Do Not Conflate Recognition with Justice: A Reply to Horwitz

Steve Horwitz recently issued a challenge for libertarians regarding federal recognition of same-sex marriage. I’m not opposed to the recognition, but I would stress an important caveat to not conflate such recognition with justice. Horwitz’s point of emphasis on “equality before the law” is incomplete. There is an underlying problem regarding justice that we should remain cognizant of: namely, the oft necessity of restitution.

For example, if a bully daily beats the shit out of you, the correction of this injustice is not merely the cessation of the beatings. The correction should also entail full restitution for past harm. Merely being recognized to avoid future beatings simply means the bully moves on to beat up on other targets. Full restitution on the part of the bully to fully compensate it’s victims for previous harm likely puts the bully out of business as well the institution that enabled it.

The analogy is clear. Recognition by the tax code(and/or legal code) does nothing to stop the use of the tax code to bully behavior. Recognition is not actually a correction of injustice because without restitution, the institutional pattern continues. One obvious conclusion is that recognition does not satisfy a sufficiency condition for justice.

Bastiat’s “The Law” is the libertarian guide regarding law and justice. Law is force; justice is the absence of injustice. The correction of injustice is what justice is. Hence, there can be no justice without a proper correction. In this sense, “libertarian justice” provides a “thicker” dialectic vis a vis “equality before the law” than simple procedural liberalism. Equality before the law without justice is still a libertarian violation.

We can instructively and properly apply libertarian justice to an issue that almost always seems to trip up libertarians: the “Civil Rights Act.” Libertarian opposition to this legislative act(more precisely, the Title II component) is often used to discredit the libertarian position. Frankly, I think the typical libertarian position, which usually stops at a repeal of the Jim Crow Laws and a recognition of “equality before the law,” is one that is worthy of scorn. It is an example of Equality before the law without justice. And it is a libertarian violation. The correct libertarian position, one that is rarely, if ever, articulated, would be a “Civil Reparations Act,” one that attached proper restitution with “equality before the law.” A proper restitution would not have left the corrupt institutions that enforced the “Jim Crows” unaltered and intact. The libertarian justice objection to the Title II provision is that its “injunctive relief” to enforce an equitable remedy going forward for previous State-enforced discrimination is not justice. It left the corrupt institutions intact, and then chartered these same corrupt institutions with new legal powers to treat people and property as means to enforce moral ends. It’s little wonder that a “new Jim Crow” sprang up in the immediate aftermath–the drug war–justified by the same “commerce clause” that legally sanctions the enforcement of Title II. Reinventing the law to serve moral ends as means to equitably remedy injustice is a type of libertarian violation pilloried in Bastiat’s legal treatise.

Communitarian Implications

Recognition without justice can begin to drift toward a de facto communitarian position, if you are not careful. Soon, you will begin debating the the necessary liberal constraints on recognition, which, of course, is what the debate turns to in Horwitz’s follow-up post(in this case: polygamy). Horwitz inadvertently is demonstrating Charles Taylor’s(the communitarian political philosopher) contention why liberalism suffers from a recognition problem. Horwitz is repeating Taylor’s argument:

(i) that recognition is a product of competitive mutual exchange
(ii) recognition is a recursive function of other’s recognition
(iii) recursion convergence for minority cultures, in a “classically neutral liberal system,” is “no recognition.”

Because Taylor, as a communitarian, has a more dialectical view of individual identity as a product of social context, identity is not really possible without recognition. Hence, Taylor argued that procedural liberalism could not accomodate minority identity. Horwitz, in a sense, validates Taylor’s argument. Although Horwitz doesn’t share Taylors communitarian notion of identity and self, Horwitz, nonetheless, in divorcing recognition from justice, is arguing that procedural liberalism will deny recognition to a certain set of minority identity, which thus denies “equality before the law” to same set, thus invalidating the neutrality, or the procedural rule, of “equality before the law.”

Horwitz demonstrates that the conclusion of arguing recognition on the basis of the procedural rule of “equality before the law” is the denial of the procedural rule.

Why I’m Not a Bleeding-Heart Statist

Will Wilkinson’s latest statist declaration of principles and anti-principles, with respect to liberalism and libertarianism respectively, is another attempt by Wilkinson, who has “defected” from the “label,” to use the soft underbelly of the libertarian movement as an argument for the State.

I agree that the meaning of “libertarianism,” particularly in the American political context, is incoherent. But this is largely a product of trying to make it palatable with liberal democracy–in short, rebranding the libertarian meaning of liberty as a political value. I will flatly state that there is no normative case for liberty. But this is not an argument for the State because I also include the following addendum: neither is there a normative moral duty to obey the State.

Wilkinson seems preoccupied with mutable ideological labels and public connotations of conviction syndromes interrupting his ability to eclectically define himself. But we can easily separate the wheat from the chaff. If you ascribe to a moral duty to obey the State, then you are not a libertarian. If you deny this moral obligation, then you have at least satisfied a necessary condition for libertarianism.

Simple,succinct, and to the point.

Wilkinson, of course, accepts the moral obligation of obedience to the State. The first point of Wilkinson’s defense is a denial of the NAP “anti-principle.”

Here are some not-standardly-libertarian things I believe: Non-coercion fails to capture all, maybe even most, of what it means to be free. Taxation is often necessary and legitimate.

I consider “coercion” to be a strawman argument. I’ve discussed this before on previous occasions, e.g: Free Markets and Coercion. All social interactions and contractual arrangments are coercive in the sense that they necessarily impose moral constraints on agents as pure maximizers. Non-coercion is useless as a basis for a social theory because agents are not single-variable max-min optimizers–”coercion” as the single variable–because the optimal social arangment would then be defection.

