result, we may credit the democratic systemthat put Frankl<strong>in</strong> D. Roosevelt and his party <strong>in</strong> power and allowedthem to make the United States the decisive factor <strong>in</strong> the war’s outcome.Without America’s active <strong>in</strong>volvement <strong>in</strong> the war, theBritish might have been forced to sue for peace, and the Germansand the Soviets might have bled one another to death—a grislyoutcome, to be sure, but would it have been any worse than whatactually happened? We cannot know, <strong>of</strong> course; history is not oursto rerun, like a controlled experiment with reset conditions. Yet,we can scarcely deny that the devastated world <strong>of</strong> 1945, with 50million dead, tens <strong>of</strong> millions left sick, wounded, or homeless, anda murderous Communist dictator <strong>in</strong> control <strong>of</strong> half <strong>of</strong> Europe, wasscarcely what most Americans sought to br<strong>in</strong>g about when theycast their votes for Roosevelt <strong>in</strong> 1940.27 David M. Kennedy, Freedom from Fear: The American People <strong>in</strong> Depressionand War, 1929–1945 (New York: Oxford University Press, 1999), p. 463.
Higgs: Democracy and Faits Accomplis — 261Democracy has always had its critics. No one claims that it is aperfect system for choos<strong>in</strong>g political leaders or for putt<strong>in</strong>g <strong>in</strong> placethe policies and laws the public prefers. Obviously, when <strong>in</strong>dividualpreferences differ, no one political outcome can please everybody,and the “tyranny <strong>of</strong> the majority” stands as a constant menaceto the lives, liberties, and property <strong>of</strong> unpopular m<strong>in</strong>orities.Yet, most people cont<strong>in</strong>ue to <strong>in</strong>sist that democracy, with all itsfaults, <strong>of</strong>fers to best <strong>in</strong>stitutional arrangement for mak<strong>in</strong>g rulersaccountable to the people. So long as elections cont<strong>in</strong>ue to be held,the possibility always rema<strong>in</strong>s <strong>of</strong> “throw<strong>in</strong>g the rascals out.”What has not been widely recognized, however, is the problem<strong>of</strong> faits accomplis. Once elected rulers have taken <strong>of</strong>fice, the democraticsystem provides little or no effective means for the people tobr<strong>in</strong>g them to heel short <strong>of</strong> the next election. The great problem isthat, by that time, it may be impossible to reverse the outcomes therulers have brought about. Wilson was not elected <strong>in</strong> 1916 toplunge the nation <strong>in</strong>to the Great War. Roosevelt was not elected <strong>in</strong>1932 to impose the New Deal on the country. Nor was he elected<strong>in</strong> 1940 to maneuver the United States <strong>in</strong>to the greatest war <strong>of</strong> alltime. Yet, <strong>in</strong> each case, the president did the opposite <strong>of</strong> what hehad promised to do, and the people were left with no recourse. Theworld <strong>of</strong> 1919, the United States <strong>of</strong> 1936, and the world <strong>of</strong> 1945—each was so massively, so irrevocably altered from the preced<strong>in</strong>gstatus quo that any genu<strong>in</strong>e restoration <strong>of</strong> the previous conditionswas unimag<strong>in</strong>able. Like it or not, people were to a great extentsimply stuck with what the deceitful politicians had done.Worse, ow<strong>in</strong>g to “ideological learn<strong>in</strong>g,” many people who <strong>in</strong>itiallyhad not desired these changes did approve <strong>of</strong> them <strong>in</strong> the circumstances<strong>in</strong> which they later found themselves—circumstancesthat they had <strong>in</strong> no way chosen, not even <strong>in</strong>directly, but <strong>in</strong>to whichthey had been forcibly shoved by the rul<strong>in</strong>g decision-makers. Contemplat<strong>in</strong>gthis situation, one readily recalls Goethe’s dictum that“none are more hopelessly enslaved than those who falsely believethey are free.”Still worse, an altered ideological context then sets the stagefrom which a society may be propelled even further from thecourse it <strong>in</strong>itially preferred dur<strong>in</strong>g the next round <strong>of</strong> democratic
262 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>choice, unconstra<strong>in</strong>ed decisions by elected <strong>of</strong>ficials, and the result<strong>in</strong>gfaits accomplis. If people believe that democracy is a means bywhich ord<strong>in</strong>ary people may ensure that they exercise some controlover their own societal fate, they are fool<strong>in</strong>g themselves. If the personselected to <strong>of</strong>fice have a free hand to act as they please, thenthe sense that they are truly accountable to the electorate is an illusion.It comes closer to the truth to say that the people are completelyat the mercy <strong>of</strong> the <strong>of</strong>ficials they have elected.“Democracy,” wrote H.L. Mencken, “may be a self-limit<strong>in</strong>g disease,as civilization itself seems to be. There are thump<strong>in</strong>g paradoxes<strong>in</strong> its philosophy, and some <strong>of</strong> them have a suicidalsmack.” 28 Whether it will prove suicidal for its adherents, onlytime will tell, but we might note that, so far, only the United States<strong>of</strong> America, whose leaders and people tout their country as thegreatest <strong>of</strong> all democracies, has employed nuclear weapons <strong>in</strong> war.It is not <strong>in</strong>conceivable that Woodrow Wilson’s war to make theworld safe for democracy, ow<strong>in</strong>g to the tra<strong>in</strong> <strong>of</strong> consequences it set<strong>in</strong> motion, may ultimately make the world safe for democracy, tobe sure, but not safe for mank<strong>in</strong>d. 28 H.L. Mencken, A Mencken Chrestomathy (New York: Knopf, 1949), p. 157.
27Aga<strong>in</strong>st the Primacy <strong>of</strong> Politics—Aga<strong>in</strong>st the Overestimation <strong>of</strong>Majority Pr<strong>in</strong>cipleRobert NefMuch as one may admire the clear-sightedness <strong>of</strong>Greco-Roman political philosophy and especiallyAristotle, one should not shy away from fundamentalcriticism. It has had a pervasive and toxic <strong>in</strong>fluence onthe history <strong>of</strong> political thought.ATHENS—ON THE BACK OF AN ARMY OF SLAVESFor Aristotle, democracy was a decayed form <strong>of</strong> that “rule by themany” that he called a polity. So the career <strong>of</strong> the term “democracy,”which is generally regarded nowadays as positive, beganwith radical criticism. Aristotle accurately identified and describedthe potential <strong>of</strong> the pr<strong>in</strong>ciple <strong>of</strong> majority rule to degenerate. HisPolitics is a plea for a mixed constitution. He differentiates betweenrule by one, few or many. All three forms <strong>of</strong> government can be basicallypositive if they “rule with a view to the common pr<strong>of</strong>it” andRobert Nef (robertnef@bluew<strong>in</strong>.ch) is Chairman <strong>of</strong> the Liberales Institut <strong>in</strong>Zurich, a classical liberal th<strong>in</strong>k tank. This chapter is extracted from an addresshe gave on 28 June 2008 <strong>in</strong> Freiburg (Breisgau, Germany) on the occasion <strong>of</strong>receiv<strong>in</strong>g the Hayek Medal from the Friedrich A. von Hayek Gesellschaft.263
264 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>fail if they serve only to benefit the one or the few or the many.Aristotle regards it as possible for the many to rule virtuously, buthe considers it unlikely. His reason<strong>in</strong>g is entirely empirical:For while it is possible for one or a few to be outstand<strong>in</strong>glyvirtuous, it is difficult for a larger number to beaccomplished <strong>in</strong> every virtue, but it can be so <strong>in</strong> militaryvirtue <strong>in</strong> particular. That is precisely why the class <strong>of</strong>defensive soldiers, the ones who possess the weapons,has the most authority <strong>in</strong> this constitution.Deviations from these are tyranny from k<strong>in</strong>gship,oligarchy from aristocracy, and democracy from polity.For tyranny is rule by one person for the benefit <strong>of</strong> themonarch, oligarchy is for the benefit <strong>of</strong> the rich, anddemocracy is for the benefit <strong>of</strong> the poor. But none is fortheir common pr<strong>of</strong>it. 1Although Aristotle showed himself to be a shrewd observer <strong>of</strong>his contemporaries when he def<strong>in</strong>ed man as a political animal(zoon politikon), <strong>in</strong> my op<strong>in</strong>ion he prepared the way for a devastat<strong>in</strong>goverestimation <strong>of</strong> political, and a momentous underestimation<strong>of</strong> private, economic and civil society. For aristocrats like himselfand Plato before him, and for many leisured aesthetes who cameafter him, homo oeconomicus—the farmer, the tradesman, the serviceprovider and the merchant—was noth<strong>in</strong>g but a philist<strong>in</strong>e.These people—on the back <strong>of</strong> an army <strong>of</strong> slaves and other disenfranchisedpersons—concerned themselves with such banal activitiesas mak<strong>in</strong>g a liv<strong>in</strong>g. In cont<strong>in</strong>ental Europe, this k<strong>in</strong>d <strong>of</strong> division<strong>of</strong> labor between economics and politics has led to a widespreadcontempt for homo oeconomicus and for the economy as such, <strong>in</strong>both the broad and narrow sense <strong>of</strong> the word.The <strong>in</strong>tellectual preference for homo politicus over homo oeconomicusis alive and well. The “primacy <strong>of</strong> politics,” as a fundamentalpr<strong>in</strong>ciple <strong>of</strong> a grey-haired generation <strong>of</strong> believers <strong>in</strong> codeterm<strong>in</strong>ationand grassroots democracy, still haunts the literature<strong>of</strong> social sciences.1 Aristotle, Politics, C.D.C. Reeve, trans. (Indianapolis: Hackett Publish<strong>in</strong>gCompany, 1998), Book III, chap. 7, 1279a39–1279b8.
Nef: Aga<strong>in</strong>st the Primacy <strong>of</strong> Politics — 265APPENZELL AS THE COUNTERPART OF ANCIENT ATHENSDirect democracy as embodied <strong>in</strong> the Appenzell “Landsgeme<strong>in</strong>de”differs markedly from the democracy <strong>of</strong> the Athenians. 2In Athens, the popular assemblies were convened three or fourtimes a month and those who attended received a per diem payment.The assembly <strong>of</strong> the people controlled the civil service,supervised the state-regulated distribution <strong>of</strong> gra<strong>in</strong>, decidedwhether to go to war or make peace, passed verdicts <strong>in</strong> cases <strong>of</strong>treason, ostracized citizens considered a danger to the state, listenedto petitions, and selected the key functionaries for militarymatters, for whom war then became crucial to their survival. TheCouncil <strong>of</strong> 500 met practically every day! The Convention, whichwas established dur<strong>in</strong>g the French Revolution and became themodel for many contemporary parliamentary systems, took many<strong>of</strong> its ideas from this system. In this way, politics itself becomes thedisease that it is supposed to cure.A marked contrast is provided by the political system <strong>of</strong> thetwo Appenzells, which have managed to compete peacefully forcenturies with politically comparable but religiously and culturallydiffer<strong>in</strong>g ways <strong>of</strong> govern<strong>in</strong>g and liv<strong>in</strong>g.This political system, which was practiced consistently formore than five hundred years, was <strong>in</strong> fact direct democracy. Thisrefutes all assertions, <strong>in</strong>clud<strong>in</strong>g those <strong>of</strong> Aristotle, that rule by themany must collapse eventually under the weight <strong>of</strong> its <strong>in</strong>ternaldeficiencies because it would <strong>in</strong>evitably lead to exploitation <strong>of</strong> them<strong>in</strong>ority <strong>of</strong> rich citizens by the majority <strong>of</strong> the non-rich.At the “Landsgeme<strong>in</strong>de,” a k<strong>in</strong>d <strong>of</strong> open-air general assembly,elections were held and laws passed—or thrown out if there was noconsensus. The chief magistrate, who was mandated by the peopleto act <strong>in</strong> a part-time capacity as head <strong>of</strong> the government, wasentrusted for one year with the state seal with which contracts were<strong>of</strong>ficially sealed and was required to render public account to theeffect that any action taken had been “for the good <strong>of</strong> the country.”2 Karl Mittermaier and Me<strong>in</strong>hard Mair, Demokratie, Geschichte E<strong>in</strong>er PolitischenIdee von Platon bis Heute [Democracy, the History <strong>of</strong> a Political Idea fromPlato to Today] (Darmstadt: Wissenschaftliche Buchgesellschaft, Darmstadt,1995).
266 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>All posts <strong>in</strong> government and the judiciary were—and <strong>in</strong> somecases still are—part-time, unsalaried, and restricted to one year.There is no such th<strong>in</strong>g as a pr<strong>of</strong>essional politician; politics ismerely a part <strong>of</strong> the function <strong>of</strong> each citizen. Those <strong>in</strong> positions <strong>of</strong>responsibility were elected and dismissed directly by the people.Their powers were always severely restricted. These <strong>in</strong>volved, <strong>in</strong>particular, foreign policy, the legal system, and cantonal road construction.There was almost noth<strong>in</strong>g to distribute apart from burdens.The decision to embark on a military campaign was taken bythose who then made up the army. This co-identity <strong>of</strong> those tak<strong>in</strong>gthe decision with those who had to implement it is crucial, especially<strong>in</strong> the area <strong>of</strong> military service where the collective demandsthat the <strong>in</strong>dividual put his life <strong>in</strong> jeopardy. In this case, Aristotlegot it right. Where it is a matter <strong>of</strong> choos<strong>in</strong>g war or peace—a fundamentalpolitical question—the many, who bear the consequences<strong>of</strong> the decision, are <strong>in</strong> fact more competent to decide thanthe few who may benefit from it.This is the essential difference between the slave-owners andpolitick<strong>in</strong>g idlers <strong>of</strong> Athens and the hard-work<strong>in</strong>g small farmers <strong>of</strong>Appenzell, who not only labored on their own land but als<strong>of</strong>ormed the militia that protected it. The importance <strong>of</strong> public andprivate issues—res publica and res privata—was fundamentally different.Generally the m<strong>in</strong>imum consensus was found at the “Landsgeme<strong>in</strong>de”through the procedures <strong>of</strong> direct democracy, <strong>of</strong>ten withvery substantial majorities. Sometimes the assemblies would end<strong>in</strong> dispute, but although all those present were armed, the disputesdid not lead to bloodshed. For one day <strong>in</strong> the year, each man wasa zoon politikon. The other 364 days belonged to the “Häämetli”(i.e., the home farm), its private economy, the community <strong>of</strong> one’sfamily, and the locally anchored culture. In summary, therefore,the process <strong>of</strong> build<strong>in</strong>g consensus with<strong>in</strong> a democracy on the basis<strong>of</strong> the pr<strong>in</strong>ciple <strong>of</strong> majority rule is possible if it is limited <strong>in</strong> terms<strong>of</strong> scope, timeframe, and f<strong>in</strong>ance to the smallest possible portion <strong>of</strong>the life <strong>of</strong> a civil society, and if co-determ<strong>in</strong>ation rema<strong>in</strong>s theexception to the rule <strong>of</strong> self-determ<strong>in</strong>ation.The practice <strong>of</strong> direct democracy <strong>in</strong> the two Appenzells hasbeen presented here <strong>in</strong> a simplified and—admittedly—idealizedway. It is regrettable that the open assembly, which had been an
Nef: Aga<strong>in</strong>st the Primacy <strong>of</strong> Politics — 267<strong>in</strong>stitution <strong>in</strong> Canton Appenzell Ausserrhoden, an <strong>in</strong>dustrializedarea s<strong>in</strong>ce the 19th century, was discont<strong>in</strong>ued about ten years ago.However, it proved possible to reta<strong>in</strong> the militia pr<strong>in</strong>ciple and therelatively lean political apparatus.Without the <strong>in</strong>st<strong>in</strong>ctual distrust <strong>of</strong> all k<strong>in</strong>ds <strong>of</strong> power, the pr<strong>in</strong>ciple<strong>of</strong> majority rule is <strong>in</strong> danger <strong>of</strong> do<strong>in</strong>g away with that creativedissidence on which majorities too have to rely over the longerterm. In the f<strong>in</strong>al analysis, protection for m<strong>in</strong>orities protects themajority from collective stupefaction, but a great deal <strong>of</strong> nonsenseis also propagated on the back <strong>of</strong> protection for m<strong>in</strong>orities. It is<strong>of</strong>ten used to <strong>in</strong>troduce group privileges <strong>of</strong> all k<strong>in</strong>ds. We must notlose sight <strong>of</strong> the fact that, as Ayn Rand observed, the most importantm<strong>in</strong>ority is the <strong>in</strong>dividual.SELF-DETERMINATION IS BETTER THAN CO-DETERMINATIONCo-determ<strong>in</strong>ation <strong>in</strong> accordance with the pr<strong>in</strong>ciple <strong>of</strong> majorityrule is not an end <strong>in</strong> itself. It enjoys a subsidiary position vis-à-visacts <strong>of</strong> <strong>in</strong>dividual self-determ<strong>in</strong>ation. I rem<strong>in</strong>d readers <strong>of</strong> the priorityenjoyed by the “home farm” over the wider community <strong>in</strong>Appenzell, namely 364 to 1. The burden <strong>of</strong> pro<strong>of</strong>, as regards longtermpracticability and common benefit, is borne by those whowant to replace personal autonomy based on the pr<strong>in</strong>ciple <strong>of</strong> selfdeterm<strong>in</strong>ationwith collective autonomy based on the pr<strong>in</strong>ciple <strong>of</strong>majority rule.One should not make it too easy for them to provide this pro<strong>of</strong>before the <strong>in</strong>tellectual forum that assesses political power <strong>in</strong> theoryat first and then also <strong>in</strong> practice. Despite Alcu<strong>in</strong>’s and Lichtenberg’sformulation (vox populi vox Dei), and consonant with <strong>Hans</strong><strong>Hoppe</strong>, the pr<strong>in</strong>ciple <strong>of</strong> majority rule is “a god that is none.” 3The compulsion to do good and, above all, the compulsion todo what the majority holds to be good, turns diversity <strong>in</strong>to uniformityand has a destructive impact on the community overall.3 See <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God that Failed: The Economicsand Politics <strong>of</strong> Monarchy, Democracy, and Natural Order (New Brunswick,N.J.: Transaction Publishers, 2001).
268 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Every creative community is based on peaceful competition, and ifthe pr<strong>in</strong>ciple <strong>of</strong> majority rule is misused to get rid <strong>of</strong> unpopularalternative solutions, it degenerates <strong>in</strong>to rule by those populistswho happen to have the ear <strong>of</strong> the majority at the time.
Part FiveEconomics
28<strong>Hoppe</strong>an Political Economy versusPublic ChoiceThomas J. DiLorenzoJames M. Buchanan’s 1986 Nobel prize <strong>in</strong> economics signifiedrecognition <strong>of</strong> the fact that Buchanan and his colleagues <strong>in</strong> thesub-discipl<strong>in</strong>e <strong>of</strong> “public choice” had resurrected the study <strong>of</strong>political economy <strong>in</strong> the pr<strong>of</strong>ession. From at least the time <strong>of</strong>Adam Smith until the early twentieth century, it was generallyunderstood that one could not fully understand the economicworld unless one <strong>in</strong>cluded study <strong>of</strong> the impact <strong>of</strong> the state on theeconomy. In its zeal to mimic the physical sciences, the economicspr<strong>of</strong>ession had abandoned the study <strong>of</strong> political economy, for themost part (with the exception <strong>of</strong> the Austrians), and embracedmathematical model build<strong>in</strong>g—usually <strong>of</strong> “models” that expla<strong>in</strong>edwhy markets always “failed.”Buchanan’s pioneer<strong>in</strong>g work <strong>in</strong> public choice did not directlychallenge the volum<strong>in</strong>ous “market failure” literature; <strong>in</strong>stead, heand others developed theories <strong>of</strong> the political process underdemocracy, based on economic theory and methodology, thathelped to expla<strong>in</strong> why government failure is likely to be far worseThomas J. DiLorenzo (tdilo@aol.com) is pr<strong>of</strong>essor <strong>of</strong> economics at Loyola University-Maryland,and a senior fellow at the Ludwig von Mises Institute.271
272 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>than any shortcom<strong>in</strong>gs <strong>of</strong> the free market, by any standard (certa<strong>in</strong>lyby the standard <strong>of</strong> Pareto optimality). 1 Thus, public choice issaid to be a study <strong>of</strong> “comparative failures,” <strong>of</strong> markets and governments.<strong>Hans</strong> <strong>Hoppe</strong>’s sem<strong>in</strong>al work, Democracy—The God that Failed, 2is <strong>in</strong> many ways far superior to the analysis <strong>of</strong> democracy that isprovided by public choice analysis because it is grounded, not <strong>in</strong>neoclassical economic theory, but <strong>in</strong> “Austrian social theory” andis especially <strong>in</strong>fluenced by the work <strong>of</strong> Ludwig von Mises andMurray Rothbard. The comb<strong>in</strong>ation <strong>of</strong> Austrian economics and thehistorical and philosophical <strong>in</strong>sights <strong>of</strong> Mises and Rothbardenabled <strong>Hoppe</strong> to develop <strong>in</strong>sights that are at times devastat<strong>in</strong>glycritical <strong>of</strong> the much-acclaimed public choice theory while provid<strong>in</strong>gfar superior explanations <strong>of</strong> the work<strong>in</strong>gs <strong>of</strong> democracy. Thepurpose <strong>of</strong> this paper is to po<strong>in</strong>t out or highlight some <strong>of</strong> thesemajor <strong>in</strong>sights and to expla<strong>in</strong> how they are different from, andsuperior to, public choice <strong>in</strong>sights.DEMOCRACY AND THE PROCESS OF DECIVILIZATIONOne <strong>of</strong> the first differences between <strong>Hoppe</strong>an political economyand public choice has to do with Buchanan’s standard explanationfor why government is supposedly needed <strong>in</strong> the first place.In short, Buchanan has endlessly repeated the slogan attributed tothe philosopher Thomas Hobbes that <strong>in</strong> a voluntary society withoutgovernment, life would be “nasty, brutish and short.” Theimplication is that without government, theft and violence wouldrun rampant, creat<strong>in</strong>g a chaotic, unpleasant, and dangerous society.But Buchanan has never <strong>of</strong>fered much more than a repetition<strong>of</strong> this catchy slogan to make this argument. <strong>Hoppe</strong>, on the other1 See, e.g., James M. Buchanan and Gordon Tullock, The Calculus <strong>of</strong> Consent:Logical Foundations <strong>of</strong> Constitutional Democracy (Ann Arbor: University <strong>of</strong>Michigan, 1962); James M. Buchanan, Cost and Choice: An Inquiry <strong>in</strong> EconomicTheory (Chicago: Markham, 1969).2 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God that Failed: The Economicsand Politics <strong>of</strong> Monarchy, Democracy, and Natural Order (New Brunswick, N.J.:Transaction Publishers, 2001).
DiLorenzo: <strong>Hoppe</strong>an Political Economy versus Public Choice— 273hand, th<strong>in</strong>ks the issue through very systematically. Yes, crim<strong>in</strong>alactivity can be destructive <strong>of</strong> civilization, but so can governmentitself, and much more than mere crim<strong>in</strong>al activity. That is, “democracy”may not only fail to be “perfect” and <strong>in</strong> need <strong>of</strong> reform; it canbe the cause <strong>of</strong> that “nasty” and “brutish” life that Hobbes andBuchanan so feared.For one th<strong>in</strong>g, victims (or potential victims) <strong>of</strong> crime canalways legitimately defend themselves. This is not true whenevergovernments seek to confiscate one’s property through taxation,“tak<strong>in</strong>gs,” or regulation. “In these cases a victim may not legitimatelydefend himself,” writes <strong>Hoppe</strong>. 3 And “[t]he imposition <strong>of</strong>a government tax on property or <strong>in</strong>come violates a property or<strong>in</strong>come producer’s rights as much as theft does.” 4 Governmentalmoney creation is also an act <strong>of</strong> theft, s<strong>in</strong>ce it reduces the value <strong>of</strong>privately-held wealth. Regulation also constitutes theft, s<strong>in</strong>ceorder<strong>in</strong>g someone as to how he may use his property (beyond prohibit<strong>in</strong>ghim from harm<strong>in</strong>g someone else with it) amounts to“extortion, robbery, or destruction.” And s<strong>in</strong>ce property rightsdestruction by government becomes <strong>in</strong>stitutionalized (s<strong>in</strong>ce citizenscannot legitimately defend aga<strong>in</strong>st it), the entire societybecomes more present-oriented and develops a higher rate <strong>of</strong> timepreference due to the fact that people’s expected rate <strong>of</strong> return onproductive, future-oriented activity is reduced.In a worst-case scenario many “formerly provident providerswill be turned <strong>in</strong>to drunks or daydreamers, adults <strong>in</strong>to children,civilized men <strong>in</strong>to barbarians, and producers <strong>in</strong>to crim<strong>in</strong>als.” 5Who could deny that this is a characteristic <strong>of</strong> modern democracieslike the U.S.? As such, democratic government “presents a constantthreat to the process <strong>of</strong> civilization,” precisely the opposite <strong>of</strong>Buchanan’s view <strong>of</strong> the “necessity” <strong>of</strong> government <strong>in</strong> defense <strong>of</strong>civilization. 63 <strong>Hoppe</strong>, Democracy, p. 12.4 Ibid., p. 13.5 Ibid., p. 15.6 Ibid.
274 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>In the first chapter <strong>of</strong> Democracy—The God that Failed <strong>Hoppe</strong>clearly states that he is not a monarchist and does not supportmonarchy. He merely applies logic and economic reason<strong>in</strong>g to acomparison <strong>of</strong> monarchy <strong>in</strong> order to highlight features <strong>of</strong> democracythat are typically ignored by public choice scholars (and mosteveryone else). Bas<strong>in</strong>g his analysis on a property rights perspective,someth<strong>in</strong>g that public choice scholars rarely do, <strong>Hoppe</strong>makes the po<strong>in</strong>t that, s<strong>in</strong>ce they own the entire country, monarchswill have <strong>in</strong>centives to m<strong>in</strong>imize the destructiveness <strong>of</strong> crime, andwill also moderate the extent to which they expropriate the wealth<strong>of</strong> their citizens lest they destroy their <strong>in</strong>centives to be productive.Democratic politicians, by contrast, behave <strong>in</strong> exactly theopposite way: they will seek to maximize current <strong>in</strong>come <strong>in</strong> aprocess <strong>of</strong> “cont<strong>in</strong>ual capital consumption.” 7 For what is not usedup now by current <strong>of</strong>ficeholders will be gone forever (for their tak<strong>in</strong>g)<strong>in</strong> a few years.<strong>Hoppe</strong>’s analysis <strong>of</strong> government debt also differs from thestandard public choice analysis. The latter contends that all politicians,regardless <strong>of</strong> party affiliation, have an <strong>in</strong>cl<strong>in</strong>ation to vote tospend now and pay later—to engage <strong>in</strong> deficit spend<strong>in</strong>g as ameans <strong>of</strong> creat<strong>in</strong>g a “fiscal illusion,” i.e., mak<strong>in</strong>g government seemless expensive than it actually is to current voters.<strong>Hoppe</strong> focuses on the effects <strong>of</strong> property rights <strong>in</strong>stead. S<strong>in</strong>cepoliticians <strong>in</strong> a democracy are not held personally responsible forthe debts that they <strong>in</strong>cur while <strong>in</strong> <strong>of</strong>fice, the public debt will naturally<strong>in</strong>crease. Taxes will have to be raised to service the <strong>in</strong>creas<strong>in</strong>gdebt, which <strong>in</strong> turn will cause even higher rates <strong>of</strong> time preferenceas taxpayers anticipate higher future tax burdens. Society becomesprogressively “<strong>in</strong>fantilized.”As democracy grows, writes <strong>Hoppe</strong>, it tends to wage a constantwar aga<strong>in</strong>st <strong>in</strong>dividual responsibility by “<strong>in</strong>creas<strong>in</strong>gly reliev<strong>in</strong>g<strong>in</strong>dividuals <strong>of</strong> the responsibility <strong>of</strong> hav<strong>in</strong>g to provide for theirown health, safety, and old age.” 8 The comb<strong>in</strong>ation <strong>of</strong> high timepreference, coupled with the lack <strong>of</strong> irresponsibility <strong>in</strong>evitablyleads to more crime <strong>in</strong> society, not less, as society s<strong>in</strong>ks <strong>in</strong>to moral7 Ibid., p. 24.8 Ibid., p. 66.
DiLorenzo: <strong>Hoppe</strong>an Political Economy versus Public Choice— 275relativism. Thus, democracy is not necessary to deter crime andma<strong>in</strong>ta<strong>in</strong> civilization; it causes crime.FAILURES OF PUBLIC CHOICEAlthough most members <strong>of</strong> the Public Choice Society, the pr<strong>of</strong>essionalacademic organization <strong>of</strong> public choice scholars, wouldconsider themselves to be political conservatives or libertarians,their research agenda has been ta<strong>in</strong>ted to some degree by fear <strong>of</strong>political <strong>in</strong>correctness, a fear that no one would ever accus<strong>in</strong>g<strong>Hoppe</strong> <strong>of</strong> hav<strong>in</strong>g. Perhaps the most glar<strong>in</strong>g example <strong>of</strong> this is thealmost complete absence <strong>of</strong> any discussion <strong>of</strong> the topic <strong>of</strong> secession<strong>in</strong> a field that is supposed to be devoted to research <strong>of</strong> political<strong>in</strong>stitutions. Failure to consider the implications <strong>of</strong> political secession(unlike Mises, Rothbard, and <strong>Hoppe</strong>) has led public choicescholars to essentially waste thousands <strong>of</strong> pages <strong>of</strong> pr<strong>in</strong>t, and years<strong>of</strong> research effort, <strong>in</strong> their writ<strong>in</strong>gs on the topic <strong>of</strong> federalism andthe political economy <strong>of</strong> state and local government.What I am referr<strong>in</strong>g to is a large literature <strong>in</strong> public choice thatmodels “competition” between local governments <strong>in</strong> a metropolitanarea as be<strong>in</strong>g similar to competition <strong>in</strong> an <strong>in</strong>dustry. Voters aresaid to be able to “vote with their feet” if a particular governmentaljurisdiction has say, excessively high taxes and/or low-quality“public services.” Such mobility is said to “discipl<strong>in</strong>e” state andlocal politicians <strong>in</strong> the same way that marketplace competition discipl<strong>in</strong>escorporate managers and gives them <strong>in</strong>centives to cut costsand prices and improve the quality <strong>of</strong> the goods and services theyare sell<strong>in</strong>g.But this entire literature, most <strong>of</strong> which is based on research onthe U.S. political system, completely ignores the historical realityand effects <strong>of</strong> the U.S. government’s violent destruction <strong>of</strong> theright <strong>of</strong> secession. After the U.S. government proved to the worldthat participation <strong>in</strong> its union was <strong>in</strong> no way voluntary, all <strong>of</strong> thestates (not just Southern states) soon became mere appendages orfranchisees <strong>of</strong> the central government. Government at all levelsbecame more and more centralized and, as a result, there was verylittle difference <strong>in</strong> terms <strong>of</strong> tax burden between jurisdictions.Decades <strong>of</strong> research <strong>in</strong> public f<strong>in</strong>ance bears this out by show<strong>in</strong>gthat differences <strong>in</strong> <strong>in</strong>terstate tax burdens do not provide much <strong>of</strong>
276 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>an <strong>in</strong>centive at all for the migration <strong>of</strong> population or bus<strong>in</strong>esses.This is all simply ignored by public choice scholars who proceedwith their analyses as though the American War Between theStates never happened. Not <strong>Hoppe</strong>, though. He cites Ludwig vonMises who “had a s<strong>of</strong>t spot for democracy,” but believed that anessential feature <strong>of</strong> any democracy must be the right <strong>of</strong> secession. 9He quotes Mises from his book Liberalism as say<strong>in</strong>g that classicalliberalismforces no one aga<strong>in</strong>st his will <strong>in</strong>to the structure <strong>of</strong> thestate. . . . When a part <strong>of</strong> a people <strong>of</strong> a state wants to dropout <strong>of</strong> the union, liberalism does not h<strong>in</strong>der it fromdo<strong>in</strong>g so. . . . [W]henever the <strong>in</strong>habitants <strong>of</strong> a particularterritory . . . make it known, by a freely conductedplebiscite, that they no longer wish to rema<strong>in</strong> united tothe state to which they belong at the time, their wishesare to be respected and complied with. 10This is how Mises believed a democratic government could be<strong>in</strong>duced to respect property rights.The right <strong>of</strong> secession was elim<strong>in</strong>ated, <strong>of</strong> course, <strong>in</strong> 1865. As<strong>Hoppe</strong> writes:Mises’s def<strong>in</strong>ition <strong>of</strong> democratic government wasapplicable to the U.S. until 1861. . . . However, after thecrush<strong>in</strong>g defeat and devastation <strong>of</strong> the secessionist Confederacyby L<strong>in</strong>coln and the Union, it was clear that theright to secede no longer existed and that democracymeant absolute and unlimited majority rule. 11<strong>Hoppe</strong> does not make the mistake that public choice scholarsmake <strong>in</strong> assum<strong>in</strong>g that state and local politicians are analogous tobus<strong>in</strong>ess managers who compete for “customers” by <strong>of</strong>fer<strong>in</strong>g betterservices or lower (tax) prices. They do compete, says <strong>Hoppe</strong>,9 Ibid., p. xxiii.10 <strong>Hoppe</strong>, Democracy, p. 79, quot<strong>in</strong>g Ludwig von Mises, Liberalism: In theClassical Tradition, Ralph Raico, trans. (Irv<strong>in</strong>gton-on-Hudson, N.Y.: Foundationfor Economic Education, [1927] 1985), p. 109.11 Ibid., p. 80.
DiLorenzo: <strong>Hoppe</strong>an Political Economy versus Public Choice— 277but they are compet<strong>in</strong>g for the “right” to plunder the taxpay<strong>in</strong>gpopulation. After all, Americans have a wide choice <strong>of</strong> post <strong>of</strong>ficesto do bus<strong>in</strong>ess with, but they are all a part <strong>of</strong> the same centralizedU.S. Postal Service monopoly. Their choice among local governmentsis no more <strong>of</strong> a genu<strong>in</strong>e choice than the “choice” amongmonopoly post <strong>of</strong>fices is.Many <strong>of</strong> the more prom<strong>in</strong>ent public choice scholars ignore therole <strong>of</strong> ideas <strong>in</strong> shap<strong>in</strong>g public policy, most likely because <strong>of</strong> theirpositivist method. The <strong>in</strong>fluence <strong>of</strong> ideas on society is not someth<strong>in</strong>gthat can be easily “measured” and subjected to econometrictest<strong>in</strong>g, so it is simply ignored.In contrast, follow<strong>in</strong>g Mises and Rothbard, <strong>Hoppe</strong> shows how“the power <strong>of</strong> every government rests only on op<strong>in</strong>ion and consensualcooperation,” ultimately. 12 Moreover, “if the power <strong>of</strong>government rests on the widespread acceptance <strong>of</strong> false and<strong>in</strong>deed absurd and foolish ideas, then the only genu<strong>in</strong>e protectionis the systematic attack <strong>of</strong> these ideas and the propagation andproliferation <strong>of</strong> true ones.” 13 Furthermore, if government becomestyrannical and therefore illegitimate, then it is one’s duty to consider“all federal law, legislation and regulation null and void andignore it whenever possible.” 14 Peaceful secession and non-cooperationwith the illegitimate state is the only way to avoid be<strong>in</strong>g aslave to the state, says <strong>Hoppe</strong>.This is dramatically different from the life work <strong>of</strong> James M.Buchanan, whose “constitutional economics,” a branch <strong>of</strong> publicchoice, was established to pursue the project <strong>of</strong> construct<strong>in</strong>g “avoluntary theory <strong>of</strong> the state,” <strong>in</strong> the words <strong>of</strong> onetime Buchananprotégé, Viktor Vanberg. 15 Buchanan and others have spun manytales <strong>of</strong> a theoretically voluntary state, but <strong>of</strong> course there is noth<strong>in</strong>gvoluntary about the real-world state. Th<strong>in</strong>k<strong>in</strong>g <strong>of</strong> the American12 Ibid., p. 90.13 Ibid., p. 93.14 Ibid., p. 91.15 Viktor Vanberg, “The Impossibility <strong>of</strong> Rational Regulation? Regulation,Free-Market Liberalism, and Constitutional Liberalism,” paper presented atthe Annual Meet<strong>in</strong>g <strong>of</strong> the Mont Pèler<strong>in</strong> Society, Wash<strong>in</strong>gton, D.C. (August31, 1988).
278 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>state <strong>in</strong> the post-1861 era as somehow voluntary is simply ludicrous.Another major difference between <strong>Hoppe</strong>an political economyand public choice is <strong>in</strong> the area <strong>of</strong> “class analysis.” In their sem<strong>in</strong>alwork, The Calculus <strong>of</strong> Consent, Buchanan and Gordon Tullockadamantly denied that their analysis <strong>of</strong> political decision mak<strong>in</strong>gand <strong>in</strong>terest-group politics had anyth<strong>in</strong>g to do with any k<strong>in</strong>d <strong>of</strong>class analysis, especially Marxian class struggle analysis. This wasa serious departure from classical liberalism, for there is a verylong history <strong>of</strong> “libertarian class analysis” that is not based on anyconflict between workers and capitalists, but on governmentalexploiters versus the exploited taxpayers.By def<strong>in</strong>ition, writes <strong>Hoppe</strong>, democracy means that everyone’s<strong>in</strong>come and property is immediately “up for grabs” by any politicalcoalition that is powerful enough to grab it. “Majorities <strong>of</strong>‘have-nots’ will relentlessly try to enrich themselves at the expense<strong>of</strong> ‘haves’.” 16 Follow<strong>in</strong>g Rothbard, <strong>Hoppe</strong> is not fearful <strong>of</strong> quot<strong>in</strong>gthe great John C. Calhoun’s Disquisition on Government that makesthis po<strong>in</strong>t very eloquently. 17 (But because Calhoun is consideredby some to have been the philosopher <strong>of</strong> Southern secession <strong>in</strong> then<strong>in</strong>eteenth century, political correctness <strong>in</strong> today’s academe(<strong>in</strong>clud<strong>in</strong>g public choice scholars) demands that he be ignored.)<strong>Hoppe</strong>an political economy is nowhere more diametricallyopposed to public choice theory than <strong>in</strong> <strong>Hoppe</strong>’s statements on thesubject <strong>of</strong> what to do about all <strong>of</strong> the deciviliz<strong>in</strong>g effects <strong>of</strong> democracy.The standard public choice approach is to try to recommendsmall changes at the marg<strong>in</strong>s <strong>of</strong> political decision mak<strong>in</strong>g that willsupposedly “improve” democracy, e.g., balanced-budget amendmentsto the Constitution, qualified majority-rule vot<strong>in</strong>g, term limits,etc. And <strong>of</strong> course thousands <strong>of</strong> pages <strong>of</strong> books and journalarticles have been devoted to bolster<strong>in</strong>g this approach by argu<strong>in</strong>g,essentially, that democratic government really is voluntary,despite all outward appearances. Just read any issue <strong>of</strong> Buchanan’s16 <strong>Hoppe</strong>, Democracy, p. 96.17 John C. Calhoun, A Disquisition on Government (New York: Liberal ArtsPress, 1953).
DiLorenzo: <strong>Hoppe</strong>an Political Economy versus Public Choice— 279Journal <strong>of</strong> Constitutional Economics for a look at this viewpo<strong>in</strong>t. All<strong>of</strong> the attempts by such scholars to redesign modern constitutions,says <strong>Hoppe</strong>, are “hopelessly naïve.” 18In sharp contrast, <strong>Hoppe</strong> writes that “The central task <strong>of</strong> thosewant<strong>in</strong>g to turn the tide and prevent an outright breakdown [<strong>of</strong>civilization] is the ‘delegitimation’ <strong>of</strong> the idea <strong>of</strong> democracy as theroot cause <strong>of</strong> the present state <strong>of</strong> progressive decivilization.” 19Even the found<strong>in</strong>g fathers, <strong>Hoppe</strong> po<strong>in</strong>ts out, were “strictlyopposed to” democracy and considered it to be “noth<strong>in</strong>g but mobrule.”20 The idea <strong>of</strong> democracy, <strong>in</strong> <strong>Hoppe</strong>’s op<strong>in</strong>ion, is immoral aswell as uneconomical. 21 Practitioners <strong>of</strong> “constitutional economics”will be <strong>of</strong>fended by such language, but <strong>in</strong> the tradition <strong>of</strong>Mises and Rothbard, <strong>Hoppe</strong>’s first and foremost objective is thepursuit <strong>of</strong> truth, even if it comes at the expense <strong>of</strong> hav<strong>in</strong>g a lessthan-cozyrelationship with other segments <strong>of</strong> the economics pr<strong>of</strong>ession.<strong>Hoppe</strong> attacks the hopelessly naïve views <strong>of</strong> “constitutionaleconomics” head on, by recogniz<strong>in</strong>g that the long history <strong>of</strong> theoriz<strong>in</strong>gabout “tacit” (but not actual) consent for government ispatently absurd. In The Calculus <strong>of</strong> Consent, for example, Buchananand Tullock argue that political decision mak<strong>in</strong>g is <strong>in</strong> theory similarto marketplace decision mak<strong>in</strong>g, especially if one can theorizeabout unanimous political consent. They recognize that there isnever unanimous consent <strong>in</strong> politics, and that if there was, therewould <strong>of</strong> course be no need for government. Truly voluntarybehavior would emerge.So they first make the case for “qualified” majority vot<strong>in</strong>g, stillrecogniz<strong>in</strong>g that 60 percent or 70 percent is not the same as 100 percentagreement. They then resort to the notion <strong>of</strong> “tacit” or “conceptual”consent. If one can conceive <strong>of</strong> unanimous consent, thenone can declare government to be voluntary after all, say Buchananand Tullock. This is pure nonsense, says <strong>Hoppe</strong>, and he is certa<strong>in</strong>ly18 <strong>Hoppe</strong>, Democracy, p. 110.19 Ibid., p. 103.20 Ibid.21 Ibid., p. 104.
280 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>correct. How this apology for statism ever became considered to bea part <strong>of</strong> classical liberalism is a mystery. (But perhaps this expla<strong>in</strong>swhy the Swedish socialists who sit on the Nobel prize committeegave Buchanan the award <strong>in</strong> 1986.)One further th<strong>in</strong>g that characterizes the work <strong>of</strong> many publicchoice scholars, especially Buchanan and his followers, is anoverblown degree <strong>of</strong> importance that is given to the “free-riderproblem” <strong>in</strong> economics. Your author has personally heardBuchanan <strong>in</strong>voke the free-rider problem, the prisoner’s dilemma,and Thomas Hobbes on dozens <strong>of</strong> occasions to justify the existence<strong>of</strong> the state, i.e., democracy. Hav<strong>in</strong>g established the po<strong>in</strong>t that the“m<strong>in</strong>imal state” is absolutely necessary, public choice scholarsthen go about their bus<strong>in</strong>ess <strong>of</strong> propos<strong>in</strong>g m<strong>in</strong>or t<strong>in</strong>ker<strong>in</strong>g at themarg<strong>in</strong>s with regard to the “rules <strong>of</strong> the game” <strong>of</strong> political decisionmak<strong>in</strong>g under the wishful belief that democracy can somehow betamed.<strong>Hoppe</strong> addresses this po<strong>in</strong>t head on as well by po<strong>in</strong>t<strong>in</strong>g outhow one man’s free-rider problem is <strong>of</strong>ten another man’s pr<strong>of</strong>itopportunity (for solv<strong>in</strong>g the “problem”). Perhaps the most famousexample <strong>of</strong> the alleged need for government to “solve” free-riderproblems is national defense, which is always def<strong>in</strong>ed as a prototypicalpublic good. As such, we are told that government musttax us to provide it and, furthermore, defense must be supplied bya government-run monopoly.But isn’t monopoly another form <strong>of</strong> “market failure?”, <strong>Hoppe</strong>asks. Exactly how does one make the case for allocative efficiencyby “solv<strong>in</strong>g” one “market failure” problem and replac<strong>in</strong>g it withanother one?Austrian social theory, unlike all branches <strong>of</strong> “ma<strong>in</strong>stream economics,”<strong>in</strong>clud<strong>in</strong>g public choice theory, does not make the mistake<strong>of</strong> plac<strong>in</strong>g too much credence <strong>in</strong> the notion that truth about asubject as complicated as democracy can be arrived at <strong>in</strong> a theoreticalvacuum that ignores history and philosophy. By largelyignor<strong>in</strong>g history, or selectively us<strong>in</strong>g only the parts <strong>of</strong> it that supporttheir research paradigm, public choice theorists have constructeda naïve and mislead<strong>in</strong>g view <strong>of</strong> constitutions and constitutionalism.From the beg<strong>in</strong>n<strong>in</strong>g <strong>of</strong> the American republic there were twodist<strong>in</strong>ct views <strong>of</strong> constitutional <strong>in</strong>terpretation: the Jeffersonian
DiLorenzo: <strong>Hoppe</strong>an Political Economy versus Public Choice— 281view and the Hamiltonian view. Jefferson and his followersbelieved that the U.S Constitution could and should be seen as aset <strong>of</strong> limitations on the powers <strong>of</strong> the central government. Hamiltonand his followers saw it exactly the opposite way: as a potentialrubber stamp <strong>of</strong> approval (if “properly <strong>in</strong>terpreted” by cleverlawyers like Alexander Hamilton) for anyth<strong>in</strong>g the central stateever wanted to do. It took several generations, but by the twentiethcentury the Hamiltonian view prevailed. Not a s<strong>in</strong>gle federallaw was ruled unconstitutional by the rubber stamp U.S. SupremeCourt between 1937 and 1995. 22This did not happen overnight. It was the result <strong>of</strong> a long struggle<strong>in</strong> the war <strong>of</strong> ideas, comb<strong>in</strong>ed with the brutal mass kill<strong>in</strong>g <strong>of</strong>the only group <strong>in</strong> American society to ever challenge the notion <strong>of</strong>unlimited powers wielded by the central government—the Southernsecessionists. By 1865 the pr<strong>in</strong>ciple had been established thatthe federal government would be the sole authority with regard toissues <strong>of</strong> constitutionality. As the Jeffersonians had long warned,when the day ever came that the federal government assumedsuch authority, it would <strong>in</strong>evitably assert that there are, <strong>in</strong> fact, nolimits at all to its powers. This is where America stands today, andhas been stand<strong>in</strong>g for several generations.<strong>Hoppe</strong> was never deluded by all the happy talk about constitutionalism.What can be done about the current state <strong>of</strong> affairs?“First,” he writes,the American Constitution must be recognized for whatit is—an error. . . . [G]overnment is supposed to protectlife, property, and the pursuit <strong>of</strong> happ<strong>in</strong>ess. Yet <strong>in</strong> grant<strong>in</strong>ggovernment the power to tax and legislate withoutconsent, the Constitution cannot possibly assure thisgoal but is <strong>in</strong>stead the very <strong>in</strong>strument for <strong>in</strong>vad<strong>in</strong>g anddestroy<strong>in</strong>g the rights to life, liberty, and the pursuit <strong>of</strong>happ<strong>in</strong>ess. 2322 For further discussion <strong>of</strong> these issues, see Thomas J. DiLorenzo, Hamilton’sCurse: How Jefferson’s Arch Enemy Betrayed the American Revolution—andWhat It Means for Americans Today (New York: Crown Forum, 2008).23 <strong>Hoppe</strong>, Democracy, p. 279.
282 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Austrian social theory is a far superior tool for understand<strong>in</strong>geconomic and political reality than is public choice theory. Democracy—TheGod that Failed is a true classic <strong>in</strong> the literature <strong>of</strong> liberalism,whereas it is a mystery as to why anyone would consider TheCalculus <strong>of</strong> Consent, which is basically a social contract theory/apologyfor statism, to even be <strong>in</strong>cluded <strong>in</strong> that literature.
29Securitization and FractionalReserve Bank<strong>in</strong>gNikolay GertchevFor good economists, the l<strong>in</strong>k between the operation <strong>of</strong> afractional reserve bank<strong>in</strong>g system and the recurrence <strong>of</strong>boom-bust cycles is <strong>of</strong> little doubt. One <strong>of</strong> the paramountfigures who has contributed to the <strong>in</strong>tellectual elaboration<strong>of</strong> this relationship and to its transmission to young economists,among which the present writer has had the pleasure to count himself,is Pr<strong>of</strong>essor <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>. Pr<strong>of</strong>essor <strong>Hoppe</strong> hasembedded the economic analysis <strong>of</strong> bank<strong>in</strong>g with<strong>in</strong> a fairly generaland carefully constructed theory <strong>of</strong> property rights. 1 In this way, hehas further substantiated the relationship between an <strong>in</strong>flat<strong>in</strong>gbank<strong>in</strong>g system and the grow<strong>in</strong>g, illegitimate government <strong>in</strong>vasion<strong>of</strong> property rights that Ludwig von Mises and Murray RothbardNikolay Gertchev (ngertchev@gmail.com) is an economist with the EuropeanCommission, Brussels, Belgium. The views expressed <strong>in</strong> this article are strictlypersonal and do not engage the responsibility <strong>of</strong> the European Commission.1 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “Bank<strong>in</strong>g, Nation States and International Politics:A Sociological Reconstruction <strong>of</strong> the Present Economic Order,” Review <strong>of</strong>Austrian Economics 4 (1990): 55–87; idem, “How is Fiat Money Possible?—or,The Devolution <strong>of</strong> Money and Credit,” Review <strong>of</strong> Austrian Economics 7, no. 2(1994): 49–74; <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Jörg Guido Hülsmann, and WalterBlock, “Aga<strong>in</strong>st Fiduciary Media,” Quarterly Journal <strong>of</strong> Austrian Economics 1,no. 1 (1990): 19–50.283
284 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>have exposed. 2 Furthermore, he has demonstrated the consequences<strong>of</strong> state monopolies <strong>of</strong> money production (fiat papermonies) on <strong>in</strong>ternational politics. 3While central banks, which provide fractional reserve banks(FRBs) and f<strong>in</strong>ancial markets with liquidities created ex nihilo, havebeen systematically shown as the driver <strong>of</strong> <strong>in</strong>flation and <strong>of</strong> bus<strong>in</strong>esscycles, other f<strong>in</strong>ancial <strong>in</strong>stitutions have received significantlyless attention <strong>in</strong> this respect. The purpose <strong>of</strong> this article is to <strong>in</strong>vestigatethe extent to which securitization has played a role similarto that <strong>of</strong> central banks. Securitization has been grow<strong>in</strong>g for thelast few decades and, like the use <strong>of</strong> derivatives, it has become asalient feature <strong>of</strong> present-day f<strong>in</strong>ancial systems. 4 Despite lawyers’,economists’, and practitioners’ analyses, and the renewed <strong>in</strong>terestit has sparked s<strong>in</strong>ce the 2007 subprime debt crisis, securitization’sbroad macroeconomic effects have not been fully expounded yet. 52 Ludwig von Mises, Theory <strong>of</strong> Money and Credit (Indianapolis, Ind.: LibertyFund, 1981 [1912]); idem, Human Action: A Treatise on Economics, Scholars ed.(Auburn, Ala.: Mises Institute, 1998 [1949]); Murray N. Rothbard, What HasGovernment Done to Our Money? (Auburn, Ala.: Mises Institute, 1990 [1963]).Even though Mises and Rothbard are not the first to have demonstrated howthe monopoly <strong>of</strong> money production can be used as a means <strong>of</strong> expropriation,they are the closest, by <strong>in</strong>tellectual aff<strong>in</strong>ity and scholarly heritage, to theessentialist and ethical flavor <strong>of</strong> <strong>Hoppe</strong>’s particular analysis.3 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “Government, Money, and International Politics,”Etica & Politica/Ethics and Politics 5, no. 2 (2003).4 Two technical specialists <strong>of</strong> the field even advance that securitization isas crucial as capital markets: “Securitization is as necessary to any economyas organized f<strong>in</strong>ancial markets.” Frank Fabozzi and V<strong>in</strong>od Kothari, “Securitization:The Tool <strong>of</strong> F<strong>in</strong>ancial Transformation,” Yale International Center forF<strong>in</strong>ance, Work<strong>in</strong>g Paper No. 07-07 (2007), p. 11.5 S<strong>in</strong>ce 1996, the area is the central topic <strong>of</strong> a journal <strong>of</strong> its own—The Journal<strong>of</strong> Structured F<strong>in</strong>ance. References to the large variety <strong>of</strong> legal studies, aswell as basic treatment <strong>of</strong> the fundamental legal issues raised by securitization,can be found <strong>in</strong> Claire Hill, “Securitization: A Low-cost Sweetener forLemons,” Wash<strong>in</strong>gton University Law Quarterly (W<strong>in</strong>ter 1996): 1061–1120 andSteven Schwarcz, “The Alchemy <strong>of</strong> Asset Securitization,” Stanford Journal <strong>of</strong>Law, Bus<strong>in</strong>ess and F<strong>in</strong>ance 1 (1994): 133–54. The follow<strong>in</strong>g technical presentationswere all published by the research departments <strong>of</strong> central banks: RandallPozdena, “Securitization and Bank<strong>in</strong>g,” Weekly Letter, Federal ReserveBank <strong>of</strong> San Francisco (July 4, 1986); Charles Carlstrom and Kather<strong>in</strong>e
Gertchev: Securitization and Fractional Reserve Bank<strong>in</strong>g — 285The goal <strong>of</strong> this contribution to Pr<strong>of</strong>essor <strong>Hoppe</strong>’s Festschrift is tosuggest an economic <strong>in</strong>terpretation <strong>of</strong> securitization. The first sectiondef<strong>in</strong>es this f<strong>in</strong>ancial technique, presents a short historythere<strong>of</strong> and broadly quantifies its significance. Section two detailsits operational aspects when used by FRBs. Section three systematizesthe ma<strong>in</strong> economic features <strong>of</strong> securitization by banks and<strong>of</strong>fers a broad assessment <strong>of</strong> the technique.DEFINITION, RATIONALE, AND SCOPE OF SECURITIZATIONIn the course <strong>of</strong> production for exchange, economic actorsobta<strong>in</strong> rights to future payments <strong>of</strong> money. For <strong>in</strong>stance, a cardealer that sells his cars on credit for five years gets a claim onfuture receivables <strong>in</strong> exchange <strong>of</strong> his cars. Such credits are relativelyilliquid because their characteristics tend to be sector- andclient-specific. In some cases, non-f<strong>in</strong>ancial companies may wantnot to get <strong>in</strong>volved <strong>in</strong> the bus<strong>in</strong>ess <strong>of</strong> mak<strong>in</strong>g credit. For these, andother possible reasons, economic actors who own claims on futurepayments may prefer to exchange them for an amount <strong>of</strong> moneythat is available now. 6 Each <strong>of</strong> these claims can be <strong>in</strong>dividuallySamolyk, “Securitization: More than Just a Regulatory Artifact,” EconomicCommentary, Federal Reserve Bank <strong>of</strong> Cleveland (May 1, 1992); Christ<strong>in</strong>eCumm<strong>in</strong>g, “The Economics <strong>of</strong> Securitization,” Federal Reserve Bank <strong>of</strong> NewYork Quarterly Review (Autumn 1987): 11–22; Ronel Elul, “The Economics <strong>of</strong>Asset Securitization,” Bus<strong>in</strong>ess Review, Federal Reserve Bank <strong>of</strong> Philadelphia(Q3 2005), pp. 16–25; Emre Ergungor, “Securitization,” Economic Commentary,Federal Reserve Bank <strong>of</strong> Cleveland (August 15, 2003). Practical issues, such asthe impact <strong>of</strong> securitization on <strong>in</strong>terest rates and on monetary policy, havebeen developed by James Kolari, Donald Fraser and Ali Anari, “The Effects <strong>of</strong>Securitization on Mortgage Market Yields: A Co<strong>in</strong>tegration Analysis,” RealEstate Economics 26, no. 4 (1998): 677–93; Arturo Estrella, “Securitization andThe Efficacy <strong>of</strong> Monetary Policy,” FRBNY Economic Policy Review 8, no. 1(2002): 242–56; Yener Altunbas, Leonardo Gambacorta & David Marquès,“Securitisation and the Bank Lend<strong>in</strong>g Channel,” European Central Bank Work<strong>in</strong>gPaper Series no. 838 (2007); and ECB, “Securitisation <strong>in</strong> the Euro Area,”Monthly Bullet<strong>in</strong> (February 2008): 81–94. A complete multidiscipl<strong>in</strong>ary study,meant also to be a practitioners’ guide, is V<strong>in</strong>od Kothardi, Securitisation—TheF<strong>in</strong>ancial Instrument <strong>of</strong> the Future (Wiley F<strong>in</strong>ance, 2006).6 The underly<strong>in</strong>g ultimate cause <strong>of</strong> these exchanges is rooted <strong>in</strong> <strong>in</strong>dividuals’time preference rates that are higher than the current <strong>in</strong>terest rate. On the
286 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>passed to an economic actor that has just the opposite preferences.Or, relatively similar claims, possibly com<strong>in</strong>g from different owners,could be grouped together with<strong>in</strong> a s<strong>in</strong>gle hold<strong>in</strong>g entity thatcould then create standardized claims on them to be sold to <strong>in</strong>terested<strong>in</strong>vestors on the f<strong>in</strong>ancial markets. This process <strong>of</strong> putt<strong>in</strong>gtogether relatively illiquid assets, <strong>of</strong> us<strong>in</strong>g them as collateral forback<strong>in</strong>g new securities, and <strong>of</strong> us<strong>in</strong>g the proceeds from the sale <strong>of</strong>the securities to fund the owners <strong>of</strong> the illiquid assets is calledsecuritization: “Securitization is the process <strong>of</strong> pool<strong>in</strong>g and repack<strong>in</strong>gloans <strong>in</strong>to securities that are then sold to <strong>in</strong>vestors.” 7 The generalfeatures <strong>of</strong> securitization can be presented by means <strong>of</strong> ord<strong>in</strong>aryT-accounts (Table 1). 8Table 1Synthetic Balance Sheets <strong>of</strong> CompaniesAssetsFirm ALiabilities AssetsFirm BLiabilitiesAssetsFirm CLiabilitiesInvestments 120 Equity 100 Investments 80 Equity 50 Investments 350 Equity 200Credits A 80 Debt 100 Credits B 20 Debt 50 Credits C 50 Debt 200In aggregate, firms A, B and C have total liabilities <strong>of</strong> 700 (350<strong>in</strong> owned capital and 350 <strong>in</strong> debts), out <strong>of</strong> which 550 are <strong>in</strong>vested<strong>in</strong> production and 150 are lent to clients. In case all three firmssecuritize their credits to clients, economic relations can be summarized<strong>in</strong> the follow<strong>in</strong>g way (after consolidation <strong>of</strong> A’s, B’s andC’s books):importance <strong>of</strong> time preference for the process <strong>of</strong> civilization <strong>in</strong> general and foreconomic analysis <strong>in</strong> particular, see <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—TheGold that Failed: The Economics and Politics <strong>of</strong> Monarchy, Democracy, and NaturalOrder (New Brunswick, N.J.: Transaction Publishers, 2001), especially chap. 1.7 Ergungor, “Securitization,” p. 1.8 All numbers, <strong>in</strong> tables and <strong>in</strong> the text, refer to a quantity <strong>of</strong> well-def<strong>in</strong>edmonetary units (dollars, euros, ounces <strong>of</strong> gold, etc.), which we will avoid tomention systematically <strong>in</strong> order to avoid redundancy.
Gertchev: Securitization and Fractional Reserve Bank<strong>in</strong>g — 287Table 2Entities Involved <strong>in</strong> the Process <strong>of</strong> SecuritizationAssetsFirmsLiabilitiesAssetsSPVLiabilities AssetsInvestorsLiabilitiesInvestments 550 Equity 350 Credits A 80 Securities 1 100 Securities 1 100 Net WealthReserves 150 Debt 350 Credits B 20 Securities 2 30 Securities 2 30 (sav<strong>in</strong>gs 150)Credits C 50 Securities 3 20 Securities 3 20Firms sell their credits to a Special Purpose Vehicle (SPV) whichmakes the purchase with proceeds obta<strong>in</strong>ed through the issuance<strong>of</strong> securities bought by <strong>in</strong>vestors. The firms can use the reserves <strong>of</strong>150 for consumption, <strong>in</strong>vestment or repayment <strong>of</strong> exist<strong>in</strong>g debts.The SPV is a separate legal structure, also referred to as a conduit,that issues asset-backed securities (ABSs). These securities can bestructured <strong>in</strong> a variety <strong>of</strong> ways. 9 Some <strong>of</strong> them may be actual ownershiptitles <strong>in</strong> the SPV that give a pro rata property title on thecredits held (pass-through ABSs). Others can be debentures thatpromise a rate <strong>of</strong> return that is only collateralized by the creditsheld (pay-through ABSs). Any <strong>of</strong> these types <strong>of</strong> ABSs can be issued<strong>in</strong> different tranches (three <strong>in</strong> our example), <strong>in</strong> which case the payment<strong>of</strong> <strong>in</strong>come on a more junior tranche, i.e., with lower rat<strong>in</strong>g, isconditioned on the prior payment <strong>of</strong> <strong>in</strong>come on the most seniortranches. 10 For <strong>in</strong>vestors, ABSs represent an additional opportunityfor their sav<strong>in</strong>gs.On a technical level, other actors are <strong>in</strong>volved also. The collection<strong>of</strong> the future receivables (repayment <strong>of</strong> the credits A, B and C)may be fulfilled by a specialized servicer. 11 The servicer’s activities9 This expla<strong>in</strong>s why securitization is <strong>of</strong>ten considered as part <strong>of</strong> thebroader area <strong>of</strong> structured f<strong>in</strong>ance, i.e., the eng<strong>in</strong>eer<strong>in</strong>g <strong>of</strong> structured f<strong>in</strong>ancialproducts.10 Tranch<strong>in</strong>g is considered to be a form <strong>of</strong> <strong>in</strong>surance for the owners <strong>of</strong> thesenior securities. Indeed, the junior securities act as cushions for losses on thecredit portfolio <strong>of</strong> the SPV to the extent that these losses do not exceed the<strong>in</strong>come payments on the junior securities.
288 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>may be monitored by a trust that defends <strong>in</strong>vestors’ <strong>in</strong>terests.More importantly, the very issuance <strong>of</strong> ABSs, especially when theyare structured, requires the <strong>in</strong>volvement <strong>of</strong> banks and rat<strong>in</strong>g agencies.Banks provide various degrees <strong>of</strong> liquidity facilities andcredit-enhancement schemes that are crucial, together with tranch<strong>in</strong>g,for the evaluation <strong>of</strong> ABSs by rat<strong>in</strong>g agencies. In turn, thisevaluation assesses the expected risk <strong>of</strong> <strong>in</strong>vestment <strong>in</strong> the ABSs,and determ<strong>in</strong>es the <strong>in</strong>terest rate at which they could be issued.Analysts observe that securitization depends crucially on the rat<strong>in</strong>gprocess: “Rat<strong>in</strong>g agencies may be the s<strong>in</strong>gle most importantplayers <strong>in</strong> the securitization process.” 12 However, to obta<strong>in</strong> a goodrat<strong>in</strong>g seems to be a rather weak constra<strong>in</strong>t for the success <strong>of</strong> anABS issuance: “A securitization sponsor can theoretically structurethe securitization to get any rat<strong>in</strong>g(s) it wants.” 13From an economic po<strong>in</strong>t <strong>of</strong> view, securitization merely <strong>in</strong>termediatessav<strong>in</strong>gs. One <strong>in</strong>tuitive rationale for this rather roundabouttechnique is that competition between firms pushes them toaccommodate clients with the f<strong>in</strong>anc<strong>in</strong>g <strong>of</strong> their purchases. Securitizationthen is the way to provide the funds, whose ultimate beneficiariesare the firms’ clients. Clients, i.e., the ultimate debtors,may well appreciate and therefore remunerate that additionalservice enough for the ABSs to <strong>of</strong>fer attractive yields to the<strong>in</strong>vestors. Firms may f<strong>in</strong>d this arrangement the best way to expandtheir turnover, rather than f<strong>in</strong>anc<strong>in</strong>g a more aggressive sales policythrough additional fund rais<strong>in</strong>g that would become ever moreexpansive as it deteriorates their equity-to-debt ratio. There maybe even a direct f<strong>in</strong>ancial advantage for them, to the extent that11 It is most common for the firms who made the credits, <strong>of</strong>ten referred toas orig<strong>in</strong>ators <strong>of</strong> the credits, to play this role. Securitization then allows a newbus<strong>in</strong>ess model with regard to credits—“orig<strong>in</strong>ate and distribute” as opposedto “orig<strong>in</strong>ate and hold.”12 Joel Telpner, “A Securitisation Primer for First Time Issuers,” GlobalSecuritisation and Structured F<strong>in</strong>ance 2003 (Greenberg Traurig, 2003), p. 5. Thisis not an isolated op<strong>in</strong>ion: “Rat<strong>in</strong>g agencies dictate a significant amount <strong>of</strong> thestructure <strong>of</strong> securitization transactions. When the transactions were <strong>in</strong>itiallybe<strong>in</strong>g structured, the rat<strong>in</strong>g agencies were heavily <strong>in</strong>volved.” Hill, “Securitization,”p. 1071.13 Telpner, “A Securitisation Primer,” p. 5.
Gertchev: Securitization and Fractional Reserve Bank<strong>in</strong>g — 289market participants judge their activities riskier than the defaultrisk <strong>of</strong> their clients. Under all circumstances, firms pass the creditrisk <strong>of</strong> their assets to other market participants that are more will<strong>in</strong>gto bear it. 14It is commonly admitted that securitization was created <strong>in</strong> 1970,when the Government National Mortgage Association (G<strong>in</strong>nieMae) issued a mortgage-backed security (MBS) <strong>in</strong> the form <strong>of</strong> apass-through. 15 If the contemporary rise <strong>of</strong> this technique is <strong>in</strong>deedrooted <strong>in</strong> mortgage loans, securitization first occurred <strong>in</strong> the eighteenthcentury as a means for f<strong>in</strong>anc<strong>in</strong>g the West Indies plantations.Deon Deutz, a Dutch bus<strong>in</strong>essman, issued bonds with theproceeds <strong>of</strong> which he f<strong>in</strong>anced mortgage loans to plantation owners<strong>in</strong> Sur<strong>in</strong>ame. The bonds’ yield was dependent on the return <strong>of</strong>the plantation loans, themselves guaranteed by the plantationsand crops. These plantation loans “can be viewed as the forerunners<strong>of</strong> modern mortgage-backed securities.” 16 Present-day MBSsdeveloped <strong>in</strong> the US under the patronage <strong>of</strong> government-sponsoredenterprises (GSEs) such as Fannie Mae and Freddie Mac thataim at creat<strong>in</strong>g a secondary market for home mortgage loans. 17MBSs went through some <strong>in</strong>novations, such as the creation <strong>of</strong> collateralizedmortgage obligations (CMOs) <strong>in</strong> 1983 and <strong>of</strong> Real14 As noted by an analyst: “The securitization process allows the companyto separate f<strong>in</strong>ancial assets from credit, performance and other risks associatedwith the company itself.” Telpner, “A Securitisation Primer,” p. 1. For adetailed and still clear-cut explanation <strong>of</strong> the possible benefits <strong>of</strong> securitizationfor all parties <strong>in</strong>volved, see Philip R. Wood, Title F<strong>in</strong>ance, Derivatives,Securitisations, Set-<strong>of</strong>f and Nett<strong>in</strong>g (London: Sweet & Maxwell, 1995), pp. 41–68.15 Carlstrom and Samolyk, “Securitization,” p. 2.16 K. Geert Rouwenhorst, “The Orig<strong>in</strong>s <strong>of</strong> Mutual Funds,” Yale InternationalCenter for F<strong>in</strong>ance, Work<strong>in</strong>g Paper no. 04-48 (2004), p. 5.17 A general account <strong>of</strong> the activities <strong>of</strong> Fannie Mae and Freddie Mac canbe found <strong>in</strong> Scott Frame and Lawrence White, “Fuss<strong>in</strong>g and Fum<strong>in</strong>g over Fannieand Freddie: How Much Smoke, How Much Fire?,” Journal <strong>of</strong> EconomicPerspective 19, no. 2 (2005): 159–84 and Richard Green and Susan Wachter,“The American Mortgage <strong>in</strong> Historical and International Context,” Journal <strong>of</strong>Economic Perspectives 19, no. 4 (2005): 93–114, while Gord<strong>in</strong> Sellon and DeanaVanNahmen, “The Securitization <strong>of</strong> Hous<strong>in</strong>g F<strong>in</strong>ance,” Economic Review, FederalReserve Bank <strong>of</strong> Kansas City (July/August 1988): 3–20 present an earlysynthesis on their more specific role <strong>in</strong> the spread <strong>of</strong> securitization.
290 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Estate Mortgage Investment Conduits (REMICs) that facilitate theissuance <strong>of</strong> CMOs. CMOs are specifically designed to address theprepayment risk <strong>in</strong> the event <strong>of</strong> fall<strong>in</strong>g <strong>in</strong>terest rate, through thecushion system <strong>of</strong> the tranches. 18 Based on the model <strong>of</strong> MBSs,banks started issu<strong>in</strong>g ABSs <strong>in</strong> the 1980s. Besides mortgage loans,ABSs use automobile, credit card and student loans as underly<strong>in</strong>gassets. They are <strong>of</strong>fered on the market either as long-term corporatebonds or as short-term commercial paper, better known asasset-backed commercial paper (ABCP).Securitization has had an exponential growth (Chart 1). Securitiesissued by GSEs reached $7.5 trillion <strong>in</strong> the beg<strong>in</strong>n<strong>in</strong>g <strong>of</strong> 2008,ABSs rose to $3.6 trillion, while the amount <strong>of</strong> ABCP stood at $0.8trillion. If securitization represented only 2.5 percent <strong>of</strong> credit-marketdebt owed by all sectors <strong>in</strong> 1970, that ratio reached 24.0 percent<strong>in</strong> 2008. Home mortgages, which are almost the exclusive assetheld by GSEs, have been <strong>in</strong> the portfolio <strong>of</strong> ABS-issuers vary<strong>in</strong>gfrom 35 percent <strong>of</strong> total assets <strong>in</strong> 2000 to 64 percent <strong>in</strong> 2006 (Chart2). 19 Evidence shows that securitization concerns ma<strong>in</strong>ly loansgranted by banks, and not credits made by producers or distributors<strong>of</strong> commodities. The next question that needs to be addressed,18 With fall<strong>in</strong>g <strong>in</strong>terest rates, fixed-rate borrowers are <strong>in</strong>cl<strong>in</strong>ed to ref<strong>in</strong>ancetheir mortgages, thereby lett<strong>in</strong>g the lender bear the <strong>in</strong>terest rate risk. Earlyrepayment also changes the duration <strong>of</strong> a lender’s portfolio, which may compromiseother aspects <strong>of</strong> his <strong>in</strong>vestment strategy. Let us note that long-termhome loans with fixed <strong>in</strong>terest rates and low loan-to-value ratio are the outgrowth<strong>of</strong> government <strong>in</strong>tervention dur<strong>in</strong>g the Great Depression that aimedat rescu<strong>in</strong>g bankrupt banks. Prior to the creation <strong>of</strong> the Federal Hous<strong>in</strong>gAdm<strong>in</strong>istration <strong>in</strong> 1936 and <strong>of</strong> Fannie Mae <strong>in</strong> 1938, a typical mortgage hadflexible rates, a maturity <strong>of</strong> up to five years, and a loan-to-value ratio <strong>of</strong> 50percent. Green and Wachter, “The American Mortgage <strong>in</strong> Historical andInternational Context,” pp. 94–96.19 The securitization growth trend has been less pronounced <strong>in</strong> Europe,where, for <strong>in</strong>stance, ABCP represents only 30 percent <strong>of</strong> the commercial papermarket, to compare with 50 percent <strong>in</strong> the US. FitchRat<strong>in</strong>gs, “The Importance<strong>of</strong> Liquidity Support <strong>in</strong> ABCP Conduits,” ABCP/Global Special Report (October25, 2007), p.1. The total outstand<strong>in</strong>g volume <strong>of</strong> ABSs <strong>in</strong> the European marketwas estimated at €1.3 trillion <strong>in</strong> September 2007, 60 percent <strong>of</strong> which was eligibleas collateral for liquidity at the European Central Bank. ECB, “Securitisation<strong>in</strong> the Euro Area,” p. 92.
Gertchev: Securitization and Fractional Reserve Bank<strong>in</strong>g — 291Chart 1Growth <strong>of</strong> Securitization (1970–2008) 20Chart 2Structure <strong>of</strong> assets underly<strong>in</strong>g ABSs (1984–2008) 2120 Source: Flow <strong>of</strong> Funds Accounts <strong>of</strong> the United States. Data for ABCPs<strong>in</strong>ce 2006 has been extracted from the Ecow<strong>in</strong> Reuters database. Governmentsecurities, i.e., privately issued securities that are eligible for open-marketoperations, are not to be confused with Treasury securities.
292 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>therefore, is how the general pr<strong>in</strong>ciples <strong>of</strong> securitization changewhen this f<strong>in</strong>ancial technique is carried out by modern banks.FRACTIONAL RESERVE BANKS AND SECURITIZATIONContemporary commercial banks comb<strong>in</strong>e two essentially differentfunctions. First, they serve as <strong>in</strong>termediaries between savercapitalistsand <strong>in</strong>vestor-entrepreneurs. Banks issue a debt <strong>in</strong>strument(bonds or commercial paper) only <strong>in</strong> order to lend the fundsthereby collected to economic agents that need f<strong>in</strong>anc<strong>in</strong>g. As f<strong>in</strong>ancial<strong>in</strong>termediaries, banks transform the maturity, risk and currencypr<strong>of</strong>ile <strong>of</strong> exist<strong>in</strong>g sav<strong>in</strong>gs. 22 This activity itself implies specificrisks (credit, <strong>in</strong>terest, currency, etc.) that banks may be will<strong>in</strong>gto bear wholly, to manage partially or to hedge completely. Whatevertheir position toward these transformation-<strong>in</strong>duced risks,their activity qua <strong>in</strong>termediaries consists <strong>in</strong> pool<strong>in</strong>g and channel<strong>in</strong>gexist<strong>in</strong>g sav<strong>in</strong>gs. Because the loans that banks make come fromactual wealth that is only transferred from one <strong>in</strong>dividual toanother, one can speak <strong>of</strong> real credit. Real credit is the very foundation<strong>of</strong> capital accumulation and economic growth.Second, banks act as fractional reserve depository <strong>in</strong>stitutions.This means that they are legally obliged to keep <strong>in</strong> reserves only a(very small) fraction <strong>of</strong> any amount <strong>of</strong> money that is depositedwith them. The part <strong>of</strong> the money <strong>in</strong> excess <strong>of</strong> that fraction can beused for grant<strong>in</strong>g credits, i.e., for creat<strong>in</strong>g an additional depositthat is made available to the receiver <strong>of</strong> the credit. It follows thatcontemporary banks, <strong>in</strong> addition to channel<strong>in</strong>g exist<strong>in</strong>g sav<strong>in</strong>gs,21 Source: Flow <strong>of</strong> Funds Accounts <strong>of</strong> the United States. Mortgage-backedsecurities pooled and issued by GSEs are not <strong>in</strong>cluded.22 The relations <strong>in</strong>volved by this <strong>in</strong>termediation could be represented bythe last two balance sheets <strong>of</strong> Table 2, where the SPV is to be replaced by thef<strong>in</strong>ancial <strong>in</strong>termediary. Th<strong>in</strong>k<strong>in</strong>g <strong>of</strong> the SPV as <strong>of</strong> a standard f<strong>in</strong>ancial <strong>in</strong>termediarystrengthens our view that the most plausible rationale for securitizationon the free market is to provide convenience to customers. As a matter <strong>of</strong>fact, they do not have to deal with the f<strong>in</strong>ancial <strong>in</strong>termediary, but only withthe seller (firms A, B and C <strong>in</strong> our example) who is <strong>in</strong> charge <strong>of</strong> the f<strong>in</strong>ancialarrangement, precisely through securitization.
Gertchev: Securitization and Fractional Reserve Bank<strong>in</strong>g — 293Table 3Synthetic Balance Sheet <strong>of</strong> a Fractional Reserve Bank<strong>in</strong>g SystemAssetsBank ALiabilitiesAssetsCentral BankLiabilitiesReserves 200Capital 1,000Gold & Forex 100Deposits 350Credits 12, 500Debt 600Lend<strong>in</strong>g 550Banknotes 400Investments 900Deposits 12,000Investments 200Capital 100are also creat<strong>in</strong>g deposits that they lend out. S<strong>in</strong>ce such deposits arenot brought about by exist<strong>in</strong>g sav<strong>in</strong>gs, one can speak <strong>of</strong> bank (asopposed to real) credit. 23 It is precisely their ability to create bankcredit through new deposits that makes banks specific and differentfrom other companies, f<strong>in</strong>ancial or not. The capacity to createdeposits implies the capacity to <strong>in</strong>crease the supply <strong>of</strong> media <strong>of</strong>exchange, for deposits are used as media <strong>of</strong> exchange. S<strong>in</strong>ce this isthe particular feature <strong>of</strong> contemporary banks, we have to analyzesecuritization by banks especially <strong>in</strong> relation to its possible monetaryimpact. In order to do this, let us first briefly outl<strong>in</strong>e the operation<strong>of</strong> a fractional reserve bank<strong>in</strong>g system (Table 3).Bank A has to comply with two basic regulations. It must keepreserves equal to 2 percent <strong>of</strong> its overall deposits and its capital(equity) should represent at least 8 percent <strong>of</strong> its credits. 24 Bank A’stotal assets <strong>in</strong>clude its liquidity reserves <strong>in</strong> the form <strong>of</strong> a deposit atthe Central Bank (200), its credits to economic agents (12,500) and23 For a full-fledged theory <strong>of</strong> this important dist<strong>in</strong>ction, and a completeanalysis <strong>of</strong> the legal and economic consequences <strong>of</strong> bank credit as opposed toreal credit, see Jesus Huerta de Soto, Money, Bank Credit, and Economic Cycles(Auburn, Ala.: Mises Institute, 2006). Huerta de Soto conv<strong>in</strong>c<strong>in</strong>gly shows, <strong>in</strong>l<strong>in</strong>e with f<strong>in</strong>d<strong>in</strong>gs by Chester Arthur Phillips and Milton Friedman, that fromthe standpo<strong>in</strong>t <strong>of</strong> the entire bank<strong>in</strong>g sector, the limit on grant<strong>in</strong>g bank creditis a multiple <strong>of</strong> any <strong>in</strong>itial monetary deposit, irrespective <strong>of</strong> which bank is thefirst to receive that money. The lower the required reserve ratio and <strong>in</strong>dividuals’demand for banknotes, the higher that multiple is.24 We borrow these numbers, for the sake <strong>of</strong> an example, from current practices<strong>in</strong> the euro area, accord<strong>in</strong>g to which banks have to keep average reserves<strong>of</strong> 2 percent <strong>of</strong> their deposits, and from the Basle II capital requirements.
294 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>its <strong>in</strong>vestments <strong>in</strong> real estate and securities (900). Bank A has obligationstowards its creditors (600) and towards depositors(12,000). The net difference between assets and liabilities is equilibratedby A’s capital (1,000). The typical Central Bank’s balancesheet also reports some <strong>of</strong> these asset and liability elements.Deposits held at the Central Bank (350) conta<strong>in</strong> A’s reservesamong deposits from other <strong>in</strong>stitutions (other banks and government).The Central Bank’s lend<strong>in</strong>g (550) is partly reflected <strong>in</strong> A’sdebt (as well as <strong>in</strong> the debt <strong>of</strong> government and <strong>of</strong> other f<strong>in</strong>ancial<strong>in</strong>stitutions). The Central Bank’s <strong>in</strong>vestments (200) represent hold<strong>in</strong>gs<strong>of</strong> securities, some <strong>of</strong> which may have been issued by A, aspart <strong>of</strong> its debt. The other figures have been adjusted <strong>in</strong> order toequilibrate the balance sheet. 25It appears that A does not respect the liquidity reserve requirement.Assum<strong>in</strong>g that it does not want to lose its shares on thedeposit market, it needs to <strong>in</strong>crease its reserves by 40, i.e., toreplenish its account at the Central Bank. One means to achievethis consists <strong>in</strong> obta<strong>in</strong><strong>in</strong>g a credit by the Central Bank throughopen-market operations. A cedes a total <strong>of</strong> 40 worth <strong>of</strong> assets to theCentral Bank, which creates a correspond<strong>in</strong>g liquidity that is creditedto A’s account. 26 The Central Bank’s total liabilities <strong>in</strong>crease bythat same amount, while A’s total assets rema<strong>in</strong> constant, due tothe substitution <strong>of</strong> reserves and other assets. An alternative meansfor A would be to obta<strong>in</strong> liquidity from economic agents that have25 Other figures are not commented upon <strong>in</strong>s<strong>of</strong>ar as they do not concernthe issue <strong>of</strong> securitization. The discussion <strong>of</strong> issues such as <strong>in</strong>ternational monetaryarrangements, demand for banknotes and central banks’ historieswould, <strong>of</strong> course, require elaborat<strong>in</strong>g on these other elements.26 We speak <strong>of</strong> cession rather than <strong>of</strong> sell<strong>in</strong>g, because open-market operationsmay take a variety <strong>of</strong> legal forms: outright purchases <strong>of</strong> Treasury securities(as conducted by the FED), extendable repurchase agreements (also typical<strong>of</strong> the Fed), or simply renewable short-term collateralized loans (as carriedout by the European Central Bank). The economically relevant fact is thecreation <strong>of</strong> liquidity for Bank A, not the concrete legal form it takes. For detailson open-market operations, see FED, The Federal Reserve System: Purposes andFunctions (June 2005[1939]); ECB, The Implementation <strong>of</strong> Monetary Policy <strong>in</strong> the Euro Area: General Documentationon Eurosystem Monetary Policy Instruments and Procedures (November 2008).
Gertchev: Securitization and Fractional Reserve Bank<strong>in</strong>g — 295excess liquidity. Securitiz<strong>in</strong>g 40 <strong>of</strong> its credits is the proper way tocapture that liquidity. This would also improve the capital-adequacyratio. There is a substitution between different assets on A’sbalance sheet, while the Central Bank’s total liabilities rema<strong>in</strong>unaffected. From the standpo<strong>in</strong>t <strong>of</strong> an <strong>in</strong>dividual bank, securitizationappears, therefore, tantamount to ref<strong>in</strong>anc<strong>in</strong>g at the CentralBank, the difference be<strong>in</strong>g that it does not imply an <strong>in</strong>crease <strong>of</strong>total liquidities <strong>in</strong> the economic system, but only redistributionthere<strong>of</strong> among banks. The question then arises as to how securitizationfunctions from the standpo<strong>in</strong>t <strong>of</strong> the entire bank<strong>in</strong>g system.From a systemic viewpo<strong>in</strong>t, we must reject the assumption <strong>of</strong>liquidity shortage or excess. Let us consider A’s balance sheet fromTable 3, after ref<strong>in</strong>anc<strong>in</strong>g at the Central Bank for 40 <strong>in</strong> exchange forpart <strong>of</strong> its <strong>in</strong>vestments, as the consolidated bank<strong>in</strong>g system balancesheet. The question now is to identify how securitization economicallyaffects the bank<strong>in</strong>g system, and how this is translated <strong>in</strong>account<strong>in</strong>g terms. One bank’s mortgages are used to pay housebuilders, who <strong>in</strong> turn pay workers, producers <strong>of</strong> build<strong>in</strong>g material,etc. The latter spend the new monetary units on consumption and<strong>in</strong>vestment goods. Among the variety <strong>of</strong> goods that the receivers<strong>of</strong> the new deposits purchase are securities, some <strong>of</strong> which areABSs. 27 When ABSs are purchased, bank checks are written ormoney order payments are made that de facto transfer ownership<strong>of</strong> bank deposits to the issu<strong>in</strong>g SPVs. The SPVs then pass the ownership<strong>of</strong> the deposits on to the banks, from which they acquiremortgage or other type loans. The credit-sell<strong>in</strong>g banks therebyobta<strong>in</strong> claims on customers’ deposits held by themselves or byother banks. After compensation, the system’s deposits decreaseexactly by the amount <strong>of</strong> credits sold to the SPVs, i.e., purchasedby banks’ customers. From the standpo<strong>in</strong>t <strong>of</strong> the entire bank<strong>in</strong>gsystem, securitization implies, therefore, a simultaneous reduction<strong>in</strong> credits and deposits. If we turn back to our numerical examplenow, if 10 percent <strong>of</strong> all credits are securitized, credits that rema<strong>in</strong>on the banks’ books amount now to 11,250, while their obligations27 Our sequence <strong>of</strong> distribut<strong>in</strong>g new liquidity <strong>in</strong> the economic system startswith the construction sector, but it could start with any other economic sector,<strong>in</strong>clud<strong>in</strong>g the f<strong>in</strong>ancial sector itself.
296 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>to depositors decrease concomitantly to 10,750. At this stage, totaldeposits <strong>of</strong> 10,750 are backed by reserves <strong>of</strong> 240, while total equity<strong>of</strong> 1,000 guarantees credits <strong>of</strong> 11,250. The liquidity reserve ratio<strong>in</strong>creases from 2 percent to 2.23 percent, while the capital adequacyratio rises to 8.89 percent. Securitization leads to excess liquidityand to improved compliance with capital provision regulationsdespite the fact that the Central Bank has not <strong>in</strong>creased itstotal liabilities and additional sav<strong>in</strong>gs have not been channeled<strong>in</strong>to the bank<strong>in</strong>g <strong>in</strong>dustry.What will then be the next step <strong>of</strong> the bank<strong>in</strong>g system, given theexcess liquidity? Banks will grant new credits until the exist<strong>in</strong>gexcess reserves (25, i.e., the exist<strong>in</strong>g 240 m<strong>in</strong>us 2 percent <strong>of</strong> 10,750<strong>of</strong> deposits) are just enough to cover the new deposits createdthrough bank credit. Ignor<strong>in</strong>g liquidity outflows driven by ahigher demand for banknotes and by purchases abroad, it isstraightforward that banks can grant as much new loans as creditshave been securitized. Then the process can be repeated aga<strong>in</strong> andaga<strong>in</strong>, as long as there is demand for asset-backed securities, withoutever return<strong>in</strong>g to the Central Bank for ref<strong>in</strong>anc<strong>in</strong>g. Securitizationallows fractional reserve banks to grant more loans, whilekeep<strong>in</strong>g total deposits, i.e., the money supply <strong>in</strong> the broad sense,constant <strong>in</strong> the economy. This is expla<strong>in</strong>ed by the fact that thesecuritized credits are purchased by the SPVs by means <strong>of</strong> thosesame deposits that were created by banks <strong>in</strong> the very process <strong>of</strong>grant<strong>in</strong>g the credits. As a matter <strong>of</strong> fact, banks create both theobject to be sold (credits) and the means by which it can be purchased(deposits). It is this aspect <strong>of</strong> FRBs that makes their use <strong>of</strong>securitization special. 28The operational aspects <strong>of</strong> securitization hav<strong>in</strong>g been outl<strong>in</strong>ed,let us now address its economic characteristics.28 Banks that keep total reserves can make only real credit, i.e., they canlend out only funds collected through the issuance <strong>of</strong> securities (shares andbonds). Consecutive waves <strong>of</strong> securitization would imply consecutive reductions<strong>in</strong> <strong>in</strong>vestors’ money hold<strong>in</strong>gs, whether cash or deposits, that could notbe countered by the bank<strong>in</strong>g system.