Social cooperation necessarily entails moral constraints on the part of actors. We could alternatively use the language of “personal duties.” But personal duties do not demonstrate impersonal duties, or duties to no one. In my post, I used an example of uncertainty prompting payments to third parties to insure against transactions not being mutually beneficial. A moral claim on a carpenter to be bonded and insurance payments to third parties can be superficially equated with how the market produces “coercion,” taxes, and a State tax collector–that is, until we properly distinguish between taxes,rents and economic rents. If the insurance payments are comprised of economic rent, then we would have an entrepreneurial opportunity to drive these rents to trade at opportunity costs. To abolish these rents and to treat them as “taxes” and as part of the tax code would incentivize a different type of entrepreneurial opportunity, one that would look to the tax code to create and persist artificial rents.

This was a simple economic example of how the moral constraints of social cooperation do not imply nor should imply an impersonal standardization. Almost always, an argument to impersonalize moral constraints is often a narrow self-interested one.

Wilkinson’s second point is a “principle,” namely the claim that the State has reduced violence. This is a reason why, for example, we should morally obey the State. Wilkinson appeals to Steven Pinker’s “The Better Angels of Our Nature: Why Violence Has Declined.” However, the claim of the role of the state in reducing violence can be easily questioned as an example of a “post hoc causal fallacy.” The immediate counter-problem with this claim that I would pose is to legitimately question why the liberal state is nonetheless morphing into a National Security State given it’s supposed rational role in reducing violence. If violence is at human historical lows, then why the need for CIAs, DHS, TSA,paramilitarized civilian police forces, secret police, and an unaccountable sprawling military/intelligence industrial complex? Of course, Wilkinson will simply ignore this obvious contradiction and instead can be counted on to blather on about how secure the State has made all of us while we are nonetheless forced to undergo anal cavity searches as a pre-condition to travel and buy goods/services at shopping malls.

Wilkinson’s third point of “principle” of why we should obey the state is that it legitimizes us to participate in the debate regarding “the nature and scope of specially-protected rights and liberties within the settled context of the liberal-democratic nation-state.” Of course, the historical libertarian critique is that liberalism institutionally fails to provide this “settled context of the liberal-democratic nation-state.”

In the classic sense, we can succintly define liberalism as a political system whose ends are property and whose means are liberty. I will also include the modern update that adds an ends of justice and includes redistributive means that imposes a degree of positive constraint on liberty. The liberal legal model defines a constitutional framework of decision-making rules, justified by a hypothetical “social-contract,” that defines the constraints on what is legallly recognizeable within the system. In plain language, this means that legal recognition in the pursuit of property or justice cannot violate constitutional constraints. The constitutional constraints, which are decision-making rules, define the boundary conditions.

However, as I discussed in my previous post regarding the State of Nature, legal recognition, including the constitutional boundary conditions, or decision-making rules, are market goods, whether you like it or not. Specifically, economic rent-seeking of legal recognition via a monopoly price maker becomes a source of decision-making rules–that is, it changes the boundary constraints of the system. In Virginia School Public Choice terms, the equilibrium of the Tullock rent-seeking game is a union of the Redistributive State and the Protective State(the Constitutional agency). This, for example, explains the massive empirical discrepency between the magnitude of economic rents being created by the State vs the competitive outlays investing/bidding for such rents.

To restate: this is why using the Superpower US military/Intelligence apparatus as a means to protect economic rents results in the evisceration of the primary liberal legal restraint, the “Great Writ,” and why the Federal Government, in the office of the Executive Branch, as now legally sanctioned by the legislative branch, now declares itself arbitrarily outside the constraints of civilian court due process.

Wilkinson, as a liberal, should be supremely concerned with the fundamental liberal violations posed by such things as the National Defense Authorization Act. This is an example of an ergegious violation of the supposed “settled context of the liberal-democratic nation-state.” But I haven’t read a peep from Wilkinson addressing these profound violations, not in any serious way that he, as a liberal, should be addressing given that he is quite aware that these type of violations are at the core of the libertarian political critique.

Wilkinson’s fourth point, an “anti-principle point,” is a fine example of “applied selective consistency.” Granted, I agree that there are legitimate critiques of Ron Paul’s version of libertarianism, but if Wilkinson ascribes to the principle that past violations of the messenger discredit the current message, then Wilkinson necessarily must renounce the State as messenger. We can simply appeal to David Hume who pointed out the real-world problem with “social contract theory:” historically, states weren’t rational products of hypothetical consent; rather they were the products of conquest and pillage. The State wouldn’t be where it is today, in a position to be an arbiter of “justice,” without the conquest, mass murder and pillage of it’s past. In our modern context, Wilkinson doesn’t seem too bothered by a State that killed millions of Vietnamese, bombed who knows how many Cambodians, killed and displaced more than a million Iraqis, is the only State to directly use Nuclear WMDs against a cilvilian population and directly funded the other one that used chemical WMD(Iraq), financially supports authoritarian dictaroships across the world, locks more of it’s citizens, percentage-wise, than any other country in the world, sans perhaps North Korea, engineers a racist drug war to inflicts uncountable damage globally, etc, etc, etc….Yet, Wilkinson has no problem with this State(mind you, the same State which refuses to apoligize for most of these atrocities) being an arbiter of justice; however, he is morally outraged over around five years of paleo, politically incorrect bullshit from Paul’s publishing enterprise from the early to mid 1990s. I wouldn’t quite characterize that as “decades of bilking paranoid bigots with bullshit prophesies of hyperinflationary race war. Is there any evidence of Paul’s publishing ventures printing decades(meaning twenty years or more) of race war articles or advertisements?