Gertchev: Securitization and Fractional Reserve Bank<strong>in</strong>g — 297THE ILLUSION OF SAVINGS-DRIVEN GROWTHAND THE SPREAD OF SECURITIZATIONSecuritization allows FRBs to withdraw from the market theliquidities they have created and lent out. It reduces the moneysupply by the amount <strong>of</strong> liquid assets used to purchase the assetbackedsecurities. Therefore, it hides the reverse side <strong>of</strong> bankcredit—the <strong>in</strong>crease <strong>in</strong> the money supply, i.e., <strong>in</strong>flation. It makesthe economic environment appear less <strong>in</strong>flationary than it shouldbe, given <strong>in</strong>dividuals’ grow<strong>in</strong>g <strong>in</strong>debtedness to banks. Securitizationportrays a bank-credit driven boom as non-<strong>in</strong>flationary, sav<strong>in</strong>gsdriven growth. It contributes to the widespread illusion thatmore factors <strong>of</strong> production are available than <strong>in</strong> reality, andbecomes thereby a factor <strong>in</strong> the generation <strong>of</strong> the error-<strong>in</strong>ducedboom-bust cycle. 29To a certa<strong>in</strong> extent, economists have already recognized thatsecuritization restra<strong>in</strong>s the money-supply growth dur<strong>in</strong>g a creditboom. From a different approach, central bank economists havecome to the conclusion that securitization decreases the power <strong>of</strong>monetary policy: “securitization has likely weakened the impact <strong>of</strong>any policy move.” 30 This, <strong>of</strong> course, means that securitization <strong>in</strong>sulatesbanks’ lend<strong>in</strong>g activity from the central bank’s liquidity policy,which confirms our ma<strong>in</strong> conclusion and is even overtly statedby other economists: “Us<strong>in</strong>g a large sample <strong>of</strong> European banks, wef<strong>in</strong>d that the use <strong>of</strong> securitization appears to shelter banks’ loansupply from the effects <strong>of</strong> monetary policy.” 31 The central bankers’perspective is that <strong>of</strong> grow<strong>in</strong>g concern about loosen<strong>in</strong>g their grasp<strong>of</strong> the money supply. Such a concern implicitly admits that securitizationdisconnects the money-supply growth from bank-creditgrowth. 3229 Jörg Guido Hülsmann, “Toward a General Theory <strong>of</strong> Error Cycles,”Quarterly Journal <strong>of</strong> Austrian Economics 1, no. 4 (1998): 1–23.30 Estrella, “Securitization and The Efficacy <strong>of</strong> Monetary Policy,” p. 1.31 Altunbas et al., “Securitisation and the Bank Lend<strong>in</strong>g Channel,” p. 4.32 Further evidence <strong>of</strong> the acceptance <strong>of</strong> this result by other economists iseasy to f<strong>in</strong>d: “securitization provides an ever-grow<strong>in</strong>g fund<strong>in</strong>g source tobanks and may well be the most important eng<strong>in</strong>e <strong>of</strong> growth <strong>in</strong> bank lend<strong>in</strong>g.”Ergungor, “Securitization,” p. 4.
298 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>To a certa<strong>in</strong> extent, our analysis is <strong>in</strong> conformity with the<strong>in</strong>creas<strong>in</strong>gly common view among economists, at least as far as theouter description <strong>of</strong> the phenomenon is concerned. However,when it comes to understand what contributes to the spread <strong>of</strong>securitization, we must part with the traditional approach, whichmentions three ma<strong>in</strong> factors. First, securitization is presented as away to circumvent capital adequacy regulations, because it transfersthe credit risk <strong>of</strong> the loans from bank’s books to the <strong>in</strong>vestors<strong>in</strong> the asset-backed securities. Second, the “orig<strong>in</strong>ate and distributemodel,” accord<strong>in</strong>g to which credits are only orig<strong>in</strong>ated by banksand then distributed to <strong>in</strong>vestors who fund them, appears moreattractive than the “orig<strong>in</strong>ate and hold model” because <strong>of</strong> higherfrequency <strong>of</strong> bank<strong>in</strong>g fees. Third, asset-backed securities add tothe choice <strong>of</strong> <strong>in</strong>vestment opportunities and contribute to the efficiency<strong>of</strong> f<strong>in</strong>ancial markets. 33 While these assertions may be true <strong>in</strong>themselves, it is not true that they systematically render securitizationthe best solution for FRBs.Indeed, securitization improves banks’ capital-adequacy ratio,as shown <strong>in</strong> our numerical example. However, given that bankshave to raise capital only up to 8 percent <strong>of</strong> their new credits, it isnever too expensive for them to pay dividends to new capital <strong>in</strong>order to grant 12.5 times more loans. In addition, the <strong>in</strong>terest on thesecuritized loans is lost for the banks. Securitization, therefore, isnot really sav<strong>in</strong>g the cost <strong>of</strong> capital rais<strong>in</strong>g, for expenses on capitalare not an obstacle to the expansion <strong>of</strong> banks’ activity. 34 The “orig<strong>in</strong>ateand distribute” model does have the advantage <strong>of</strong> <strong>in</strong>creas<strong>in</strong>gbanks’ fees, but it has also the <strong>in</strong>convenience <strong>of</strong> depriv<strong>in</strong>g the orig<strong>in</strong>ator<strong>of</strong> the credit <strong>of</strong> the <strong>in</strong>terest yield, which is transferred to the33 That third reason is presented sometimes as an overt syllogism: “For theissuer, the bottom l<strong>in</strong>e is to create a set <strong>of</strong> new securities that are worth more<strong>in</strong> aggregate than the value <strong>of</strong> the underly<strong>in</strong>g assets.” Lakshman Alles, “AssetSecuritization and Structured F<strong>in</strong>anc<strong>in</strong>g: Future Prospects and Challenges forEmerg<strong>in</strong>g Market Countries,” IMF Work<strong>in</strong>g Paper WP/01/147 (2001), p. 5.34 If all outstand<strong>in</strong>g asset-backed securities ($11.9 trillion at the beg<strong>in</strong>n<strong>in</strong>g<strong>of</strong> 2008) were kept on US banks’ balance sheets, this would have required,over the last 30 years, an additional capital <strong>in</strong>jection <strong>of</strong> up to $ 952 billion. Forcomparison, at the beg<strong>in</strong>n<strong>in</strong>g <strong>of</strong> 2008, the market value <strong>of</strong> all US corporateequities was $19.4 trillion, out <strong>of</strong> which $4.1 trillion were f<strong>in</strong>ancial corporations’equities (Flow <strong>of</strong> Funds Accounts <strong>of</strong> the United States, Table L.213).
Gertchev: Securitization and Fractional Reserve Bank<strong>in</strong>g — 299buyers <strong>of</strong> the asset-backed securities. There is no guarantee thatthe accumulation <strong>of</strong> servic<strong>in</strong>g fees from securitized loans would behigher than the <strong>in</strong>terest rates received on even a smaller amount <strong>of</strong>credits kept on the balance sheets. F<strong>in</strong>ally, the assets-backed securitiesallow <strong>in</strong>vestors to obta<strong>in</strong> the same risk-revenue exposure asthe one they would have obta<strong>in</strong>ed if <strong>in</strong>vest<strong>in</strong>g <strong>in</strong> the banks and ifbanks have kept the loans on their books. It is therefore not clear<strong>in</strong> what sense there are new <strong>in</strong>vestment opportunities <strong>of</strong>fered onthe market.All three traditional explanations <strong>of</strong> securitization assume thatorig<strong>in</strong>ation and fund<strong>in</strong>g <strong>of</strong> the securitized loans are two unrelatedprocesses. 35 Our analysis shows that, to the contrary, they are twoanalytically <strong>in</strong>separable aspects <strong>of</strong> FRBs’ operation. As a matter <strong>of</strong>fact, securitization is <strong>of</strong> <strong>in</strong>terest for economists only <strong>in</strong>s<strong>of</strong>ar as it isused by FRBs to dissimulate the <strong>in</strong>flationary impact <strong>of</strong> creditexpansion. From this perspective, a full assessment <strong>of</strong> securitizationneeds, <strong>in</strong>deed, to expla<strong>in</strong> how it became a widely used technique.The crucial po<strong>in</strong>t, from bankers’ po<strong>in</strong>ts <strong>of</strong> view, is to createa demand for part <strong>of</strong> their loans, repackaged as structured securities.It follows that securitization relies critically on the ABSs’ qualityas perceived by <strong>in</strong>vestors. Securitization by FRBs can work onlyif securitized loans are presented to the public as actually differentfrom what they are. Hence, factors that change <strong>in</strong>vestors’ preferencesfavorably toward these f<strong>in</strong>ancial assets are the real determ<strong>in</strong>ants<strong>of</strong> the success <strong>of</strong> this technique. In a sense, securitization isbased on <strong>in</strong>stitutions that create and ma<strong>in</strong>ta<strong>in</strong> an illusion. 36Three illusion-creat<strong>in</strong>g <strong>in</strong>stitutions can be identified: government,rat<strong>in</strong>g agencies, and credit default <strong>in</strong>surers. All three contribute,<strong>in</strong> different ways, to change <strong>in</strong>vestors’ perceptions <strong>of</strong> theABSs’ risk-return pr<strong>of</strong>ile. Government, which was historicallyrelated to the modern <strong>in</strong>ception <strong>of</strong> securitization <strong>in</strong> the USA, wasprovid<strong>in</strong>g an implicit guarantee <strong>of</strong> ref<strong>in</strong>anc<strong>in</strong>g Fannie Mae and35 Alles, “Asset Securitization and Structured F<strong>in</strong>anc<strong>in</strong>g,” p. 15.36 To a certa<strong>in</strong> extent, the illusionary nature <strong>of</strong> securitization by banks hasbeen well captured by a legal analyst: “Securitization, <strong>in</strong> short, br<strong>in</strong>gs t<strong>of</strong><strong>in</strong>ancial technology what the sought-after philosopher’s stone promised tobr<strong>in</strong>g to base metals—the ability to turn them <strong>in</strong>to gold!” Schwarcz, “TheAlchemy <strong>of</strong> Asset Securitization,” p. 154.
300 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Freddie Mac. 37 Rat<strong>in</strong>g agencies grant quality labels to privatelyissued ABSs. Credit <strong>in</strong>surers help enhance these labels throughpromises, namely to pay for defaulted creditors, that objectivelycannot be carried out <strong>in</strong> the event <strong>of</strong> a systemic crisis. 38 All threecontribute to an over-valuation <strong>of</strong> ABSs relatively to other f<strong>in</strong>ancialassets.CONCLUSIONSecuritization is a f<strong>in</strong>ancial technique that permits the exchange<strong>of</strong> relatively non-marketable credit claims for liquidities. As such,it exploits an exchange opportunity between <strong>in</strong>dividuals withopposite liquidity valuations <strong>in</strong> their preference scales. Its modernusage by fractional reserve banks has dissociated the growth <strong>of</strong>credit expansion from the growth <strong>of</strong> the money supply. Securitizationhas provided banks with an alternative source <strong>of</strong> liquidity,different from central banks’ open-market operations, therebyweaken<strong>in</strong>g the latter’s control <strong>of</strong> the total amount <strong>of</strong> credit <strong>in</strong> theeconomy. It has contributed to de-monetiz<strong>in</strong>g bank credits,thereby conta<strong>in</strong><strong>in</strong>g <strong>in</strong>flation under conditions <strong>of</strong> grow<strong>in</strong>g <strong>in</strong>debtedness.Securitization has therefore become a tool for spread<strong>in</strong>gthe illusion <strong>of</strong> sav<strong>in</strong>gs-driven economic growth and for creat<strong>in</strong>gthe economic cycle. h37 That guarantee became explicit <strong>in</strong> September 2008, when both companieswere nationalized.38 The very important question <strong>of</strong> whether “credit <strong>in</strong>surance” is an<strong>in</strong>stance <strong>of</strong> <strong>in</strong>surance rests out <strong>of</strong> the scope <strong>of</strong> the present paper. Let us, however,note here that, follow<strong>in</strong>g Mises and <strong>Hoppe</strong>, we may conclude that creditscannot be <strong>in</strong>sured, as the events “go<strong>in</strong>g bankrupt” are not <strong>in</strong>dependent,uncorrelated elements with an identifiable class probability. See Mises,Human Action, pp. 105–19; <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “On Certa<strong>in</strong>ty and Uncerta<strong>in</strong>ty,Or: How Rational Can Our Expectations Be?,” Review <strong>of</strong> Austrian Economics10, no. 1 (1997): 49–78; idem., “The Limits <strong>of</strong> Numerical Probability:Frank H. Knight and Ludwig von Mises and The Frequency Interpretations,”Quarterly Journal <strong>of</strong> Austrian Economics 10, no. 1 (2007): 3–21. This implies thatthe very notion <strong>of</strong> credit <strong>in</strong>surance contributes to the creation <strong>of</strong> an illusion.
30<strong>Hoppe</strong> <strong>in</strong> One Lesson,Illustrated <strong>in</strong> Welfare EconomicsJeffrey M. HerbenerEvery schoolboy learns that, to reach a true conclusion, onemust start with true premises and use valid logic. The lesson,unfortunately, is largely forgotten later <strong>in</strong> life. Mostlack the <strong>in</strong>telligence, <strong>in</strong>terest, or courage to apply the lessonrigorously. Many break or bend the rules to further their ownagendas or careers. Others can only muster the will to follow therules <strong>in</strong> some part or <strong>in</strong> some cases. Rare is the person who mastersthe lesson.<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> has demonstrated the <strong>in</strong>tellectualheights that can be reached by employ<strong>in</strong>g the lesson with a brilliantm<strong>in</strong>d, fervent devotion to the truth, and unflagg<strong>in</strong>g moral courage.What follows is a brief account <strong>of</strong> how he set right the entire field<strong>of</strong> Welfare economics. 1 301Jeffrey M. Herbener (jmherbener@gcc.edu) is pr<strong>of</strong>essor <strong>of</strong> economics andchairman <strong>of</strong> the economics department at Grove City College. He is a SeniorFellow <strong>of</strong> the Ludwig von Mises Institute and associate editor <strong>of</strong> The QuarterlyJournal <strong>of</strong> Austrian Economics.1 On the development <strong>of</strong> Welfare economics, see Mark Blaug, “The FundamentalTheorems <strong>of</strong> Welfare Economics, Historically Considered,” History <strong>of</strong>Political Economy 39, no. 2 (2007): 185–207 and Jeffrey M. Herbener, “ThePareto Rule and Welfare Economics,” Review <strong>of</strong> Austrian Economics 10 (1997):79–106.
302 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Old Welfare economics attempted to overturn the laissez-faireconclusions <strong>of</strong> the Classical school on the basis <strong>of</strong> the theory <strong>of</strong>marg<strong>in</strong>al utility ushered <strong>in</strong> by the Marg<strong>in</strong>alist Revolution. If utilitycan be compared <strong>in</strong>terpersonally, by various assumptions such ascard<strong>in</strong>al utility or identical utility schedules or utility <strong>of</strong> moneyamong people, the Old Welfare economists argued that dim<strong>in</strong>ish<strong>in</strong>gmarg<strong>in</strong>al utility implied a social welfare ga<strong>in</strong> from, amongother <strong>in</strong>terventions <strong>of</strong> the state, redistribut<strong>in</strong>g wealth from the richto the poor. This l<strong>in</strong>e <strong>of</strong> argument was brought up short by thedemonstration that the subjectivity <strong>of</strong> value precludes <strong>in</strong>terpersonalutility comparisons. Therefore, social welfare can only besaid to unambiguously improve from a change if it makes at leastone person better <strong>of</strong>f and no one else worse <strong>of</strong>f. This Pareto Ruleforbade economists from claim<strong>in</strong>g social welfare improvementsfrom state <strong>in</strong>terventions s<strong>in</strong>ce they do make some better <strong>of</strong>f andothers worse <strong>of</strong>f.New Welfare economics tried to weave a case for state <strong>in</strong>terventionwith<strong>in</strong> the constra<strong>in</strong>ts <strong>of</strong> the Pareto Rule. The conclusions <strong>of</strong>New Welfare economics can be drawn from its ma<strong>in</strong> theorems. TheFirst Welfare Theorem states that a perfectly-competitive generalequilibrium is Pareto Optimal. From this theorem, the New Welfareeconomists conclude that a divergence <strong>of</strong> the real economy fromthis hypothetical condition justifies state <strong>in</strong>tervention to improvesocial welfare. Economics journals are replete with cases demonstrat<strong>in</strong>ghow the market economy fails to achieve a perfectly-competitivegeneral equilibrium and what <strong>in</strong>terventions the stateshould make to remove the market’s <strong>in</strong>efficiency. The Second WelfareTheorem states that any Pareto Optimal solution can bebrought about by a perfectly-competitive general equilibrium. Foreach pattern <strong>of</strong> <strong>in</strong>itial endowments <strong>of</strong> <strong>in</strong>come among persons, theperfectly-function<strong>in</strong>g market economy would reach a differentPareto Optimal outcome <strong>of</strong> production and exchange. From thistheorem, New Welfare economists conclude that the state can distribute<strong>in</strong>come, <strong>in</strong> whatever pattern it wants, e.g., to achieve a particularconception <strong>of</strong> equity, without impair<strong>in</strong>g the social welfaremaximiz<strong>in</strong>g property <strong>of</strong> the perfectly-function<strong>in</strong>g market economy.In his article on utility and welfare economics <strong>in</strong> 1956, MurrayRothbard demonstrated that New Welfare economists were wrongto th<strong>in</strong>k that a case aga<strong>in</strong>st laissez-faire could be constructed on the
Herbener: <strong>Hoppe</strong> <strong>in</strong> One Lesson, Illustrated <strong>in</strong> Welfare Economics — 303ground <strong>of</strong> the subjectivity <strong>of</strong> value. 2 He argued that New Welfareeconomists were correct to <strong>in</strong>fer the impossibility <strong>of</strong> <strong>in</strong>terpersonalutility comparisons from the subjectivity <strong>of</strong> value. Value is a state <strong>of</strong>m<strong>in</strong>d without an extensive property that could be objectively analyzed.As such, no common unit <strong>of</strong> value exists among persons <strong>in</strong>which their mental states could be measured and thus, compared.Hav<strong>in</strong>g accepted the subjectivity <strong>of</strong> value as the reason for theimpossibility <strong>of</strong> <strong>in</strong>terpersonal utility comparisons, which they madea pillar <strong>of</strong> their Welfare economics, New Welfare economists committhemselves to other corollaries <strong>of</strong> subjective value. In particular,Rothbard contended, they must embrace the concept <strong>of</strong> demonstratedpreference. Because preferences exist solely <strong>in</strong> a person’sm<strong>in</strong>d, another person can acquire objective knowledge about themonly by <strong>in</strong>ferr<strong>in</strong>g it from his actions. S<strong>in</strong>ce no other objective knowledge<strong>of</strong> a person’s preferences exists, only demonstrated preferencecan be used <strong>in</strong> the analysis <strong>of</strong> Welfare economics. Both the impossibility<strong>of</strong> <strong>in</strong>terpersonal utility comparisons and demonstrated preferenceare deduced directly from the subjectivity <strong>of</strong> value, andtherefore, New Welfare economists cannot, validly, accept one andreject the other. The impossibility <strong>of</strong> <strong>in</strong>terpersonal utility comparisonsconstra<strong>in</strong>s Welfare economics by the Pareto Rule, mak<strong>in</strong>g itharder to justify state <strong>in</strong>tervention than otherwise, but demonstratedpreference raises the bar for justify<strong>in</strong>g state <strong>in</strong>terventionthat much higher. Accord<strong>in</strong>g to New Welfare economists, the levelset by the Pareto Rule is determ<strong>in</strong>ed by the market’s deviation fromthe optimal result <strong>of</strong> a perfectly-competitive general-equilibriummodel, but demonstrated preference elim<strong>in</strong>ates any use <strong>of</strong> hypotheticalvalues, <strong>in</strong>clud<strong>in</strong>g the utility functions <strong>of</strong> economic agentsthat underlie such models. To be scientific, Welfare economics mustconf<strong>in</strong>e itself to statements about preferences that actual personsdemonstrate <strong>in</strong> their actions. Rothbard wrote:Demonstrated preference, as we remember, elim<strong>in</strong>ateshypothetical imag<strong>in</strong><strong>in</strong>gs about <strong>in</strong>dividual value scales.Welfare economics has until now always considered2 Murray N. Rothbard, “Toward a Reconstruction <strong>of</strong> Utility and WelfareEconomics,” The Logic <strong>of</strong> Action, One (Cheltenham, U.K.: Edward Elgar, 1997),pp. 211–54.
304 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>values as hypothetical valuations <strong>of</strong> hypothetical “socialstates.” But demonstrated preference only treats valuesas revealed through chosen action. 3The First Welfare Theorem, reconstituted along Rothbardianl<strong>in</strong>es, does not refer to the general equilibrium state <strong>of</strong> models<strong>in</strong>vented by economists. It refers to the actual economy, for whichit is more difficult to demonstrate social welfare improvementsfrom state <strong>in</strong>tervention. If market outcomes are compared to otherrealizable conditions reached <strong>in</strong> actual economic systems, <strong>in</strong>stead<strong>of</strong> unrealizable outcomes <strong>of</strong> perfectly-function<strong>in</strong>g, fictitious models,then market failure seems unlikely. And, as Rothbard showed,the market does surpass the levels <strong>of</strong> social welfare reached <strong>in</strong>other, actual economic systems.The Second Welfare Theorem, however, seemed unscathed byRothbard’s critique. New Welfare economists could still advocateone <strong>in</strong>tervention <strong>of</strong> the state. Without impair<strong>in</strong>g the efficiency <strong>of</strong>the market <strong>in</strong> br<strong>in</strong>g<strong>in</strong>g about a Pareto Optimal po<strong>in</strong>t, the statecould still distribute <strong>in</strong>come to achieve its conception <strong>of</strong> equity.Rothbard responded that private property was the proper <strong>in</strong>itialdistribution <strong>of</strong> wealth from which market activity renders a ParetoOptimal outcome. And, because the <strong>in</strong>itial distribution <strong>of</strong> privateproperty is not arbitrary, but follows the l<strong>in</strong>es <strong>of</strong> self-ownership <strong>of</strong>labor, homesteader ownership <strong>of</strong> land, and producer ownership <strong>of</strong>goods, state <strong>in</strong>tervention <strong>in</strong> property ownership could not producean outcome commensurate <strong>in</strong> social welfare with the Pareto Optimaloutcome <strong>of</strong> laissez-faire. New Welfare economists, however,not be<strong>in</strong>g adherents to Rothbard’s natural rights theory <strong>of</strong> property,denied that state distribution <strong>of</strong> property ownership wouldlead to a market outcome <strong>in</strong>ferior <strong>in</strong> social welfare to that <strong>of</strong> theunhampered market. Even some economists who favored laissezfaireagreed that the pattern <strong>of</strong> property ownership <strong>in</strong> society isarbitrary with respect to the market achiev<strong>in</strong>g a Pareto Optimaloutcome and hence, the state can rearrange it without detrimentalconsequences on social welfare.It was left to <strong>Hoppe</strong> to work out the logic <strong>of</strong> Rothbard’s argumentand reach a def<strong>in</strong>itive conclusion about the effect on social3 Ibid., p. 240.
Herbener: <strong>Hoppe</strong> <strong>in</strong> One Lesson, Illustrated <strong>in</strong> Welfare Economics — 305welfare <strong>of</strong> state distribution <strong>of</strong> property ownership. 4 In so do<strong>in</strong>g, hereoriented Welfare economics to its true course. Although latent <strong>in</strong>Rothbard’s analysis, <strong>Hoppe</strong> was the one who demonstrated thatthe Pareto Rule approach to social welfare economics leads, not toan optimization end po<strong>in</strong>t, but to a step-by-step Pareto Superiorprocess with an objective start<strong>in</strong>g po<strong>in</strong>t. As Rothbard had donebefore him, <strong>Hoppe</strong> confronted New Welfare economists with a logical<strong>in</strong>consistency <strong>in</strong> their argument. They had accepted a basicpr<strong>in</strong>ciple, this time self-ownership, from which they <strong>in</strong>ferred socialwelfare consequences <strong>of</strong> voluntary exchange, i.e., they pronouncedon the social welfare consequences <strong>of</strong> voluntary exchange from theviewpo<strong>in</strong>t <strong>of</strong> the traders themselves. But, <strong>in</strong> embrac<strong>in</strong>g self-ownership,they must also accept its logical corollary, namely Lockeanproperty acquisition. <strong>Hoppe</strong> po<strong>in</strong>ted out that self-ownership is anecessary precondition to all acquisition and use <strong>of</strong> property andnot just voluntary exchange. Therefore, it is the start<strong>in</strong>g po<strong>in</strong>t foreach succeed<strong>in</strong>g step <strong>of</strong> social <strong>in</strong>teraction.In critiqu<strong>in</strong>g Kirzner’s view <strong>of</strong> Welfare economics, <strong>Hoppe</strong>writes:If, however, the Pareto criterion is firmly wedded to thenotion <strong>of</strong> demonstrated preference, it <strong>in</strong> fact can beemployed to yield such a start<strong>in</strong>g po<strong>in</strong>t and serve, then,as a perfectly unobjectionable welfare criterion: a person’sorig<strong>in</strong>al appropriation <strong>of</strong> unowned resources, asdemonstrated by this very action, <strong>in</strong>creases his utility (atleast ex ante). At the same time, it makes no one worse<strong>of</strong>f, because <strong>in</strong> appropriat<strong>in</strong>g them he takes noth<strong>in</strong>gaway from others. For obviously, others could havehomesteaded these resources, too, if only they had perceivedthem as scarce. But they did not actually do so,which demonstrates that they attached no value to themwhatsoever, and hence they cannot be said to have lostany utility on account <strong>of</strong> this act. Proceed<strong>in</strong>g from thisPareto-optimal basis, then, any further act <strong>of</strong> production,utiliz<strong>in</strong>g homesteaded resources, is equally Paretooptimalon demonstrated preference grounds, providedonly that it does not un<strong>in</strong>vitedly impair the physical4 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “Review <strong>of</strong> Man, Economy, and Liberty,” Review <strong>of</strong>Austrian Economics 4 (1990): 249–63.
306 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong><strong>in</strong>tegrity <strong>of</strong> the resources homesteaded, or producedwith homesteaded means by others. And f<strong>in</strong>ally, everyvoluntary exchange start<strong>in</strong>g from this basis must also beregarded as a Pareto-optimal change, because it can onlytake place if both parties expect to benefit from it. Thus,contrary to Kirzner, Pareto-optimality is not only compatiblewith methodological <strong>in</strong>dividualism; togetherwith the notion <strong>of</strong> demonstrated preference, it also providesthe key to (Austrian) welfare economics and itspro<strong>of</strong> that the free market, operat<strong>in</strong>g accord<strong>in</strong>g to therules just described, always, and <strong>in</strong>variably so, <strong>in</strong>creasessocial utility, while each deviation from it decreases it. 5<strong>Hoppe</strong> showed that the Pareto Rule needed to be applied to thesocial welfare consequences <strong>of</strong> the acquisition <strong>of</strong> property and notjust its use. Self-ownership is the immutable start<strong>in</strong>g po<strong>in</strong>t for theprocess <strong>of</strong> acquir<strong>in</strong>g and then us<strong>in</strong>g property. State distribution <strong>of</strong><strong>in</strong>come to achieve an ostensibly more equitable “<strong>in</strong>itial” endowment<strong>of</strong> <strong>in</strong>come among persons fails to satisfy the Pareto Rule. Inother words, the Second Welfare Theorem, reconstituted along<strong>Hoppe</strong>an l<strong>in</strong>es, is false. Only one <strong>in</strong>itial endowment, the Lockeanone, is capable <strong>of</strong> produc<strong>in</strong>g a Pareto Optimal outcome.Moreover, <strong>Hoppe</strong>’s argument dispatches entirely the notion <strong>of</strong>Pareto Optimality as a social-welfare maximiz<strong>in</strong>g end state. Welfareeconomics starts with the objective fact <strong>of</strong> self-ownership andthen demonstrates that each step <strong>of</strong> voluntary acquisition and use<strong>of</strong> property satisfies the Pareto Rule and thereby, improves socialwelfare. Moreover, each <strong>in</strong>stance <strong>of</strong> state <strong>in</strong>tervention <strong>in</strong>to the voluntaryacquisition or use <strong>of</strong> property, benefits some and harmsothers and thereby, fails to improve social welfare. The actual market,then, is not compared to some end po<strong>in</strong>t it may eventuallyreach, but has not yet achieved. If that were the case, it might beclaimed that some <strong>in</strong>terventions <strong>of</strong> the state could facilitate theactual market <strong>in</strong> achiev<strong>in</strong>g the higher level <strong>of</strong> social welfare at itsend po<strong>in</strong>t. Instead, Welfare economics is constra<strong>in</strong>ed to compar<strong>in</strong>gthe actual market to actual state <strong>in</strong>tervention. No room is left forthe claim that the market fails to atta<strong>in</strong> some ideal which might be5 Ibid., pp. 257–58.
Herbener: <strong>Hoppe</strong> <strong>in</strong> One Lesson, Illustrated <strong>in</strong> Welfare Economics — 307use to justify state <strong>in</strong>tervention. <strong>Hoppe</strong> def<strong>in</strong>itively establishedthat the unhampered market is superior <strong>in</strong> improv<strong>in</strong>g social welfare.Welfare economics is arguably the least <strong>of</strong> <strong>Hoppe</strong>’s accomplishments<strong>in</strong> employ<strong>in</strong>g the lesson. In every field that has drawnhis attention, he has, like Ludwig von Mises and Murray Rothbardbefore him, exemplified sound reason<strong>in</strong>g <strong>in</strong> social analysis. Heimproved the edifice they constructed by clarify<strong>in</strong>g first pr<strong>in</strong>ciplesand relentlessly and fearlessly trac<strong>in</strong>g out the logical implications<strong>of</strong> these premises to their conclusions. He is an exemplar for allthose who love the truth.
31The Demand for Money and theTime-Structure <strong>of</strong> ProductionJörg Guido Hülsmann<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> is famous for his ground-break<strong>in</strong>gstudies on the epistemology <strong>of</strong> the social sciences,on the ethics <strong>of</strong> capitalism, and on democracy. But healso made orig<strong>in</strong>al and important contributions <strong>in</strong> variousother fields, such as monetary economics. 1 Money and bank<strong>in</strong>gwere actually our shared research <strong>in</strong>terest may years ago, whenI first got <strong>in</strong> touch with him. It is therefore appropriate to <strong>of</strong>fer anessay on this topic to my dear friend <strong>Hans</strong>, a great mentor and amagnificent source <strong>of</strong> <strong>in</strong>spiration.Jörg Guido Hülsmann (jgh@guidohulsmann.com) is Pr<strong>of</strong>essor <strong>of</strong> Economics atthe University <strong>of</strong> Angers, France; a Senior Fellow with the Ludwig von MisesInstitute; and the author <strong>of</strong> Mises: The Last Knight <strong>of</strong> Liberalism (2007) and TheEthics <strong>of</strong> Money Production (2008). He would like to thank Nikolay Gertchev forcomments on a previous version <strong>of</strong> the present paper.1 See <strong>in</strong> particular <strong>Hoppe</strong>, “Bank<strong>in</strong>g, Nation States and International Politics.A Sociological Reconstruction <strong>of</strong> the Present Monetary Order,” The Economicsand Ethics <strong>of</strong> Private Property (Boston: Kluwer, 1993), chap. 3, pp. 61–92;idem, “How is Fiat Money Possible?—or, The Devolution <strong>of</strong> Money andCredit,” Review <strong>of</strong> Austrian Economics 7, no. 2 (1994); idem with Jörg GuidoHülsmann and Walter Block, “Aga<strong>in</strong>st Fiduciary Media,” Quarterly Journal <strong>of</strong>Austrian Economics 1, no. 1 (1998): 1–50.309
310 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>I. INTRODUCTIONThe classical economists rejected the notion that the supply <strong>of</strong>and demand for money had any systematic impact on aggregatewealth. Accord<strong>in</strong>g to Adam Smith, the true factors determ<strong>in</strong><strong>in</strong>geconomic growth were the division <strong>of</strong> labor and capital accumulation—real,not monetary factors. Austrian economists have alwayscherished and held onto these central <strong>in</strong>sights, yet they havenuanced them <strong>in</strong> several respects. Most notably, Menger andBöhm-Bawerk have <strong>in</strong>troduced the time dimension <strong>in</strong>to the theory<strong>of</strong> capital, show<strong>in</strong>g among other th<strong>in</strong>gs the classical wage fundtheory to be <strong>in</strong>accurate <strong>in</strong> important respects. 2 Similarly, Misesstressed that money is not neutral. While the supply <strong>of</strong> money andthe demand for money have no systematic impact on aggregategrowth, these forces do affect the distribution and allocation <strong>of</strong>resources. They shape the type and relative quantities <strong>of</strong> goodsbe<strong>in</strong>g produced. In short, they determ<strong>in</strong>e the structure, though notthe level <strong>of</strong> production. 3The purpose <strong>of</strong> present paper is to analyze the impact <strong>of</strong> thedemand for money on the pure rate <strong>of</strong> <strong>in</strong>terest, and thus on thetime structure <strong>of</strong> production. Conventional Austrian monetary theoryholds that while the supply <strong>of</strong> money does have a systematicimpact on the rate <strong>of</strong> <strong>in</strong>terest, the demand for money does not. Thelatter is so-to-say “time-neutral.” We will criticize this contentionand proceed as follows: after a rem<strong>in</strong>der <strong>of</strong> some basic concepts(section II), we will briefly restate the traditional Austrian analysis<strong>of</strong> the time dimension <strong>of</strong> the money relation (section III), and then<strong>of</strong>fer a critique, stress<strong>in</strong>g that the demand for money is not timeneutral<strong>in</strong> the case <strong>of</strong> natural money, whereas it is <strong>in</strong> the case <strong>of</strong> fiat2 See Carl Menger, Grundsätze der Volkswirtschaftslehre (Vienna:Braumüller, 1871); Eugen von Böhm-Bawerk, Positive Theory <strong>of</strong> Capital (1959[1921]); see also W.S. Jevons, Theory <strong>of</strong> Political Economy (1871).3 See Ludwig von Mises, Theory <strong>of</strong> Money and Credit (Indianapolis: LibertyFund, 1980 [1924]), chap. 19; idem, Human Action (Auburn, Ala.: Ludwig vonMises Institute, 1998), chaps. 17–20. It goes without say<strong>in</strong>g that the demandfor and the supply <strong>of</strong> money concern cash balances; they do not concernshort-term loans made on the so-called “money market” (see ibid., p. 400).
Hülsmann: The Demand for Money and the Time-Structure <strong>of</strong> Production — 311money (section IV). F<strong>in</strong>ally we shall discuss some implications <strong>of</strong>our f<strong>in</strong>d<strong>in</strong>gs (section V).Def<strong>in</strong>itionII. THE DEMAND FOR MONEYThe demand for money can be def<strong>in</strong>ed either as the demand formonetary payments (flow), or as the demand for cash balances(stock). As far as the determ<strong>in</strong>ation <strong>of</strong> the price level is concerned,both def<strong>in</strong>itions lead to the same result. We will work with the seconddef<strong>in</strong>ition (money demand concerns cash balances) because ithighlights the crucial fact that money renders its services not onlyat the moment when it is used <strong>in</strong> spend<strong>in</strong>g, but also dur<strong>in</strong>g theentire period when it is be<strong>in</strong>g held or “hoarded.” Money is themost marketable commodity. Thus cash balances, even while theyare not be<strong>in</strong>g spent, provide liquidity services to their owners.Cash balances are demanded for the liquidity services they provide.They are demanded for their purchas<strong>in</strong>g power. The onlyexception is the merely nom<strong>in</strong>al demand for money by collectors.The latter are not <strong>in</strong>terested <strong>in</strong> the purchas<strong>in</strong>g power <strong>of</strong> the banknotes and co<strong>in</strong>s they collect. They are only <strong>in</strong>terested <strong>in</strong> the notesand co<strong>in</strong>s per se—that is why we call them collectors. But truemoney users do not demand mere nom<strong>in</strong>al cash balances, but realcash balances. They demand a certa<strong>in</strong> purchas<strong>in</strong>g power. 5The Demand for Money and the Price LevelStandard demand and supply analysis shows that any <strong>in</strong>crease<strong>of</strong> demand entails an <strong>in</strong>crease <strong>of</strong> the price <strong>of</strong> the good <strong>in</strong> question.4 See Rothbard, Man, Economy, and State (3rd ed., Auburn, Ala.: Ludwigvon Mises Institute, 1993), pp 662. Money itself is def<strong>in</strong>ed as a generally usedmedium <strong>of</strong> exchange; see ibid., p. 165; see also Menger, Grundsätze der Volkswirtschaftslehre,pp. 253f.; Mises, Human Action, p. 395.5 For a detailed discussion <strong>of</strong> the factors determ<strong>in</strong><strong>in</strong>g the demand formoney, <strong>in</strong>clud<strong>in</strong>g a thorough critique <strong>of</strong> the Keynesian approach, see Rothbard,Man, Economy, and State, pp. 671–98. See also Philipp Bagus, “The Quality<strong>of</strong> Money” (Work<strong>in</strong>g paper, Universidad Rey Juan Carlos, 2008).
312 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>This price <strong>in</strong>crease is not cont<strong>in</strong>gent (accidental), but systematic(necessary), which is what we mean when we assert that the<strong>in</strong>crease <strong>of</strong> demand causes the price <strong>in</strong>crease. Now <strong>in</strong> the case <strong>of</strong>money, its “price” can be def<strong>in</strong>ed as the total array <strong>of</strong> goods andservices that can be exchanged for one unit <strong>of</strong> money. 6 In otherwords, the price <strong>of</strong> money is the purchas<strong>in</strong>g power <strong>of</strong> a money unit.If the demand for money <strong>in</strong>creases, therefore, the purchas<strong>in</strong>gpower <strong>of</strong> money tends to <strong>in</strong>crease beyond the level it would otherwisehave reached, which means that the general level <strong>of</strong> moneyprices will tend to decrease. Inversely, when the demand for moneydim<strong>in</strong>ishes, the purchas<strong>in</strong>g power <strong>of</strong> money will tend to fall belowthe level it would otherwise have reached, or, which is the sameth<strong>in</strong>g, the general level <strong>of</strong> money prices will tend to <strong>in</strong>crease.The Demand for Money and the Pure Rate <strong>of</strong> InterestThe question now is whether there is a systematic relationshipbetween money demand, on the one hand, and the pure rate <strong>of</strong><strong>in</strong>terest (PRI) on the other hand. The latter can be def<strong>in</strong>ed as thepure return on <strong>in</strong>vestment as it would exist <strong>in</strong> general <strong>in</strong>ter-temporalequilibrium or, equivalently, as the pure exchange ratebetween present goods (money and consumers’ goods) and futuregoods (producers’ goods and f<strong>in</strong>ancial titles). 7 It follows that thedemand for money could be said to affect the PRI only under onecondition, namely, if it had a systematically different impact onpresent goods than on future goods. For example, if <strong>in</strong>creases <strong>in</strong>the demand for money tended to reduce sales revenues more thancost expensiture, then there would be a negative relationshipbetween the demand for money and <strong>in</strong>terest rates (as held <strong>in</strong> standardKeynesian analysis).III. THE TIME DIMENSION OF THE MONEY RELATIONIN CONVENTIONAL THEORYThe time dimension <strong>of</strong> the “money relation”—<strong>of</strong> the demandfor and supply <strong>of</strong> money—has been neglected <strong>in</strong> contemporary6 See Rothbard, Man, Economy, and State, pp. 204f.7 See ibid., p. 299.
Hülsmann: The Demand for Money and the Time-Structure <strong>of</strong> Production — 313economic analysis. Only the Austrian economists found it worthy<strong>of</strong> any systematic consideration. Conventional Austrian monetarytheory holds that while the supply <strong>of</strong> money does have a systematicimpact on the rate <strong>of</strong> <strong>in</strong>terest, the demand for money does not.The Time Dimension <strong>of</strong> the Money SupplyMises and the Austrian literature after him focused on the supplyside. Mises analysed <strong>in</strong> particular the impact <strong>of</strong> <strong>in</strong>creases <strong>of</strong> themoney supply on the time structure <strong>of</strong> production, dist<strong>in</strong>guish<strong>in</strong>gbetween systematic effects and non-systematic (accidental) effects.On the one hand, <strong>in</strong>creases <strong>of</strong> the money supply systematicallyprovoke artificial reductions <strong>of</strong> the <strong>in</strong>terest rate—”artificial”because they do not result from a lower time preference <strong>of</strong> themarket participants, but from (unanticipated) <strong>in</strong>creases <strong>of</strong> themoney supply. Such artificial reductions <strong>of</strong> the <strong>in</strong>terest rate entail<strong>in</strong>ter-temporal misallocations <strong>of</strong> resources and, therefore, bus<strong>in</strong>esscycles. 8On the other hand, <strong>in</strong>creases <strong>of</strong> the money supply may alsoaffect the <strong>in</strong>terest rate without entail<strong>in</strong>g misallocations, namely, tothe extent that they modify the distribution <strong>of</strong> <strong>in</strong>come and wealth.The <strong>in</strong>creased money supply benefits the early users <strong>of</strong> the newmoney at the expense <strong>of</strong> the later users. Thus if the early usershave a lower time preference than the later ones, then the averageor social time preference will fall, thus entail<strong>in</strong>g a reduction <strong>of</strong> the<strong>in</strong>terest rate. Similarly, if the early users <strong>of</strong> the new money have ahigher time preference than the later ones, then the average timepreference will rise, thus provok<strong>in</strong>g a higher rate <strong>of</strong> <strong>in</strong>terest.However, these distribution effects are not systematic. The earlyusers <strong>of</strong> the new money do not necessarily have a lower or highertime preference than the later users. The <strong>in</strong>creased money supplymight therefore result <strong>in</strong> a lower <strong>in</strong>terest rate; but it might just aswell result <strong>in</strong> a higher <strong>in</strong>terest rate, or not affect the <strong>in</strong>terest rate atall. 9 Analogous conceptions prevail <strong>in</strong> the case <strong>of</strong> changes <strong>of</strong> thedemand for money.8 See Mises, Human Action, chap. 20.9 See ibid., pp. 545–47.
314 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>The Time Dimension <strong>of</strong> the Demand for MoneyMises dealt with the time dimension <strong>of</strong> the demand for moneyonly <strong>in</strong>cidentally. Still a clear case can be made that <strong>in</strong> his eyeschanges <strong>of</strong> the demand for money does not have a systematicimpact on the time structure <strong>of</strong> production. An <strong>in</strong>creased demandfor money (cash hoard<strong>in</strong>g) merely entails a tendency for the prices<strong>of</strong> all goods to fall, but this event “does not require an adjustment<strong>of</strong> production activities”—it “merely alters the money items to beused <strong>in</strong> monetary calculation.” 10 Changes <strong>in</strong> money demand canaffect the <strong>in</strong>terest rate only to the extent that they have an impacton the distribution <strong>of</strong> <strong>in</strong>come and wealth. But, aga<strong>in</strong>, such distributioneffects may work out one way or another—their impact“depends on the specific data <strong>of</strong> each case.” 11Rothbard analyses this question <strong>in</strong> much more detail andcomes to the same conclusion. He states that a “man may allocatehis money to consumption, <strong>in</strong>vestment, or addition to his cash balance”and proceeds to show that, <strong>in</strong> the light <strong>of</strong> this dist<strong>in</strong>ction, thedemand for money is time-neutral. Changes <strong>in</strong> the demand formoney do not systematically affect time preference, and thus donot determ<strong>in</strong>e the PRI. Let us quote him here at length:His time preferences govern the proportion which an<strong>in</strong>dividual devotes to present and to future goods, i.e., toconsumption and to <strong>in</strong>vestment. Now suppose a man’sdemand-for-money schedule <strong>in</strong>creases, and he thereforedecides to allocate a proportion <strong>of</strong> his money <strong>in</strong>come to<strong>in</strong>creas<strong>in</strong>g his cash balance. There is no reason to supposethat this <strong>in</strong>crease affects the consumption/<strong>in</strong>vestment proportionat all. It could, but if so, it would mean a change <strong>in</strong>his time pref erence schedule as well as <strong>in</strong> his demand formoney.If the demand for money <strong>in</strong>creases, there is no reasonwhy a change <strong>in</strong> the demand for money should affect the <strong>in</strong>terestrate one iota. There is no necessity at all for an <strong>in</strong>crease<strong>in</strong> the de mand for money to raise the <strong>in</strong>terest rate, or adecl<strong>in</strong>e to lower it—no more than the opposite. In fact,there is no causal connec tion between the two; one is10 Ibid., p. 519.11 Ibid., p. 417.
Hülsmann: The Demand for Money and the Time-Structure <strong>of</strong> Production — 315determ<strong>in</strong>ed by the valuations for money, and the otherby valuations for time preference.. . . An <strong>in</strong>creased demand for money, then, tends tolower prices all around without chang<strong>in</strong>g time preferenceor the pure rate <strong>of</strong> <strong>in</strong>terest Thus, suppose totalsocial <strong>in</strong>come is 100, with 70 al located to <strong>in</strong>vestment and30 to consumption. The demand for money <strong>in</strong>creases, sothat people decide to hoard a total <strong>of</strong> 20. Expenditurewill now be 80 <strong>in</strong>stead <strong>of</strong> 100, 20 be<strong>in</strong>g added to cashbalances. Income <strong>in</strong> the next period will be only 80, s<strong>in</strong>ceexpenditures <strong>in</strong> one period result <strong>in</strong> the identical <strong>in</strong>cometo be allocated to the next period. If time preferencesrema<strong>in</strong> the same, then the proportion <strong>of</strong> <strong>in</strong>vestment toconsumption <strong>in</strong> the society will rema<strong>in</strong> roughly thesame, i.e., 56 <strong>in</strong>vested and 24 consumed. Prices andnom<strong>in</strong>al money values and <strong>in</strong>comes fall all along thel<strong>in</strong>e, and we are left with the same capital structure, thesame real <strong>in</strong>come, the same <strong>in</strong>terest rate, etc. The onlyth<strong>in</strong>gs that have changed are nom<strong>in</strong>al prices, whichhave fallen, and the propor tion <strong>of</strong> total cash balances tomoney <strong>in</strong>come, which has <strong>in</strong>creased. . . . 12He concludes:The only necessary result, then, <strong>of</strong> a change <strong>in</strong> thedemand-for-money schedule is precisely a change <strong>in</strong> thesame direction <strong>of</strong> the proportion <strong>of</strong> total cash balances tototal money <strong>in</strong>come and <strong>in</strong> the real value <strong>of</strong> cash balances.Given the stock <strong>of</strong> money, an <strong>in</strong>creased scramblefor cash will simply lower money <strong>in</strong>comes until thedesired <strong>in</strong>crease <strong>in</strong> real cash balances has beenatta<strong>in</strong>ed. 1312 Rothbard, Man, Economy, and State, pp. 678f.13 Ibid., p. 679. Similarly, he states a few pages later:A greater proportion <strong>of</strong> funds hoarded can be drawn fromthree alternative sources: (a) from funds that formerly went<strong>in</strong>to consumption, (b) from funds that went <strong>in</strong>to <strong>in</strong>vestment,and (c) from a mixture <strong>of</strong> both that leaves the old consumption-<strong>in</strong>vestmentproportion unchanged. Condition (a) willbr<strong>in</strong>g about a fall <strong>in</strong> the rate <strong>of</strong> <strong>in</strong>terest; condition (b) a rise <strong>in</strong>the rate <strong>of</strong> <strong>in</strong>terest, and condition (c) will leave the rate <strong>of</strong><strong>in</strong>terest unchanged. Thus hoard<strong>in</strong>g may reflect either a rise,
316 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>However, the conscientious Rothbard did not fail to remarkthat this conclusion stood on somewhat shaky grounds. In an endnotehe wrote:Strictly, the ceteris paribus condition will tend to be violated.An <strong>in</strong>creased demand for money tends to lowermoney prices and will therefore lower money costs forgold m<strong>in</strong><strong>in</strong>g. This will stimulate gold m<strong>in</strong><strong>in</strong>g productionuntil the <strong>in</strong>terest return on m<strong>in</strong><strong>in</strong>g is aga<strong>in</strong> the same as<strong>in</strong> other <strong>in</strong>dustries. Thus the <strong>in</strong>creased demand formoney will also call forth new money to meet thedemand. 14This observation will be the start<strong>in</strong>g po<strong>in</strong>t for our follow<strong>in</strong>g discussion.IV. THE TIME DIMENSION OF THE DEMANDFOR MONEY RECONSIDEREDThe Demand for Commodity Money is Not Time-NeutralRothbard is correct <strong>in</strong> po<strong>in</strong>t<strong>in</strong>g out that changes <strong>in</strong> the demandfor money do not have any systematic direct implications for therelative spend<strong>in</strong>g on consumers’ goods and on the correspond<strong>in</strong>gproducers’ goods. But as he admits, they do have implications forthe return on <strong>in</strong>vestment (ROI) <strong>of</strong> money production, at any rate <strong>in</strong>the case <strong>of</strong> commodity monies such as silver or gold. An <strong>in</strong>creaseddemand for silver will <strong>in</strong>crease the ROI <strong>of</strong> silver production,because the factors <strong>of</strong> production needed to produce a givenamount <strong>of</strong> silver now tend to become available at lower silverprices. This <strong>in</strong> turn will modify the spend<strong>in</strong>g on all other goods.In particular, capital will move from other <strong>in</strong>dustries <strong>in</strong>to the silver<strong>in</strong>dustry, prompt<strong>in</strong>g the ROI <strong>of</strong> silver production to fall andthe ROI <strong>of</strong> all other <strong>in</strong>dustries to rise, until the ROI <strong>of</strong> all l<strong>in</strong>es <strong>of</strong>a fall, or no change <strong>in</strong> the rate <strong>of</strong> <strong>in</strong>terest, depend<strong>in</strong>g onwhether time preferences have concomitantly risen, fallen, orrema<strong>in</strong>ed the same. (Ibid., p. 690)14 Ibid., p. 916, endnote 10.
Hülsmann: The Demand for Money and the Time-Structure <strong>of</strong> Production — 317bus<strong>in</strong>ess is equal. Thus there will be a new PRI that is higher thanthe PRI that prevailed before the <strong>in</strong>crease <strong>of</strong> the demand formoney was priced <strong>in</strong>to the market.In other words, there is a positive causal relationship betweenthe demand for commodity money and the PRI. The demand forcommodity money is not time-neutral. Increases <strong>of</strong> the demand forcommodity money tend to <strong>in</strong>crease the PRI. Decreases <strong>of</strong> thedemand for commodity money tend to decrease it. 15This relationship holds not only dur<strong>in</strong>g a period <strong>of</strong> adjustment,dur<strong>in</strong>g which more silver is be<strong>in</strong>g produced accord<strong>in</strong>g to thehigher demand. It also holds <strong>in</strong> f<strong>in</strong>al equilibrium, because the wearand tear <strong>in</strong>creases along with the greater silver supply. The silverproduction will be <strong>in</strong>creased permanently, and thus the PRI willalso permanently be higher than it otherwise would have been.The time structure <strong>of</strong> production will tend to be modifiedaccord<strong>in</strong>gly. A higher demand for money creates <strong>in</strong>centives toshorten the structure and to make it thicker than it otherwisewould have been. And a lower demand for money will tend tolengthen the structure and make it th<strong>in</strong>ner than otherwise. Inshort, the demand for money does affect the time structure <strong>of</strong> production.The same effects hold <strong>in</strong> the case <strong>of</strong> temporary <strong>in</strong>creases <strong>of</strong> thedemand for money, as it is <strong>of</strong>ten the case at the onset and <strong>in</strong> themiddle <strong>of</strong> the deflationary bust phase <strong>of</strong> the bus<strong>in</strong>ess cycle, whenmarket participants seek to sell their non-monetary assets at a discount(thus the <strong>in</strong>crease <strong>of</strong> the PRI), but a discount that is lower15 One could raise the question whether <strong>in</strong>creases <strong>of</strong> the demand formoney, because they entail a reduction <strong>of</strong> the price level and thus a correspond<strong>in</strong>gwealth effect for money owners, did not actually reduce the PRI.Some Austrian economists such as <strong>Hoppe</strong> (Democracy—The God that Failed, p.2) hold that <strong>in</strong>creased wealth tends to lower time preference schedules. Itseems to follow that an <strong>in</strong>creased demand for money tends to dim<strong>in</strong>ish timepreference schedules and thus implies a reduction <strong>of</strong> the PRI. However, theconnection between wealth and time preference schedules does not hold a priori,but is a historically cont<strong>in</strong>gent relationship, as Barnett and Block haveargued <strong>in</strong> “The Relationship between Wealth or Income and Time Preferenceis Empirical, Not Apodictic: A Critique <strong>of</strong> Rothbard and <strong>Hoppe</strong>,” Review <strong>of</strong>Austrian Economics 19 (2006).
318 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>than the one they expect for the near future. In such cases the<strong>in</strong>crease <strong>of</strong> the demand for money lasts only until the price structurehas been adjusted to its new (lower) f<strong>in</strong>al equilibrium level. 16The Demand for Fiat Money Tends to Be Time-NeutralTh<strong>in</strong>gs are very different <strong>in</strong> the case <strong>of</strong> fiat money. The characteristicfeature <strong>of</strong> fiat money is that the demand for it is at least partiallydeterm<strong>in</strong>ed by violations <strong>of</strong> property rights, <strong>in</strong> particular bymonopoly or legal-tender laws. As a consequence, the producer <strong>of</strong>fiat money is able to choose for his product an <strong>in</strong>expensive physicalsupport, such as paper or electronic data.Paper money and electronic money are fiat moneys par excellencebecause (1) their marg<strong>in</strong>al cost <strong>of</strong> production is close to zeroand (2) they need to be imposed on the market lest they wouldhave no circulation at all, whereas other types <strong>of</strong> money such as theprecious metals do not need fiat back<strong>in</strong>g to be used at all. Typically,therefore, fiat money is be<strong>in</strong>g produced monopolisticallyand the producer enjoys complete discretion <strong>in</strong> maximiz<strong>in</strong>g hispr<strong>of</strong>its through time accord<strong>in</strong>g to his <strong>in</strong>ter-temporal value scales. 17Now here the causal mechanism that <strong>in</strong> the case <strong>of</strong> commoditymonies l<strong>in</strong>ks up the demand for money with the PRI vanishes. An<strong>in</strong>creased demand for money will have next to no impact on thecosts <strong>of</strong> fiat money and thus on the pr<strong>of</strong>itability <strong>of</strong> produc<strong>in</strong>g it. Itwill therefore not attract additional resources and thus <strong>in</strong>crease theROI <strong>in</strong> other <strong>in</strong>dustries. The long-run PRI is not modified–thedemand for fiat money tends to be time-neutral.Moreover, <strong>in</strong> the case <strong>of</strong> temporary <strong>in</strong>creases <strong>of</strong> the demand formoney, their tendency to <strong>in</strong>crease the price level can be <strong>of</strong>fset, withouttechnical or commercial limitations, by a correspond<strong>in</strong>g<strong>in</strong>crease <strong>of</strong> the money supply, thus prevent<strong>in</strong>g the necessity to sellassets at a discount. As is well known, this is not a mere theoreticalpossibility. Present-day fiat money producers—the central banks—pursue a policy <strong>of</strong> price level stabilisation, and they vigorously16 This temporary impact <strong>of</strong> the demand for money on the PRI has beenstressed by Rothbard, see Man, Economy, and State, pp. 692, 864f.17 See Hülsmann, The Ethics <strong>of</strong> Money Production (Auburn, Ala.: Ludwigvon Mises Institute, 2008), chap. 1, sections 5 and 6; idem, Logik derWährungskonkurrenz (Essen: Management Akademie Verlag, 1996).
Hülsmann: The Demand for Money and the Time-Structure <strong>of</strong> Production — 319fight any form <strong>of</strong> price deflation. Thus we may say that, under thepresent-day fiat money regimes, any <strong>in</strong>creases <strong>of</strong> the demand formoney are actually caus<strong>in</strong>g correspond<strong>in</strong>g <strong>in</strong>creases <strong>of</strong> the moneysupply. It is true that such <strong>in</strong>creases <strong>of</strong> the money supply will createa tendency for the price level to <strong>in</strong>crease, thus entail<strong>in</strong>g sooneror later a price premium with<strong>in</strong> the gross rate <strong>of</strong> <strong>in</strong>terest. But thecrucial po<strong>in</strong>t is that the PRI need not <strong>in</strong>crease. It follows that, even<strong>in</strong> the case <strong>of</strong> temporary <strong>in</strong>creases <strong>of</strong> the demand for money, fiatmoney tends to have different consequences than commoditymoney.Mislead<strong>in</strong>g Dist<strong>in</strong>ction between Money and Present GoodsThus we see that the traditional Austrian position, accord<strong>in</strong>g towhich the demand for money is time-neutral, only applies to thecase <strong>of</strong> fiat money. It does not apply to the case <strong>of</strong> commoditymoney. Why did the Austrians, and Mises and Rothbard <strong>in</strong> particular,overlook this fact? The ma<strong>in</strong> reason seems to be that theydef<strong>in</strong>e money without reference to its physical characteristics.They see money as a particular “disembodied” class <strong>of</strong> goods thatis therefore not subject to the laws rul<strong>in</strong>g the time market. Changes<strong>in</strong> the demand for money do not affect time preference schedulesbecause the latter concern only non-monetary goods (“realgoods”), namely, consumer goods and producer goods. By contrast,money is a good <strong>in</strong> a class <strong>of</strong> its own.Mises follows the German economist Carl Knies <strong>in</strong> classify<strong>in</strong>gall economic goods <strong>in</strong>to three mutually exclusive categories: consumers’goods, producers’ goods, and media <strong>of</strong> exchange. 18 The18 See Mises, Theory <strong>of</strong> Money and Credit, pp. 96–102; Knies, Geld und Credit(2nd ed., Berl<strong>in</strong>: Weidmann, 1885), vol. 1, pp. 20ff. Mises argued (1) thatmoney is not always “needed” <strong>in</strong> production processes. “There is no need formoney either <strong>in</strong> the isolated household or <strong>in</strong> the socialized community.Nowhere can we discover a good <strong>of</strong> the first order <strong>of</strong> which we could say thatthe use <strong>of</strong> money was a necessary condition <strong>of</strong> its production” (p. 99). Furthermore,he contended (2) that money is not useful from an aggregate po<strong>in</strong>t<strong>of</strong> view. Whereas changes <strong>in</strong> the supply <strong>of</strong> consumers’ goods or producers’goods make “mank<strong>in</strong>d” poorer respectively richer, the “same cannot be said<strong>of</strong> the loss or ga<strong>in</strong> <strong>of</strong> money” (p. 101).Both arguments are weak. In Socialism (1922) and Human Action (1949),Mises stressed that only a monetary economy allowed for a complex and
320 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>pure <strong>in</strong>terest rate is the <strong>in</strong>ter-temporal exchange rate betweenpresent goods (consumer goods) and future goods (producergoods). The demand for money does not affect this exchange rateat all. As we have seen, this contention is correct <strong>in</strong> the case <strong>of</strong> fiatmoney. Here the marg<strong>in</strong>al costs <strong>of</strong> produc<strong>in</strong>g paper money are virtuallyzero, and thus <strong>in</strong>vestment spend<strong>in</strong>g on money productiondoes not depend at all on changes <strong>of</strong> demand. It follows thatchanges <strong>in</strong> the demand for paper money do not have any a prioriimpact on the proportion between consumption and <strong>in</strong>vestment,and thus on <strong>in</strong>ter-temporal value-scales and the <strong>in</strong>terest rate. Butas we have seen as well, th<strong>in</strong>gs are different <strong>in</strong> the case <strong>of</strong> commoditymoney.Astonish<strong>in</strong>gly, this fact has also been overlooked by MurrayRothbard. In chapter 11 <strong>of</strong> Man, Economy, and State, he modifies theanalysis <strong>of</strong> present and future goods stated <strong>in</strong> earlier chapters, totake account <strong>of</strong> the impact <strong>of</strong> money hoard<strong>in</strong>g. 19 Rothbard nowabandons his previous classification <strong>of</strong> all goods <strong>in</strong>to exactly twoclasses (present and future goods). Like Knies and Mises, he nowchampions the three-tier dist<strong>in</strong>ction between consumers’ goods,producers’ goods, and cash balances.Clearly, a good case can be made that money is neither a consumers’good, nor a producers’ good. However, for the determ<strong>in</strong>ation<strong>of</strong> the PRI this is beside the po<strong>in</strong>t. Here the only relevantdist<strong>in</strong>ction is between present goods and future goods. Moneycould be said to be time neutral only if it fell <strong>in</strong>to a third class <strong>of</strong>goods that would be neither present goods nor future goods.However, Rothbard does not deliver any demonstration to thisroundabout division <strong>of</strong> labour. Clearly, therefore, money is needed for mostproduction projects. Similarly, the contention that the money supply has nopositive or negative welfare implication for “mank<strong>in</strong>d,” even if true, has noscientific foundation whatever as long as we are unable to compare the subjectivevalue judgments <strong>of</strong> different <strong>in</strong>dividuals.19 See Rothbard, Man, Economy, and State, p. 678. Previously he had identifiedhoard<strong>in</strong>g as one <strong>of</strong> the sources <strong>of</strong> “the money that [capitalists] save and<strong>in</strong>vest”—the other two sources be<strong>in</strong>g sell<strong>in</strong>g receipts from present productionand money production (see ibid., p. 351). This classification begs the questionwhether money hoards are not <strong>in</strong> fact one <strong>of</strong> the forms <strong>in</strong> which one can saveand <strong>in</strong>vest one’s capital.
Hülsmann: The Demand for Money and the Time-Structure <strong>of</strong> Production — 321effect, but simply asserts that money falls <strong>in</strong>to a class <strong>of</strong> its own—an assertion that moreover contradicts his own previous emphasisthat money is “the present good par excellence.” 20As soon as it is admitted that money is a present good, thoughnot a consumers’ good, the impact <strong>of</strong> the demand for money onrelative spend<strong>in</strong>g between present goods and future goods is obvious.Let us recall Rothbard’s argument, quoted above:A greater proportion <strong>of</strong> funds hoarded can be drawnfrom three alternative sources: (a) from funds that formerlywent <strong>in</strong>to consumption, (b) from funds that went<strong>in</strong>to <strong>in</strong>vestment, and (c) from a mixture <strong>of</strong> both thatleaves the old consumption-<strong>in</strong>vestment proportionunchanged. 21If money is a present good, then condition (a) does not implyany change <strong>in</strong>ter-temporal value scales, but simply a differentcomposition <strong>of</strong> present goods <strong>in</strong> one’s portfolio. It follows thathoard<strong>in</strong>g (a rise <strong>in</strong> the demand for money) <strong>in</strong> this case leaves thePRI unaffected, while <strong>in</strong> all other cases—conditions (b) and (c) itimplies an <strong>in</strong>creased PRI.V. SOME IMPLICATIONS OF THE TIME-DIMENSIONOF THE DEMAND FOR MONEYThe demand for commodity money is not time-neutral, but positivelyrelated to the pure rate <strong>of</strong> <strong>in</strong>terest. By contrast, the demandfor fiat money tends to be time-neutral. These results <strong>of</strong> our analysisseem to imply that fiat money, despite its manifold knownshortcom<strong>in</strong>gs, conveys def<strong>in</strong>ite advantages over commodity20 Rothbard, Man, Economy, and State, p. 320. Rothbard’s def<strong>in</strong>ition <strong>of</strong> presentgoods stresses the act <strong>of</strong> consumption (destruction). It would be moreappropriate to def<strong>in</strong>e a present good as one that needs no further physicaltransformation to render the services for which it is ultimately desired.Money <strong>in</strong> one’s cash balances no longer needs any physical transformation tobe used, but is not destroyed through this use.21 Ibid., p. 690.
322 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>money, <strong>in</strong> particular, <strong>in</strong> facilitat<strong>in</strong>g economic growth. 22 Let ustherefore briefly discuss some <strong>of</strong> these implications.First <strong>of</strong> all we should po<strong>in</strong>t out that our forego<strong>in</strong>g analysis <strong>of</strong>the comparative impact <strong>of</strong> the demand for money on the PRI conveysno <strong>in</strong>formation about its quantitative impact. Consider<strong>in</strong>g thatthe long-run demand for money represents just a small fraction <strong>of</strong>aggregate wealth, and that it varies only marg<strong>in</strong>ally, it is very wellpossible that the long-run quantitative impact <strong>of</strong> changes <strong>in</strong> thedemand for money on the PRI be negligible after all. On the otherhand, there is scant empirical evidence about the behaviour <strong>of</strong>savers under a pure commodity-money standard. If and to theextent that sav<strong>in</strong>g occurs to a significant extent <strong>in</strong> the form <strong>of</strong>money hoard<strong>in</strong>g, the quantitative impact on the PRI could <strong>in</strong>creaseaccord<strong>in</strong>gly.It is obvious that such money-<strong>in</strong>duced changes <strong>of</strong> the PRI canbe highly useful, especially if we consider the reasons <strong>of</strong> a chang<strong>in</strong>gaggregate demand for money. Act<strong>in</strong>g persons typically havean <strong>in</strong>creased demand for money when they are concerned aboutloom<strong>in</strong>g deteriorations <strong>of</strong> the general economic and political environment.For example, they might expect troubles on the f<strong>in</strong>ancialmarkets, or bad economic policy decisions such as tax hikes.Increased cash hoard<strong>in</strong>g provides a partial protection aga<strong>in</strong>st suchevents. Most importantly, the result<strong>in</strong>g <strong>in</strong>crease <strong>of</strong> the PRI creates<strong>in</strong>centives to adjust the structure <strong>of</strong> production to the perceivedriskier environment. More roundabout (and therefore riskier)<strong>in</strong>vestment projects will tend to be abandoned, while shorter<strong>in</strong>vestment projects will be encouraged. This helps preserv<strong>in</strong>g theall-important aggregate capital stock. Inversely, a reduced demandfor money, which typically reflects a brighter outlook <strong>of</strong> the generaleconomic and political environment, will <strong>in</strong>duce a lengthen<strong>in</strong>g<strong>of</strong> the structure <strong>of</strong> production to the detriment <strong>of</strong> shorter (lessphysically productive) <strong>in</strong>vestment projects.However, as we have seen, this mechanism for the protection <strong>of</strong>the capital stock only exists <strong>in</strong> the case <strong>of</strong> commodity money. In thecase <strong>of</strong> fiat money, there are no similar <strong>in</strong>centives to adjust the22 For analysis <strong>of</strong> the economics, social and cultural consequences <strong>of</strong> papermoney (respectively <strong>of</strong> electronic money), see Hülsmann, The Ethics <strong>of</strong> MoneyProduction, chaps. 12 and 13.
Hülsmann: The Demand for Money and the Time-Structure <strong>of</strong> Production — 323structure <strong>of</strong> production, neither for switch<strong>in</strong>g it over to “safemode” under the impact <strong>of</strong> an <strong>in</strong>creased demand for money, nor<strong>in</strong> the opposite sense when the demand for money dim<strong>in</strong>ishes. Itfollows that fiat money regimes tend to waist more capital thancommodity money regimes. Growth rates and liv<strong>in</strong>g standardstherefore would tend to be lower under fiat money than undercommodity money.Similarly, we should stress aga<strong>in</strong> the beneficial role <strong>of</strong> short-runvariations <strong>of</strong> the PRI, result<strong>in</strong>g from <strong>in</strong>creases <strong>of</strong> the demand forcommodity money, <strong>in</strong> speed<strong>in</strong>g up the adjustment <strong>of</strong> the structure<strong>of</strong> production after a boom phase, or <strong>in</strong> reaction to a loom<strong>in</strong>g crisisresult<strong>in</strong>g from war, government <strong>in</strong>terventionism, or naturaldisasters. These adjustments would not take place as quickly andautomatically under a fiat money regime, as discussed above. Itfollows that, far from be<strong>in</strong>g advantageous from a macroeconomicpo<strong>in</strong>t <strong>of</strong> view, the tendency to <strong>of</strong>fset the impact <strong>of</strong> the demand formoney on the PRI is actually another one <strong>of</strong> fiat money’s majorshortcom<strong>in</strong>gs.F<strong>in</strong>ally, as we have shown <strong>in</strong> a recent contribution, there is nosystematic relationship between the aggregate volume <strong>of</strong> sav<strong>in</strong>gs<strong>in</strong>vestmentand the PRI. 23 It follows that the demand for money,too, is not related to the aggregate level <strong>of</strong> sav<strong>in</strong>gs-<strong>in</strong>vestment.Given <strong>in</strong>dividual <strong>in</strong>ter-temporal value scales, it follows by logicalnecessity that both the demand and the supply <strong>of</strong> present goodsare exclusively determ<strong>in</strong>ed by those value scales, and that the latterare therefore the unique cause <strong>of</strong> the PRI. A higher demand formoney not only implies an <strong>in</strong>creased demand for present goods onthe time market, but also a reduced supply. Therefore, the onlynecessary consequence <strong>of</strong> higher demand for money is for the PRIto <strong>in</strong>crease. But there is no systematic impact on the volume <strong>of</strong> the market(aggregate sav<strong>in</strong>gs exchanged for aggregate future goods). Depend<strong>in</strong>gon the (cont<strong>in</strong>gent) elasticity <strong>of</strong> supply and demand on thetime market, the new f<strong>in</strong>al equilibrium might <strong>in</strong>volve a somewhatlarger volume <strong>of</strong> aggregate sav<strong>in</strong>g, but it might just as well, andwith equal likelihood, <strong>in</strong>volve a somewhat reduced volume <strong>of</strong>23 See Jörg Guido Hülsmann, “Time Preference and Investment Expenditure,”Procesos de Mercado 5, no. 2 (2008): 13–33.
324 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>aggregate sav<strong>in</strong>g. Similarly, a lower<strong>in</strong>g <strong>of</strong> the demand for moneyhas only one necessary implication, namely, a reduction <strong>of</strong> the<strong>in</strong>terest rate. Yet it has no systematic impact on aggregate sav<strong>in</strong>g,and thus on aggregate <strong>in</strong>vestment.VI. CONCLUSIONIn the present contribution we have shown that the demand forcommodity money is not time-neutral. It affects the pure rate <strong>of</strong><strong>in</strong>terest and, therefore, the time-structure <strong>of</strong> production. By contrast,the demand for fiat money tends to be time-neutral—<strong>in</strong> otherwords, it tends not to affect the time structure <strong>of</strong> production. Wehave argued that this basic difference further bolsters the traditionalAustrian case for commodity money and aga<strong>in</strong>st fiat money.Indeed, the demand for commodity money is a very basic way forthe unsophisticated citizen to br<strong>in</strong>g the structure <strong>of</strong> production <strong>in</strong>l<strong>in</strong>e with his assessment <strong>of</strong> the macroeconomic environment. Fiatmoney takes this power out <strong>of</strong> his hands. The consequence is agreater tendency for capital to be wasted.
32Risk, Uncerta<strong>in</strong>ty, and EconomicOrganizationPeter G. Kle<strong>in</strong>In a recent paper, “The Limits <strong>of</strong> Numerical Probability: FrankH. Knight and Ludwig von Mises and the Frequency Interpretation,”<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> explores Mises’s approach toprobability and its implications for economic forecast<strong>in</strong>g. 1<strong>Hoppe</strong> argues that Mises, like Frank Knight, subscribed to the “frequency<strong>in</strong>terpretation” developed by Mises’s brother, Richard vonMises, 2 along with others such as Ronald Fisher, Jerzy Neyman, andEgon Pearson. At first, this might seem surpris<strong>in</strong>g, as the frequency<strong>in</strong>terpretation is usually contrasted with the “subjectivist” approachto probability advanced by de F<strong>in</strong>etti and, among economists, usuallyassociated with Keynes. 3 A thoroughgo<strong>in</strong>g commitment toPeter G. Kle<strong>in</strong> (pkle<strong>in</strong>@missouri.edu) is Associate Pr<strong>of</strong>essor <strong>in</strong> the Division <strong>of</strong>Applied Social Sciences at the University <strong>of</strong> Missouri, Adjunct Pr<strong>of</strong>essor at theNorwegian School <strong>of</strong> Economics and Bus<strong>in</strong>ess Adm<strong>in</strong>istration, and a SeniorFellow <strong>of</strong> the Ludwig von Mises Institute.1 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “The Limits <strong>of</strong> Numerical Probability: Frank H.Knight and Ludwig von Mises and the Frequency Interpretation,” QuarterlyJournal <strong>of</strong> Austrian Economics 10, no. 1 (2007): 1–20.2 Richard von Mises, Probability, Statistics and Truth (New York: Dover Publications,1957 [1939]).3 Bruno de F<strong>in</strong>etti, “Foresight: Its Logical Laws, Its Subjective Sources,” <strong>in</strong>H.E. Kyburg and H.E. Smokler, eds., Studies <strong>in</strong> Subjective Probability (New325
326 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>methodological subjectivism is, <strong>of</strong> course, a hallmark <strong>of</strong> the AustrianSchool. However, as <strong>Hoppe</strong> po<strong>in</strong>ts out, Mises recognized two dist<strong>in</strong>ctk<strong>in</strong>ds <strong>of</strong> probability, one apply<strong>in</strong>g to natural phenomena andanother apply<strong>in</strong>g to human action. Just as Mises embraced “praxeology”<strong>in</strong> economics while endors<strong>in</strong>g the experimental method <strong>in</strong>the natural sciences, he thought a special k<strong>in</strong>d <strong>of</strong> probability was relevantto economic decision-mak<strong>in</strong>g, while accept<strong>in</strong>g his brother’sfrequency <strong>in</strong>terpretation for other k<strong>in</strong>ds.This paper extends the discussion by draw<strong>in</strong>g out implicationsfor economic organization <strong>of</strong> Mises’s approach to probability, particularlyregard<strong>in</strong>g the entrepreneur’s role <strong>in</strong> guid<strong>in</strong>g the economicprocess by establish<strong>in</strong>g and dissolv<strong>in</strong>g firms, direct<strong>in</strong>g theiroperations, and organiz<strong>in</strong>g them to create and capture value. Aftera brief review <strong>of</strong> <strong>Hoppe</strong>’s <strong>in</strong>terpretation <strong>of</strong> Knight and Mises, Isummarize recent literature on the Knight-Mises approach toentrepreneurship and the firm, clos<strong>in</strong>g with some suggestions forfuture research.KNIGHT, MISES, AND MISES ON PROBABILITYMost economists are familiar with Knight’s dist<strong>in</strong>ction between“risk” and “uncerta<strong>in</strong>ty.” Risk refers to situations <strong>in</strong> which the outcome<strong>of</strong> an event is unknown, but the decision-maker knows therange <strong>of</strong> possible outcomes and the probabilities <strong>of</strong> each, such thatanyone with the same <strong>in</strong>formation and beliefs would make thesame prediction. Uncerta<strong>in</strong>ty, by contrast, characterizes situations<strong>in</strong> which the range <strong>of</strong> possible outcomes, let alone the relevantprobabilities, is unknown. In this case the decision-maker cannotfollow a formal decision rule but must rely on an <strong>in</strong>tuitive understand<strong>in</strong>g<strong>of</strong> the situation—what Knight calls “judgment”—toanticipate what may occur. Risk, <strong>in</strong> this sense, refers to “a quantitysusceptible <strong>of</strong> measurement,” and not a “true” uncerta<strong>in</strong>ty thatcannot be quantified. 4 The essential function <strong>of</strong> the entrepreneur,York: Wiley, 1964 [1937]); John Maynard Keynes, A Treatise on Probability(London: Macmillan, 1921).4 Frank H. Knight, Risk, Uncerta<strong>in</strong>ty, and Pr<strong>of</strong>it (New York: August M. Kelley,1921), p. 26.
Kle<strong>in</strong>: Risk, Uncerta<strong>in</strong>ty, and Economic Organization — 327<strong>in</strong> Knight’s system, is to exercise judgment, particularly <strong>in</strong> the context<strong>of</strong> purchas<strong>in</strong>g factors <strong>of</strong> production.Mises, <strong>in</strong> similar fashion, dist<strong>in</strong>guished between “class probability”and “case probability.” The former describes situations <strong>in</strong>which an event may be classified as a unique element <strong>of</strong> a homogeneousclass, the properties <strong>of</strong> which are known. No one can predictwhether a particular house <strong>in</strong> a particular neighborhood willburn down this year, but <strong>in</strong>surance companies know how manysimilar houses <strong>in</strong> similar locations have burned <strong>in</strong> the past, andfrom this the likelihood <strong>of</strong> a particular house burn<strong>in</strong>g with<strong>in</strong> a particularperiod can be estimated. Case probability applies to cases <strong>in</strong>which each event is unique, such that no general class probabilitiescan be def<strong>in</strong>ed. 5 Here Mises, as argued by <strong>Hoppe</strong>, builds on hisbrother’s defense <strong>of</strong> “frequentism,” the idea that the probability <strong>of</strong>a particular event is the limit value <strong>of</strong> its relative frequency <strong>in</strong> aseries <strong>of</strong> trials. In this understand<strong>in</strong>g, probabilities can be def<strong>in</strong>edonly <strong>in</strong> cases <strong>in</strong> which repeated trials are feasible—i.e., <strong>in</strong> situationswhere each event can be mean<strong>in</strong>gfully compared to otherevents <strong>in</strong> the same class. Moreover, and for this reason, probabilitiescan only be def<strong>in</strong>ed ex post, as learned through experience, andcannot exist a priori. Hence, Mises def<strong>in</strong>es case probability, oruncerta<strong>in</strong>ty, as a case <strong>in</strong> which probabilities, <strong>in</strong> the frequentistsense, do not exist. 65 O’Driscoll and Rizzo adopt the terms “typical events” and “uniqueevents” to get at this dist<strong>in</strong>ction. See Gerald P. O’Driscoll, Jr., and Mario J.Rizzo, The Economics <strong>of</strong> Time and Ignorance (Oxford: Basil Blackwell, 1985).6 Hence the use <strong>of</strong> the term “case probability” is mislead<strong>in</strong>g; what Misesreally means is “case non-probability,” or perhaps “case judgments withoutprobabilities.” Confus<strong>in</strong>gly, Mises also argues elsewhere that “[o]nly preoccupationwith the mathematical treatment could result <strong>in</strong> the prejudice thatprobability always means frequency” (Mises, Human Action, p. 107). Vanden Hauwe argues, <strong>in</strong> contrast to <strong>Hoppe</strong>, that Mises’s position is <strong>in</strong> someways closer to Keynes’s. See Ludwig Van den Hauwe, “John MaynardKeynes and Ludwig von Mises on Probability,” MPRA Paper No. 6965(2007); <strong>Hoppe</strong>, “Limits <strong>of</strong> Numerical Probability”; and Keynes, A Treatise onProbability.
328 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong><strong>Hoppe</strong> summarizes Knight’s and Mises’s views and arguespersuasively that they are variants <strong>of</strong> Richard von Mises’s position.7 <strong>Hoppe</strong> also goes beyond Mises <strong>in</strong> expla<strong>in</strong><strong>in</strong>g why humanaction, <strong>in</strong> Mises’s sense <strong>of</strong> purposeful behavior, cannot be madepart <strong>of</strong> a homogenous class. “Without a specified collective and a(assumedly) full count <strong>of</strong> its <strong>in</strong>dividual members and their variousattributes no numerical probability statement is possible (or is, ifmade, arbitrary).” 8 Of course, as <strong>Hoppe</strong> notes, we can def<strong>in</strong>e suchclasses <strong>in</strong> a technical sense—me writ<strong>in</strong>g this chapter is an element<strong>of</strong> the class “economists writ<strong>in</strong>g book chapters”—but def<strong>in</strong><strong>in</strong>g theclass is not sufficient for apply<strong>in</strong>g class probability to an event.There must also be randomness, or what Richard von Mises calls“complete lawlessness,” with<strong>in</strong> the class. 9 And yet, this is not possiblewith human action:It is <strong>in</strong> connection with this randomness requirementwhere Ludwig von Mises (and presumably Knight) see<strong>in</strong>superable difficulties <strong>in</strong> apply<strong>in</strong>g probability theory tohuman actions. True, formal-logically for every s<strong>in</strong>gleaction a correspond<strong>in</strong>g collective can be def<strong>in</strong>ed. However,ontologically human actions (whether <strong>of</strong> <strong>in</strong>dividualsor groups) cannot be grouped <strong>in</strong> “true” collectivesbut must be conceived as unique events. Why? As Ludwigvon Mises would presumably reply, the assumptionthat one knows noth<strong>in</strong>g about any particular eventexcept its membership <strong>in</strong> a known class is false <strong>in</strong> thecase <strong>of</strong> human actions; or, as Richard von Mises wouldput it, <strong>in</strong> the case <strong>of</strong> human actions we know a “selectionrule” the application <strong>of</strong> which leads to fundamentalchanges regard<strong>in</strong>g the relative frequency (likelihood) <strong>of</strong>the attribute <strong>in</strong> question (thus rul<strong>in</strong>g out the use <strong>of</strong> theprobability calculus). 107 <strong>Hoppe</strong>, “Limits <strong>of</strong> Numerical Probability.” One might also <strong>in</strong>cludeShackle’s notion <strong>of</strong> “self-destructive, non-seriable” decisions. See G.L.S.Schackle, Decision, Order, and Time <strong>in</strong> Human Affairs (Cambridge: CambridgeUniversity Press, 1961).8 <strong>Hoppe</strong>, “Limits <strong>of</strong> Numerical Probability,” p. 10.9 Richard von Mises, Probability, Statistics, and Truth, p. 24.10 <strong>Hoppe</strong>, “Limits <strong>of</strong> Numerical Probability,” p. 11.
Kle<strong>in</strong>: Risk, Uncerta<strong>in</strong>ty, and Economic Organization — 329<strong>Hoppe</strong> touches briefly upon, without treat<strong>in</strong>g <strong>in</strong> detail, the subjectiveapproach to probability, <strong>in</strong> which a priori probabilities aretreated simply as beliefs, rather than the outcome <strong>of</strong> some objectiveprocess <strong>of</strong> repeated trial and observation. <strong>Hoppe</strong> quotes Richardvon Mises’s remark that subjectivists such as John Maynard Keynesfail to recognize “that if we know noth<strong>in</strong>g about a th<strong>in</strong>g, we cannotsay anyth<strong>in</strong>g about its probability.” 11 Adds Mises: “The peculiarapproach <strong>of</strong> the subjectivists lies <strong>in</strong> the fact that they consider ‘I presumethat these cases are equally probable’ to be equivalent to‘These cases are equally probable,’ s<strong>in</strong>ce, for them, probability isonly a subjective notion.” 12 Subjective probability has become central<strong>in</strong> contemporary microeconomic theory, however, particularlywith the rise <strong>of</strong> Bayesian approaches to decision-mak<strong>in</strong>g. Agentsact<strong>in</strong>g under conditions <strong>of</strong> uncerta<strong>in</strong>ty are assumed to have priorbeliefs—correct or <strong>in</strong>correct—about the probabilities <strong>of</strong> variousevents. These prior beliefs are exogenous, they may be common toa group <strong>of</strong> agents or unique to a particular agent, and they may ormay not correspond to objective probabilities (<strong>in</strong> the frequentistsense). The Bayesian approach focuses on the procedure by whichagents update these prior beliefs based on new <strong>in</strong>formation, andthis updat<strong>in</strong>g is assumed to take place accord<strong>in</strong>g to a formal rule(i.e., accord<strong>in</strong>g to Bayes’s law). Hence, the ex post probability, <strong>in</strong>such a problem, conta<strong>in</strong>s an “objective” element, even if it is a revision<strong>of</strong> a purely subjective prior belief. 13Langlois 14 argues for a tight connection between subjectivism <strong>in</strong>the Austrian sense <strong>of</strong> value theory and subjective probability theory,argu<strong>in</strong>g that probabilities should be <strong>in</strong>terpreted as beliefsabout <strong>in</strong>formation structures, rather than objective events.11 Richard von Mises, Probability, Statistics, and Truth, p. 75.12 Ibid., p. 76.13 Bayesian updat<strong>in</strong>g can also be applied to objective prior probabilities,presumably to give guidance to the decision-maker <strong>in</strong> cases where repeatedtrials to determ<strong>in</strong>e the new ex post probability are not possible. The “MontyHall paradox” is a classic example.14 Richard N. Langlois, “Subjective Probability and Subjective Economics,”C.V. Starr Center for Applied Economics Research Report #82-09, Faculty <strong>of</strong>Arts and Science, New York University (1982).
330 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>[I]t is not mean<strong>in</strong>gful to talk about “know<strong>in</strong>g” a probabilityor a probability distribution. A probability assessmentreflects one’s state <strong>of</strong> <strong>in</strong>formation about an event; itis not someth<strong>in</strong>g ontologically separate whose value canbe determ<strong>in</strong>ed objectively. 15What dist<strong>in</strong>guishes case from class probability, accord<strong>in</strong>g to Langlois,is the character <strong>of</strong> the decision-maker’s <strong>in</strong>formation aboutthe event. Objective probabilities (<strong>in</strong> the frequentist sense) are simplyspecial cases <strong>of</strong> subjective probabilities <strong>in</strong> which the decisionmakerstructures the problem <strong>in</strong> terms <strong>of</strong> classes <strong>of</strong> events. Entrepreneurship,<strong>in</strong> Langlois’s <strong>in</strong>terpretation, can be described as theact <strong>of</strong> formaliz<strong>in</strong>g the decision problem. To use the language <strong>of</strong>decision theory, a non-entrepreneur (call him, follow<strong>in</strong>g Kirzner, aRobb<strong>in</strong>sian maximizer) is presented with a decision tree, a set <strong>of</strong>outcomes, and the probabilities for each outcome, and simply usesbackwards <strong>in</strong>duction to solve the problem. 16 The entrepreneur, asit were, re-draws the tree, by notic<strong>in</strong>g a possible option or outcomethat other agents failed to see. The key dist<strong>in</strong>ction, accord<strong>in</strong>g toLanglois, is not whether the decision tree is populated with objectiveor subjective probabilities, but whether the tree itself is exogenous(Knightian risk) or endogenous (Knightian uncerta<strong>in</strong>ty).<strong>Hoppe</strong> follows Richard von Mises <strong>in</strong> reject<strong>in</strong>g the subjectivistposition (and obviously sees no contradiction between the frequentistapproach to probability and the subjective theory <strong>of</strong>value). It is not clear exactly what is ga<strong>in</strong>ed by redef<strong>in</strong><strong>in</strong>g probabilitiesas “subjective with one <strong>in</strong>formation set” or “subjective withanother <strong>in</strong>formation set.” As discussed <strong>in</strong> the next section, bothKnight and Mises saw probability theory <strong>in</strong> economics as play<strong>in</strong>ga particular role, namely allow<strong>in</strong>g the theorist to dist<strong>in</strong>guish situations<strong>in</strong> which prices are predictable, mak<strong>in</strong>g pr<strong>of</strong>its and lossesephemeral, and situations <strong>in</strong> which prices can only be anticipated,us<strong>in</strong>g some form <strong>of</strong> Verstehen, by entrepreneurs. A subjectivistparameterization <strong>of</strong> Verstehen may be possible, without be<strong>in</strong>g useful.15 Langlois, “Subjective Probability and Subjective Economics,” p. 8.16 Israel M. Kirzner, Competition and Entrepreneurship (Chicago and London:University <strong>of</strong> Chicago Press, 1973).