As a libertarian, one who doesn’t root moral outrage in communitarian recognition violations, but rather in actual moral and legal institutional injustices, particularly those injustices that persist without correction, I can’t take Wilkinson’s moral outrage and critique seriously.

Rational Expectations

In my previous post, I dicussed both the morality and rationality of voting, particuarly as it pertained to Ron Paul. The conclusion was that there was no moral obligation to vote nor one not to vote. The rationality of voting is an entirely different consideration. This calculation boils down to the following factors: (i) the importance(payoff) of the best candidate winning, (ii) the probability that your vote will change the outcome.

Tom Woods’ characterization of the problem as an easy choice between prime rib vs gruel is not correct because he is assuming away the resolution of the public good problem of recognizing the “best candidate.” If everyone recognized the actual best candidate as the best candidate, then perhaps an argument could be made for the rationality of voting; but then we would also be treading on a doctrine that would have to view voting/democracy as an efficient selection mechanism for collective action/public policy.

I doubt Woods would accept such a view of Democracy and voting. So he is really restricting his “best candidate” recognition argument to a subset of us enlightened libertarians. But this immediately lead us the problem of (ii), the likelihood that the enlightened libertarian vote could change the outcome.

As a side problem, I noted that the uncertainty introduced by the principal-agent problem of Political Parties reduces the expected payoff of the best candidate winning.

Perhaps my greatest critique of Paul is his association with the GOP agency. To me, trying to change the ideology of a party that is so throughly statist is a tremendous waste of resources. If the goal is to actually change the policy and not the party, then it would be more rational to actually run as an independent or third party. Yes, I understand the barrier of entry problem, but this problem doesn’t apply to Paul any longer. He has the name recognition and the resources to overcome the ballot qualification problem and the debate inclusion problem. Typically Paul dismisses such a suggestion with an appeal to the generalized problem: yes, most politicians would be buried by the barrier of entry problem, but Paul has likely eclipsed this limiting constraint.

A discussion of the rationality of an independent run is a separate question, but I think a discussion of the relative rationality of an independent run vs trying to convert Santorum/Gingrich/Romney/Bush voters lends itself to an easy comparative call. All we have to is examine the voting statistics from last night’s Iowa Caucus. Among registered Republicans, Paul was just an also-ran. It was the inclusion of independents and democratic voters, captured overwhelmingly by Paul, that enabled him to be competitive within the so-called “top tier.”

The Iowa Caucus also served the purpose of once again demonstrating the miscalculation of the so-called “Paleo Strategy.” Santorum, like Huckabbe 4 years earlier, was able to rise meteorically from obscurity by dominating the “evangelical epicenters” of Iowa. Paul’s best county again was Jefferson County, a haven for alternative religions such as Transcendental Meditation. As the saying goes, “ball don’t lie…”

Ron Paul and the Morality of Voting

Back in early summer, Tom Woods wrote a brief piece¹ regarding the morality of voting for Ron Paul. The tone was one of moral recommendation and not obligation, but the piece itself was logically incoherent. The structure of the argument was a non sequitor. How does showing voting for Ron Paul is rational demonstrate that voting for Ron Paul is not “consenting to the system.”? To me, there was an obvious disconnect between the premise and the conclusion. If the argument started by addressing the moral premise that voting shows consent, you have to demonstrate the falseness of the premise. A separate argument that voting for Candidate A is in your best interest does not demonstrate this. The morality of voting and the rationality of voting are two separate issues.

Woods corrected this logical flaw in a subsequent post. ² That post addressed the moral premise of voting and consent. Here, I’m in agreement with Woods. I have no idea who the “great Robert Fellner” is, but I can give the short reason why liberal political theory invalidates the voting and consent claim. Liberalism does not place the social contract in the legislature. The Social Contract sanctions the legal system, but it is not a product of it. To make a moral claim that voting demonstrates “consent,” from a social contractual stanspoint, serves to likewise validate, for example, the progressive/social democratic position that the social contract is rooted in the legislature. How many times have you heard “progressives” talk reverently about pieces of legislation, like “Social Security,” or the “New Deal,” constituting a “social contract.” This, of course, is a liberal violation, and progressives who talk like this are not liberals. But in a similar sense, anarchists who equate voting with social contractual consent, are implicitly granting social contractual sanction to the act of voting. Understand, of course, this is not an argument for a moral obligation to vote but rather an argument against any moral claim/obligation of not voting.

Once we have falsified any moral premise regarding voting–there is no moral obligation, pro or con, with respect to voting–we can turn to the rational argument. However, given that I ascribe to Rational Choice Methodology, I’m skeptical about any claims of rational demonstration of voting. Voting, from a rational choice perspective, is actually type of a “public goods” problem, implying it is rational not to vote. Put another way, there is an opportunity cost argument against determining/differentiating between who is a “good” and who is “bad,” in terms of the best candidate. If you rely on everyone acting on their own interest, then, because different people have different interests/objectives, elections likely then result in everyone being worse off. A strictly self-interested argument–that your vote matters–to the extent it motivates turnout, almost guarantees that your vote makes no difference.

Let us review Woods’ rational argument for voting for Ron Paul, and examine how that argument answers the rational choice critique against voting. Here are Woods’ reasons below:

(1) If you were stuck in a prison camp, and the guards let you vote on whether you were to have gruel or prime rib for dinner, would you be “consenting to the system” to vote for prime rib, or would you simply be doing the best you could under the circumstances to improve your material condition?

(2) Many Americans won’t consider even listening to a point of view that barely registers on the political radar screen. Whether out of intellectual laziness, cowardice, whatever, they just won’t. So it hurts us if Ron Paul gets 1% of the vote. But if he gets solid double digits, those people who might be faint of heart might realize they aren’t totally alone in supporting him, and will be more willing to do so. Yes, this is ridiculous and unjust, but that’s how it is. That’s why I think it hurts the cause of the free society not to vote for Ron Paul.

The problem is (1) establishes a principle why everyone “should” vote(improve your material condition), not just Paul voters. Everyone voting then implies a 100% turnout that guarantees Paul votes makes no difference. If you want to argue (2), you have to impose a constraint condition on (1) to produce a turnout that would perhaps allow Paul votes to matter. But this constraint would be a type of public good problem.

To demonstrate: to pit voting as a choice between (a) gruel vs (b) prime rib for dinner is the crass self-interest model. A rational agent, in the game theory sense, will not vote if that agent expects others to vote their own crass self-interest. If, however, the agent expects others the vote the best candidate, then it might be rational for that agent to invest resources to determine the best candidate to vote for and to actually vote. But there is no reason to actually expect others to invest the resources to determine the best candidate and vote the best candidate.

This type of problem perhaps suggests an agency as means of reducing uncertainty. And, of course, in this context, by agency, I mean Political Parties. But political parties introduce an obvious Principal agent problem. It is this principal agent problem that changes the payoff matrix. For example, we really have something like:

(a) gruel vs (b) (prime rib AND a kick upside the head that causes neurological damage so that you can no longer taste food)

So the reason I don’t particularly support Ron Paul is not so much because my disagreements with him on substantial issues like abortion and immigration, but rather because he is a member of the GOP. This membership substantially reduces any expected payoff because the GOP represents the kick upside the head. A Paul Admin would carry the GOP agency with it.

So, if we include Principal agent problem deductions in the expected payoff calculations for someone with a claimed high payof, such as Paul, we find that it is not rational to invest much resources in supporting Paul, given (i) the odds and (ii) the payoff is not as high as you think it is.

Of course, many may find great emotional utility in having “libertarian views” expressed on a national stage. There indeed likely value in having clear anti-war sentiment and anti-monopoly sentiment regarding money expressed on a national stage. But this is different than a moral or rational argument that demands voting for the candidate. However, Woods’ argument does not suggest obligation but merely recommendation. In this sense, there can be “gentlemenly” disagreement.

The Moral Obligation

It is Walter Block who provides us with the “moral obligation” argument regarding Paul as a “libertarian litmus test.” Block restates this litmus test in a recent article disqualifying Wendy McElroy from being a libertarian because of her refusal to support Paul’s candidacy. The best thing I can say about Block is that he clearly demonstrates the folly of treating libertarianism as a moral theory. Block introduces the moral category of “being libertarian” as some first order condition. To be a libertarian requires adherence to a first order moral condition of “being a libertarian,” which means acting in a way so as to promote liberty. Violations of this first order condition disqualify you from being a libertarian.

This kind of moral farcity is what inspires satirical comedies like, um, say, “Mozart Was a Red.” Instead now we replace Mozart with McElroy in the title and Rand with Block as our protagonist. Block sits authoritatively erect on the couch while passing out “What Would Ron Paul Do” wristbands to the tribe while earnest debate ensues regarding the the proper first order moral constraint on the number of times you should wipe your ass when you take a shit. After all, the declining marginal utility of ass wipes and the use of scare resources, such as toilet paper, suggest that deployed resources after, say, the fourth wipe would be better served–in the cause of liberty– by being redirected to Ron Paul Money bombs.

I’m not being facetious. I’m being crude to illustrate the point that “Being Libertarian” is not some libertarian moral constraint, but rather the moral foundation of a cult. “Being Libertarian” has nothing to do with the actual libertarian social problem, which is enforcing compliance to contractual arrangements. Compliance and/or the legal recognition of it, is a market good. It is not a moral good, meaning it does not serve any moral ends. A tribe of libertarians dedicated to abiding to the ends of “being libertarian” would still require a DRO mechanism to function as a social entity. How many times you wipe you ass is not an enforceable problem; put differently, you probably wouldn’t want to live in a social arrangement where it was treated as one. To extend this: you probably wouldn’t want to live in a social arrangement where Block’s first order condition was treated as a moral enforceable problem.

Here, I’m in agreement with Aschwin de Wolf who recently wrote:⁴

If you think of a libertarian society as an emergent outcome that arises from evolving social interaction between rational individuals instead of an “ideology” that requires people to conform to categorical imperatives like the non-aggression principle, a lot of the debate about the morality of voting is not useful.

In previous posts, I’ve addressed the scientific problem of moral foundations: namely, they cannot demonstrate their own consistency. Put differently, any moral foundation can be presented with a “liar’s paradox.” This includes NAP. Anyone who claims that a given moral foundation can demonstrate it’s own completeness and consistency is essentially making a totalitarian claim–meaning it can prove anything. The conclusion is that no formal moral System can trust itself.

Wendy McElroy, in past archived posts, has expressed reservations about libertarianism divorced from moral foundations. Block’s attack against her might suggest a greater reservation about the totalitarianism implied by the inevitable enforcement against a Liar’s Paradox.