Kle<strong>in</strong>: Risk, Uncerta<strong>in</strong>ty, and Economic Organization — 331UNCERTAINTY AND THE ENTREPRENEURNeither Knight nor Mises focused primarily on <strong>in</strong>dividual decision-mak<strong>in</strong>gper se, but on the role <strong>of</strong> decision-mak<strong>in</strong>g with<strong>in</strong> themarket system. “As economists,” <strong>Hoppe</strong> observes, Knight andMises “come upon the subject <strong>of</strong> probability <strong>in</strong>directly, <strong>in</strong> conjunctionwith the question concern<strong>in</strong>g the source <strong>of</strong> entrepreneurialpr<strong>of</strong>its and losses.” 17 Indeed, while Knight devotes a chapter <strong>of</strong>Risk, Uncerta<strong>in</strong>ty, and Pr<strong>of</strong>it to a detailed discussion <strong>of</strong> knowledge,reason<strong>in</strong>g, and learn<strong>in</strong>g, his ma<strong>in</strong> purpose is not to analyze theontology <strong>of</strong> judgment, but to expla<strong>in</strong> the practical work<strong>in</strong>gs <strong>of</strong> themarket. Specifically, his purpose <strong>in</strong> develop<strong>in</strong>g his account <strong>of</strong>probability was to decompose bus<strong>in</strong>ess <strong>in</strong>come <strong>in</strong>to two constituentelements, <strong>in</strong>terest and pr<strong>of</strong>it. Interest is a reward for forgo<strong>in</strong>gpresent consumption, is determ<strong>in</strong>ed by the relative timepreferences <strong>of</strong> borrowers and lenders, and would exist even <strong>in</strong> aworld <strong>of</strong> certa<strong>in</strong>ty. Pr<strong>of</strong>it, by contrast, is a reward for anticipat<strong>in</strong>gthe uncerta<strong>in</strong> future more accurately than others (e.g., purchas<strong>in</strong>gfactors <strong>of</strong> production at market prices below the eventual sell<strong>in</strong>gprice <strong>of</strong> the product), and exists only <strong>in</strong> a world <strong>of</strong> “true” uncerta<strong>in</strong>ty.In such a world, given that production takes time, entrepreneurswill earn either pr<strong>of</strong>its or losses based on the differencesbetween factor prices paid and product prices received.Mises, likewise, makes uncerta<strong>in</strong>ty central to his theory <strong>of</strong>pr<strong>of</strong>it and loss, a cornerstone <strong>of</strong> his well-known critique <strong>of</strong> economicplann<strong>in</strong>g under socialism. Mises beg<strong>in</strong>s with the marg<strong>in</strong>alproductivity theory <strong>of</strong> distribution developed by his Austrianpredecessors. In the marg<strong>in</strong>al productivity theory, laborers earnwages, capitalists earn <strong>in</strong>terest, and owners <strong>of</strong> specific factors earnrents. Any excess (deficit) <strong>of</strong> a firm’s realized receipts over thesefactor payments constitutes pr<strong>of</strong>it (loss). Pr<strong>of</strong>it and loss, therefore,are returns to entrepreneurship. In a hypothetical equilibriumwithout uncerta<strong>in</strong>ty (what Mises calls the “evenly rotat<strong>in</strong>g economy”),capitalists would still earn <strong>in</strong>terest, as a reward for lend<strong>in</strong>g,but there would be no pr<strong>of</strong>it or loss.17 <strong>Hoppe</strong>, “Limits <strong>of</strong> Numerical Probability,” p. 4. See also JamesBuchanan and Alberto Di Pierro, “Cognition, Choice, and Entrepreneurship,”Southern Economic Journal 46, no. 3 (1980): 693–701.
332 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Entrepreneurs, <strong>in</strong> Mises’s understand<strong>in</strong>g <strong>of</strong> the market, maketheir production plans based on the current prices <strong>of</strong> factors <strong>of</strong> productionand the anticipated future prices <strong>of</strong> consumer goods. WhatMises calls “economic calculation” is the comparison <strong>of</strong> theseanticipated future receipts with present outlays, all expressed <strong>in</strong>common monetary units. Under socialism, the absence <strong>of</strong> factormarkets and the consequent lack <strong>of</strong> factor prices, renders economiccalculation—and hence rational economic plann<strong>in</strong>g—impossible.Mises’s po<strong>in</strong>t is that a socialist economy may assign <strong>in</strong>dividuals tobe workers, managers, technicians, <strong>in</strong>ventors, and the like, but itcannot, by def<strong>in</strong>ition, have entrepreneurs, because there are nomoney pr<strong>of</strong>its and losses. Entrepreneurship, and not labor or managementor technological expertise, is the crucial element <strong>of</strong> themarket economy. As Mises puts it: directors <strong>of</strong> socialist enterprisesmay be allowed to “play market,” to make capital <strong>in</strong>vestment decisionsas if they were allocat<strong>in</strong>g scarce capital across activities <strong>in</strong> aneconomiz<strong>in</strong>g way, but entrepreneurs cannot be asked to “playspeculation and <strong>in</strong>vestment.” 18 Without entrepreneurship, a complex,dynamic economy cannot allocate resources to their highestvalued use.Why can’t a central plann<strong>in</strong>g board mimic the operations <strong>of</strong>entrepreneurs? The key, for Mises, is that entrepreneurialappraisement is not a mechanical process <strong>of</strong> comput<strong>in</strong>g expectedvalues us<strong>in</strong>g known probabilities, but a k<strong>in</strong>d <strong>of</strong> Verstehen that cannotbe formally modeled us<strong>in</strong>g decision theory. The entrepreneur,Mises writes, “is a speculator, a man eager to utilize his op<strong>in</strong>ionabout the future structure <strong>of</strong> the market for bus<strong>in</strong>ess operationspromis<strong>in</strong>g pr<strong>of</strong>its.” 19 The entrepreneur relies on his “specific anticipativeunderstand<strong>in</strong>g <strong>of</strong> the conditions <strong>of</strong> the uncerta<strong>in</strong> future,”an understand<strong>in</strong>g that “defies any rules and systematization.”This concept <strong>of</strong> the entrepreneurial function is difficult to reconcilewith the optimization framework <strong>of</strong> neoclassical economics.In this framework, either decision-mak<strong>in</strong>g is “rational,” mean<strong>in</strong>g18 Ludwig von Mises, Human Action: A Treatise on Economics, Scholars Edition(Auburn, Ala.: Ludwig von Mises Institute, 2001 [1949]), p. 705.19 Ibid., p. 585.
Kle<strong>in</strong>: Risk, Uncerta<strong>in</strong>ty, and Economic Organization — 333that it can be represented by formal decision rules, or it is purelyrandom. T. W. Schultz poses the problem this way:[I]t is not sufficient to treat entrepreneurs solely as economicagents who only collect w<strong>in</strong>dfalls and bear lossesthat are unanticipated. If this is all they do, the muchvaunted free enterprise system merely distributes <strong>in</strong>some unspecified manner the w<strong>in</strong>dfalls and losses thatcome as surprises. If entrepreneurship has some economicvalue it must perform a useful function which isconstra<strong>in</strong>ed by scarcity, which implies that there is asupply and a demand for their services. 20The key to understand<strong>in</strong>g this passage is to recognize Schultz’srejection, follow<strong>in</strong>g Friedman and Savage, <strong>of</strong> Knightian uncerta<strong>in</strong>ty.21 If all uncerta<strong>in</strong>ty can be parameterized <strong>in</strong> terms <strong>of</strong> (possiblysubjective) probabilities, then decision-mak<strong>in</strong>g <strong>in</strong> the absence<strong>of</strong> such probabilities must be random. Any valuable k<strong>in</strong>d <strong>of</strong> decision-mak<strong>in</strong>gmust be modelable, must have a marg<strong>in</strong>al revenueproduct, and must be determ<strong>in</strong>ed by supply and demand. ForKnight, however, decision-mak<strong>in</strong>g <strong>in</strong> the absence <strong>of</strong> a formal decisionrule or model (i.e., judgment) is not random, it is simply notmodelable. It does not have a supply curve, because it is a residualor controll<strong>in</strong>g factor that is <strong>in</strong>extricably l<strong>in</strong>ked with resource ownership.As discussed above, it is a k<strong>in</strong>d <strong>of</strong> understand<strong>in</strong>g, or Verstehen,that defies formal explanation but is rare and valuable. Inshort, without the concept <strong>of</strong> Knightian uncerta<strong>in</strong>ty, Knight’s idea<strong>of</strong> entrepreneurial judgment makes little sense.Nor is judgment simply luck. 22 To be sure, one could imag<strong>in</strong>e amodel <strong>in</strong> which entrepreneurs are systematically biased, as <strong>in</strong>20 T. W. Schultz, “Investment <strong>in</strong> Entrepreneurial Ability,” Scand<strong>in</strong>avianJournal <strong>of</strong> Economics 82, no. 4 (1980): 437–48, esp. pp. 437–38.21 Milton Friedman and Leonard Savage, “Utility Analysis <strong>of</strong> ChoicesInvolv<strong>in</strong>g Risk,” Journal <strong>of</strong> Political Economy 56, no. 4 (1948): 279–304.22 Kirznerian alertness is compared to luck <strong>in</strong> Harold Demsetz, “The Neglect<strong>of</strong> the Entrepreneur,” <strong>in</strong> Joshua Ronen, ed. Entrepreneurship (Lex<strong>in</strong>gton:Lex<strong>in</strong>gton Press, 1983), pp. 271–80.
334 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Busenitz and Barney 23 —<strong>in</strong>dividuals become owner-entrepreneursbecause they overestimate their own ability to anticipate futureprices—and the supply <strong>of</strong> entrepreneurs is sufficiently large that atleast a few guess correctly, and earn pr<strong>of</strong>its. In such an economythere would be entrepreneurs, firms, pr<strong>of</strong>its, and losses, and pr<strong>of</strong>it(under uncerta<strong>in</strong>ty) would be dist<strong>in</strong>ct from <strong>in</strong>terest. However, asMises emphasizes, some <strong>in</strong>dividuals are more adept than others,over time, at anticipat<strong>in</strong>g future market conditions, and these <strong>in</strong>dividualstend to acquire more resources while those whose forecast<strong>in</strong>gskills are poor tend to exit the market. 24 Indeed, for Mises,the entrepreneurial selection mechanism <strong>in</strong> which unsuccessfulentrepreneurs—those who systematically overbid for factors, relativeto eventual consumer demands—are elim<strong>in</strong>ated from the marketis the critical “market process” <strong>of</strong> capitalism. 25ENTREPRENEURIAL JUDGMENT AND THE FIRMIn a series <strong>of</strong> papers, Nicolai Foss and I have used the Knight-Mises concept <strong>of</strong> the entrepreneur to expla<strong>in</strong> important aspects <strong>of</strong>economic organization. 26 We start with Knight’s view that entrepreneurshiprepresents judgment that cannot be assessed <strong>in</strong> terms23 Lowell W. Busenitz and Jay B. Barney, “Differences between Entrepreneursand Managers <strong>in</strong> Large Organizations: Biases and Heuristics <strong>in</strong> StrategicDecision-Mak<strong>in</strong>g,” Journal <strong>of</strong> Bus<strong>in</strong>ess Ventur<strong>in</strong>g 12, no. 1 (1997): 9–30.24 Ludwig von Mises, “Pr<strong>of</strong>it and Loss,” <strong>in</strong> Mises, Plann<strong>in</strong>g for Freedom(South-Holland, Ill.: Libertarian Press, 1952), pp. 108–50.25 Peter G. Kle<strong>in</strong>, “The Mundane Economics <strong>of</strong> the Austrian School,” QuarterlyJournal <strong>of</strong> Austrian Economics 11, nos. 3–4 (2008): 165–87.26 Nicolai J. Foss and Peter G. Kle<strong>in</strong>, “Entrepreneurship and the EconomicTheory <strong>of</strong> the Firm: Any Ga<strong>in</strong>s from Trade?” <strong>in</strong> Rashjree Agarwal, Sharon A.Alvarez and Olaf Sorenson, eds., Handbook <strong>of</strong> Entrepreneurship Research: Discipl<strong>in</strong>aryPerspectives (Dordrecht: Spr<strong>in</strong>ger, 2005); Kirsten Foss, Nicolai J. Fossand Peter G. Kle<strong>in</strong>, “Orig<strong>in</strong>al and Derived Judgment: An EntrepreneurialTheory <strong>of</strong> Economic Organization,” Organization Studies 28, no. 12 (2007):1893–1912; Kirsten Foss, Nicolai J. Foss, Peter G. Kle<strong>in</strong> and Sandra K. Kle<strong>in</strong>,“The Entrepreneurial Organization <strong>of</strong> Heterogeneous Capital,” Journal <strong>of</strong>Management Studies 44, no. 7 (2007): 1165–86; Peter G. Kle<strong>in</strong>, “OpportunityDiscovery, Entrepreneurial Action, and Economic Organization,” StrategicEntrepreneurship Journal 2, no. 3 (2008): 175–90.
Kle<strong>in</strong>: Risk, Uncerta<strong>in</strong>ty, and Economic Organization — 335<strong>of</strong> its marg<strong>in</strong>al product and which, accord<strong>in</strong>gly, cannot be paid awage. 27 In other words, there is no market for the judgment thatentrepreneurs rely on, and therefore exercis<strong>in</strong>g judgment requiresthe person with judgment to start a firm. Of course, judgmentaldecision makers can hire consultants, forecasters, technicalexperts, and so on. However, <strong>in</strong> do<strong>in</strong>g so they are exercis<strong>in</strong>g theirown entrepreneurial judgment. 28 Judgment thus implies assetownership, for judgmental decision-mak<strong>in</strong>g is ultimately decisionmak<strong>in</strong>gabout the employment <strong>of</strong> resources. The entrepreneur’srole, then, is to arrange or organize the capital goods he owns. AsLachmann puts it: “We are liv<strong>in</strong>g <strong>in</strong> a world <strong>of</strong> unexpected change;hence capital comb<strong>in</strong>ations . . . will be ever chang<strong>in</strong>g, will be dissolvedand reformed. In this activity, we f<strong>in</strong>d the real function <strong>of</strong>the entrepreneur.” 29This approach to the firm comb<strong>in</strong>es Knight’s concept <strong>of</strong> judgmentwith the Austrian notion <strong>of</strong> capital heterogeneity. Foss, Foss,Kle<strong>in</strong>, and Kle<strong>in</strong> operationalize capital heterogeneity by <strong>in</strong>corporat<strong>in</strong>gBarzel’s idea that capital goods are dist<strong>in</strong>guished by theirattributes. 30 Attributes are characteristics, functions, or possibleuses <strong>of</strong> assets, as perceived by an entrepreneur. Assets are heterogeneousto the extent that they have different, and different levels<strong>of</strong>, valued attributes. Attributes may also vary over time, even for27 Knight, Risk, Uncerta<strong>in</strong>ty and Pr<strong>of</strong>it, p. 311.28 In the term<strong>in</strong>ology <strong>of</strong> Foss et al., “Orig<strong>in</strong>al and Derived Judgment,” theentrepreneur-owner exercises “orig<strong>in</strong>al” judgment, while hired employees, towhom the owner delegates particular decision rights, exercise “derived”judgment as agents <strong>of</strong> the owner. This implies that top corporate managers,whose day-to-day decisions drive the organization <strong>of</strong> corporate resources, areact<strong>in</strong>g only as “proxy-entrepreneurs,” except to the extent that they themselvesare part owners through equity hold<strong>in</strong>gs.29 Ludwig M. Lachmann, Capital and Its Structure (Kansas City: Sheed,Andrews and McMeel, 1956), p. 16. Lachmann does not require the entrepreneurto own the assets he recomb<strong>in</strong>es; see Foss et al., “Entrepreneurial Organization<strong>of</strong> Heterogeneous Capital,” for a more detailed argument that ownership,as residual rights <strong>of</strong> control, is a necessary part <strong>of</strong> this entrepreneurialfunction.30 Foss et al., “Entrepreneurial Organization <strong>of</strong> Heterogeneous Capital”;Yoram Barzel, Economic Analysis <strong>of</strong> Property Rights (Cambridge: CambridgeUniversity Press, 1997).
336 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>a particular asset. Given Knightian uncerta<strong>in</strong>ty or Misesian caseprobability, attributes do not exist objectively, but subjectively, them<strong>in</strong>ds <strong>of</strong> pr<strong>of</strong>it-seek<strong>in</strong>g entrepreneurs who put these assets to use<strong>in</strong> various l<strong>in</strong>es <strong>of</strong> production. Consequently, attributes are manifested<strong>in</strong> production decisions and realized only ex post, after pr<strong>of</strong>itsand losses materialize.Entrepreneurs who seek to create or discover new attributes <strong>of</strong>capital assets will want ownership titles to the relevant assets, bothfor speculative reasons and for reasons <strong>of</strong> economiz<strong>in</strong>g on transactioncosts. These arguments provide room for entrepreneurshipthat goes beyond deploy<strong>in</strong>g a superior comb<strong>in</strong>ation <strong>of</strong> capitalassets with “given” attributes, acquir<strong>in</strong>g the relevant assets, anddeploy<strong>in</strong>g these to produc<strong>in</strong>g for a market: Entrepreneurship mayalso be a matter <strong>of</strong> experiment<strong>in</strong>g with capital assets <strong>in</strong> an attemptto discover new valued attributes, either by try<strong>in</strong>g out new comb<strong>in</strong>ationsthrough the acquisition <strong>of</strong> or merger with another firm orby try<strong>in</strong>g out new comb<strong>in</strong>ations <strong>of</strong> assets already under the control<strong>of</strong> the entrepreneur. The entrepreneur’s success <strong>in</strong> experiment<strong>in</strong>gwith assets <strong>in</strong> this manner depends not only on his ability to anticipatefuture prices and market conditions, but also on <strong>in</strong>ternal andexternal transaction costs, the entrepreneur’s control over the relevantassets, how much <strong>of</strong> the expected return from experimentalactivity he can hope to appropriate, and so on. Moreover, these latterfactors are key determ<strong>in</strong>ants <strong>of</strong> economic organization <strong>in</strong> moderntheories <strong>of</strong> the firm, which suggests that there may be fruitfulcomplementarities between the theory <strong>of</strong> economic organizationand Austrian theories <strong>of</strong> capital heterogeneity and entrepreneurship.Foss, Foss, Kle<strong>in</strong>, and Kle<strong>in</strong> show how this approach providesnew <strong>in</strong>sights <strong>in</strong>to the emergence, boundaries, and <strong>in</strong>ternal organization<strong>of</strong> the firm. 31 Firms exist not only to economize on transactioncosts, but also as a means for the exercise <strong>of</strong> entrepreneurialjudgment, and as a low-cost mechanism for entrepreneurs toexperiment with various comb<strong>in</strong>ations <strong>of</strong> heterogeneous capitalgoods. Changes <strong>in</strong> firm boundaries can likewise be understood asthe result <strong>of</strong> processes <strong>of</strong> entrepreneurial experimentation. And31 Ibid.
Kle<strong>in</strong>: Risk, Uncerta<strong>in</strong>ty, and Economic Organization — 337<strong>in</strong>ternal organization can be <strong>in</strong>terpreted as the means by which theentrepreneur delegates particular decision rights to subord<strong>in</strong>ateswho exercise a form <strong>of</strong> “derived” judgment on his behalf. 32CONCLUSIONUncerta<strong>in</strong>ty, <strong>in</strong> Knight’s and Mises’s sense, is thus fundamentalto understand<strong>in</strong>g not only the pr<strong>of</strong>it-and-loss system, and the market’sprocess <strong>of</strong> allocat<strong>in</strong>g productive resources to their highestvaluedusers, but also the economic nature <strong>of</strong> the bus<strong>in</strong>ess firmitself. Unfortunately, contemporary neoclassical economics tendsto reject both the dist<strong>in</strong>ction between case and class probabilityand the entrepreneur. If there is no “true” uncerta<strong>in</strong>ty, then pr<strong>of</strong>itsare the result <strong>of</strong> monopoly power or random error. If any firmcan do what any other firm does, if all firms are always on theirproduction possibility frontiers, and if firms always make optimalchoices <strong>of</strong> <strong>in</strong>puts, then there is little for the entrepreneur to do.Fortunately, the modern entrepreneurship literature has begunto recognize the need for a more sophisticated treatment <strong>of</strong> uncerta<strong>in</strong>ty(along with other cognitive issues—see the discussion <strong>in</strong>Alvarez and Barney 33 ), and concepts <strong>of</strong> resource heterogeneity arecommon <strong>in</strong> to the resource- and knowledge-based views <strong>of</strong> thefirm, transaction-cost economics, and the real-options approach tothe firm. Far from rehash<strong>in</strong>g old controversies, the reexam<strong>in</strong>ation<strong>of</strong> Mises’s and Knight’s views on uncerta<strong>in</strong>ty <strong>in</strong> <strong>Hoppe</strong>’s paperprovides fresh <strong>in</strong>sight <strong>in</strong>to the entrepreneur, the firm, and the marketprocess. 32 Ibid.33 Sharon Alvarez and Jay B. Barney, “Discovery and Creation: AlternativeTheories <strong>of</strong> Entrepreneurial Action,” Strategic Entrepreneurship Journal 1, nos.1–2 (2007), pp. 11–26.
33The Nature <strong>of</strong> SocialismMateusz MachajIn hamper<strong>in</strong>g and <strong>of</strong> course even more so, <strong>in</strong> mak<strong>in</strong>g it outrightillegal for private entrepreneurs to bid away means <strong>of</strong>production from caretakers, a system <strong>of</strong> socialized productionprevents opportunities for improvement from be<strong>in</strong>g taken upto the full extent they are perceived.—<strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> 1Ifirst met Pr<strong>of</strong>essor <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> <strong>in</strong> 2003, when hevisited Poland for a libertarian conference. Most <strong>of</strong> the participantswere <strong>in</strong>terested <strong>in</strong> normative issues and political philosophy,whereas very few were <strong>in</strong>terested <strong>in</strong> Austrian economics.Hence, I was co<strong>in</strong>cidentally the only one to engage withPr<strong>of</strong>essor <strong>Hoppe</strong> <strong>in</strong> extensive discussions on theories <strong>of</strong> the AustrianSchool. I did not hesitate shamelessly to consume his time forthe personal benefit <strong>of</strong> learn<strong>in</strong>g more about economics from one <strong>of</strong>Rothbard’s most important followers. After this meet<strong>in</strong>g, fortunecont<strong>in</strong>ued to smile on me—it turned out that despite substantialgeographical distance, I have enjoyed such productive conversationswith my German mentor at least few times a year.One <strong>of</strong> my favorite books, and among the most important formy <strong>in</strong>tellectual development was <strong>Hoppe</strong>’s A Theory <strong>of</strong> Socialism andMateusz Machaj (mateusz.machaj@mises.pl) is Instructor <strong>of</strong> economics at theUniversity <strong>of</strong> Wroclaw <strong>in</strong> Poland.339
340 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Capitalism, which could be labeled “property economics <strong>in</strong> one lesson,”and, <strong>in</strong> the op<strong>in</strong>ion <strong>of</strong> the present writer, is as important for<strong>in</strong>troduction to Austrian economics as Hazlitt’s classic. After read<strong>in</strong>g<strong>Hoppe</strong>’s book, one understands that political economy andcomparative analysis <strong>of</strong> economic systems are about the externaleffects <strong>of</strong> different property regimes. As <strong>Hoppe</strong> proves, societyand economy are themselves great positive external effects <strong>of</strong> privateproperty, 2 whereas socialism and <strong>in</strong>terventionism are associatedwith negative external effects that eventually lead to destruction<strong>of</strong> society and economy. 3 We would like to follow <strong>Hoppe</strong>’s<strong>in</strong>sights here: the article below attempts to reformulate Mises’s calculationargument <strong>in</strong>to a property argument. Private property providesenormous, positive, external effects that will disappear onceit is abolished.A BAD, GOOD ANALOGYImag<strong>in</strong>e a danc<strong>in</strong>g contest <strong>in</strong> which a group <strong>of</strong> judges is assess<strong>in</strong>gthe dancers. Three essential elements are required, withoutwhich any judg<strong>in</strong>g <strong>of</strong> that k<strong>in</strong>d would not be possible. The first oneis a card<strong>in</strong>al numeration system. Every judge has certa<strong>in</strong> qualitativeevaluations about each performance; he could rank all the performances<strong>in</strong> order accord<strong>in</strong>g to his view. However, there would1 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism: Economics,Politics, and Ethics (London: Kluwer, 1989), p. 282 A motto <strong>of</strong> <strong>Hoppe</strong>’s Property and Freedom Society is Bastiat’s aphorism,“Property does not exist because there are laws, but laws exist because thereis property.” Frédéric Bastiat, “Property and Law,” <strong>in</strong> Selected <strong>Essays</strong> on PoliticalEconomy, Seymour Ca<strong>in</strong>, trans., George B. De Huszar, ed. (Irv<strong>in</strong>gton-on-Hudson, New York: Foundation for Economic Education, 1995 [1848]); thewebsite <strong>of</strong> the Property and Freedom Society is located at.3 Curiously, it is <strong>of</strong>ten argued that free market economists, as opposed tomore <strong>in</strong>terventionist ones, ignore “external effects.” In fact, rather the oppositestatement is true. Free market economists analyze these elements <strong>in</strong>detail, but perhaps do not use the term “external effects” very <strong>of</strong>ten. On theother hand, <strong>in</strong>terventionist theorists use the term quite <strong>of</strong>ten, but usually completelyignore external effects <strong>of</strong> <strong>in</strong>stitutionalized aggression <strong>in</strong> their analysis. Thisdefect is completely absent from <strong>Hoppe</strong>’s works.
Machaj: The Nature <strong>of</strong> Socialism — 341be no way to compare those <strong>in</strong>dividual assessments vis-à-vis eachother without the existence <strong>of</strong> a common denom<strong>in</strong>ator. The use <strong>of</strong>card<strong>in</strong>al numbers serves this function. Numbers <strong>of</strong>fered by judgesare simply added, and then the f<strong>in</strong>al result shows us a rank<strong>in</strong>g <strong>of</strong>all performances.The second element, necessarily connected to those numbers, isa quasi-“competition” between views <strong>of</strong> judges. Obviously, if alljudges expressed the same op<strong>in</strong>ion, there would be no po<strong>in</strong>t <strong>in</strong> hav<strong>in</strong>gmore than one. To certa<strong>in</strong> extent, they do differ and do make differentjudgments (even though they might end up with the sameconclusion). Hav<strong>in</strong>g more than one judge justifies the use <strong>of</strong>numeric rank<strong>in</strong>gs, because these will serve as common quantitativedenom<strong>in</strong>ator for all qualitative op<strong>in</strong>ions. If there were only onejudge, then we would not need card<strong>in</strong>al numbers, as he could justrank the performances without assign<strong>in</strong>g card<strong>in</strong>al numbers to them.The third essential element is a set <strong>of</strong> rules and constra<strong>in</strong>ts.Judges act with<strong>in</strong> certa<strong>in</strong> limits set by the rules. For example, theyare constra<strong>in</strong>ed <strong>in</strong> their choice <strong>of</strong> numbers 1–10 and, therefore, cannotbid their scor<strong>in</strong>g <strong>in</strong>f<strong>in</strong>itely. Apart from this, no judge isallowed to overrule the decision <strong>of</strong> another judge, and there is nosupreme judge who would assign possible numbers to otherjudges <strong>of</strong> a lower level. Otherwise, if there were one ultimatejudge, for example, allow<strong>in</strong>g judges to use only certa<strong>in</strong> numbers,then he would <strong>of</strong> course decide about the f<strong>in</strong>al assessment, and notthe judges themselves. Under this absurd condition, the decisionprocess would boil down to a process <strong>in</strong> which neither the judges<strong>of</strong> the lower level nor the numbers they use would be needed. Thesituation <strong>in</strong> place would be the same as one <strong>in</strong> which one judgeassesses the performances based on his preferences. In this case,qualitative valuation could substitute for a numerical one.These three elements are <strong>in</strong>tegrated and cannot do without oneanother. Without numbers, there can be no common denom<strong>in</strong>atorfor all qualitative assessments. If judges do not differ <strong>in</strong> theirassessments, then there is no po<strong>in</strong>t <strong>in</strong> us<strong>in</strong>g numbers <strong>in</strong> the firstplace. (The use <strong>of</strong> a denom<strong>in</strong>ator would not be needed.) And ifthere are no rules concern<strong>in</strong>g numerical assessment, then thewhole process will not make sense.However trivial this might seem, it actually provides us with ademonstration <strong>of</strong> the difference between socialism and capitalism.
342 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>I call this analogy a “bad, good analogy,” because it is both goodand bad. It is good, because it demonstrates some connections thatare also present <strong>in</strong> the capitalist economy. The analogy is also verybad, because the market process is not otherwise like a danc<strong>in</strong>gcompetition, hence the analogy could be easily mis<strong>in</strong>terpreted.CALCULATION IN CAPITALISM:THE ANALOGY APPLIEDThe purpose <strong>of</strong> this paper is to po<strong>in</strong>t out that “price ratios,” asnumerical ratios per se, are not the key element <strong>in</strong> the analysis <strong>of</strong>socialism, for it is a property structure that makes it differ fromcapitalism. Although the above, contest analogy does not exactlydescribe the market process, we can make sense <strong>of</strong> some observationsconcern<strong>in</strong>g it. The market itself is necessarily l<strong>in</strong>ked to three<strong>in</strong>terconnected elements, which cannot exist apart from each other:economic calculation, the <strong>in</strong>tellectual division <strong>of</strong> labor, and privateproperty constra<strong>in</strong>ts. 4Economic calculation allows for the comparison <strong>of</strong> many differentways <strong>of</strong> produc<strong>in</strong>g th<strong>in</strong>gs. Imag<strong>in</strong>e that one wants to producea table—the range <strong>of</strong> possibilities is huge. One can use differenttools, mach<strong>in</strong>es, resources, or laborers. These all are heterogeneousand cannot be added together <strong>in</strong> either physical terms orlabor hours. Fortunately, there is economic calculation—all the factorshave their monetary prices, hence one can add them together<strong>in</strong> terms <strong>of</strong> money and then decide which decision is the most economical.In this sense, money units are a way to “measure” the4 The term “<strong>in</strong>tellectual division <strong>of</strong> labor” was used by Mises. Ludwig vonMises, Economic Calculation <strong>in</strong> the Socialist Commonwealth (Auburn, Ala.: MisesInstitute, 1990), p. 18. See also the great work by Misesian Joseph Salerno,“Ludwig von Mises as Social Rationalist,” Review <strong>of</strong> Austrian Economics 4(1990). In Mises’s Socialism, the term was translated as “mental division <strong>of</strong>labor.” Ludwig von Mises, Socialism: An Economic and Sociological Analysis (NewHaven, Conn.: Yale University Press, 1951), p. 118. Both terms might be mislead<strong>in</strong>g—itwould be better to use the term “entrepreneurial division <strong>of</strong>labor,” as I discuss <strong>in</strong> my “Market Socialism and the Property Problem: DifferentPerspective <strong>of</strong> the Socialist Calculation Debate,” Quarterly Journal <strong>of</strong>Austrian Economics 10, no. 4 (December 2007): 257–80.
Machaj: The Nature <strong>of</strong> Socialism — 343amount <strong>of</strong> used factors <strong>of</strong> production, which cannot be expressedtogether <strong>in</strong> one physical unit.The term “<strong>in</strong>tellectual division <strong>of</strong> labor” conveys the idea thatdifferent entrepreneurs have their own property and that theycompete with<strong>in</strong> property boundaries for factors <strong>of</strong> production.Each <strong>of</strong> them speculates and assesses conditions <strong>of</strong> the market.Competition between them allows for factors to be valued <strong>in</strong> terms<strong>of</strong> money. The calculus becomes the l<strong>in</strong>k that connects differentopportunities and entrepreneurial expectations. Without competitiontransmitted through prices this way, there would be no po<strong>in</strong>tto economic calculation. 5The third group <strong>of</strong> elements, private property constra<strong>in</strong>ts, is a set<strong>of</strong> rules without which the process <strong>of</strong> competition could not be realized.Each entrepreneur controls money capital and factors that heowns—his economic decision-mak<strong>in</strong>g about these scarce resourcesis the driv<strong>in</strong>g force for successful employment <strong>of</strong> the factors. Hedoes not decide about all the other factors, and his current decisionswill have an important effect upon his future <strong>in</strong>come. This <strong>in</strong>troducesa real boundary on his choices, for he personally will lose orga<strong>in</strong> <strong>in</strong> the process <strong>of</strong> competition (<strong>in</strong> terms <strong>of</strong> ownership). Onlybecause <strong>of</strong> this <strong>in</strong>fluence can the <strong>in</strong>tellectual division <strong>of</strong> labor havereal effects on the economy. The owner <strong>of</strong> particular resources ismak<strong>in</strong>g a decision only about a small element <strong>of</strong> the whole economy,s<strong>in</strong>ce only he controls his ownership, and not the ownership <strong>of</strong>other people. In this sense, the <strong>in</strong>tellectual division <strong>of</strong> labor isshaped by distribution <strong>of</strong> ownership. Without this division <strong>of</strong> ownershipwe could not speak <strong>of</strong> the entrepreneurial division <strong>of</strong> labor.Socialist systems differ from the capitalist process by be<strong>in</strong>gestablish<strong>in</strong>g one compulsory owner, who becomes the ultimatedecision maker <strong>in</strong> the economic system. 6 The consequences <strong>of</strong> that5 Different firms exist because <strong>of</strong> the competition with<strong>in</strong> the uncerta<strong>in</strong>world; this differs from the Coasian view that some monetary costs cause theexistence <strong>of</strong> firms. See Ronald H. Coase, “The Nature <strong>of</strong> the Firm,” Economica4, no. 16 (1937).6 Writes Mises:The essential mark <strong>of</strong> socialism is that one will alone acts. Itis immaterial whose will it is. The director may be an
344 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>step are unavoidable, s<strong>in</strong>ce without private property there can beno <strong>in</strong>tellectual division <strong>of</strong> labor. Instead <strong>of</strong> the market process,there is a physical and compulsory exclusion <strong>of</strong> competition,which substitutes for the market one ultimate decision mak<strong>in</strong>gprocess, direct<strong>in</strong>g allocations <strong>of</strong> factors. The central owner doesnot determ<strong>in</strong>e the value <strong>of</strong> factors <strong>of</strong> production as the marketprocess does, because he has no means to relate his assessment toother opportunities that might have been perceived by other entrepreneurs.There is no basis for quantitative discrim<strong>in</strong>ationbetween production projects, for there only can be a straight ord<strong>in</strong>alvaluation <strong>of</strong> them (a valuation <strong>of</strong> completely vertically <strong>in</strong>tegratedprocesses). The so-called “social appraisement process” isabolished once private property is abolished. 7POSSIBLE RESPONSES AND SUGGESTED REPLIESSocialists have responded to Mises’s challenge <strong>in</strong> many differentways. Unfortunately, <strong>in</strong> his critique he concentrates too muchon only one aspect <strong>of</strong> the problem, namely economic calculation.In the previous section, Mises’s argument has been reformulatedma<strong>in</strong>ly <strong>in</strong> terms <strong>of</strong> the follow<strong>in</strong>g emphasis: we have now changedthe focus from prices to the <strong>in</strong>tellectual division <strong>of</strong> labor be<strong>in</strong>g aproduct <strong>of</strong> property distribution.Socialism is a system organized by one owner, where there areno entrepreneurs compet<strong>in</strong>g for the most valuable use <strong>of</strong>resources. Even if one owner establishes some numerical system,this <strong>in</strong> no way differs from a straight rank<strong>in</strong>g <strong>of</strong> all the possibleways <strong>of</strong> produc<strong>in</strong>g th<strong>in</strong>gs. These centrally adm<strong>in</strong>istered “prices”do not change anyth<strong>in</strong>g s<strong>in</strong>ce one owner establishes them, oneano<strong>in</strong>ted k<strong>in</strong>g or a dictator, rul<strong>in</strong>g by virtue <strong>of</strong> his charisma,he may be a Fuhrer or a board <strong>of</strong> Fuhrers appo<strong>in</strong>ted by thevote <strong>of</strong> the people. The ma<strong>in</strong> th<strong>in</strong>g is that the employment<strong>of</strong> all factors <strong>of</strong> production is directed by one agency only.Ludwig von Mises, Human Action: A Treatise on Economics (Chicago: ContemporaryBooks, 1966), p. 695.7 This is the term used by Salerno, “Ludwig von Mises as Social Rationalist.”
Machaj: The Nature <strong>of</strong> Socialism — 345owner acts upon them, and one owner changes them ex post. Fromthe very beg<strong>in</strong>n<strong>in</strong>g he employs the managers (there is no marketfor corporate control) and decides what <strong>in</strong> the account<strong>in</strong>g books isregistered as pr<strong>of</strong>its and losses. In contrast, market economy pricesare the result <strong>of</strong> different actions <strong>of</strong> compet<strong>in</strong>g owners and this istheir nature: as a common denom<strong>in</strong>ator for different property assessments.8 If only one owner establishes prices, then they lose theirbasic feature as a denom<strong>in</strong>ator for the competition process andbecome only the expression <strong>of</strong> one owner’s preferences (hencethey cannot be used as an <strong>in</strong>dependent economic <strong>in</strong>dicator). 9 Us<strong>in</strong>gprices <strong>in</strong> a socialist system is equivalent to a straight ord<strong>in</strong>al rank<strong>in</strong>g<strong>of</strong> the processes by a central planner.Let us now consider some responses to Mises.1. Abolish property and leave prices for the factorsThis certa<strong>in</strong>ly makes calculation possible, but does not get usfar, s<strong>in</strong>ce prices alone are not enough. Along with prices allocationdecisions are needed, which will then reconstruct the price system.In a capitalist system, expectations and property decisions <strong>of</strong> compet<strong>in</strong>gowners constantly rearrange prices. In socialist systems, wehave one owner and previous capitalist prices. But what’s next?How is a planner supposed to act upon these prices or reshapethem? Competition is not based on the existence <strong>of</strong> past prices, buton speculations upon the future state <strong>of</strong> the market. 10 Just because8 See also Jeffrey M. Herbener, “Calculation and the Question <strong>of</strong> Arithmetic,”Review <strong>of</strong> Austrian Economics 9, no. 1 (1996): 151–62.9 On this po<strong>in</strong>t see G.D.H. Cole, Economic Plann<strong>in</strong>g (New York: KennikatPress, 1971), pp. 183–85; Walter Eucken and Terence H. Hutch<strong>in</strong>son, “On theTheory <strong>of</strong> the Centrally Adm<strong>in</strong>istrated Economy: An Analysis <strong>of</strong> the GermanExperiment. Part I,” Economica, n.s. 15, no. 58 (1948); idem, “On the Theory <strong>of</strong>the Centrally Adm<strong>in</strong>istrated Economy: An Analysis <strong>of</strong> the German Experiment.Part II,” Economica, n.s. 15, no. 59 (1948); Morris Bornste<strong>in</strong>, “The SovietPrice System,” American Economic Review 52, no. 1 (1962).10 See Mises, Human Action, p. 58:Understand<strong>in</strong>g is not a privilege <strong>of</strong> the historians. It iseverybody’s bus<strong>in</strong>ess. In observ<strong>in</strong>g the conditions <strong>of</strong> hisenvironment everybody is a historian. Everybody uses
346 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>some prices existed <strong>in</strong> the past does not solve the problem <strong>of</strong> economiccalculation as posed by Mises. 112. A mathematical solution 12We do not have enough room here to criticize the mathematicalapproach, but we take the opportunity here to reject the myth thatBarone solved the problem on paper. A completely neglectedquote <strong>in</strong> extenso from the source should suffice:Many <strong>of</strong> the writers who have criticized collectivismhave hesitated to use as evidence the practical difficulties<strong>in</strong> establish<strong>in</strong>g on paper the various equivalent; butit seems they have not perceived what really are the difficulties—or,more frankly, the impossibility—<strong>of</strong> solv<strong>in</strong>gsuch equations a priori. If, for a moment, we assume thateconomic variability <strong>of</strong> the technical coefficients may beneglected and we take account <strong>of</strong> their technical variabilityonly, it is not impossible to solve on paper theequations <strong>of</strong> the equilibrium. . . . But it is frankly <strong>in</strong>conceivablethat the economic determ<strong>in</strong>ation <strong>of</strong> the technicalcoefficients can be made a priori, <strong>in</strong> such a way as to satisfythe condition <strong>of</strong> the m<strong>in</strong>imum cost <strong>of</strong> productionwhich is an essential condition for obta<strong>in</strong><strong>in</strong>g that maximumto which we have referred. This economic variabilityunderstand<strong>in</strong>g <strong>in</strong> deal<strong>in</strong>g with the uncerta<strong>in</strong>ty <strong>of</strong> futureevents to which he must adjust his own actions. The dist<strong>in</strong>ctivereason<strong>in</strong>g <strong>of</strong> the speculator is an understand<strong>in</strong>g<strong>of</strong> the relevance <strong>of</strong> the various factors determ<strong>in</strong><strong>in</strong>g futureevents. And—let us emphasize it even at this early po<strong>in</strong>t <strong>of</strong>our <strong>in</strong>vestigations—action necessarily always aims atfuture and therefore uncerta<strong>in</strong> conditions and thus isalways speculation. Act<strong>in</strong>g man looks, as it were, with theeyes <strong>of</strong> a historian <strong>in</strong>to the future.11 For Mises’s response to <strong>in</strong>itial criticism that was particularly weak, seeLudwig von Mises, “New Contributions to the Problem <strong>of</strong> Socialist EconomicCalculation,” <strong>in</strong> Richard Ebel<strong>in</strong>g, ed., Selected Writ<strong>in</strong>gs <strong>of</strong> Ludwig von Mises:Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, andthe Great Depression (Indianapolis, Liberty Fund, 2002).12 Sometimes improperly mixed with a dynamic market socialism model.
Machaj: The Nature <strong>of</strong> Socialism — 347<strong>of</strong> the technical coefficients is certa<strong>in</strong>ly neglected by the collectivists.. . . The determ<strong>in</strong>ation <strong>of</strong> the coefficients economicallymost advantageous can only be done <strong>in</strong> anexperimental way: and not on a small scale, as could bedone <strong>in</strong> a laboratory; but with experiments on a verylarge scale.Some collectivist writers, bewail<strong>in</strong>g the cont<strong>in</strong>ualdestruction <strong>of</strong> firms (those with higher costs) by freecompetition, th<strong>in</strong>k that the creation <strong>of</strong> enterprises to bedestroyed later can be avoided, and hope that withorganized production it is possible to avoid the dissipationand destruction <strong>of</strong> the wealth which such experiments<strong>in</strong>volved, and which they believe to be peculiarproperty <strong>of</strong> “anarchist” production. Thereby these writerssimply show that they have no clear idea <strong>of</strong> whatproduction really is, and that they are not even disposedto prove a little deeper <strong>in</strong>to the problem which will concernthe M<strong>in</strong>istry which will be established for the purpose<strong>in</strong> the Collectivist State. 133. The collectivist decision 14In this proposition, the planner is supposed to employ the specialists,perhaps past entrepreneurs and bus<strong>in</strong>essmen; while sitt<strong>in</strong>garound the table, they should figure out which range <strong>of</strong> productionprocesses would be the best (or as <strong>in</strong> the case <strong>of</strong> democratic socialismthis could be put to a vote). As we saw above, this would beonly a paper game s<strong>in</strong>ce the real competitive process requires thateach market participant owns some resources and by his expectationsand anticipations, with<strong>in</strong> the property limits, competes withothers for more ownership. As a planner and his employees determ<strong>in</strong>ethe range <strong>of</strong> production processes <strong>in</strong> absence <strong>of</strong> bidd<strong>in</strong>g andexclusion based on property boundaries, their effort is completelydifferent <strong>in</strong> nature than <strong>in</strong> capitalism. No competition exists <strong>in</strong> thisscenario, for “competition” <strong>in</strong> it is as real as that between children13 Enrico Barone, “The M<strong>in</strong>istry <strong>of</strong> Production <strong>in</strong> the Collectivist State,” <strong>in</strong>F.A. Hayek, ed. Collectivist Economy Plann<strong>in</strong>g (London: Routledge and KeganPaul, 1935 [1908]), p. 287; emphasis added.14 See, for example, G.D.H. Cole, Chaos and Order <strong>in</strong> Industry (London:Metheun & Co. Ltd., 1920).