¹ http://www.tomwoods.com/blog/why-even-an-anarchist-should-vote-for-ron-paul/
² http://www.tomwoods.com/blog/why-it-is-ok-to-vote-part-ii/
³ http://www.lewrockwell.com/block/block188.html
⁴ http://againstpolitics.com/2011/12/13/stefan-molyneux-on-ron-paul-and-political-action/

Essay on “The State of Nature” Part I

Liberal Failure: The Union of The Protective State and The Re-distributive State⁷

There are 2 recent articles¹ by Shikha Dalmia at Reason that jointly imply markets/property rights are what protect us from the Hobbesian “State of Nature” default condition. This is bad political philosophy. But the incorrect use of Hobbes is a common mistake. Often progressives will appeal to Hobbes to dismiss libertarianism and justify the case for social democracy. Even worse, communitarians will sometimes invoke Hobbes to explain to us why “it takes a village.”

What is this State of Nature? In liberal political philosophy it is the “defection state”(that is, a station where agents are not constrained by any cooperative bargain agreement) where agents are only constrained by their own reason and self-interest. Liberal social contract theory attempted to explain why rational agents would choose to cede away some of their own individual sovereignty(after all, in the State of Nature, agents are fully sovereign over themselves) to “contractually” form a State–i.e, a territorial enforcement mechanism with a monopoly on the legitimate use of force.

In liberal political philosophy, the social contract and political community are artificial constructs to more or less produce a public good of “security” against a compliance problem that arises out of civil society. Hence the State is an artificial construct and there is a clear division between civil society and the State. Agents surrender some of their sovereignty in exchange for this “good” of security.

For Hobbes, the compliance problem that arose from the State of Nature was one of total conflict. This view equates human self-interest with humans as pure maximizers. Any cooperative arrangement between agents suffers from a compliance problem, not to mention the problem of agents simply dismissing any pretense of cooperation–e.g., external invasion. Hence, it is rational for pure maximizers to escape this condition of total conflict by ceding much of their sovereignty over to the external authority of the Leviathan. For Hobbes, Leviathan is “Leviathan,” that is, a single ruler. Political arrangements such as representational government or democracy would not be constraining factors against pure maximizers. These latter arrangements would just end up producing a rule by a dominant political class.

However, with Locke, the State of Nature, while sub-optimal, is not a condition of total conflict. The only applicable public goods problem that emerges from Locke’s State of Nature is an enforcement of property rights. Agents agree to a social contract of the State as means to “secure” property rights. But since the State of Nature is not one of total conflict, we have constraints the external sovereign must abide by; egregious violations of these constraints make the State a worse bargain relative to the defection condition, thus giving cause for the severing of the bonds of the governance. This, of course, is the philosophical foundation behind the American Declaration of Independence.²

So, given our little review of liberal social contract theory, it should be clear why it is nonsense for Shikha Dalmia to imply that markets/property rights are what constrain a Hobbesian State of Nature–i.e., a defection state of pure maximizers. Rationally, pure maximizers cede their claims to property, in the name of the public good of security, to the authority of the external Sovereign. Security trumps property rights. In others words, if you concede the Hobbesian State of Nature, you concede any individual claim to property or property rights.

Of course, the Hobbesian State of Nature slays more than just property rights. “Social Justice” cannot stand on a foundation of a defection state of pure maximizers either. Social Justice is whatever Leviathan tells you it is, and whatever Leviathan tells you it is still a better than the defection state. Hence, there is no individual right or claim to “social justice.” Put differently, for social democrat enthusiasts, individual voting carries no moral claim against Leviathan. This explains why, in the Hobbesian model of the State of Nature, democracy is less preferable than monarchy(single rule). Since voting carries no moral claim, democracy is nothing but a sham, merely legitimizing a political class of pure maximizers.

In liberalism, voting can only carry a moral claim under an implicit presupposition that the defection state can be a preferable outcome to rule by the Sovereign. This, of course, then undercuts any Hobbesian State of Nature foundation for Social Democracy.

Libertarianism and the Hobbesian Framework
Although it’s obvious that the Hobbesian State of Nature invalidates any libertarian claims, I would nonetheless contend that the Hobbesian framework itself is the proper one to defend libertarianism. How can this be? Well, let us define it’s gist:

(i) The State is an artificial construct and there is a clear division between civil society and the State
(ii) Politics and morals are agreements between exclusively self-interested, rational agents.
(iii) For Self-interested agents it is rational to defect from an arrangement of total conflict, accepting a radical alternative, if necessary

The only real difference between Hobbes and Libertarianism is over the source of a “total conflict.” Both agree that there is a condition of total conflict. Hobbes, however, roots the total conflict in the “State of Nature;” hence the need for “Leviathan.” Libertarianism, however, shifts the total conflict to be between the civil society and the State; hence, the need for anarchism³.

Libertarianism proper differs from Locke in the sense that although there is agreement between both regarding the State of Nature not being a condition of total conflict, there is disagreement regarding the relationship between civil society and State. Libertarianism views this relationship as an inevitable condition of total war. Locke does not.

In the end, libertarianism fundamentally differentiates itself from liberalism over the problem of “security” as a public good. For libertarianism, this “public good” is the source of the “total conflict.” Liberalism, institutionally, is bound to inevitably breed a “military industrial complex, ” or a political economy of security that engulfs civil society. It is this phenomenon that birthed the radical French Liberal class theory originating from a deconstruction of the Napoleonic permanent war economy. Libertarian class theory is more or less rooted in the political economy of security as a monopoly good.

Why the Lockean State Fails
To recount: the Lockean Social Contract essentially views the role of the State as merely enforcing contractual and property arrangements that arise from civil society. These things naturally arise from “the State of Nature,” so the SoN is not the Hobbesian jungle, but nonetheless, the SoN is sub-optimal in the sense that all agents could better their position by agreeing to a bargain of a Sovereign to enforce compliance to these contractual arrangments.