348 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>who, without funds, bid at the auction. Our “good, bad” analogyshows us that juries <strong>in</strong> the danc<strong>in</strong>g contest must act with<strong>in</strong> properlyset numerical limits. Somewhat similarly, entrepreneurs areact<strong>in</strong>g with<strong>in</strong> real limits—possibility <strong>of</strong> control <strong>of</strong> resources. If theysit around the table without the limit set by property constra<strong>in</strong>ts,how can they compete and bid for the factors? How can one discrim<strong>in</strong>atewith<strong>in</strong> pla<strong>in</strong> proposition and suggestions? The fact thatpublic service differs from bus<strong>in</strong>ess transactions <strong>in</strong> the marketplacedoes not stem from the <strong>in</strong>centive problem, or from the vanity<strong>of</strong> government employees. The problem lies exactly <strong>in</strong> the differencebetween act<strong>in</strong>g on paper and actually bidd<strong>in</strong>g on priceswith the use <strong>of</strong> property. Otherwise, the bidd<strong>in</strong>g process is <strong>in</strong> noway different from a game <strong>of</strong> Monopoly. 154. The central planner should <strong>in</strong>troduce competition betweenmanagers <strong>of</strong> public enterprises 16This solution mistakenly assumes that entrepreneurship is aresult <strong>of</strong> management, not <strong>of</strong> control. It ignores the fact that entrepreneurshipis a result <strong>of</strong> be<strong>in</strong>g an owner, supreme controller, i.e.f<strong>in</strong>al decision maker. 17 Naturally, <strong>in</strong> capitalism, owners might delegateto others the authority to act on their behalf, but this does notchange the nature <strong>of</strong> entrepreneurship, i.e. ultimate control <strong>of</strong> aparticular resource. 18 But, this feature changes under socialism,where only one owner delegates responsibility for decisions tosubord<strong>in</strong>ates <strong>in</strong> the economy. Follow<strong>in</strong>g our danc<strong>in</strong>g analogy, ifthere was one person decid<strong>in</strong>g which judge should use which15 We can echo here Mises’s phrase “play[<strong>in</strong>g] market.” Mises, HumanAction, p. 709.16 This has been suggested especially by Oscar Lange and Fred M. Taylor,On the Economic Theory <strong>of</strong> Socialism (New York: McGraw-Hill, 1956).17 Interest<strong>in</strong>gly, another brilliant Austrian economist, Israel Kirzner, seemsto commit the same fallacy. His mistake is a result <strong>of</strong> “confus<strong>in</strong>g the category<strong>of</strong> entrepreneurship as it is def<strong>in</strong>ed <strong>in</strong> the imag<strong>in</strong>ary construction <strong>of</strong> functionaldistribution with conditions <strong>in</strong> a liv<strong>in</strong>g and operat<strong>in</strong>g economy.” SeeMises’s argument on this, <strong>in</strong> Human Action, p. 306.18 For an application <strong>of</strong> this to modern corporation theory as it relates to<strong>in</strong>sider trad<strong>in</strong>g, see Henry G. Manne, Insider Trad<strong>in</strong>g and the Stock Market (NewYork: The Free Press, 1966).
Machaj: The Nature <strong>of</strong> Socialism — 349number, then it would be obvious who is, <strong>in</strong> fact, mak<strong>in</strong>g theassessment. It is exactly the same case <strong>in</strong> “competition” betweenthe managers, as they all have one ultimate boss. The central plannerappo<strong>in</strong>ts the managers; the central planner decides aboutwages. The central planner decides about structure <strong>of</strong> <strong>in</strong>dustries,about which part is to be controlled by the manager and how particular<strong>in</strong>ventories can be affected. Surely, he is the one who ultimatelydecides, although he might transfer some <strong>of</strong> his duties tohis subord<strong>in</strong>ates. This, however, does not change the fact that thewhole system is subjected to one will act<strong>in</strong>g. 19 There is no capitalmarket, no land and real estate market, no asset market, nor anymarket for corporate control. Similarly, although managers <strong>in</strong> capitalismcontrol resources to some extent (which creates a possibilityfor agency problems), ultimately owners still control the assets.5. Socialist prices are supposed to be account<strong>in</strong>g pricesbalanc<strong>in</strong>g quantity demanded and quantity suppliedThis proposition was to be mixed with the previous one; however,we will deal with separately. Specifically, Taylor, and thenLange after him, suggested that prices are supposed to be <strong>in</strong>dicatorsrespond<strong>in</strong>g to physical quantities. 20 If hammers are pil<strong>in</strong>g up<strong>in</strong> a warehouse, the central planner is supposed to lower the price.If a delivery is late, then the planner should raise the price. However,the problem noted earlier still rema<strong>in</strong>s: decisions about all<strong>in</strong>dustrial structures, employment, and possible actions are set upfrom the beg<strong>in</strong>n<strong>in</strong>g by the central planner. Noth<strong>in</strong>g, <strong>in</strong> this regard,is a result <strong>of</strong> the competitive process. He, <strong>of</strong> course, must <strong>in</strong>structhis subord<strong>in</strong>ates how to act us<strong>in</strong>g his <strong>in</strong>vented “price system.”Instructions to the managers about what rules to follow are givenby the planner himself. These two decisions will cause surplusesand shortages somewhere, and so the central planner will have tocont<strong>in</strong>ually adjust his ratios to arrive at the account<strong>in</strong>g, whichequalizes the quantity demanded with the quantity supplied. But19 Aga<strong>in</strong> see on this Cole, Economic Plann<strong>in</strong>g; Eucken and Hutch<strong>in</strong>son, “Onthe Theory <strong>of</strong> the Centrally Adm<strong>in</strong>istrated Economy” (Parts I & II); and Bornste<strong>in</strong>,“The Soviet Price System.”20 Fred Taylor, “The Guidance <strong>of</strong> Production <strong>in</strong> a Socialist State,” AmericanEconomic Review 19, no. 1 (1929).
350 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>what does this mean exactly? Isn’t each factor at a factory subjectedto central planner’s decision? Every factor is already put <strong>in</strong> the centralplan—what then is a “surplus” or “shortage” supposed tomean? The planner decides when and how the prices are supposedto change—he then bounds himself and adjusts his decisions to hisown decisions (<strong>in</strong> the capitalist system, a pric<strong>in</strong>g mechanism forone entrepreneur is a mechanism <strong>of</strong> adjust<strong>in</strong>g his actions to actions<strong>of</strong> others <strong>in</strong> the area <strong>of</strong> <strong>in</strong>tellectual division <strong>of</strong> labor).Apart from this, there are no real “bankruptcies” as we seethem <strong>in</strong> the capitalist system. “Losses” <strong>in</strong> capitalism are l<strong>in</strong>ked toa rearrangement <strong>of</strong> ownership, for costs which are higher thanprices cause “liquidation”—a transfer <strong>of</strong> assets between differentparties. None <strong>of</strong> this is present <strong>in</strong> socialism, s<strong>in</strong>ce one owner makesall decisions concern<strong>in</strong>g <strong>of</strong>ficially adm<strong>in</strong>istered prices, factor distribution,and alternative employment. We see then that everyth<strong>in</strong>gis a derivative <strong>of</strong> the central planner’s ultimate decision mak<strong>in</strong>g.Apart from that, it is useful to po<strong>in</strong>t out that a process <strong>of</strong> productionis not <strong>in</strong>stantaneous. In other words, just because somefactors or goods are stored for a certa<strong>in</strong> time, not employed atevery s<strong>in</strong>gle moment, it does not mean that such storage is uneconomical.Under capitalism, such storage is under the boundary <strong>of</strong> the<strong>in</strong>tellectual division <strong>of</strong> labor. Under socialism, it is a product <strong>of</strong>authoritative use <strong>of</strong> aggressive force. Or to put it differently, categories<strong>of</strong> shortages and surpluses are not simple account<strong>in</strong>g andphysical categories, but complex economic phenomena judged byentrepreneurs with<strong>in</strong> the framework <strong>of</strong> monetary appraisement.CONCLUSIONThe argument about the economic chaos result<strong>in</strong>g from theestablishment <strong>of</strong> socialism (understood as one compulsory owner)was restated <strong>in</strong> this article. It was shown that socialism’s economicdeficiency does not result from the lack <strong>of</strong> a numerical system;rather, it flows from essential characteristics <strong>of</strong> socialism. Socialismmeans dictatorship, necessarily survives as dictatorship, andno centrally produced account<strong>in</strong>g ratios will change that fact. Assuch, competition is literally impossible under socialism, and thiscannot be changed by the <strong>in</strong>troduction <strong>of</strong> centrally adm<strong>in</strong>isteredaccount<strong>in</strong>g ratios. h
34A Theory <strong>of</strong> Socialism and CapitalismMark ThorntonIn the wake <strong>of</strong> the downfall <strong>of</strong> the Berl<strong>in</strong> Wall, the breakup <strong>of</strong>the Soviet Union, and the emergence <strong>of</strong> capitalism <strong>in</strong> Ch<strong>in</strong>a, Iwas asked to teach the comparative economic systems class atAuburn University for the summer term <strong>in</strong> 1989. My onlyexposure to the topic had been as an undergraduate student, wheremy teacher was a Cold-War-era pr<strong>of</strong>essor who concentratedalmost exclusively on the Soviet Union. His implicit message wasto fear the Soviet Union, which would soon come to smother theAmerican dream.My assignment came at the last m<strong>in</strong>ute, so there would be noreview<strong>in</strong>g <strong>of</strong> textbooks and preparations <strong>of</strong> lectures <strong>in</strong> advance. Ispent the summer term prepar<strong>in</strong>g lectures on the fly and stay<strong>in</strong>g onechapter ahead <strong>of</strong> the students. Also, I had to choose a textbook somehow,even though I wasn’t familiar with my options, which meant Ididn’t know what political punch-l<strong>in</strong>e the author would deliver atthe end. My unorthodox choice was the recently published A Theory<strong>of</strong> Socialism and Capitalism by <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>. 1Mark Thornton (mthornton@mises.org) is a Senior Fellow at the Ludwig vonMises Institute and Book Review Editor <strong>of</strong> the Quarterly Journal <strong>of</strong> Austrian Economics.1 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism: Economics,Politics, and Ethics (Boston: Kluwer Academic Publishers, 1989).351
352 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>My first exposure to <strong>Hans</strong> was at a public lecture he deliveredto the economics faculty at Auburn University. As I remember, histopic was the theory <strong>of</strong> public goods. 2 His German accent was particularlythick at this time and he read his manuscript as only <strong>Hans</strong>can—with precision and authority.Public goods theory was, and largely still is, sacred ground formost economists, and at the time it had not been subjected to manyAustrian criticisms. I remember be<strong>in</strong>g impressed by <strong>Hans</strong>’sdetailed critique, but even more than that, the utter shock and surpriseon the faces <strong>of</strong> the members <strong>of</strong> the economics departments.When the lecture was completed you could have heard a p<strong>in</strong> drop.The economics department was largely “free market” and “Austrianfriendly,” but question<strong>in</strong>g the validity <strong>of</strong> public goods theorywas apparently a sort <strong>of</strong> desecration <strong>of</strong> Holy Scripture. Afterwards,and for several days, I defended <strong>Hans</strong> and debated hisposition. I would w<strong>in</strong> over concession after concession <strong>in</strong> thesedebates with my pr<strong>of</strong>essors, but failed to w<strong>in</strong> a s<strong>in</strong>gle convert.The book arrived <strong>in</strong> the bookstore <strong>in</strong> time for my class, but itlooked noth<strong>in</strong>g like a textbook. In fact, the production values <strong>of</strong> thebook were the worst I had ever seen. Neither <strong>of</strong> these factors matteredto me, but I do note them here to <strong>in</strong>dicate that the deck wasstacked aga<strong>in</strong>st me the first day I walked <strong>in</strong>to class. Plus the classwas completely full <strong>of</strong> students who had little or no <strong>in</strong>terest <strong>in</strong>comparative economic systems, but simply needed an elective <strong>of</strong>some type.To my great surprise, the class went much better than I hadhoped and was one <strong>of</strong> the most gratify<strong>in</strong>g teach<strong>in</strong>g experiences <strong>in</strong>my career. Free-market-oriented economics students seemed torevel <strong>in</strong> the complete and utter devastation <strong>of</strong> socialism that wouldfollow, but even outright socialist students and more unbiasedm<strong>in</strong>ds appeared to have a certa<strong>in</strong> respect for the material presented<strong>in</strong> class. Much <strong>of</strong> the credit for this success I attribute to A2 See <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “Capitalist Production and the Problem <strong>of</strong>Public Goods,” <strong>in</strong> idem, A Theory <strong>of</strong> Socialism and Capitalism; idem, “Fallacies<strong>of</strong> the Public Goods Theory and the Production <strong>of</strong> Security,” <strong>in</strong> idem, The Economicsand Ethics <strong>of</strong> Private Property: Studies <strong>in</strong> Political Economy and Philosophy,2nd ed. (Auburn, Ala.: Ludwig von Mises Institute, 2006 [1993]).
Thornton: A Theory <strong>of</strong> Socialism and Capitalism — 353Theory <strong>of</strong> Socialism and Capitalism, because more than three-quarters<strong>of</strong> class time relied specifically on the book.The success <strong>of</strong> the book <strong>in</strong> reach<strong>in</strong>g the students rests first onthat fact that it is a theoretical rather than empirical treatise whichprovides a clear, unambiguous analytical framework to understandany particular economy that a student might face. Second,the book analyzes and debunks, or rather reconstructs, the twomajor “exceptions” <strong>of</strong> ma<strong>in</strong>stream economics, monopoly and publicgoods theory, and therefore presents economic theory as a unifiedwhole. Third, the moral and ethical aspects <strong>of</strong> economics andeconomic policy are <strong>in</strong>troduced <strong>in</strong> an <strong>in</strong>tegrated and scientificfashion, and fourth, the book provides an understand<strong>in</strong>g <strong>of</strong> economicand social change. Although this latter po<strong>in</strong>t may not havebeen a primary aim <strong>of</strong> the author, it sure was handy to answerquestions regard<strong>in</strong>g why socialism was implod<strong>in</strong>g—especiallygiven that most other pr<strong>of</strong>essors on campus were teach<strong>in</strong>g thatsocialism and redistributionism <strong>of</strong> all k<strong>in</strong>ds were the panacea forsocial ills.In addition to all these positive traits <strong>of</strong> the book, long timereaders <strong>of</strong> Pr<strong>of</strong>essor <strong>Hoppe</strong> will clearly recognize the consistency<strong>of</strong> his writ<strong>in</strong>gs over time. Beg<strong>in</strong>n<strong>in</strong>g <strong>in</strong> the Garden <strong>of</strong> Eden (so asto highlight the role <strong>of</strong> scarcity), he proceeds deductively to establishthe concepts <strong>of</strong> property, contract, and aggression, and then toestablish the mean<strong>in</strong>g <strong>of</strong> pure capitalism as a social system basedon property and the absence <strong>of</strong> coercion, while pure socialism is asystem based on systemic violence and the absence <strong>of</strong> propertyrights. In addition, he shows how each system impacts the personalityand prosperity <strong>of</strong> <strong>in</strong>dividuals liv<strong>in</strong>g <strong>in</strong> those systems.From beg<strong>in</strong>n<strong>in</strong>g to end, his argument is logically deduced and<strong>in</strong>tuitively obvious. Throughout, <strong>Hans</strong> is always alert<strong>in</strong>g thereader to possible misconceptions and weaknesses that he willaddress later <strong>in</strong> the text.Beg<strong>in</strong>n<strong>in</strong>g with the familiar case <strong>of</strong> Russian-style socialism,capitalism is shown to be superior to an economy run by caretaker-centralplanners. The absence <strong>of</strong> opportunity costs for thecaretaker <strong>in</strong>evitably leads to reduced <strong>in</strong>vestment, misallocation,and overutilitzation <strong>of</strong> capital and labor. Added to this critique isthe impact on the personal character and personality <strong>of</strong> <strong>in</strong>dividuals<strong>in</strong> a socialist society because efficient use <strong>of</strong> resources and
354 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>cater<strong>in</strong>g to the consumer are no longer rewarded, and so peoplegravitate toward “political” action. <strong>Hoppe</strong> illustrates all this witha brief look at Russian-style economies and the natural experiment<strong>of</strong> East and West Germany, but modern westerners need only totake a close look at their own governments’ bureaucracies tounderstand the impact <strong>of</strong> socialism on character and personality.Russian-style socialism is the most obvious and recognizableform <strong>of</strong> socialism, but social-democracy is the most common anddom<strong>in</strong>ant form <strong>of</strong> socialism. Here, the democratic process substitutesfor the central authority. Social-democratic socialism allowsfor some property rights to rema<strong>in</strong> <strong>in</strong>tact, although not immunefrom attack. It <strong>in</strong>itiates a system <strong>of</strong> taxation that takes the property<strong>of</strong> producers and a system <strong>of</strong> redistribution to enrich non-producers.The system does solve some problems <strong>of</strong> soviet-style socialismand reduces others, but, <strong>in</strong> the end, it produces essentially thesame type <strong>of</strong> results.Conservative socialism is at the opposite end <strong>of</strong> social-democraticsocialism, but both also have many similarities. Socialdemocrats want “change,” while conservatives oppose it. Socialdemocrats want to redistribute property while conservatives wantto enforce the status quo and “stay the course.” Conservatives supportprice controls, regulations <strong>in</strong>clud<strong>in</strong>g antitrust policies, andbehavioral controls like prohibitions. <strong>Hoppe</strong> shows how the reality<strong>of</strong> mixed economies and ideologies make empirical exam<strong>in</strong>ationscomplex but that his theoretical framework provides clarityto all conservative socialist systems such as feudalism, monarchies,Nazism, and the Republican Party. All lead to impoverishmentjust like social-democratic socialism.Although most economists would not understand all the implications<strong>of</strong> these various types <strong>of</strong> socialism, many would now agreewith <strong>Hoppe</strong> that Russian-style socialism is bad and that anyth<strong>in</strong>gbeyond moderate conservative or social democratic socialism isalso bad for the economy.After analyz<strong>in</strong>g these forms <strong>of</strong> socialism, the book turns tomore controversial matters and the case for social eng<strong>in</strong>eer<strong>in</strong>g,where economists and other academics would prefer to implementonly policies that “work” rather than bl<strong>in</strong>dly follow<strong>in</strong>gsome ideology. Here, <strong>Hans</strong> embarks on an all-out onslaught onsocial eng<strong>in</strong>eer<strong>in</strong>g and its foundation <strong>in</strong> positivism. This section
Thornton: A Theory <strong>of</strong> Socialism and Capitalism — 355and the follow<strong>in</strong>g digression on epistemology required extensiveclass coverage supplemented with examples and illustrations, butit was well worth the <strong>in</strong>vestment to underm<strong>in</strong>e the so-called pragmaticnotion that we should only implement “what works.” Socialeng<strong>in</strong>eer<strong>in</strong>g, with its scientific veneer, is <strong>in</strong> reality not scientific atall; <strong>in</strong> practice it is completely normative, and <strong>in</strong> the end isextremely dangerous.The most controversial matter occurs <strong>in</strong> chapter seven: “TheEthical Justification <strong>of</strong> Capitalism and Why Socialism is MorallyIndefensible,” <strong>Hoppe</strong>’s <strong>in</strong>trigu<strong>in</strong>g “argumentation ethics” defense<strong>of</strong> libertarian ethics. 3 The students found this <strong>in</strong>terest<strong>in</strong>g for manyreasons, but the fact that it was an explicitly argued ethical positionwas someth<strong>in</strong>g rather novel for them. I drove home <strong>Hans</strong>’score po<strong>in</strong>t where he demonstrates the moral superiority <strong>of</strong> capitalismover socialism <strong>in</strong> that “one cannot communicate and arguethat one cannot communicate and argue” (which, by the way, isconta<strong>in</strong>ed <strong>in</strong> a parenthetical statement). Some thought that thiswas some k<strong>in</strong>d <strong>of</strong> trick, but most were will<strong>in</strong>g to play along.With the argument made, I told the students—for effect—that<strong>Hoppe</strong>’s argument aga<strong>in</strong>st socialism is completely underm<strong>in</strong>edwhen you exam<strong>in</strong>e collective action that is completely voluntary.For example, Major League Baseball establishes and enforces allsorts <strong>of</strong> rules on its member teams; family units can adopt Russianstylesocialism if they wish; homeowner associations can establish,change and enforce rules on how and when lawns will be mowedand garbage will be collected; fraternities can require that newmembers be spanked with wooden planks; and entrepreneurs canrequire that patrons wear shoes or not smoke on their premises.Anyth<strong>in</strong>g that socialism claims to accomplish can be accomplishedwith voluntary agreements and much more. One bright, futureeconomist <strong>in</strong> the class corrected me by po<strong>in</strong>t<strong>in</strong>g out that this reallydid not underm<strong>in</strong>e <strong>Hans</strong>’s argument, because it was actually anargument for capitalism. I th<strong>in</strong>k the fact that the “American way”is perceived to be more voluntary compared to other societies and3 See also <strong>Hoppe</strong>, A Theory <strong>of</strong> Socialism and Capitalism, ch. 2, and idem, TheEconomics and Ethics <strong>of</strong> Private Property, chaps. 11–13, 15, and “Appendix: FourCritical Replies.”
356 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>that <strong>Hans</strong> was just tak<strong>in</strong>g volunteerism to its logical extremehelped w<strong>in</strong> over many <strong>of</strong> the students to our position. 4Without efficiency or morality to back it, socialism is thenrevealed as merely a parasitic state us<strong>in</strong>g the carrot <strong>of</strong> politicalfavors and the stick <strong>of</strong> violence to live <strong>of</strong>f its host. Ultimately, thestate uses propaganda <strong>of</strong> many forms to susta<strong>in</strong> an ideology thatprevents the host from reliev<strong>in</strong>g itself <strong>of</strong> the parasite, and <strong>in</strong> classwe had a wide-rang<strong>in</strong>g discussion as to propaganda <strong>of</strong> the U.S.government. 5 <strong>Hoppe</strong> notes that the best system for achiev<strong>in</strong>g andsusta<strong>in</strong><strong>in</strong>g the goals <strong>of</strong> the parasite is democratic-majority rule,which <strong>of</strong> course would be a major theme <strong>of</strong> his book Democracy—The God that Failed. 6 Ultimately, the state f<strong>in</strong>ds its strength <strong>in</strong> theimmortal words <strong>of</strong> Frankl<strong>in</strong> Roosevelt—“the only th<strong>in</strong>g we haveto fear is fear itself”—mean<strong>in</strong>g everyth<strong>in</strong>g will be f<strong>in</strong>e as long aswe have the state to take care <strong>of</strong> us.The last two chapters <strong>of</strong> the book deal with the problems <strong>of</strong>monopoly and public goods. 7 Here, <strong>Hans</strong> aptly shows that monopolyis not a problem <strong>of</strong> the free market but is solely a problem <strong>of</strong>the government’s own creation. He then demolishes the theory <strong>of</strong>public goods and expla<strong>in</strong>s how the market addresses the issues <strong>of</strong>public goods and externalities. This was all new <strong>in</strong>formation to thestudents, <strong>in</strong>clud<strong>in</strong>g the economics majors, and I employed severaldigressions us<strong>in</strong>g ma<strong>in</strong>stream literature to back up <strong>Hans</strong>’s po<strong>in</strong>ts.4 At least none <strong>of</strong> the students compla<strong>in</strong>ed to my department chairman orreported me to the dean’s <strong>of</strong>fice.5 On the state’s use <strong>of</strong> ideological propaganda, see <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>,“Bank<strong>in</strong>g, Nation States and International Politics: A Sociological Reconstruction<strong>of</strong> the Present Economic Order,” Review <strong>of</strong> Austrian Economics 4 (1990): 62et seq.; idem, “The Economics and Sociology <strong>of</strong> Taxation,” <strong>in</strong> idem, The Economicsand Ethics <strong>of</strong> Private Property, pp. 64–65; and idem, “Bank<strong>in</strong>g, NationStates, and International Politics: A Sociological Reconstruction <strong>of</strong> the PresentEconomic Order,” <strong>in</strong> idem, The Economics and Ethics <strong>of</strong> Private Property, pp.86–87.6 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, Democracy—The God that Failed: The Economicsand Politics <strong>of</strong> Monarchy, Democracy, and Natural Order (New Brunswick, N.J.:Transaction Publishers, 2001).7 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “Capitalist Production and the Problem <strong>of</strong>Monopoly,” <strong>in</strong> idem, A Theory <strong>of</strong> Socialism and Capitalism; idem, “CapitalistProduction and the Problem <strong>of</strong> Public Goods.” See also note 2, above.
Thornton: A Theory <strong>of</strong> Socialism and Capitalism — 357As I tightened the noose around the neck <strong>of</strong> the ma<strong>in</strong>stream theories<strong>of</strong> monopoly and public goods us<strong>in</strong>g both deduction and illustrations,the students paid close attention and asked many questions.In the end, I th<strong>in</strong>k the students appreciated this new version<strong>of</strong> economics, where there were no exceptions to the rules <strong>of</strong> economicsand where there was a way <strong>in</strong> which the moral and ethicalimplications <strong>of</strong> economic systems could be analyzed.The success <strong>of</strong> the book <strong>in</strong> reach<strong>in</strong>g my students was based onthe fact that it helped expla<strong>in</strong> the turbulent changes that wereoccurr<strong>in</strong>g <strong>in</strong> the world, such as the fall <strong>of</strong> the Berl<strong>in</strong> Wall, thebreakup <strong>of</strong> the Soviet Union, and the acceptance <strong>of</strong> capitalism <strong>in</strong>Ch<strong>in</strong>a. In addition, the book presents economic analysis as a unifiedwhole without the exceptions <strong>of</strong> monopoly and public goods.Furthermore, the book br<strong>in</strong>gs a moral and ethical analysis to comparativeeconomic systems that is <strong>in</strong>tegrated <strong>in</strong>to the economicanalysis itself. In short, A Theory <strong>of</strong> Socialism and Capitalism is a treatisethat is a “breath <strong>of</strong> fresh air” for student and teacher alike.I believe that my experience supports an important po<strong>in</strong>tregard<strong>in</strong>g strategy and the future <strong>of</strong> Austrian economics. Recallthe reaction <strong>of</strong> my pr<strong>of</strong>essors to the public lecture given by <strong>Hans</strong><strong>Hoppe</strong> on public-goods theory. They were shocked <strong>in</strong>to denial andbeyond any attempt to logically debate the issues raised. Yes, public-goodstheory could be criticized on any number <strong>of</strong> levels, butpr<strong>of</strong>essional economists could not conceive <strong>of</strong> abandon<strong>in</strong>g theconcept <strong>in</strong> its entirety. On the other hand, undergraduate studentswho were probably leery <strong>of</strong> the concepts <strong>of</strong> natural monopoly andpublic-goods theory to beg<strong>in</strong> with were open to <strong>Hoppe</strong>’s criticisms,and many even accepted them. Indeed, I th<strong>in</strong>k that most <strong>of</strong>the students welcomed the opportunity to be exposed to this radicalalternative, with several <strong>of</strong> them embrac<strong>in</strong>g it <strong>in</strong> its entirety.The lesson here, I believe, is that Austrian economics shouldnot proceed <strong>in</strong> a manner solely to ga<strong>in</strong> acceptance among ma<strong>in</strong>streameconomists. That is not to say that Austrians should withdrawfrom debates and not engage with other economists—farfrom it. L<strong>in</strong>es <strong>of</strong> communication and debate should be ma<strong>in</strong>ta<strong>in</strong>edand discussions about commonalities and disagreements withother schools <strong>of</strong> economic thought should go forward, as is thegreat tradition <strong>of</strong> the Austrian School. However, my experiencewith students suggests that the most fruitful strategy is to spread
358 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>the knowledge <strong>of</strong> the Austrian School to as wide an audience aspossible, particularly amongst those with an open m<strong>in</strong>d. The greatpractical advantage <strong>of</strong> the Austrian School is that it is a form <strong>of</strong>economic analysis that is founded <strong>in</strong> realism and helps us understandboth progress and problems <strong>in</strong> the real world. Therefore, itis a useful tool for people <strong>in</strong> the real world, but is <strong>of</strong> little use, and<strong>in</strong>deed is a threat, to ma<strong>in</strong>stream academic economists.One f<strong>in</strong>al po<strong>in</strong>t I would like to make is that, <strong>in</strong> 1989 when <strong>Hans</strong>published A Theory <strong>of</strong> Socialism and Capitalism, every textbook <strong>in</strong>comparative economic systems was obsolete because <strong>of</strong> eventssurround<strong>in</strong>g the downfall <strong>of</strong> communism. In contrast, not onlywas <strong>Hans</strong>’s book timely, but it has proven itself timeless <strong>in</strong> that itcont<strong>in</strong>ues, twenty years later, to be as relevant as ever and a classictreatise on the subject. h
35TPR, Entrepreneurial Component, andCorporate GovernanceJames D. Yohe and Scott A. KjarOne <strong>of</strong> <strong>Hans</strong> <strong>Hoppe</strong>’s most important contributions concernshis application <strong>of</strong> time preference rates to monarchical(private) government and democratic (public)government. <strong>Hoppe</strong> lays out his position <strong>in</strong> his sem<strong>in</strong>al“The Political Economy <strong>of</strong> Monarchy and Democracy, and the Idea<strong>of</strong> a Natural Order,” 1 and clarifies and extends it <strong>in</strong> pieces <strong>in</strong>clud<strong>in</strong>g“Time Preference, Government, and the Process <strong>of</strong> De-Civiliza-James Yohe (jyohe@gadsdenstate.edu) and Scott Kjar (scottakjar@yahoo.com)both studied under <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong> at the University <strong>of</strong> Nevada, LasVegas, dur<strong>in</strong>g the early 1990s, Kjar as a graduate student and Yohe as anundergraduate. They were regular members <strong>of</strong> <strong>Hoppe</strong>’s weekly discussion <strong>of</strong>current events and political topics, affectionately (and descriptively) referredto as “dr<strong>in</strong>k<strong>in</strong>g night” by its participants. Kjar and Yohe both subsequentlyearned their Ph.D.s <strong>in</strong> economics at Auburn University, with <strong>Hoppe</strong> serv<strong>in</strong>gon Yohe’s dissertation committee. Yohe is currently Economics Instructor atGadsden State College <strong>in</strong> Gadsden, Alabama. Kjar is currently Visit<strong>in</strong>g AssistantPr<strong>of</strong>essor <strong>of</strong> Economics at the University <strong>of</strong> Dallas <strong>in</strong> Dallas, Texas.Thanks to Jeff Barr and Lee Iglody for comment and discussion on this topic.1 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “The Political Economy <strong>of</strong> Monarchy andDemocracy, and the Idea <strong>of</strong> a Natural Order.” Journal <strong>of</strong> Libertarian Studies 11,no. 2 (Summer 1995).359
360 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>tion: From Monarchy to Democracy.” 2 <strong>Hoppe</strong> argues that the timepreference rates <strong>of</strong> private rulers (monarchs) will be lower than thetime preference rates <strong>of</strong> democratic rulers, ceteris paribus. This differenceis caused by each ruler’s relationship with present <strong>in</strong>comeand the present capital values <strong>of</strong> their respective realms.In this article, we extend <strong>Hoppe</strong>’s argument to the corporatesector. We argue that <strong>Hoppe</strong>’s analysis <strong>of</strong> short-term and longterm<strong>in</strong>terests vis-à-vis owners and managers can be applied toentrepreneur-managers and non-entrepreneur corporate managers.Further, we add an entrepreneurial component to <strong>Hoppe</strong>’sdiscussion <strong>of</strong> TPR to round out the differences between governmentsand corporations.PRIVATE RULERS, DEMOCRATIC RULERS,AND THE TIME PREFERENCE RATEBoth private rulers and democratic rulers generate present<strong>in</strong>come, whether from taxation, monetization, agricultural or<strong>in</strong>dustrial production from the realm’s assets, or other sources.However, only the private ruler can accrue the present capitalvalue <strong>of</strong> the realm, s<strong>in</strong>ce only the private ruler possesses an ownership<strong>in</strong> the realm. A democratic ruler possesses the realm’s assetsonly dur<strong>in</strong>g a specified term <strong>of</strong> <strong>of</strong>fice after which the ruler faces thepossibility <strong>of</strong> electoral defeat, removal from <strong>of</strong>fice due to term limits,or other restrictions on the ruler’s temporal reign.This implies that private rulers will tend to display lower discountrates <strong>in</strong> form<strong>in</strong>g decisions regard<strong>in</strong>g future endeavors. Theirpolicies will encompass longer time horizons s<strong>in</strong>ce the privateruler can expect to still rule at future times and can pass his realmon to his heir after death. By contrast, a democratic ruler will discountfuture benefits at a much higher rate that approaches <strong>in</strong>f<strong>in</strong>ityas the time horizon lengthens, both because <strong>of</strong> uncerta<strong>in</strong>ty over2 <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>, “Time Preference, Government and the Process<strong>of</strong> De-Civilization: From Monarchy to Democracy,” <strong>in</strong> John V. Denson, ed.,The Costs <strong>of</strong> War: America’s Pyrrhic Victories, 2nd ed. (New Brunswick, N.J.:Transaction Publishers, 1999).
Yohe and Kjar: TPR, Entrepreneurial Component, and Corporate Governance — 361the ruler’s tenure and also because <strong>of</strong> the ruler’s <strong>in</strong>ability tobequeath the realm to his heir. 3 <strong>Hoppe</strong> writes:The <strong>in</strong>stitution <strong>of</strong> private government ownership systematicallyshapes the <strong>in</strong>centive structure confront<strong>in</strong>gthe ruler and dist<strong>in</strong>ctly <strong>in</strong>fluences his conduct <strong>of</strong> governmentaffairs. Assum<strong>in</strong>g no more than self-<strong>in</strong>terest,the ruler tries to maximize his total wealth, i.e., the presentvalue <strong>of</strong> his estate and his current <strong>in</strong>come. He wouldnot want to <strong>in</strong>crease current <strong>in</strong>come at the expense <strong>of</strong> amore than proportional drop <strong>in</strong> the present value <strong>of</strong> hisassets. Furthermore, because acts <strong>of</strong> current <strong>in</strong>comeacquisition <strong>in</strong>variably have repercussions on presentasset values (reflect<strong>in</strong>g the value <strong>of</strong> all future expectedasset earn<strong>in</strong>gs discounted by the rate <strong>of</strong> time preference),private ownership, <strong>in</strong> and <strong>of</strong> itself, leads to economiccalculation and thus promotes farsightedness.While this is true <strong>of</strong> private ownership generally, <strong>in</strong>the special case <strong>of</strong> private ownership <strong>of</strong> government itimplies dist<strong>in</strong>ct moderation with respect to the ruler’sdrive to exploit his monopoly privilege <strong>of</strong> expropriation.43 The fact that heirs sometimes get elected to the same position <strong>in</strong> no waynegates this analysis. Further, such heirs are frequently temporally removedfrom their parents hold<strong>in</strong>g the same position. For example, John Adams didnot bequeath the presidency to his son, John Qu<strong>in</strong>cy Adams. Rather, the sonhad to wait through the presidencies <strong>of</strong> Thomas Jefferson, James Madison,and James Monroe before he had his chance. Likewise, Richard J. Daley wasMayor <strong>of</strong> Chicago from 1955 to 1976, and his son, Richard M. Daley, has beenMayor <strong>of</strong> Chicago from 1989 to the present. Aga<strong>in</strong>, though, the elder Daleydid not bequeath the position to his son, who had to wait through the mayoralregimes <strong>of</strong> Michael Blandic, Jane Byrne, Harold Wash<strong>in</strong>gton, David Orr,and Eugene Sawyer before tak<strong>in</strong>g the position. George H.W. Bush did notbequeath the <strong>of</strong>fice <strong>of</strong> the president to his son, George W. Bush, and the latterhad to wait through Bill Cl<strong>in</strong>ton’s two terms. Cl<strong>in</strong>ton did not leave the <strong>of</strong>ficeto his wife, Hillary, who unsuccessfully sought the position <strong>in</strong> 2008. In no casedid the ruler bequeath even the <strong>of</strong>fice, much less the realm, to his heir.4 <strong>Hoppe</strong>, “Time Preference,” p. 472; emphasis <strong>in</strong> orig<strong>in</strong>al.
362 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>As <strong>Hoppe</strong> makes clear, wealth-maximiz<strong>in</strong>g private owners,whether <strong>of</strong> governments or <strong>of</strong> land and capital goods, will not consciouslyreduce the present value <strong>of</strong> their assets disproportionateto <strong>in</strong>creases <strong>in</strong> current <strong>in</strong>come. In fact, if an <strong>in</strong>crease <strong>in</strong> current<strong>in</strong>come was needed that would disproportionately affect the presentvalue <strong>of</strong> the assets, a private owner would be better <strong>of</strong>f sell<strong>in</strong>gthose assets <strong>in</strong> whole or <strong>in</strong> part on the market to acquire the current<strong>in</strong>come at a less-than-disproportionate reduction <strong>in</strong> his netwealth caused by misus<strong>in</strong>g the asset.Each <strong>in</strong>centive a private ruler has to <strong>in</strong>crease current expropriationto <strong>in</strong>crease current <strong>in</strong>come is met by an <strong>in</strong>centive to decreasecurrent expropriation <strong>in</strong> order to <strong>in</strong>crease long-term <strong>in</strong>come andcapital value <strong>of</strong> the realm. However, the democratic ruler’s <strong>in</strong>centivesto <strong>in</strong>crease current expropriation are not met by dis<strong>in</strong>centivesbased on the realm’s capital value. That leads the public ruler todiscount future states more heavily.All other th<strong>in</strong>gs be<strong>in</strong>g equal, the heavier discount<strong>in</strong>g that publicrulers assess to future <strong>in</strong>come results <strong>in</strong> a reduced present value<strong>of</strong> the realm. Because a public ruler cannot sell or pass on therealm, the only accumulations to his own wealth come through<strong>in</strong>creases <strong>in</strong> current <strong>in</strong>come via taxes and other confiscatory acts.Thus, the public ruler has greater <strong>in</strong>centives for such confiscatoryactions and fewer <strong>in</strong>centives for long-term husband<strong>in</strong>g.TPR AND CORPORATE GOVERNANCEWe now apply <strong>Hoppe</strong>’s path-break<strong>in</strong>g analysis to corporategovernance. After all, if the issues <strong>of</strong> present <strong>in</strong>come and presentcapital value lead to different <strong>in</strong>centives for private rulers (owners)and public rulers (managers) <strong>of</strong> realms, it must follow that thesame issues <strong>of</strong> present <strong>in</strong>come and present capital value will leadto different <strong>in</strong>centives for entrepreneur-managers and non-ownercorporate managers <strong>of</strong> bus<strong>in</strong>esses.A private entrepreneur-manager faces a similar set <strong>of</strong> issues asdoes the private ruler. The entrepreneur-manager derives both thepresent <strong>in</strong>come <strong>of</strong> a firm and the firm’s present capital value basedon its long-term <strong>in</strong>come and asset value. This gives the privateentrepreneur-manager <strong>in</strong>centives to engage <strong>in</strong> long plann<strong>in</strong>g horizons,thereby driv<strong>in</strong>g a low time preference rate.
Yohe and Kjar: TPR, Entrepreneurial Component, and Corporate Governance — 363By contrast, the corporate manager cannot accrue the capitalvalue. The corporate manager cannot sell the corporation’s assetsfor his own enrichment. Instead, the corporate manager’s compensationis based on <strong>in</strong>creas<strong>in</strong>g the present <strong>in</strong>come <strong>of</strong> the firm, fromwhich he may generate an <strong>in</strong>creased salary. Absent an <strong>in</strong>creasedpresent <strong>in</strong>come for the firm, there is not likely to be an <strong>in</strong>creasedpresent <strong>in</strong>come for the manager. The corporate manager’s <strong>in</strong>comeis derived from his perceived benefit to the owners <strong>of</strong> the firm. Itis through his usefulness <strong>in</strong> implement<strong>in</strong>g the plans and policies <strong>of</strong>the corporate board that his employment and pay are based.In the absence <strong>of</strong> certa<strong>in</strong>ty and neutral money, trust becomesan issue, as the board cannot be expected to possess the same<strong>in</strong>formation that the manager has. This <strong>in</strong>cludes the discount rateat which the manager discounts future earn<strong>in</strong>gs. Relative to thepersonal wealth <strong>of</strong> the entrepreneur-manager, the personal wealth<strong>of</strong> a corporate manager is less tied to the future earn<strong>in</strong>g <strong>of</strong> the firm,and thus less to the long-term capital value <strong>of</strong> the firm, than itwould be if he were able to accrue the capital value as a privateowner would.Because the corporate manager is less tied to the future earn<strong>in</strong>gs,he has <strong>in</strong>centives to sell the firm’s long-term assets and usethe funds to acquire more present-<strong>in</strong>come-oriented assets. As amanager, he cannot simply sell the assets and consume the cash;all he can do is rearrange their composition to produce greateramounts <strong>of</strong> <strong>in</strong>come <strong>in</strong> the nearer future. More roundabout means<strong>of</strong> production are reversed toward less roundabout means <strong>in</strong> the<strong>in</strong>terest <strong>of</strong> more current revenue, but at the expense <strong>of</strong> the firm’slong-term capital value.This leads to corporate managers attempt<strong>in</strong>g to maximize current<strong>in</strong>come at a higher degree than they would as actual owners<strong>of</strong> a firm. This be<strong>in</strong>g the case, they also must discount future earn<strong>in</strong>gsat a higher rate relative to current <strong>in</strong>come <strong>in</strong> the same manneras a democratic ruler would relative to a monarch.UNCERTAINTY AND THE EREThe Evenly Rotat<strong>in</strong>g Economy (ERE) is a fictitious system <strong>in</strong>which market prices always co<strong>in</strong>cide with f<strong>in</strong>al prices. There areno price changes, and the same transactions are repeated day after
364 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>day; tomorrow is no different from today, which itself is the sameas yesterday. In the ERE, uncerta<strong>in</strong>ty regard<strong>in</strong>g future prices andthe available quantities <strong>of</strong> the production <strong>in</strong>puts are non-existent.The factors affect<strong>in</strong>g the supply and demand for goods and services—thetime preference rates <strong>of</strong> <strong>in</strong>dividuals—are known and donot change. Prices are stable <strong>in</strong> the ERE, and money is neutral, sothere are no changes <strong>in</strong> the exchange ratio between goods andservices caused by changes <strong>in</strong> the supply <strong>of</strong> money. 5In the ERE, because there is no uncerta<strong>in</strong>ty about the future,there is no role for entrepreneurs. Instead, natural resources, labor,and capital earn returns based on productivity and time preference.If the participants <strong>in</strong> an ERE economy have a high time preferencerate, then the returns to factors <strong>of</strong> production will also behigh at the marg<strong>in</strong>; factors will not be utilized if their return is toolow. If the participants <strong>in</strong> an ERE economy have a low time preferencerate, then the returns to factors <strong>of</strong> production will be low atthe marg<strong>in</strong> because they will be utilized for low-return<strong>in</strong>g projects.In the ERE, the rate at which each factor <strong>of</strong> production is discountedover time is equal to the market rate <strong>of</strong> <strong>in</strong>terest, and alsoto the orig<strong>in</strong>ary rate <strong>of</strong> <strong>in</strong>terest, which is derived from time preference.The orig<strong>in</strong>ary rate <strong>of</strong> <strong>in</strong>terest isthe ratio <strong>of</strong> the value assigned to want-satisfaction <strong>in</strong> theimmediate future and the value assigned to want-satisfaction<strong>in</strong> remoter periods <strong>of</strong> the future. It manifestsitself <strong>in</strong> the market economy <strong>in</strong> the discount <strong>of</strong> futuregoods as aga<strong>in</strong>st present goods. It is a ratio <strong>of</strong> commodityprices, not a price itself. There prevails a tendencytoward the equalization <strong>of</strong> this ratio for all commodities.In the imag<strong>in</strong>ary construction <strong>of</strong> the evenly rotat<strong>in</strong>geconomy, the rate <strong>of</strong> orig<strong>in</strong>ary <strong>in</strong>terest is the same for allcommodities. 6In the ERE, then, the role <strong>of</strong> the entrepreneur is strictly limitedto the <strong>in</strong>ter-temporal organiz<strong>in</strong>g <strong>of</strong> the factors <strong>of</strong> production. This5 See Ludwig von Mises, Human Action: A Treatise on Economics, ScholarsEdition (Auburn, Ala.: Ludwig von Mises Institute, 1998), pp. 245–51.6 Ibid., p. 523.