The “rule of law,” then, is a rational product whose ends are the preservaton and protection of the natural liberty that emerges from civil society. To use an alternative political dialect, the rule of law enforces and preserves “natural law.”

But, we should keep in mind that while the State is a rational product, it is nonetheless an artifical construct. This simply means that it is a compliance mechanism(as a legal entity) and not itself the source of “government.” To the extent that the State becomes the source of government(not necessarily in the sense of legislatures enacting laws, but in the sense that what is to be enforced originates from the State and not from civil society), then it can rightfully be abolished.

However, I would contend that the Lockean framework vis a vis the “Rule of Law”, in the end, only preserves the compliance framework of the Liberal State and not “liberty.” And that the Liberal State inevitably approaches the total source of government.

To demonstrate this, let us begin by defining the four generic methods of the property contractual interface:

(i) the right to the exclusive use the good
(ii) the right to earn income from the good
(iii) the right to transfer the good to others
(iv) the right of the above 3 methods to be legally recognized by the enforcement regime

For a good to be considered “property,” it must implement all four methods listed above. But the one of particular interest is (iv). Property is not property without a legal recognition of (i)-(iii), but this “legal recognition,” (iv), is itself not treated as an economic good. If we return to our Lockean definition, we can exclude (iv) from the contractual interface, but this is sub-optimal.

In modern economic terms, we can employ an opportunity costs argument to easily demonstrate the non-optimality of excluding legal recognition from “property.”⁴ Hence, there is an economic rationale for “legal recognition” to be included in an implementation of property, but this “legal recognition” itself is not an economic good–at leat not in liberalism. For Locke, this legal recognition is the raison d’etre of the “social contract.”

Structurally, the interesting thing about (iv) is that undoubtedly introduces another contractual reference type into any implementation of property. The Lockean resolution essentially considers (iv) to be complementary to (i)-(iii) and moves (iv) to the Legal that extends the property contractual interface consisting of (i)-(iii). For those familar with OOP concepts, we can represent this in tems of the following pseudo-code:

interface Property {

void exclusivity();
void income();
void transfer();

}

interface Legal extends Property {

void compliance();

}

class PropertyX implements Legal {
public void exclusivity(){};
public void income(){};
public void transfer(){};
public void compliance(){};
}

Appealing to OOP again, one would point out that the purpose of extending interfaces, in regards to class implementations, is usually so as not to break existing code. This means, for example, our class PropertyX above should be able to implement Property without a violation. But we know this not be the case. For example, often that which is “legal,” and by legal we usually mean not “illegal,” becomes illegal. Occasionally, that which is illegal becomes legal. From this fact alone, we can dimiss the notion that “Legal” is complimentary or an extension of Property. Legal is, in fact, a separate interface that must be implemented by a class definition. In pseudo-code:

class PropertyX implements Property,Legal{
public void exclusivity(){};
public void income(){};
public void transfer(){};
public void compliance(){};

.
.
.
}

Legal, as a separate hierarchical contractual reference type, returns us to the question of Legal as an economic good. If we don’t treat it as one, we end up with a “social contract” bound entirely to the “Legal” without necessarily any regard to preservation of property. Certainly, in Lockean political theory, agents surrender some degree of rights to the sovereign; however , it’s clear that that “property,” in part, can be included in what is to be surrendered. Of course, with Locke, the surrendering of some degree of individual sovereignty is supposed to be for the preservation of property.

A “social contract” bound entirely to the “Legal” may be the price of civilization if there is no case for law as an economic good. But this premise can be challenged by a simple question: can agents “buy” property rights, or more specifically, legal recongnition of property rights, from our socially contracted legal entity, “the State?” The empirical observation is obviously yes. This, of course, leads to an obvious conundrum: the “social contract” bound to the legal is justified because law cannot be an economic good, but it is this social contract that allows law to become an economic good, which more or less is a statement that law is an economic good only under a condition of monopoly. That is, law is an economic good only with a monopoly “price maker,” and the Social Contract represents consent to establishing such a “price maker” to sell legal recognition. A “social contract” bound entirely to the “Legal” simply reinforces the original point made by Hobbes regarding the preference of “Leviathan.” It’s also apparent that it would likely be hard to find any historical social contract document that democratically “signed off” on a “price maker” selling legal recognition.

In modern liberal political theory, a “price maker” selling legal recognition is well-established within Public Choice. Public Choice, although typically depicted as “libertarian,” is actually not⁵. Nonetheless, the rational choice approach to agency and law provides a valuable methodological tool for socio-political analysis. But the schools of thought typically associated with Public Choice–Virginia & Chicago–are “Neo-Lockean” and not libertarian.

Neo-Lockean has a specific meaning. It refers to a methodological rational choice approach that rejects the Social Democratic notion of legal redistributive agency while nonetheless reaffirming the State’s Consitutional Agency. In short, an economic treatment of law (A) spoils social democratic redistributive agency(absent homogeneous moral foundations) (B) retains the Constitutional Agency(Protective Agency) of the State.

For example: “The Calculus of Consent,” by James Buchanan and Gordon Tullock. If we establish:

(i) symmetric sharing of gains among dominant coalitons
(ii) marketable property rights in voting(via “side payments”)

and assume:
(iii) constitutional rules are derived under conditions of generalized uncertainty

Then we can arrive at an economic treatment of law that:

(1) retains the distinction between the “protective state” and the “redistributive state”
(2) establishes legitimate decision-making rules, which impose significant decision-making costs, can only be the product of conceptual unanimity.
(3) establishes a constitutional stage “rule” where agents minimize the sum of expected external costs and expected decision-making costs from collective action

However, I would point out that “The Calculus of Consent” is a more a less an “economic frictionless model.” We introduce friction into the model by including Tullock’s later insight:

the dissipation of wealth that results from agents utilizing scarce resources to seek economic rent from a price maker

The Tullock rent-seeking game, which was a later insight, was not considered in the “The Calculus of Consent.” The Tullock rent-seeking game assumes agents makes investments and the probability of success is a function of the amount of the investment. The “Return” itself is a single prize. And we expect declining marginal returns on agent investments.

The equilibrium problem of the Tullock game, however, has been subject to paradoxes almost from the start.⁶ A particular problem that still remains unresolved is the discrepency between the magnitude of the rents being created by the State vs the competitive outlays investing/bidding for such rents. The Tullock Resolution, the “Inefficient Market Hypothesis,” suffers from an empiricial problem when these descrepencies begin to approach orders of magnitude differences. The “Inefficient Market Hypothesis” relies on a transactional cost model of opague communication to explain the differences, but this model becomes folly when we consider something like the financial bailouts. We should expect the sheer extent of the magnitudinal differences to drive an entrepreneurial incentive for transparency.

What we shouldn’t expect–at least from a classic Public Choice perspective:

(i) the “Protective State” to circumvent it’s constitutional agency to protect massively opague inefficiency against transparency. This would constitute a decision-making rule.
(ii) in the event of transparency, we shouldn’t expect the massive descrepency between rent and competitive outlays to persist

In short, we shouldn’t rationally expect the emergence of a Police State–a decision-making rule that would violate the original Constitutional agency, one that would impose serious decision-making costs–to protect opaque markets of economic rent-seeking. Or shorter still, we shouldn’t expect a union between the protective state and the re-distributive state for the purpose of protecting opaque markets of economic rent-seeking.A further problem arises for the “Inefficient Market Hypothesis” in that a layer of transparency now has been brought to bear on our opaque financial bailouts. Indeed, we now have the Federal Reserve pledging a new transparency in price-fixing signaling. We should thusly see a convergence between rent and competitive outlays. Empirically, however, the massive descrepencies persist.

TARP drives a stake in the “Inefficient Market Hypothesis.” This hypothesis, by self-admission of the chief architects of modern Public Choice theory, is necessary to retain a rational choice model of liberalism that differentiates Constitutional Agency from the Redistributive one. The problem is further compounded when we consider that Schumpeterian Political Entrepreneurship(e.g., with respect to transparency: i.e.: Wikileaks) does not equilibrize rent and outlays, but rather appears to exascerbate the costs of a decision-making rule.

Sans the distinction between Constitutional Agency and the Redistributive one, Tullock’s Equilibrium Paradox of the rent-seeking game perhaps disappears, since it is one that is restricted to the redistributive side only. If we consider the long-run equilibrium of the protective state, we likely resolve the paradox.

Liberal Failure Theorem

Law, or legal recongition, is an economic good. A Frictional model of a monopoly price maker for legal recognition likely results in economic rent-seeking being a source of decision-making rules. Thus we can likely expect rent-seeking in the liberal state to result in a long-run equlibrium of the Liberal State being the total source of government.

PART II: The Compliance Problem in the State of Nature

This will be a separate essay. It will address the problem that liberal failure does not prove the libertarian resolution. In particular, there is an apparent conundrum introduced by Nozick in “Anarchy, State, and Utopia:” namely treating security as a private market good inevitably results it in becoming a monopoly good. The libertarian resolution then does not resolve the liberal problem. If we combine this with a “Liberal Failure Theory,” then there is an argument to be made that the “State of Nature” is a useless, paradoxical-ridden concept. 

I will argue that the libertarianism can survive this rational paradox of security. It surives it because moral constraint can be shown to be a reciprocity mechanism for cooperation. However, the actual problem likely lies with an evolutionary game consideration that demonstrates moral constraint is not the only reciprocity mechanism for cooperation. 

 

¹
The Selling of Zuccotti Park
Score One For Hobbes at Zuccotti Park

²With Hobbes, there is no general “right” to rebel because the defection condition, the State of Nature, will almost always be a worse condition than a binding rule of Leviathan, whatever that rule may entail. The Social Contract is more or less “eternal.”

³ Orwell’s “The Theory and Practice of Oligarchical Collectivism” explains how “Permanent War” effectively ends the problem of total conflict within the political classes.

⁴ The opportunity costs of resources used to defend the exclusive use of the good versus the same resources deployed for the economic utilization of the good

⁵ It’s origins are in 19th century British utilitarianism that associated the ends of rule law with aggregate utility and the means with democratic preference. With the advent of Neoclassical economics, it was relatively straight-forward for the equilibrium welfare economics that would follow to associate a “social welfare function” with maximum economic welfare. This became more or less rooted in Neoclassical socialism rationales–in particular noting the neoclassical dropping of cardinal utility from its calculating assumptions.

Ironically, in many ways, one could point to Kenneth Arrow as being an inadvertent founding father of Public Choice(along with Social Choice). Arrow demonstrated the problem of associating a social welfare function from welfare economics with democratic preference(voting). Arrow’s “Impossibility Theorem” more or less launched two forks in academic socio-political methodology: (i) one being Public Choice , (ii), the other being “Social Choice.”

⁶ see, e.g.: “Efficient Rent-Seeking: Chronicle of an Intellectual Quagmire”

⁷ Image reused from SMBIVG under the Creative Commons License

The Principal-Agent Problem

This appears to be a breakthrough in the textbook principal-agent problem. The textbook tells us that it should be the principal, in the case, the Israeli Lobby, which should bear the Asymmetric information costs of monitoring the conflict of interest on the part of it’s agent, in this case the American Political Parties.