Yohe and Kjar: TPR, Entrepreneurial Component, and Corporate Governance — 365is not an entrepreneur <strong>in</strong> the normal sense <strong>of</strong> the word, s<strong>in</strong>ce realworldentrepreneurs not only organize factors but also bear theuncerta<strong>in</strong>ty <strong>of</strong> the future states. As Mises po<strong>in</strong>ts out,Under the conditions <strong>of</strong> a market economy, the rate <strong>of</strong>orig<strong>in</strong>ary <strong>in</strong>terest is, provided the assumptions <strong>in</strong>volved<strong>in</strong> the imag<strong>in</strong>ary construction <strong>of</strong> the evenly rotat<strong>in</strong>geconomy are present, equal to the ratio <strong>of</strong> a def<strong>in</strong>iteamount <strong>of</strong> money available today and the amount availableat a later date which is considered its equivalent.The rate <strong>of</strong> orig<strong>in</strong>ary <strong>in</strong>terest directs the <strong>in</strong>vestmentactivities <strong>of</strong> the entrepreneurs. It determ<strong>in</strong>es the length<strong>of</strong> wait<strong>in</strong>g time and <strong>of</strong> the period <strong>of</strong> production <strong>in</strong> everybranch <strong>of</strong> <strong>in</strong>dustry. 7Thus, it is the rate <strong>of</strong> orig<strong>in</strong>ary <strong>in</strong>terest that ERE entrepreneursuse to compare future earn<strong>in</strong>gs, hence, present values with presentearn<strong>in</strong>gs or <strong>in</strong>come.THE ROLE OF THE ENTREPRENEURIAL COMPONENTHowever, <strong>in</strong> the real world, unlike the ERE, there is a substantialamount <strong>of</strong> uncerta<strong>in</strong>ty: uncerta<strong>in</strong>ty about future demand forgoods and services, availability <strong>of</strong> factors <strong>of</strong> production, possiblechanges <strong>in</strong> the regulatory environment and the value <strong>of</strong> the currency,and much more. Such uncerta<strong>in</strong>ty leads to an important rolefor the entrepreneur.The entrepreneur uses judgment to assess future changes andto prepare for them now. To the extent that he is successful <strong>in</strong>anticipat<strong>in</strong>g and adjust<strong>in</strong>g for future changes, he is rewarded witheconomic pr<strong>of</strong>it. Economic pr<strong>of</strong>it is that received above the opportunitycost he bears. This entrepreneurial judgment extends notonly to production but also to credit. As Mises notes, “The grant<strong>in</strong>g<strong>of</strong> credit is necessarily always an entrepreneurial speculationwhich can result <strong>in</strong> failure and the loss <strong>of</strong> a part or the total amountlent. Every <strong>in</strong>terest stipulated and paid <strong>in</strong> loans <strong>in</strong>cludes not onlyorig<strong>in</strong>ary <strong>in</strong>terest but also entrepreneurial pr<strong>of</strong>it.” 87 Ibid., p. 529.8 Ibid., p. 533.
366 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Because all action, <strong>in</strong>clud<strong>in</strong>g production, takes time, all productiveactivities <strong>in</strong>volve a transaction <strong>of</strong> present goods for futuregoods. The only way one can evaluate the exchange <strong>of</strong> presentgoods and future goods is through the use <strong>of</strong> an <strong>in</strong>terest rate. Asnoted above, <strong>in</strong> the ERE, this rate is obta<strong>in</strong>ed purely through timepreference rates and is found on the market through the rate <strong>of</strong>orig<strong>in</strong>ary <strong>in</strong>terest and the <strong>in</strong>teractions between buyers and sellers<strong>of</strong> present money and future money. However, when we leave theERE, we recognize the element <strong>of</strong> uncerta<strong>in</strong>ty regard<strong>in</strong>g theexchange. Thus, we must add an entrepreneurial component to the<strong>in</strong>terest rate that is used to discount future goods <strong>in</strong>to presentgoods.In essence, the capitalist-entrepreneur is present <strong>in</strong> both equityownership and <strong>in</strong> the grant<strong>in</strong>g <strong>of</strong> loans. The capitalist-entrepreneurthat purchases capital goods directly with his own resourcesmust weight this decision aga<strong>in</strong>st all other possible uses for hisfunds. In this case, the opportunity cost <strong>of</strong> his action, ex ante, is thenext best opportunity available to him. For <strong>in</strong>stance, if one could<strong>in</strong>vest $100,000 <strong>in</strong> the production <strong>of</strong> a house that was expected tosell for $110,000 <strong>in</strong> one year, or to <strong>in</strong>vest that same $100,000 <strong>in</strong>tothe production <strong>of</strong> a car that would sell for $108,000 <strong>in</strong> one year, theopportunity cost <strong>of</strong> <strong>in</strong>vest<strong>in</strong>g <strong>in</strong> the house would be the $108,000that could have been earned by produc<strong>in</strong>g the car. In the ERE, <strong>in</strong>the absence <strong>of</strong> uncerta<strong>in</strong>ty, the orig<strong>in</strong>ary rate <strong>of</strong> <strong>in</strong>terest is equal tothe rate <strong>of</strong> return <strong>in</strong> all commodities. When we violate the certa<strong>in</strong>tyassumption <strong>of</strong> the ERE, we remove the certa<strong>in</strong>ty associated withevery day becom<strong>in</strong>g like the rest, and we remove the central po<strong>in</strong>tabout which the ERE rotates.In the presence <strong>of</strong> uncerta<strong>in</strong>ty, the capitalist-entrepreneur performstwo functions. First, it is his sav<strong>in</strong>gs that fund the productionprocess. In this sense, he acts as a capitalist. He believes thathis money will be returned to him with an additional premium:the gross market rate <strong>of</strong> <strong>in</strong>terest. The gross market rate <strong>of</strong> <strong>in</strong>terest<strong>in</strong>cludes the orig<strong>in</strong>ary rate <strong>of</strong> <strong>in</strong>terest, plus an entrepreneurialcomponent. 9 As his repayment is uncerta<strong>in</strong>, he must expect a9 The neutrality <strong>of</strong> money assumption leads to a convergence <strong>of</strong> the marketrate <strong>of</strong> <strong>in</strong>terest that reflects the underly<strong>in</strong>g orig<strong>in</strong>ary rate <strong>of</strong> <strong>in</strong>terest <strong>in</strong> society.Capitalist entrepreneurs who possess higher orig<strong>in</strong>ary rates (time preference
Yohe and Kjar: TPR, Entrepreneurial Component, and Corporate Governance — 367return that compensates him for the uncerta<strong>in</strong>ty he must deal withregard<strong>in</strong>g the repayment <strong>of</strong> the loan.The market rates on loans are not pure <strong>in</strong>terest rates.Among the components contribut<strong>in</strong>g to their determ<strong>in</strong>ationthere are also elements which are not <strong>in</strong>terest. Themoney lender is always an entrepreneur. Every grant <strong>of</strong>credit is a speculative entrepreneurial venture, the successor failure <strong>of</strong> which is uncerta<strong>in</strong>. 10Second, the entrepreneur takes on the additional task <strong>of</strong> deal<strong>in</strong>gwith several forms <strong>of</strong> uncerta<strong>in</strong>ty: the uncerta<strong>in</strong>ty associatedwith the completion <strong>of</strong> the project, the uncerta<strong>in</strong>ty regard<strong>in</strong>gfuture prices <strong>in</strong> relation to the money costs <strong>of</strong> complet<strong>in</strong>g the projectand the market, the uncerta<strong>in</strong>ty <strong>of</strong> the social and governmentalconditions that are essential to the successful completion <strong>of</strong> theproject, and the uncerta<strong>in</strong>ty <strong>of</strong> a return that exceeds the opportunitycosts associated with the project. In choos<strong>in</strong>g a project, anentrepreneur will evaluate future expected sales <strong>of</strong> his project andweigh them aga<strong>in</strong>st the opportunity costs <strong>of</strong> the resources used tocomplete them. In this sense, the entrepreneur must discountfuture earn<strong>in</strong>gs to take <strong>in</strong>to account their temporal distance fromthe present and the uncerta<strong>in</strong>ty that these revenues will occur atthe prices expected by the entrepreneur <strong>in</strong> the future. In a world <strong>of</strong>money neutrality, the entrepreneur must form an <strong>in</strong>terest ratebased on this criteria by which he can discount future earn<strong>in</strong>gs.The rate at which he discounts future earn<strong>in</strong>gs <strong>in</strong>cludes an entrepreneurialcomponent.All <strong>of</strong> this is irrelevant to the corporate manager. The corporatemanager, by not risk<strong>in</strong>g his own funds, has a very different relationshipwith future uncerta<strong>in</strong>ty. While the entrepreneur-manager(or capitalist-entrepreneur) puts up his own money and pays therates) will sell assets to capitalist-entrepreneurs with lower rates <strong>of</strong> orig<strong>in</strong>ary<strong>in</strong>terest. This sale would enable the higher-time preference capitalist-entrepreneurto <strong>in</strong>crease his current <strong>in</strong>come while not disproportionately decreas<strong>in</strong>gthe present value <strong>of</strong> the assets because it was sold to the entrepreneur withthe lower time preference rate.10 Mises, Human Action, p. 536.
368 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>opportunity cost <strong>of</strong> forego<strong>in</strong>g other <strong>in</strong>vestments with it, the corporatemanager risks noth<strong>in</strong>g. To the corporate manager, then, thediscounted future stream <strong>of</strong> revenues associated with an <strong>in</strong>vestmentis important only <strong>in</strong>s<strong>of</strong>ar as it generates his <strong>in</strong>come; he doesnot have to weigh that stream aga<strong>in</strong>st the other possible revenuestreams he could have generated with the money. Instead, becausehe cannot capitalize <strong>in</strong>creases <strong>in</strong> the present value <strong>of</strong> the firm, hiswealth can only be <strong>in</strong>creased with <strong>in</strong>creases <strong>in</strong> the present cashflows <strong>of</strong> the firm, either through <strong>in</strong>creased salaries and bonuses tohimself, or through <strong>in</strong>creased spend<strong>in</strong>g by the firm on th<strong>in</strong>gs <strong>of</strong>which he approves. His spend<strong>in</strong>g will be geared toward assets that<strong>in</strong>crease his current <strong>in</strong>come and cash flows for the firm at a higherdegree than if he were a private owner <strong>of</strong> the firm. The certa<strong>in</strong>ty <strong>of</strong>ga<strong>in</strong>s from earn<strong>in</strong>gs <strong>in</strong> the future is lessened <strong>in</strong> contrast to those hecould expect to earn if he owned the firm. Thus, the uncerta<strong>in</strong>ty <strong>of</strong><strong>in</strong>come from more distant projects is greater for the manager thanif he were the actual owner. Future earn<strong>in</strong>gs must be discounted ata higher rate by a corporate manager than by a private owner. Lesscapital accumulation and less roundabout methods <strong>of</strong> productionwill be preferred by a corporate manager relative to a privateowner, ceteris paribus.CONCLUSION:TPR, THE ENTREPRENEURIAL COMPONENT,AND CORPORATE GOVERNANCEWe have demonstrated that <strong>Hoppe</strong>’s path-break<strong>in</strong>g analysis <strong>of</strong>TPR and the dist<strong>in</strong>ction between monarchical (private) governmentand democratic (public) government can be applied to entrepreneurial(private) firms and corporate (public) firms. In both thegovernment and the firm, the private owner, whether monarch orentrepreneur, benefits from both the present current <strong>in</strong>come andthe long-term capital value <strong>of</strong> the firm’s assets. Likewise, <strong>in</strong> boththe government and the firm, the non-owner manager, whetherpublic <strong>of</strong>ficial or corporate manager, is not entitled to the longtermcapital value <strong>of</strong> the asset; all additions to the wealth <strong>of</strong> such<strong>in</strong>dividuals come from present earn<strong>in</strong>gs. This necessarily drivesdiscount rates <strong>of</strong> such non-owner managers higher relative towhat they would be for the otherwise similarly situated owner.
Yohe and Kjar: TPR, Entrepreneurial Component, and Corporate Governance — 369The uncerta<strong>in</strong>ty <strong>of</strong> benefit<strong>in</strong>g from future earn<strong>in</strong>gs decreasesthe importance <strong>of</strong> such earn<strong>in</strong>gs to corporate managers. Removalfrom their position and other factors not present to owner-entrepreneursmake future earn<strong>in</strong>gs less certa<strong>in</strong> for non-owner managers;such future earn<strong>in</strong>gs are thus discounted at a higher rate bycorporate managers. 11 This leads to a greater degree <strong>of</strong> capital consumption,as managers cannot sell assets and add the revenuesfrom such sales directly to their current <strong>in</strong>come. Instead, managerswill exchange more roundabout methods <strong>of</strong> production for lessroundabout means. h11 We do not address the measures by which corporate equity owners cantry to alleviate this problem. To do so would require the break<strong>in</strong>g <strong>of</strong> theassumption <strong>of</strong> the non-neutrality <strong>of</strong> money <strong>in</strong> the real world, which wouldlead to a further divergence <strong>of</strong> <strong>in</strong>terests from owners and managers. Rather,we choose to focus exclusively on the rates at which owners and managersdiscount earn<strong>in</strong>gs, without discuss<strong>in</strong>g the relationship between managersand actual owners <strong>of</strong> their firm. This is a different relationship, and is the subjectmatter for cont<strong>in</strong>ued work on this core issue <strong>of</strong> entrepreneurs versus managers.
Editors and ContributorsEDITORSJÖRG GUIDO HÜLSMANN (jgh@guidohulsmann.com) is Pr<strong>of</strong>essor <strong>of</strong>Economics at the Faculty <strong>of</strong> Law, Economics, and Management <strong>of</strong>the University <strong>of</strong> Angers, France; a Senior Fellow with the Ludwigvon Mises Institute; and the author <strong>of</strong> Mises: The Last Knight <strong>of</strong> Liberalism(2007) and The Ethics <strong>of</strong> Money Production (2008).STEPHAN KINSELLA (stephan@stephank<strong>in</strong>sella.com) is an attorneyand libertarian writer <strong>in</strong> Houston, and Editor <strong>of</strong> Libertarian Papers(www.LibertarianPapers.org).CONTRIBUTORSROLAND BAADER (M.Econ.; Roland-Baader@t-onl<strong>in</strong>e.de) is a privatescholar and major representative <strong>of</strong> the Austrian School <strong>in</strong> Germany,author <strong>of</strong> 15 books and hundreds <strong>of</strong> articles <strong>in</strong> newspapers,magaz<strong>in</strong>es, and scholarly journals.PHILIPP BAGUS (philipp.bagus@web.de) is assistant pr<strong>of</strong>essor <strong>of</strong>economics at the Universidad Rey Juan Carlos <strong>in</strong> Madrid.JEFFREY BARR (BarrJ@city<strong>of</strong>northlasvegas.com) practices law <strong>in</strong> LasVegas, Nevada. He studied under Murray Rothbard and <strong>Hans</strong>Herman-<strong>Hoppe</strong> <strong>in</strong> the late 1980s and early 1990s.LUIGI MARCO BASSANI (marco.bassani@unimi.it) is pr<strong>of</strong>essor <strong>of</strong>History <strong>of</strong> Political Theory at the Università di Milan, Italy.WALTER BLOCK (WalterBlock.com; wblock@loyno.edu), a long timefriend and admirer <strong>of</strong> <strong>Hans</strong> <strong>Hoppe</strong>, is Harold E. Wirth Endowed371
372 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Chair and Pr<strong>of</strong>. <strong>of</strong> Economics, College <strong>of</strong> Bus<strong>in</strong>ess, Loyola UniversityNew Orleans and a Senior Fellow <strong>of</strong> the Ludwig von MisesInstitute.HARDY BOUILLON (hardy.bouillon@publicpartners.de) teaches philosophyat the University <strong>of</strong> Trier; is Hayek Institute EndowedGuest Pr<strong>of</strong>essor at the Vienna University <strong>of</strong> Economics and Bus<strong>in</strong>ess;and is a Fellow <strong>of</strong> the International Centre for EconomicResearch (ICER) <strong>in</strong> Tur<strong>in</strong>. His books <strong>in</strong>clude Government: Servant orMaster? (1993), Libertarians and Liberalism (1997), and Ordered Anarchy(2007).JOHN V. DENSON (donna.moreman@alacourt.gov) is a CircuitJudge <strong>in</strong> Lee County, Alabama and has been closely connectedwith the Ludwig von Mises Institute s<strong>in</strong>ce it was founded. He isthe editor <strong>of</strong> two books, The Costs <strong>of</strong> War and Reassess<strong>in</strong>g the Presidencyand is the author <strong>of</strong> a third book A Century <strong>of</strong> War.THOMAS J. DILORENZO (tdilo@aol.com) is pr<strong>of</strong>essor <strong>of</strong> economicsat Loyola University-Maryland, and a Senior Fellow <strong>of</strong> the Ludwigvon Mises Institute.DOUG FRENCH (douglas<strong>in</strong>vegas@gmail.com) received his Mastersdegree <strong>in</strong> economics from the University <strong>of</strong> Nevada Las Vegasunder Murray Rothbard with Pr<strong>of</strong>essor <strong>Hoppe</strong> serv<strong>in</strong>g on his thesiscommittee. He, along with Deanna Forbush, were the benefactorsfor the publication <strong>of</strong> the second edition <strong>of</strong> <strong>Hoppe</strong>’s The Economicsand Ethics <strong>of</strong> Private Property. French is the President <strong>of</strong> theLudwig von Mises Institute <strong>in</strong> Auburn, Alabama.MARTIN FRONEK (fronek@lib<strong>in</strong>st.cz) is a resident researcher at theLiberalni Institute, Prague, focus<strong>in</strong>g on legal doctr<strong>in</strong>es. He translatedBruno Leoni’s Freedom and the Law <strong>in</strong>to Czech.SEAN GABB (sean@libertarian.co.uk), an English libertarian andconservative, is the director <strong>of</strong> the Libertarian Alliance, a Britishfree market and civil liberties th<strong>in</strong>k-tank.NIKOLAY GERTCHEV (ngertchev@gmail.com) is an economist withthe European Commission, Brussels, Belgium.DAVID GORDON (dgordon@mises.com) is a Senior Fellow at theLudwig von Mises Institute, the author <strong>of</strong> numerous books,<strong>in</strong>clud<strong>in</strong>g Resurrect<strong>in</strong>g Marx, The Philosophical Orig<strong>in</strong>s <strong>of</strong> Austrian
Editors and Contributors — 373Economics, and An Introduction to Economic Reason<strong>in</strong>g, and editor <strong>of</strong>The Mises Review.PAUL GOTTFRIED (gottfrpe@etown.edu) is Horace RaffenspergerPr<strong>of</strong>essor <strong>of</strong> Humanities at Elizabethtown College and author <strong>of</strong>Multiculturalism and the Politics <strong>of</strong> Guilt, The Strange Death <strong>of</strong> Marxism,and Conservatism <strong>in</strong> America: Mak<strong>in</strong>g Sense <strong>of</strong> the AmericanRight, and his newly published autobiography, Encounters: My Lifewith Nixon, Marcuse, and Other Friends and Teachers.JEFFREY M. HERBENER (jmherbener@gcc.edu) is pr<strong>of</strong>essor <strong>of</strong> economicsand chairman <strong>of</strong> the economics department at Grove CityCollege. He is a Senior Fellow <strong>of</strong> the Ludwig von Mises InstituteInstitute and associate editor <strong>of</strong> The Quarterly Journal <strong>of</strong> AustrianEconomics.ROBERT HIGGS (RHiggs2377@aol.com) is a Senior Fellow <strong>in</strong> PoliticalEconomy for the Independent Institute and editor <strong>of</strong> The IndependentReview: A Journal <strong>of</strong> Political Economy.JESÚS HUERTA DE SOTO (huertadesoto@dimas<strong>of</strong>t.es) is Pr<strong>of</strong>essor <strong>of</strong>Political Economy, Universidad Rey Juan Carlos, Madrid.LEE IGLODY (leeiglody@yahoo.com), an attorney <strong>in</strong> Las Vegas,completed his Bachelor <strong>of</strong> Arts <strong>in</strong> Economics with honor under theguidance <strong>of</strong> Pr<strong>of</strong>essors Murray N. Rothbard and <strong>Hans</strong>-Herman<strong>Hoppe</strong> at the University <strong>of</strong> Nevada, Las Vegas.SCOTT A. KJAR (scottakjar@yahoo.com) is Visit<strong>in</strong>g Assistant Pr<strong>of</strong>essor<strong>of</strong> Economics at the University <strong>of</strong> Dallas. He did graduatework under <strong>Hans</strong> <strong>Hoppe</strong> and Murray Rothbard at the University<strong>of</strong> Nevada, Las Vegas.PETER G. KLEIN (pkle<strong>in</strong>@missouri.edu) is Associate Pr<strong>of</strong>essor <strong>in</strong>the Division <strong>of</strong> Applied Social Sciences at the University <strong>of</strong> Missouri,Adjunct Pr<strong>of</strong>essor at the Norwegian School <strong>of</strong> Economicsand Bus<strong>in</strong>ess Adm<strong>in</strong>istration, and a Senior Fellow <strong>of</strong> the Ludwigvon Mises Institute.CARLO LOTTIERI (lottieri@tiscal<strong>in</strong>et.it) is an Italian political philosopherwith the University <strong>of</strong> Siena and Istituto Bruno Leoni whosema<strong>in</strong> <strong>in</strong>terests are <strong>in</strong> contemporary libertarian thought. Mostrecently he edited an anthology <strong>of</strong> writ<strong>in</strong>gs by Bruno Leoni, Law,
374 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Liberty and the Competitive Market (New Brunswick, N.J.: Transaction,2009).MATEUSZ MACHAJ (mateusz.machaj@mises.pl) is Instructor <strong>of</strong> economicsat the University <strong>of</strong> Wroclaw <strong>in</strong> Poland.YURI N. MALTSEV (maltsev.yuri@gmail.com) is Pr<strong>of</strong>essor <strong>of</strong> Economicsat Carthage College and a Senior Fellow <strong>of</strong> the LudwigVon Mises Institute.CHRISTIAN MICHEL (cmichel@cmichel.com) was born <strong>in</strong> Paris andis a f<strong>in</strong>ancial consultant <strong>in</strong> London and Geneva. He is president <strong>of</strong>Libertarian International.ROBERT NEF (robertnef@bluew<strong>in</strong>.ch) is Chairman <strong>of</strong> the LiberalesInstitut <strong>in</strong> Zurich, a classical liberal th<strong>in</strong>k tank.LLEWELLYN H. ROCKWELL, JR., is founder and chairman <strong>of</strong> the board<strong>of</strong> the Ludwig von Mises Institute <strong>in</strong> Auburn, Alabama, and editor<strong>of</strong> LewRockwell.com.JOSEPH T. SALERNO (salerno@mises.com) is the Academic Vice-President <strong>of</strong> the Ludwig von Mises Institute, a Pr<strong>of</strong>essor <strong>of</strong> Economics(Chair) at the Lub<strong>in</strong> School <strong>of</strong> Bus<strong>in</strong>ess at Pace University,and editor <strong>of</strong> the Quarterly Journal <strong>of</strong> Austrian Economics.EUGEN-MARIA SCHULAK (schulak@philosophische-praxis.at) is anentrepreneur serv<strong>in</strong>g as philosophical counselor <strong>in</strong> Vienna, Austria(www.philosophische-praxis.at). A university lecturer andauthor <strong>of</strong> six books, he is the director <strong>of</strong> the Department <strong>of</strong> Philosophyat the Siemens Academy <strong>of</strong> Life.JOSEF ŠÍMA (sima@vse.cz) is a pr<strong>of</strong>essor and chairman <strong>of</strong> theDepartment <strong>of</strong> Institutional Economics, University <strong>of</strong> Economics,Prague.REMIGIJUS ŠIMAŠIUS (Remigijus@lr<strong>in</strong>ka.lt) is M<strong>in</strong>ister <strong>of</strong> Justice <strong>of</strong>the Republic <strong>of</strong> Lithuania. Prior to his appo<strong>in</strong>tment to this position<strong>in</strong> December 2008, he was President <strong>of</strong> the Lithuanian Free MarketInstitute.EDWARD STRINGHAM (edward.str<strong>in</strong>gham@tr<strong>in</strong>coll.edu) is ShelbyCullom Davis Visit<strong>in</strong>g Associate Pr<strong>of</strong>essor at Tr<strong>in</strong>ity College.
Editors and Contributors — 375MARK THORNTON is a Senior Fellow at the Ludwig von Mises Instituteand Book Review Editor <strong>of</strong> the Quarterly Journal <strong>of</strong> AustrianEconomics. mthornton@mises.orgJEFFREY A. TUCKER (tucker@mises.org) is Editorial Vice President<strong>of</strong> the Ludwig von Mises Institute.FRANK VAN DUN (Frank.vanDun@Ugent.be) teaches philosophy <strong>of</strong>law at the University <strong>of</strong> Ghent. He is the author <strong>of</strong> Het FundamenteelRechtsbeg<strong>in</strong>sel (1983, 2008), a Dutch-language book thatuses argumentation ethics as the basis for a non-positivist, libertariantheory <strong>of</strong> law.JAMES YOHE (jyohe@gadsdenstate.edu) is Economics Instructor atGadsden State College <strong>in</strong> Gadsden, Alabama. He studied under<strong>Hans</strong> <strong>Hoppe</strong> and Murray Rothbard at the University <strong>of</strong> Nevada,Las Vegas. h
Index <strong>of</strong> NamesAckerman, Bruce“Law, Economics, and theProblem <strong>of</strong> Legal Culture,”128n23We the People 2: Transformation,253–55Agamben, Giorgio, 206Alles, Lakshman“Asset Securitization andStructured F<strong>in</strong>anc<strong>in</strong>g: FutureProspects and Challenges forEmerg<strong>in</strong>g Market Countries,”298n33, 299n35Altunbas, Yener“Securitization and the BankLend<strong>in</strong>g Channel,” 285n5,297n31Alvarez, Sharon“Discovery and Creation:Alternative Theories <strong>of</strong>Entrepreneurial Action,”337n33Anari, Ali“Effects <strong>of</strong> Securitization onMortgage Market Yields: ACo<strong>in</strong>tegration Analysis,The,” 285n5Aqu<strong>in</strong>as, Thomas, 210On Law, Morality, and Politics,205–06Aristotle, 266Politics, 249–50, 263–64Rhetoric, 204–05Bagus, Philipp“Quality <strong>of</strong> Money, The,”311n5Barnett, Randy E., 191n23Assess<strong>in</strong>g the Crim<strong>in</strong>al: Restitution,Retribution and the LegalProcess, 141n11“Consent Theory <strong>of</strong> Contract,A,” 179n1“Relationship between Wealthor Income and Time Preferenceis Empirical, Not Apodictic:A Critique <strong>of</strong> Rothbardand <strong>Hoppe</strong>, The,” 317n15Barnett, William“Relationship between Wealthor Income and Time Preferenceis Empirical, Not Apodictic:A Critique <strong>of</strong> Rothbardand <strong>Hoppe</strong>, The,” 317n15Barney, Jay B.“Differences between Entrepreneursand Managers <strong>in</strong>Large Organizations: Biasesand Heuristics <strong>in</strong> StrategicDecision-Mak<strong>in</strong>g,” 334“Discovery and Creation:Alternative Theories <strong>of</strong>Entrepreneurial Action,”337n33Barone, Enrico“M<strong>in</strong>istry <strong>of</strong> Production <strong>in</strong> theCollectivist State, The,”347n13Baruch, BernardBaruch: The Public Years,257n23Bastiat, Frédéric“Property and Law,” 340n2Belz, HermanAbraham L<strong>in</strong>coln, Constitutionalism,and Equal Rights <strong>in</strong> theCivil War Era, 85Benedict XVI (Pope)Jesus <strong>of</strong> Nazareth, 170n7377
378 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Bix, BrianJurisprudence: Theory and Context,122n1Blaug, Mark“Fundamental Theorems <strong>of</strong>Welfare Economics, HistoricallyConsidered, The,”301n1Block, Walter“Aga<strong>in</strong>st Fiduciary Media,”23n3, 283n1, 309n1“Alienability, Inablienability,Paternalism, and the Law:Reply to Kronman,” 130n29“Calculus <strong>of</strong> Consent Revisited,The,” 140n8“Coase and Demsetz on PrivateProperty Rights”, 123n6“Constitutional Economicsand the Calculus <strong>of</strong> Consent,”140n8Defend<strong>in</strong>g the Undefendable,145n22“Is Voluntary GovernmentPossible? A Critique <strong>of</strong> ConstitutionalEconomics,”140n8“Libertarianism, Positive Obligationsand Property Abandonment:Children’s Rights,”231n7“Radical Libertarianism: PunishmentTheory for theState,” 141n11, 141n12“Relationship between Wealthor Income and Time Preferenceis Empirical, Not Apodictic:A Critique <strong>of</strong> Rothbardand <strong>Hoppe</strong>, The,” 317n15“Roads, Bridges, Sunlight andPrivate Property: Reply toGordon Tullock,” 226n2Bod<strong>in</strong>, JeanSix Books <strong>of</strong> the Commonwealth,232n8Boeree, C. George“Abraham Maslow,” 241n10Boétie, Etienne de la, 75Böhm-Bawerk, Eugen von, 97,103, 310Capital and Interest, 147n28Karl Marx and the Close <strong>of</strong> HisSystem, 38–40Bornste<strong>in</strong>, Morris“Soviet Price System, The,”345n9Bouckaert, Boudewijn, 157n13Braun, Carlos RodríguezA Pesar Del Gobierno: 100 Críticasal Intervencionismo conNombres y Apellidos, 168n5Britt, Robert Roy“14 Percent <strong>of</strong> U.S. AdultsCan’t Read,” 29n3Buchanan, James M., 271–82Calculus <strong>of</strong> Consent: LogicalFoundations <strong>of</strong> ConstitutionalDemocracy, The, 140n8,272n1, 279“Cognition, Choice, andEntrepreneurship,” 331n17Cost and Choice: An Inquiry <strong>in</strong>Economic Theory, 272n1Journal <strong>of</strong> Constitutional Economics,279Buchanan, Patrick J.Churchill, Hitler, and the UnnecessaryWar: How Brita<strong>in</strong> LostIts Empire and the West Lostthe World, 256n21Burgess, John W., 91Burke, Edmund, 200Busenitz, Lowell W.“Differences between Entrepreneursand Managers <strong>in</strong>Large Organizations: Biasesand Heuristics <strong>in</strong> StrategicDecision-Mak<strong>in</strong>g,” 334Calhoun, JohnDisquisition on Government, A,147n27, 148n32, 278Exposition and Protest, 92
Index <strong>of</strong> Names — 379Carlstrom, Charles“Securitization: More than Justa Regulatory Artifact,”284–85n5, 289n15Carson, Kev<strong>in</strong> A.“Austrian and Marxist Theories<strong>of</strong> Monopoly-Capital: AMutualist Synthesis,” 15n1“Carson’s Rejo<strong>in</strong>ders,” 189n23Iron Fist Beh<strong>in</strong>d the InvisibleHand: Corporate Capitalism asa System <strong>of</strong> State-GuaranteedPrivilege, The, 15n1Studies <strong>in</strong> Mutualist PoliticalEconomy, 189n23Childs, RoyBig Bus<strong>in</strong>ess and the Rise <strong>of</strong>American Statism, 15n1Coase, Ronald“Nature <strong>of</strong> the Firm, The,”343n5“Problem <strong>of</strong> Social Cost, The,”123Cohen, MorrisIntroduction to Logic and ScientificMethod, An, 41Coke, Edward, 200Cole, G.D.H.Chaos and Order <strong>in</strong> Industry,347n14Economic Plann<strong>in</strong>g, 345n9,349n19Coleman, Jules, 122“Efficiency, Utility, andWealth Maximization,”124–26, 131Corlett, William S., Jr.“Availabilty <strong>of</strong> L<strong>in</strong>coln’s PoliticalReligion, The,” 81n2Crespi, Gregory Scott“Explor<strong>in</strong>g the ComplicationistGambit: An AustrianApproach to the EconomicAnalysis <strong>of</strong> Law,” 126n17Creveld, Mart<strong>in</strong> vanRise and Decl<strong>in</strong>e <strong>of</strong> the State,The, 137–48Cumm<strong>in</strong>g, Christ<strong>in</strong>e“Economics <strong>of</strong> Securitization,The,” 285n5Curti, MerleRoots <strong>of</strong> American Loyalty, The,91–92Davidson, Paul, 101Demsetz, Harold“Neglect <strong>of</strong> the Entrepreneur,The,” 333n22Denson, John V.Century <strong>of</strong> War, A, 61Derber, CharlesPursuit <strong>of</strong> Attention: Power andEgo <strong>in</strong> Everyday Life, The,239–40Di Pierro, Alberto“Cognition, Choice, andEntrepreneurship,” 331n17DiLorenzo, Thomas“Calculus <strong>of</strong> Consent Revisited,The,” 140n8“Constitutional Economicsand the Calculus <strong>of</strong> Consent,”140n8Hamilton’s Curse: How Jefferson’sArch Enemy Betrayed theAmerican Revolution—andWhat it Means for AmericansToday, 281n22“Is Voluntary GovernmentPossible? A Critique <strong>of</strong> ConstitutionalEconomics,”140n8Real L<strong>in</strong>coln: A New Look atAbraham L<strong>in</strong>coln, His Agenda,and an Unnecessary War, The,87Dimitrova, Blaga“Grass,” 221n4Dun, Frank van“Aga<strong>in</strong>st Libertarian Legalism,”230n5
380 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Dwork<strong>in</strong>, Ronald, 122“Is Wealth a Value?” 127, 131Elul, Ronel“Economics <strong>of</strong> Asset Securitization,The,” 285n5Engerman, Stanley L.Time on the Cross: The Economics<strong>of</strong> American Negro Slavery,141n13Ergungor, Emre“Securitization,” 285n5, 286n7,297n31Estlund, David M.Democratic Authority: A PhilosophicalFramework, 244–47Estrella, Arturo“Securitization and the Efficacy<strong>of</strong> Monetary Policy,”285n5, 297n30Eucken, Walter“On the Theory <strong>of</strong> the CentrallyAdm<strong>in</strong>istered Economy:an Analysis <strong>of</strong> the GermanExperiment” (Parts Iand II), 345n9, 349n19Evers, Williamson M.“Toward a Reformulation <strong>of</strong>the Law <strong>of</strong> Contracts,”193n28Fabozzi, Frank“Securitization: The Tool <strong>of</strong>F<strong>in</strong>ancial Transformation,”284n4F<strong>in</strong>etti, Bruno de“Foresight: its Logical Laws,Its Subjective Sources,”325n3Fisher, Ronald, 325Flem<strong>in</strong>g, ThomasIllusion <strong>of</strong> Victory: America <strong>in</strong>World War I, The, 255–56New Dealers’ War: F.D.R. andthe War with<strong>in</strong> World War II,The, 259n26“Three Faces <strong>of</strong> Democracy:Cleisthenes, Jefferson, andRobespierre,” 81n1Fletcher, GeorgeOur Secret Constitution: HowL<strong>in</strong>coln Redef<strong>in</strong>ed AmericanDemocracy, 83–84Flynn, John T.Roosevelt Myth, The, 258n25As We Go March<strong>in</strong>g, 14–15n1Fogel, Robert W.Time on the Cross: The Economics<strong>of</strong> American Negro Slavery,141n13Foss, Kirsten“Entrepreneurial Organization<strong>of</strong> Heterogeneous Capital,The,” 334n26, 335–36Foss, Nicolai J.“Entrepreneurial Organization<strong>of</strong> Heterogeneous Capital,The,” 334n26, 335–36“Entrepreneurship and theEconomic Theory <strong>of</strong> theFirm: Any Ga<strong>in</strong>s fromTrade?” 334n26Frame, Scott“Fuss<strong>in</strong>g and Fum<strong>in</strong>g overFannie and Freddie: HowMuch Smoke, How MuchFire?” 289n17Fraser, Donald“Effects <strong>of</strong> Securitization onMortgage Market Yields: ACo<strong>in</strong>tegration Analysis,The,” 285n5Frey, Bruno S.“Utopia? Government WithoutTerritorial Monopoly,A,” 175n12Friedman, Milton, 96, 101“Utility Analysis <strong>of</strong> ChoicesInvolv<strong>in</strong>g Risk,” 333
Index <strong>of</strong> Names — 381Fries, Sylvia D.“Staatstheorie and the NewAmerican Science <strong>of</strong> Politics,”90n15, 94Gambacorta, Leonardo“Securitization and the BankLend<strong>in</strong>g Channel,” 285n5Gamble, Richard“Reth<strong>in</strong>k<strong>in</strong>g L<strong>in</strong>coln,” <strong>in</strong> TheCosts <strong>of</strong> War: AmericanPyrrhic Victories, 85n7Garrett, Garet, 252–54Gottfried, PaulAfter Liberalism: Mass Democracyand the Managerial State,30n4Green, Richard“American Mortgage <strong>in</strong> Historicaland InternationalContext, The,” 289n17,290n18Grimes, AlanAmerican Political Thought, 91Haberler, Gottfried von, 52Habermas, Jürgen, 36, 50–51Hagel, JohnAssess<strong>in</strong>g the Crim<strong>in</strong>al: Restitution,Retribution and the LegalProcess, 141n11Hamilton, Alexander. See Index <strong>of</strong>SubjectsHauwe, Ludwig Van den“John Maynard Keynes andLudwig von Mises on Probability,”327n6Hayek, F.A., 99, 106, 149, 197, 247“Intellectuals and Socialism,The,” 45n1, 77–78Law, Legislation, and Liberty: ANew Statement <strong>of</strong> the LiberalPr<strong>in</strong>ciples <strong>of</strong> Justice and PoliticalEconomy, 167n4Hazlitt, Henry, 340Economics <strong>in</strong> One Lesson, 64, 68Hedges, Chris“America the Illiterate,” 29n3Herbener, Jeffrey M.“Calculation and the Question<strong>of</strong> Arithmetic,” 345n8“Pareto Rule and Welfare Economics,The,” 301n1Higgs, Robert“On Ackerman’s Justification<strong>of</strong> Irregular ConstitutionalChange: Is Any Vice You GetAway With a Virtue?”254n13“Complex Course <strong>of</strong> IdeologicalChange, The,” 255n15Crisis and Leviathan: CriticalEpisodes <strong>in</strong> the Growth <strong>of</strong>American Government, 14n1,30n4, 257n22Depression, War, and Cold War:Studies <strong>in</strong> Political Economy,251n5“Great Presidents?” <strong>in</strong> Aga<strong>in</strong>stLeviathan: Government Powerand a Free Society, 255n16Hilferd<strong>in</strong>g, Rudolf, 39–40Hill, Claire“Securitization: A Low-costSweetener for Lemons,”284n5Hobbes, Thomas, 272–73, 280<strong>Hoppe</strong>, <strong>Hans</strong>-<strong>Hermann</strong>“Aga<strong>in</strong>st Fiduciary Media,”23n3, 283n1, 309n1“Bank<strong>in</strong>g, Nation States andInternational Politics: ASociological Reconstruction<strong>of</strong> the Present EconomicOrder,” 283n1, 309n1, 356n5“Case for Free Trade andRestricted Immigration,The,” 24n7, 48n10“On Certa<strong>in</strong>ty and Uncerta<strong>in</strong>ty,Or: How RationalCan Our Expectations Be105n13, 300n38
382 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>“Comment on Don Lavoie,”99n6, 105n13Democracy—The God thatFailed: The Economics and Politics<strong>of</strong> Monarchy, Democracy,and Natural Order, 4n1,22–23nn1–3, 23n5, 30–31,32–34, 49n11, 55n1,75–76nn4-6, 104n12, 169n6,238, 242, 243, 267, 272–82,286n6, 317n15, 356Der Gott, die ke<strong>in</strong>er ist, 36n15Economic Science and the AustrianMethod, 74n2Economics and Ethics <strong>of</strong> PrivateProperty: Studies <strong>in</strong> PoliticalEconomy and Philosophy, The,4n1, 6, 23n4, 34n12, 38n3, 46,55n2, 128–29, 139n7, 140n9,195n33, 217n2, 352n2, 355n3,356n5Eigentum, Anarchie und Staat:Studien zur Theorie des Kapitalismus,34n11, 216n2“On Free Immigration andForced Integration,” 19n2“Government, Money, andInternational Politics,” 284n3“Government and the PrivateProduction <strong>of</strong> Defense,”24n6, 55n1“How is Fiat Money Possible?—or, the Devolution <strong>of</strong>Money and Credit,” 23n3,283n1, 309n1“In Defense <strong>of</strong> ExtremeRationalism: Thoughts onDonald McCloskey’s TheRhetoric <strong>of</strong> Economics,” 74n2,99–100, 105n13“Law and Economics,” 132n38“Limits <strong>of</strong> Numerical Probability:Frank H. Knight andLudwig von Mises and TheFrequency Interpretations,The,” 300n38, 325–37“Marxist and Austrian ClassAnalysis,” 46–47“Murray N. Rothbard: Economics,Science, and Liberty,”49n12Myth <strong>of</strong> National Defense:<strong>Essays</strong> on the Theory andHistory <strong>of</strong> Security Production,The, 55n1“Natural Order, the State, andthe Immigration Problem,”24n7“Political Economy <strong>of</strong>Monarch and Democracy,and the Idea <strong>of</strong> a NaturalOrder, The,” 359–69“Property, Causality, and Liability,”207n24“Reflections on the Orig<strong>in</strong> andthe Stability <strong>of</strong> the State,”53n18Theory <strong>of</strong> Socialism and Capitalism:Economics, Politics, andEthics, A, 4n1, 23n4, 46, 55n2,64, 139n7, 140n9,150–51nn3–4, 179n1, 181n5,182n7, 183n9, 184n13,186n15–17, 192n26, 195n33,216n2, 217n3, 228n3, 340–41,351–58“On Time Preference, Governmentand the Process <strong>of</strong> De-Civilization,” 25n8“Time Preference, Government,and the Process <strong>of</strong> De-Civilization: From Monarchto Democracy,” 359–69Hoover, Herbert. See Index <strong>of</strong>SubjectsHuerta de Soto, Jesús“Economista Liberal y laPolítica, El,” 174n10“Essence <strong>of</strong> the AustrianSchool, The,” 171n8“Liberalismo Versus Anarcocapitalismo,”161–78
Index <strong>of</strong> Names — 383Money, Bank Credit, and EconomicCycles, 166n3, 293n23Socialismo, Cálculo Económico, yFunción Empresarial, 166n2“Teoría del Nacionalismo Liberal,”175n11Hülsmann, Jörg Guido, 110“A Priori Foundations <strong>of</strong>Property Economics, The,”188n19“Aga<strong>in</strong>st Fiduciary Media,”23n3, 283n1, 309n1Ethics <strong>of</strong> Money Production, The,318n17, 322n22Logik der Währungskonkurrenz,318n17“Time Preference and InvestmentExpenditure,” 323n23“Toward a General Theory <strong>of</strong>Error Cycles,” 297n29Hume, David, 75Hummel, JeffreyEmancipat<strong>in</strong>g Slaves, Enslav<strong>in</strong>gFree Men: A History <strong>of</strong> theAmerican Civil War, 141n13Hutch<strong>in</strong>son, Terence H.“On the Theory <strong>of</strong> the CentrallyAdm<strong>in</strong>istered Economy:an Analysis <strong>of</strong> the GermanExperiment” (Parts Iand II), 345n9, 349n19Jasay, Anthony deAga<strong>in</strong>st Politics: On Government,Anarchy and Order,187–88n19, 192n26Choice, Contract, Consent: ARestatement <strong>of</strong> Liberalism,155n9“Justice as Someth<strong>in</strong>g Else”Justice and Its Surround<strong>in</strong>gs,229n4Market Socialism: A Scrut<strong>in</strong>y:This Square Circle, 171n8Jefferson, Thomas. See Index <strong>of</strong>SubjectsJevons, W.S.Theory <strong>of</strong> Political Economy,310n2Karp, WalterPolitics <strong>of</strong> War: The Story <strong>of</strong> TwoWars Which Altered Foreverthe Political Life <strong>of</strong> America,The, 255–56Kelsen, <strong>Hans</strong>, 209General Theory <strong>of</strong> Law and State,185n13Kennedy, David M.Freedom from Fear: The AmericanPeople <strong>in</strong> Depression andWar, 1929–1945, 259–60n27Keynes, John MaynardTreatise on Probability, A,326n3, 327n6K<strong>in</strong>g, Charles“Rationale for Punishment,A,” 141n11K<strong>in</strong>sella, <strong>Stephan</strong>“Aga<strong>in</strong>st Intellectual Property,”157n11, 157n13, 179n1“Blockean Proviso, The,”231n7“Book Review <strong>of</strong> Anthony deJasay Aga<strong>in</strong>st Politics,”192n26“Causation and Aggression,”182n7“Defend<strong>in</strong>g ArgumentationEthics,” 186n17, 192n26“Division <strong>of</strong> Labor as theSource <strong>of</strong> Grundnorms andRights, The,” 185n14“Empathy and the Source <strong>of</strong>Rights,” 185n14“Estoppel: A New Justificationfor Individual Rights,”141n11“How We Come To Own Ourselves,”186n17, 187n19,192n26, 217n3
384 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>“Inalienability and Punishment:A Reply to GeorgeSmith,” 141n11, 184n12“Knowledge, Calculation,Conflict, and Law,” 184n12,191n23“Legislation and the Discovery<strong>of</strong> Law <strong>in</strong> a Free Society,”191n23“Libertarian Theory <strong>of</strong> Punishmentand Rights, A,” 141n11,183n10“New Rationalist Directions <strong>in</strong>Libertarian Rights Theory,”141n11, 185n14“Ordeal <strong>of</strong> <strong>Hoppe</strong>, The,”26n10“Punishment and Proportionality:The EstoppelApproach,” 141n11, 183n10,185n14“Theory <strong>of</strong> Contracts: B<strong>in</strong>d<strong>in</strong>gPromises, Title Transfer, andInalienability, A,” 179n1,184n12, 187n18, 190n23,193n29“Thoughts on the Latecomerand Homestead<strong>in</strong>g Ideas; or,Why the Very Idea <strong>of</strong> ‘Ownership’Implies that only LibertarianPr<strong>in</strong>ciples are Justifiable,”185n13, 187n19,191n24, 192n26“The Undeniable Morality <strong>of</strong>Capitalism,” 51n17“What it Means to be an Anarcho-Capitalist,”196n34K<strong>in</strong>sley, Michael“Libertarians Ris<strong>in</strong>g,” 175n10Kirzner, Israel, 106, 305–06, 348n17Competition and Entrepreneurship,330Discovery and the CapitalistProcess, 166n1Kle<strong>in</strong>, Peter G.“Entrepreneurial Organization<strong>of</strong> Heterogeneous Capital,The,” 334n26, 335–36“Entrepreneurship and theEconomic Theory <strong>of</strong> theFirm: Any Ga<strong>in</strong>s fromTrade?” 334n26“Mundane Economics <strong>of</strong> theAustrian School, The,”334n25“Opportunity Discovery,Entrepreneurial Action, andEconomic Organization,”334n26Kle<strong>in</strong>, Sandra J.“Entrepreneurial Organization<strong>of</strong> Heterogeneous Capital,The,” 334n26, 335–36Knies, Carl, 319–20Knight, Frank H., 325–37Risk, Uncerta<strong>in</strong>ty, and Pr<strong>of</strong>it,326n4, 335n27Kolari, James“Effects <strong>of</strong> Securitization onMortgage Market Yields: ACo<strong>in</strong>tegration Analysis,The,” 285n5Kolko, Gabriel S.Railroads and Regulations, 14n1Triumph <strong>of</strong> Conservatism: ARe<strong>in</strong>terpretation <strong>of</strong> AmericanHistory 1900–1916, The, 14n1Kothari, V<strong>in</strong>odSecuritisation—The F<strong>in</strong>ancialInstrument <strong>of</strong> the Future,285n5“Securitization: The Tool <strong>of</strong>F<strong>in</strong>ancial Transformation,”284n4Kronman, Anthony, 122“Wealth Maximization as aNormative Pr<strong>in</strong>ciple,”129–30, 131Kuehnelt-Leddihn, Eric von, 6Lachmann, Ludwig, 102, 105–06Capital and Its Structure,335n29
Index <strong>of</strong> Names — 385Lange, OscarOn the Economic Theory <strong>of</strong>Socialism, 348n16Langlois, Richard N.“Subjective Probability andSubjective Economics,”329–30Len<strong>in</strong>, V.I.State and Revolution, The, 47–48Leoni, Bruno, 197–210“Appunti di filos<strong>of</strong>ia deldiritto,” 206n20Freedom and the Law, 201nn7–8Lezioni di filos<strong>of</strong>ia del diritto,209n28“Oscuritá ed <strong>in</strong>congruenzenella dottr<strong>in</strong>a kelseniana deldiritto,” 210n29Lepage, Henri, 157n13Lew<strong>in</strong>, Peter“Biography <strong>of</strong> Ludwig Lachmann(1906–1990): Life andWork,” 107n15Lieber, Francis, 89–91Manual <strong>of</strong> Political Ethics,Designed Chiefly for the Use <strong>of</strong>Colleges and Students at Law(1838–1839), 90n16L<strong>in</strong>coln, Abraham. See Index <strong>of</strong>SubjectsLocke, JohnEssay Concern<strong>in</strong>g the True Orig<strong>in</strong>,Extent and End <strong>of</strong> CivilGovernment, An, 139n7Long, Roderick T.“Easy Rider,” 231n7“Land-Locked: A Critique <strong>of</strong>Carson on Property Rights,”191n23Losurdo, DomenicoNietzsche il Ribelle Aristocratico:Biografia Intelettualle e BilancioCritico, 35Lysska, Anthony J.Aqu<strong>in</strong>a’s Theory <strong>of</strong> Natural Law:An Analytic Reconstruction,206n19Machaj, Mateusz“Market Socialism and theProperty Problem: DifferentPerspective <strong>of</strong> the SocialistCalculation Debate,” 342n4Mair, Me<strong>in</strong>hardDemokratie, Geschichte e<strong>in</strong>erpolitischen Idee von Platon bisheute, 265n2Manne, Henry G.Insider Trad<strong>in</strong>g and the StockMarket, 348n18Mariana, Juan deDe Rege et Regis Institutione,176n13Markovits, Richard S.“On the Relevance <strong>of</strong> EconomicEfficiency Conclusions,”133n42Marquès, David“Securitization and the BankLend<strong>in</strong>g Channel,” 285n5Mart<strong>in</strong>, Thomas R.“Democracy <strong>in</strong> the Politics <strong>of</strong>Aristotle,” 250n1Marx, Karl. See Index <strong>of</strong> SubjectsMaslow, Abraham. See Index <strong>of</strong>SubjectsMencken, H.L., 237–39, 242, 262The Gist <strong>of</strong> Mencken, 242n13Notes on Democracy, 237nn1–2,238n4Menger, Carl, 96–97Grundsätze der Volkswirtschaftslehre,310, 311n4Investigations <strong>in</strong>to the Method <strong>of</strong>the Social Science, 97n3, 200Problems <strong>of</strong> Economics and Sociology,97n3Mises, Ludwig von, 3–4, 6, 26, 41,50, 52, 99–100, 103, 106–07, 125,272, 307, 313–14, 319–20, 325–37Economic Calculation <strong>in</strong> theSocialist Commonwealth,342n4
386 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Human Action, 37–38, 96–97,102, 105n13, 194n30, 284n2,300n38, 311n4,313–14nn8–11, 319n18,327n6, 332nn18–19,343–44n6, 345–50,364–65nn5–8, 367n10Liberalism, 73–75, 276–77“New Contributions to theProblem <strong>of</strong> Socialist EconomicCalculation,” 346n11“Pr<strong>of</strong>it and Loss,” <strong>in</strong> Plann<strong>in</strong>gfor Freedom, 334n24Socialism, 319n18, 342n4Theory and History, 106n15,198, 202nn10–12, 204n14Theory <strong>of</strong> Money and Credit,The, 284n2, 310, 319–20n18Mises, Richard von, 325–37Probability, Statistics and Truth,325n2, 328n9, 329nn11–12Mittermaier, KarlDemokratie, Geschichte e<strong>in</strong>erpolitischen Idee von Platon bisheute, 265n2Mol<strong>in</strong>ari, Gustav de, 166Moore, StephenIt’s Gett<strong>in</strong>g Better All the Time:100 Greatest Trends <strong>of</strong> the Last100 Years, 28–31Mundell, Robert, 101Nahmen, Deana van“Securitization <strong>of</strong> Hous<strong>in</strong>gF<strong>in</strong>ance, The,” 289n17Narveson, Jan“Anarchist’s Case, The:Respect<strong>in</strong>g Persons <strong>in</strong> Theoryand Practice,” 196n34Neyman, Jerzy, 325Niebuhr, Barthold Georg, 200Nietzsche, Friedrich, 35Nisbet, RobertTwilight <strong>of</strong> Authority, 104n12Novak, Michael“Economics as Humanism,”134n43O’Driscoll, GeraldEconomics <strong>of</strong> Time and Ignorance,The, 327n5Parr<strong>in</strong>gton, Vernon L.Ma<strong>in</strong> Currents <strong>in</strong> AmericanPolitical Thought: An Interpretation<strong>of</strong> American Literaturefrom the Beg<strong>in</strong>n<strong>in</strong>gs to 1920,The Romantic Revolution <strong>in</strong>America (1800–1860), 90–91Pat<strong>in</strong>k<strong>in</strong>, DonMoney, Interest, and Prices, 102Paul, Ron, 145n21Pearson, Egon, 325Perelmen, Chaïm, 206–09Justice, Law and Argument.<strong>Essays</strong> on Moral and LegalReason<strong>in</strong>g, 207nn22–23PlatoRepublic, 86Pochmann, Henry A.German Culture <strong>in</strong> America,1600–1900: Philosophical andLiterary Influences, 90n14Polanyi, MichaelLogic <strong>of</strong> Liberty, The, 201–02n9Popper, KarlOpen Universe: An Argumentfor Indeterm<strong>in</strong>ism, The, 150Posner, Richard, 122–34“Cost-Benefit Analysis: Def<strong>in</strong>ition,Justification, andComment on ConferencePapers,” 132–33Economic Analysis <strong>of</strong> Law,123–24Economics <strong>of</strong> Justice, The,127–28, 131“Efficiency Norms,” 130n31“Ethical and Political Basis <strong>of</strong>the Efficiency Norm <strong>in</strong> CommonLaw Adjudication,The,” 124n9Overcom<strong>in</strong>g Law, 132
Index <strong>of</strong> Names — 387“Utilitarianism, Economics,and Legal Theory,” 130n30,131n32Postrel, Virg<strong>in</strong>ia, 30–32Future and Its Enemies, The,31nn7–8Powell, JimWilson’s War: How WoodrowWilson’s Great Blunder Led toHitler, Len<strong>in</strong>, Stal<strong>in</strong> & WorldWar II, 256n21Pozdena, Randall“Securitization and Bank<strong>in</strong>g,”284n5Prychitko, David L.“Thoughts on Austrian Economics,‘Austro-Punkism,’and Libertarianism,” <strong>in</strong>Markets, Plann<strong>in</strong>g and Democracy:<strong>Essays</strong> After the Collapse<strong>of</strong> Communism, 95–96n2Radnitzky, Gerard“Def<strong>in</strong>ition,” 153n5Rand, Ayn, 267Atlas Shrugged, 146Ayn Rand Lexicon: Objectivismfrom A to Z, The, 215n1“Galt’s Speech” For the NewIntellect, 182“Patents and Copyrights,” <strong>in</strong>Capitalism: The UnknownIdeal, 157n12Rawley, James A.Politics <strong>of</strong> Union: Northern Politicsdur<strong>in</strong>g the Civil War, The,93n23Redford, James“Jesus Is an Anarchist,” 170n7Rizzo, MarioEconomics <strong>of</strong> Time and Ignorance,The, 327n5“Law amid Flux: The Economics<strong>of</strong> Negligence and StrictLiability <strong>in</strong> Tort,” 125,126n19Rockwell, Llewellyn H., 3–6,238–39Free Market Reader, The, 64Roosevelt, Frankl<strong>in</strong>. See Index <strong>of</strong>SubjectsRothbard, Murray N., 4, 6, 26, 45,49, 63, 67, 103, 157n13, 164,176n14, 197, 272, 307“Anatomy <strong>of</strong> the State,” 140n9“Buchanan and Tullock’s TheCalculus <strong>of</strong> Consent,” 140n8Diritto, natura e ragione. Scritti<strong>in</strong>editi versus Hayek, Mises,Strauss e Polanyi, 199n5Ethics <strong>of</strong> Liberty, The, 26n9, 79,139n7, 140n9, 141n12,147n29, 180n2, 183n9,193n28, 210n31“‘Human Rights’ as PropertyRights,” 180n2“Hermeneutical Invasion <strong>of</strong>Philosophy and Economics,The,” 99n6“In Defense <strong>of</strong> ‘Extreme Apriorism’,“ <strong>in</strong> The Logic <strong>of</strong>Action One, 198–99n4“Left and Right: The Prospectsfor Liberty,” 14n1Man, Economy, and State, 68,102, 311–21For a New Liberty: The LibertarianManifesto, 76n7, 140n9,141n12, 180n2, 183n9, 198n2Power and Market: Governmentand the Economy, 32, 140n9“Preface” to Mises, Theory andHistory, 208n25“Present State <strong>of</strong> AustrianEconomics, The,” 106–07“Symposium on Relativism: ACritique, The,” 199n5“Toward a Reconstruction <strong>of</strong>Utility and Welfare Economics,”124n10, 302–04“War Collectivism <strong>in</strong> WorldWar I,” 14n1
388 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>What Has Government Done toOur Money?, 284n2Rouwenhorst, K. Geert“Orig<strong>in</strong>s <strong>of</strong> Mutual Funds,The,” 289n16Salerno, Joseph T.“Ludwig von Mises as SocialistRationalist,” 342n4, 344n7“Ludwig von Mises on Inflationand Expectations,”106n15Samolyk, Kather<strong>in</strong>e“Securitization: More than Justa Regulatory Artifact,”284–85n5, 289n15Savage, Leonard“Utility Analysis <strong>of</strong> ChoicesInvolv<strong>in</strong>g Risk,” 333Schackle, G.L.S.Decision, Order, and Time <strong>in</strong>Human Affairs, 328n7Schmidtchen, Dieter“Time, Uncerta<strong>in</strong>ty, and Subjectivism:Giv<strong>in</strong>g More Bodyto Law and Economics,”128n23Schmoller, Gustav, 111Schrenk-Notz<strong>in</strong>g, Caspar vonCharakterwäsche: Die Politik deramerikanischen Umerziehung<strong>in</strong> Deutschland, 36Schultz, Arthur R.German Culture <strong>in</strong> America,1600–1900: Philosophical andLiterary Influences, 90n14Schultz, T.W.“Investment <strong>in</strong> EntrepreneurialAbility,” 333Schumpeter, Joseph A.Capitalism, Socialism andDemocracy, 251–53Schwarcz, Steven“Alchemy <strong>of</strong> Asset Securitization,The,” 284n5, 299n35Sellon, Gord<strong>in</strong>“Securitization <strong>of</strong> Hous<strong>in</strong>gF<strong>in</strong>ance, The,” 289n17Shaffer, ButlerIn Restra<strong>in</strong>t <strong>of</strong> Trade: The Bus<strong>in</strong>essCampaign Aga<strong>in</strong>st Competition,1918–1938, 14n1Shapiro, IanFlight from Reality <strong>in</strong> theHuman Sciences, The, 131Sigmund, Paul E.Natural Law <strong>in</strong> PoliticalThought, 208n26, 210n30Šíma, Josef“Praxeology as Law & Economics,”122n2Simon, Julian L.It’s Gett<strong>in</strong>g Better All the Time:100 Greatest Trends <strong>of</strong> the Last100 Years, 28–31Smith, Adam, 189n22, 310Theory <strong>of</strong> Moral Sentiments,The, 181n5Smith, Neel“Democracy <strong>in</strong> the Politics <strong>of</strong>Aristotle,” 250n1Spooner, LysanderNo Treason: The Constitution <strong>of</strong>No Authority, 140n9St<strong>in</strong>nett, Robert B.Day <strong>of</strong> Deceit: The Truth aboutFDR and Pearl Harbor, 259n26Str<strong>in</strong>gham, Edward“Economic Analysis <strong>of</strong> TortLaw: Austrian and KantianPerspectives,” 122n3“Kaldor-Hicks Efficiency andthe Problem <strong>of</strong> Central Plann<strong>in</strong>g,”125“Market Chosen Law,” 56n3Stromberg, Joseph“Political Economy <strong>of</strong> LiberalCorporatism,” 15n1“Role <strong>of</strong> State Monopoly Capitalism<strong>in</strong> the AmericanEmpire, The,” 15n1
Index <strong>of</strong> Names — 389Stuart, Jennifer F.“Democracy <strong>in</strong> the Politics <strong>of</strong>Aristotle,” 250n1Taylor, Fred M.On the Economic Theory <strong>of</strong>Socialism, 348n16“Guidance <strong>of</strong> Production <strong>in</strong> aSocialist State, The,” 349n19Telpner, Joel“Securitisation Primer for FirstTime Issuers, A,”288–89nn12–14Thornton, Mark“Slavery, Pr<strong>of</strong>itability and theMarket Process,” 141n13T<strong>in</strong>sley, Patrick“Causation and Aggression,”182n7Tucker, Jeffrey“Ordeal <strong>of</strong> <strong>Hoppe</strong>, The,”26n10Tullock, GordonCalculus <strong>of</strong> Consent: LogicalFoundations <strong>of</strong> ConstitutionalDemocracy, The, 140n8, 272n1,279Unterköfler, Herbert, 114Vaughn, Karen I.“Rebirth <strong>of</strong> Austrian Economics:1974–99, The,” 107n15Victor, GeorgePearl Harbor Myth: Reth<strong>in</strong>k<strong>in</strong>gthe Unth<strong>in</strong>kable, The, 259n26Vorenberg, MichaelF<strong>in</strong>al Freedom: The Civil War,the Abolition <strong>of</strong> Slavery, andthe Thirteenth Amendment,91n20Wachter, Susan“American Mortgage <strong>in</strong> Historicaland InternationalContext, The,” 289n17,290n18Walker, Jesse“New Frankl<strong>in</strong> Roosevelts:Don’t Count on a Candidate’sCampaign Stances toTell You How He’ll Behave<strong>in</strong> Office, The,” 257–58Wash<strong>in</strong>gton, George. See Index <strong>of</strong>SubjectsWeaver, PaulSuicidal Corporation: How BigBus<strong>in</strong>ess Fails America, The,14n1White, Lawrence“Fuss<strong>in</strong>g and Fum<strong>in</strong>g overFannie and Freddie: HowMuch Smoke, How MuchFire?” 289n17White, Mark“Economic Analysis <strong>of</strong> TortLaw: Austrian and KantianPerspectives,” 122n3Wicksteed, Philip, 103Wilson, Woodrow. See Index <strong>of</strong>SubjectsWood, Philip R.Title F<strong>in</strong>ance, Derivatives, Securitisations,Set-<strong>of</strong>f and Nett<strong>in</strong>g,289n14Yiannopoulos, A.N.Louisiana Civil Law Treatise,180–81n4Property, 180–81n4, 188n20,192n25Zipursky, Benjam<strong>in</strong>, 122“Pragmatic Conceptualism,”129
Index <strong>of</strong> SubjectsABSs. See asset-backed securitiesacquisition <strong>of</strong> property, 187–94,306–07See also homestead<strong>in</strong>g pr<strong>in</strong>cipleAction Axiom, 97Adams, John, 81aggressionappropriate response to,139–43def<strong>in</strong>ition, 180, 183homestead<strong>in</strong>g pr<strong>in</strong>ciple and,208<strong>in</strong>terventionism and, 356n3justification for, 175–76n13property rights and, 180–84,194–96, 224, 228–29statism and, 166voluntary bonds and, 220See also non-aggression pr<strong>in</strong>cipleAmerican Far West, 163American War Between the States,82–94, 275–76anarchism. See libertarianismanarcho-capitalismcontrast with statism, 161–71<strong>Hoppe</strong>’s views on, 45–53, 150private property and, 75, 172Spanish anarchist tradition,176–78as system <strong>of</strong> social cooperation,171–78Appenzell “Landsgeme<strong>in</strong>de,”265–67appropriation <strong>of</strong> unownedresources, 187–94, 224See also homestead<strong>in</strong>g pr<strong>in</strong>ciplearistocratic radicalism, 35army. See military forcesArticles <strong>of</strong> Confederation, 4asset-backed securities (ABSs),287–91, 298–300assetsattributes <strong>of</strong>, 335–36time preference rates and,362–63, 368–69Athens, democracy <strong>in</strong>, 263–65attributes <strong>of</strong> assets, 335–36Austria, bus<strong>in</strong>ess ethics and, 110,113–16Austrian School <strong>of</strong> economicsanarcho-capitalism and, 45bus<strong>in</strong>ess cycle theory <strong>of</strong>, 23comparison to Chicago School,79def<strong>in</strong>ition, 96–98development <strong>of</strong>, 95–108education and, 102–04, 357–58<strong>Hoppe</strong> as proponent <strong>of</strong>, ix–xi,27, 32, 45, 49, 73Law and Economics movementand, 122–34, 329law and <strong>in</strong>tentionality, 207–08methodological subjectivism<strong>of</strong>, 326monetary theory <strong>of</strong>, 310–16,319, 324natural law and, 199–200notion <strong>of</strong> heterogeneity,335–36rationalism and, 49social theory <strong>of</strong>, 280–82socialism and, 166–68Austro-punkism, 98–108authoritynatural order and, 33–34, 238over th<strong>in</strong>gs, 181, 188391
392 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong><strong>of</strong> states, 33, 244–47, 281See also property rightswith<strong>in</strong> society, 104–05bank<strong>in</strong>g, 283–84, 292–300nationalization <strong>of</strong>, 92–93production <strong>of</strong> money and,318–19securitization and, 283–84,292–300statism and, 166barter economy, 124–26Bayes law, 329beliefs, 327Berl<strong>in</strong> Wall, 175, 351, 357Bill <strong>of</strong> Rights, 83bodies, self–ownership <strong>of</strong>, 130–33,182–86, 206, 223–24bonds, 215, 220–21boom-bust cycles, 283–85,297–300, 323bus<strong>in</strong>ess cyclescredit expansion and, 23demand for money and,318–24securitization and, 283–85bus<strong>in</strong>ess ethics, 110–20capital goods, 335–36capital heterogeneity, 335–36capitalismbus<strong>in</strong>ess ethics and, 117comparison to socialism, 43,46, 183n9, 339–50, 351–58corporations and, 9–14economic calculation and,342–50libertarianism and, 180, 183See also anarcho-capitalism;entrepreneurshipcase probability, 327central banks, 283–84, 294–96,318–19Chicago School <strong>of</strong> economics, 79,101, 103Ch<strong>in</strong>a, 351, 357Christianity, 35, 88, 197Civil War, 82–94, 275–76civilizationdecl<strong>in</strong>e <strong>of</strong>, 272–75libertarian view <strong>of</strong>, 193–96class analysis, 147–48, 278class probability, 327CMOs. See collateralized mortgageobligationsco-determ<strong>in</strong>ation, 267–68Cold War, 8–9, 351collateralized mortgage obligations(CMOs), 290collectivism, 346–48, 355–56See also socialismcommands, 218–19commodity monies, 316–18,321–24common law, 165, 198communismcorporations and, 13–14exploitation and, 47–48libertarianism and, 8–9,176–77victims <strong>of</strong>, 51See also Marxism; socialismcompetitionbetween local governments,275<strong>in</strong> politics, 238under socialism, 345–50conscription, 184consent to be governedauthority <strong>of</strong> state and, 245See also public choice theoryconstitutional government and,277–79illusion <strong>of</strong> <strong>in</strong> democracy,253–62conservativesdemocratic <strong>in</strong>fluence <strong>in</strong> Germany,36libertarianism and, 8–10,15–20
Index <strong>of</strong> Subjects — 393public choice theory and, 275socialism and, 354Constitution, U.S.Abraham L<strong>in</strong>coln and, 83–86,91–94amendments to, 253, 278comparison to Articles <strong>of</strong> Confederation,4democracy and, 250oppos<strong>in</strong>g views <strong>of</strong> Jeffersonand Hamilton, 280–81constitutions, 280–81contracts, 214, 219corporations, 9–14, 362–63, 367–69creativity, 157, 163–164, 166, 167,172–74credit expansion, 14, 22–23,299–300credit <strong>in</strong>surance, 299–300credits, 285–96crime<strong>of</strong> communism, 48democracy and, 242, 272–75prevention <strong>of</strong>. See securityprivate courts and, 201property rights <strong>of</strong> self and,184n12<strong>of</strong> statism, 137–48customs, 203, 206, 213–14debts<strong>of</strong> corporations, 10–11<strong>of</strong> governments, 113, 274securitization and, 286–88,292–94, 297, 300to victims <strong>of</strong> crimes, 141n13decision mak<strong>in</strong>g, 329–33See also entrepreneurial judgmentdecivilization, 272–75Declaration <strong>of</strong> Independence, 5defenseaga<strong>in</strong>st aggressors, 139aga<strong>in</strong>st government <strong>in</strong>tervention,273private provision <strong>of</strong>, 24, 32,173state provision <strong>of</strong>, 165, 280See also securitydeficit spend<strong>in</strong>g, 274democracyconsent to government actionand, 253–62elected <strong>of</strong>ficials and, 249–52Germany and, 36immigration and, 18–19, 31–32justification <strong>of</strong>, 243–47majority rule and, 263–68monarchies and, 5, 23–24,33–34, 239, 274as nationalization, 5natural order and, 237–42public choice theory and,271–82social-democracy, 354socialism and, 47–49time preference rates and,359–62demonstrated preference, 302–03direct democracy, 264–67division <strong>of</strong> laboreconomic growth and, 310economics versus politics, 264<strong>of</strong> entrepreneurs, 342–44, 350drugs, 184economic calculation, 342–50economic organization, 334–37economic systems, 351–58See also specifice systems, e.g.,captitalism, socialismeconomics, schools <strong>of</strong>. See AustrianSchool <strong>of</strong> economics;Chicago school <strong>of</strong> economicseducationAustrian School <strong>of</strong> economicsand, 102–04, 357–58democracy and, 49ethics and, 22libertarianism and, 76, 175
394 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>as sign <strong>of</strong> improvement, 28–29state provision <strong>of</strong>, 17, 164, 168efficiency <strong>in</strong> law, 124–26, 133elected <strong>of</strong>ficials, 237–42, 251–53,274electronic money, 318encirclement, 224–29entrepreneurial judgment, 326–27,330–37, 365entrepreneurshipanarcho-capitalism and, 174comparison to socialism,348–50spontaneous order and,163–64time preference rates and,362–69uncerta<strong>in</strong>ty and, 331–37voluntary collectivism and,355See also capitalismenvironmentalismpolylogism and, 37–38, 40statism’s effect on, 167equalityAbraham L<strong>in</strong>coln and, 81left-libertarians and, 30–31ERE. See evenly rotat<strong>in</strong>g economyethicsbus<strong>in</strong>ess and, 110–20<strong>of</strong> economic systems, 46, 353,355–57elected <strong>of</strong>ficials and, 237private property and, 23, 195self-actualizers and, 241wealth maximization pr<strong>in</strong>cipleand, 132–33See also grundnorms; morality;normsevenly rotat<strong>in</strong>g economy (ERE),331, 363–65evolutionary law, 200exclusion costs <strong>of</strong> private goods,155exploitationclass analysis and, 147–48, 278<strong>in</strong>dividuals’ protection from,83Marxist theory, 46–48polylogism and, 42–44external objects, property rights<strong>of</strong>, 187–93externalities, goods and, 155–57,160, 356–57Fannie Mae, 289, 299–300feudalism, 354fiat money, 93, 284, 318–24firms, 334–37, 347, 362–69See also corporations; entrepreneurshipfound<strong>in</strong>g fathersdesign for government, 81–82,87, 94views on democracy, 250See also <strong>in</strong>dividual names, e.g.,Jefferson, Hamilton, etc.fractional reserve bank<strong>in</strong>g. Seebank<strong>in</strong>gFranz Cuhel Memorial Prize forTeach<strong>in</strong>g Excellence, 121Freddie Mac, 289, 300free marketscorporations and, 9–10def<strong>in</strong><strong>in</strong>g libertarianism, 180effects <strong>of</strong> New Deal on, 258encirclement and, 226external effects and, 356<strong>in</strong>tellectual property and, 149<strong>in</strong>terest rates and, 365monopolies and, 372Pareto optimality and, 306positive law and, 202n9public choice and, 272securitization and, 292n22See also capitalismfree movement proviso, 230–34See also right <strong>of</strong> wayfreedom as property, 223–34frequency <strong>in</strong>terpretation, 326fundamentalism, 219
Index <strong>of</strong> Subjects — 395G<strong>in</strong>nie Mae (GovernmentNational Mortgage Association),289gold, 316goodsassignment <strong>of</strong>, 124capital, 335–36entrepreneurial provision <strong>of</strong>,119money as, 319–21, 366–68ownership <strong>of</strong>, 150–60present and future, 312–21public, 352, 353, 356–57public compared to private,153–55state provision <strong>of</strong>, 162–68usage <strong>of</strong>, 159See also property rightsgovernments. See Statescomparison to states, 137–39recipients <strong>of</strong> payments from,114–19, 145–47rights and, 213, 217–18, 221See also specific forms, e.g.,democracy, monarchy, etc.Great Depression, 258–59, 290n18grundnorms, 185–86, 195See also normsHamilton, Alexander, 281heirs, 360–62hierarchy <strong>of</strong> needs, 240–41highways, 163–64Historical School <strong>of</strong> Jurisprudence,200historicism, 37hoard<strong>in</strong>g <strong>of</strong> money, 314, 322home mortgage loans, 289–91homestead<strong>in</strong>g pr<strong>in</strong>cipleencirclement and, 231exploitation and, 42<strong>in</strong>tellectual property and, 160<strong>in</strong>tentionality and, 207–08libertarian theory <strong>of</strong>, 187–94Pareto optimality and, 304–06voluntary bonds and, 212See also property rightsHoover, Herbert, 257<strong>Hoppe</strong>, <strong>Hans</strong>-<strong>Hermann</strong>, biographical<strong>in</strong>formation, ix–xi, 50–52hospitals, 164human law, 205–06, 208immaterial goods, 150–60immigration, 6, 16–19, 31–32<strong>in</strong>come, redistribution <strong>of</strong>, 304See also wealth maximization<strong>in</strong>corporation, 9–14See also corporations<strong>in</strong>dividualism, 49, 104<strong>in</strong>flation, 14, 284, 297–300<strong>in</strong>tellectual propertylibertarian views on, 157–60overview, 149–57<strong>in</strong>tentionality and law, 207–08<strong>in</strong>terestas earn<strong>in</strong>gs <strong>of</strong> capitalists, 331,334rates <strong>of</strong> and demand formoney, 312–24rates <strong>of</strong> and entrepreneurialdecisions, 364–67rates <strong>of</strong> and securitization,285–86nn5–6, 288–90, 298–99<strong>in</strong>tervention by the state, 302–07See also statism<strong>in</strong>vest<strong>in</strong>gsecuritization and, 287–92,299–300time preference and, 314–24See also sav<strong>in</strong>gsJefferson, Thomas, 81, 93judges, 123–33, 228judgment, entrepreneurial,326–27, 333–37, 365justicedef<strong>in</strong>ition, 180n3state provision <strong>of</strong>, 167See also law
396 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>Kaldor-Hicks Efficiency, 124–26,133lawcommon law, 198economic analysis <strong>of</strong>, 121–34grundnorms as, 185–86legal tender, 318natural law, 197–210positive law, 202–10state provision <strong>of</strong>, 165–66Law and Economics movement,121–34law enforcement, privatization <strong>of</strong>,55–56left-libertarianism, 104–05compared toright–libertarianism, 27–36overview, 139–42, 179–81property rights <strong>of</strong> externalgoods and, 187–96punishment theory, 139–43self–ownership and, 182–86and the State, 85–94legal realism, 201legal system. See lawlegal tender laws, 318legitimacy <strong>of</strong> states, 244–47liberalismcompared to anarcho-capitalism,171–78rights and commands, 218statism and, 161–71See also libertarianismlibertarian capitalism. See anarchocapitalismlibertarian communism, 177L<strong>in</strong>coln, Abraham, 81–94, 276loans, securitization <strong>of</strong>. See securitizationLocke, Johnmodel <strong>of</strong> civil society, 32property rights and, 187–94,196, 305–06qualities <strong>of</strong> goods, 155logic, 198–99, 206–07majority rule, 263–68, 276managers, 362–69marg<strong>in</strong>al productivity theory,331–32marg<strong>in</strong>al utility theory, 302marriages, 153, 215, 220, 221Marx, Karl, 38–43, 46–47, 92See also MarxismMarxismexploitation and, 46–48libertarianism and, 8–9polylogism and, 38–44See also communism; socialismMaslow, Abraham, 240–41material goods, 150, 158–59,187–93MBSs (mortgage-backed securities),289military forcesdemocracy and, 264<strong>in</strong> direct democracy, 266, 267private provision <strong>of</strong>, 32m<strong>in</strong>orities, 267monarchiesas conservative socialism, 354contrast with democracy, 5,23–24, 33–34, 239, 274time preference rates and,359–62moneycommodity monies, 316–18creation <strong>of</strong>, 273, 284, 293demand for, 314–24effects <strong>of</strong> securitization onsupply <strong>of</strong>, 297–300electronic, 318fiat money, 93, 166, 284,318–24hoard<strong>in</strong>g <strong>of</strong>, 314, 322paper, 318present and future, 366–68time dimension <strong>of</strong> supply,314–24monopolies, 353, 356–57moralitycommands and, 218–19economic systems and, 355–57
Index <strong>of</strong> Subjects — 397property rights and, 214–15statism’s effect on, 168, 172–73See also ethicsmortgage-backed securities(MBSs), 289mutualist occupancy, 189–90n23natural elite, 104–05, 241See also natural ordernatural law, 197–210natural money, 316–18natural order, 33–34, 238–42See also natural elitenatural rights, 46, 93, 212–13, 229Nazism, 5, 176–77, 256, 354, 370needs, hierarchy <strong>of</strong>, 240–41New Dealconsent to be governed and,253, 258–59, 261corporations and, 14non-aggression pr<strong>in</strong>ciplefreedom as property and,223–24, 229Habermas’s theories and, 51property rights and, 180–84states as violators, 139–43See also aggressionnorms, 185–86, 195, 203–04ownershipdef<strong>in</strong>ition, 188entrepreneurship and. Seeentrepreneurship<strong>of</strong> material goods, 150, 187–93monarchs and, 360–62property rights. See propertyrights<strong>of</strong> self, 130–33, 182–86, 206paper money, 318Pareto optimality, 272, 302–06patents, 158–59pensioners, 115–16, 217personal responsibility, 21–26, 274political economy, 271–82Political Economy Club, 64–65politics<strong>of</strong> Abraham L<strong>in</strong>coln, 85–93anarcho-capitalism and,174–76corporations and, 12–13democracies and, 237–42, 264f<strong>in</strong>anc<strong>in</strong>g <strong>of</strong>, 112–13, 117–18<strong>in</strong>ternational, 284polylogism, 37–44rights and, 213positive law, 202–10positivism, 207–08, 277, 354possession, 188–91, 216–17praxeologystudy <strong>of</strong> economics and,97–98, 105–06, 326study <strong>of</strong> law and, 199–208preference, demonstrated, 302–03prices<strong>in</strong> a command economy, 219controls for, 354demand for money and,315–16as determ<strong>in</strong>ed by supply anddemand, 155n10economic calculation and,331–32<strong>in</strong> evenly rotat<strong>in</strong>g economy,331, 363–65<strong>of</strong> money, 311–12socialism and, 342–46, 349–50time preference rates and,363–65, 367–68wealth maximization pr<strong>in</strong>cipleand, 124–26private propertyanarchism and, 75def<strong>in</strong>ition, 153–55, 157–58ethics and, 23libertarian communism and,177See also property rightsprobability, 325–30
398 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>pr<strong>of</strong>it and lossentrepreneurial judgment,331–37, 365–68under socialism, 345property, <strong>in</strong>tellectual. See <strong>in</strong>tellectualpropertyproperty, private. See privatepropertyProperty and Freedom Society, 53,73–74property rightsdef<strong>in</strong>ition, 180–81democracy and, 276destruction <strong>of</strong> by government,273<strong>of</strong> external objects, 187–96fiat money and, 318freedom and, 223–34<strong>in</strong>tellectual property and,150–60libertarian def<strong>in</strong>ition <strong>of</strong>,179–81possession and, 216–17self-ownership, 130–33,182–86, 206, 223–24socialism and, 353–54wealth maximization pr<strong>in</strong>cipleand, 122–23, 128–33welfare economics and, 304–07public choice theory, 251, 271–82public debt, 274public goods, 153–55, 352–53,356–57public order, 167public space, 231–34punishment for crimes, 137–48pure rate <strong>of</strong> <strong>in</strong>terest, 312–24racial issues, 40radicalism, 73–80rat<strong>in</strong>g agencies, securitization and,288, 299–300Real Estate Mortgage InvestmentConduits (REMICs), 290redistribution <strong>of</strong> <strong>in</strong>come, 304See also wealth maximizationreligionChristianity, 35, 88, 197as civil <strong>in</strong>stitution, 88–89democracy as, 249polylogism and, 43<strong>in</strong> schools, 17science and, 132statolatry as, 169–71REMICs. See Real Estate MortgageInvestment ConduitsRepublican Party, 354responsibility, personal, 21–26,274right <strong>of</strong> way, 225, 230–34See also encirclementright-libertarianism, 27–36rightsfreedom as, 229property rights. See propertyrightssummary, 211–21riskdef<strong>in</strong>ition, 326<strong>in</strong> economic decision mak<strong>in</strong>g,326roads, 163–64, 227, 231–34See also right <strong>of</strong> wayRoosevelt, Frankl<strong>in</strong> D., 257–61,356sav<strong>in</strong>gsdemand for money and,323–24securitization and, 287, 292–96scarcity <strong>of</strong> goodsexternal objects and, 187–93<strong>in</strong>tellectual property and,151–52, 157ownership, 180–81role <strong>of</strong>, 353self-ownership and, 182, 185n13secession, 175, 274–78, 281See also American WarBetween the Statessecuritizationconsequences <strong>of</strong>, 297–300
Index <strong>of</strong> Subjects — 399def<strong>in</strong>ition, rationale, andscope, 285–92operational aspects <strong>of</strong>, 292–96securityprivate provision <strong>of</strong>, 24, 32,55–56, 149, 173state provision <strong>of</strong>, 165See also defenseself-actualizers, 241self-determ<strong>in</strong>ation, 267–68self-ownership, 130–33, 182–86,206, 223–24sexism, 40silver, 316–17slaveryAbraham L<strong>in</strong>coln and, 82–83,94<strong>in</strong> Athens, 264, 266private compared with public,25self-ownership and, 184socialism and, 47–48wealth maximization pr<strong>in</strong>cipleand, 131–32social eng<strong>in</strong>eer<strong>in</strong>g, 355social security, 217social welfare, 302–07social-democracy, 354socialism, 35bus<strong>in</strong>ess ethics and, 112comparison to capitalism, 43,46, 183n9, 339–50, 351–58conservative socialism, 354def<strong>in</strong>ition, 181n5economic plann<strong>in</strong>g and,331–32exploitation and, 47–48private property and, 339–50statism and, 166, 176–77wealth maximization pr<strong>in</strong>cipleand, 127–28See also communismSoviet Union, 260, 351, 357Spanish anarchist tradition,176–78Spanish Civil War, 177Special Purpose Vehicles (SPV),287, 292n22spontaneous order, 163–64, 173See also natural orderSPV. See Special Purpose Vehiclesstatements <strong>in</strong> the sciences, 152statesauthority and legitimacy <strong>of</strong>,244–47classical liberalism and,162–72comparison to governments,137–39freedom from, 173–78<strong>in</strong>tervention and social welfare,302–07power <strong>of</strong>, 168–71use <strong>of</strong> propaganda, 356See also governmentsstatismcontrast with anarcho-capitalism,161–71as a crime, 137–48See also statesstreets, 163–64supply and demandeconomic calculation and, 332for money, 314–24Supreme Court, 92–93, 281taxesdecivilization and, 273as form <strong>of</strong> slavery, 184political f<strong>in</strong>anc<strong>in</strong>g and, 112–13public debt and, 274social-democracy and, 354work ethics and, 22term limits, 278theft, 217–18, 272–75thymology, 106, 202–08time dimension <strong>of</strong> production,310–24time preferencebus<strong>in</strong>ess ethics, 22corporations and, 362–69
400 — Property, Freedom, and Society: <strong>Essays</strong> <strong>in</strong> <strong>Honor</strong> <strong>of</strong> <strong>Hans</strong>-<strong>Hermann</strong> <strong>Hoppe</strong>decivilization and, 273, 274entrepreneurs and, 362–69Marxism and, 46private versus public rulersand, 359–62supply and demand formoney and, 314–24tranch<strong>in</strong>g, 287, 290transfer payment recipients,114–19uncerta<strong>in</strong>tydef<strong>in</strong>ition, 326role <strong>of</strong> entrepreneurs and,331–35, 363–69Union, The, 83–94, 276United Nations, 253U.S. Constitution. See Constitution,U.S.U.S. Declaration <strong>of</strong> Independence.See Declaration <strong>of</strong> IndependenceVelvet Revolution, 175Vere<strong>in</strong> für Socialpolitik, 111Verstehen, 330violenceencirclement as provocationfor, 228–29governments and, 140, 272–75justification for, 175–76n13,194–95libertarian pr<strong>in</strong>ciples and,139–40, 175–76n13socialism and, 369, 372states and, 138, 140, 165, 169,172, 177See also aggression; nonaggressionpr<strong>in</strong>ciplevoluntary collectivism, 355–56wars, 266American War Between theStates. See American WarBetween the StatesWorld War I. See World War IWash<strong>in</strong>gton, George, 81wealth maximization, 122–32welfare economics, 301–07Wilson, Woodrow, 255–56, 261,262World War I, 5, 253, 255–57World War II, 253, 259–61worship <strong>of</strong> the state, 169–71