However, in our real world example, we see the actual agency costs being borne by the agency and not the principal.

Imagine a principal hiring an agency for a stock broker, and the manager of agency keeping the principal up to date on how the personal habits/views of the agent assigned account executive might potentially negatively impact the principal.

Another example of how the Public Choice model of government agency wrecks the textbook.

Of course it’s comical to view the DoubleThink of government agency in action. We have an Israeli Lobby holding a public forum for the purpose of debunking charges of the Democrats that Republicans want to cut aid to Israel. And the the Israeli Lobby ostensibly excludes Ron Paul because he is accused of being too much like Barack Obama, the one, of course, who–as leader of the Democrats– is orchestrating the Democratic attack against Republicans in terms of accusations/warnings of aid cutting to Israel.

To me, the obvious Principal-Agent Problem is “representative democracy;” specifically, voting as a means of securing agency. The problem is particularly compounded when we factor Jesus’ Eschatological intent into the equation.

History, if there is going to be one that survives, will mock us; Zeus only had lightning bolts. Jesus had hydrogen bombs…

Social Forces and the Ideology of Wishful Thinking

Will Wilkinson and ED Kain team up for “social forces” argument against libertarianism. What exactly is this “social forces” argument? Distilled to its essence, it’s the contention that impersonal structural impediments create a redistribution problem. Now, in one sense, I’m in agreement; there is a redistribution problem, but–as I see it–it’s not exactly the same problem as identified by Wilkinson/Kain.

The Wilkinson/Kain interpretation, starting with Wilkinson:

(i) The Liberal vs Conservative debate over poverty/wealth

liberals tend to explain both poverty and wealth in terms of luck and the influence of social forces while conservatives tend to explain poverty and wealth in terms of effort and individual initiative

(ii) Libertarians side with the conservatives in this debate

What about libertarians? According to Jonathan Haidt and his colleagues, their patterns of moral sentiment and judgment make libertarians look a lot like liberals who care a great deal about liberty and not very much for suffering. Like liberals, libertarians don’t put very much emphasis on what Haidt calls the “binding foundations” of the moral sense–obedience to authority, in-group loyalty, and a sensitivity to moralized purity and disgust–which play a large role in conservative moral sentiment and judgment. This makes libertarians look like a lot like especially freedom-loving liberals with slightly hard hearts.

But, having lived most of my adult life among them, experience tells me that when it comes to the explanation of poverty and wealth libertarians are close cousins to conservatives. It’s my view that this shared sense of robust agency and individual responsibility for success and failure is the psychological linchpin of “fusionism”–that this commonality in disposition has made the long-time alliance between conservatives and libertarians possible, despite the fact that libertarians are almost identical to liberals in their unconcern for the conservative binding foundations.

(iii) There is a larger structural problem that counters a robust individual agency(although there is still room for some degree of individual agency)

my own drift from right-leaning libertarian to libertarian-leaning liberal has a lot to do with issues around the conditions for robust agency and the role of broad socio-economic forces in establishing those conditions, or not. I’ve come to accept, for example, that diffuse cultural forces, such as racism or sexism or nationalism or intergenerational poverty, can deprive an individual of her rightful liberty without any single person doing anything to violate her basic rights. This takes me a long way toward standard liberalism. But I find that my gut nevertheless leans right on issues of personal responsibility.

(iv) This structural problem is the root of the redistribution problem. The resolution to this problem demands both a degree of material and psychological assistance(within limits)

In plenty of circumstances in which people are suffering due to no fault of their own, I think they need both material assistance and the conviction that they can improve their lives if they really try.

Now Kain:

(i) Restate the premise of the liberal vs conservative debate over poverty. Affirm that libertarians take the conservative side.

Whereas libertarians and conservatives attribute success and failure to the personal strengths and flaws of individuals, liberals see a vast array of social forces, luck, and other things outside of the direct control of individuals as playing a more important role in the success or failure of individuals. Thus, for a liberal poverty is structural and for a libertarian or a conservative it is the result of human shortcomings.

(ii) Libertarian affirmation of the conservative position is an example of “vulgar libertarianism”

I find the libertarian rejection of structural and broad social forces shaping success and failure peculiar. For one thing, the most valuable insights of libertarianism are bound quite closely to the idea that special interests work with government to distort the playing field and protect certain interests and people and corporations over others. The free market creates a more level playing field, ideally, that allows for fewer distortions of power and more equality of opportunity.

And yet many libertarians only take that critique so far, and at the end of the day we find ourselves still with a discussion about winners and losers. It doesn’t make sense to craft a broad social critique of the state and its interactions with society and then turn around and pretend those factors play no role in the success or failure of you and me. This is what Kevin Carson describes as “vulgar libertarianism.”

(iii) Libertarians don’t take their theories seriously enough. Libertarianism demands that “social forces” be taken into account. So we reject the conservative “rugged individualist” interpretation and embrace the Wilkinson version of individual agency. In particular, we should be concerned about a safety net to account for market failure.

Fortunately, I don’t think that strain of thought exists in anywhere near so broad a constituency as the winners-vs-losers brand of rugged individualism does on the right. Most liberals, I believe, understand the importance of self-reliance, hard work, and making the crutches of the state as unnecessary as possible. Are there anti-growth, anti-market forces at work on the left? Of course there are. But these tend to have a very small influence over public policy.

Meanwhile, the goal of libertarian-leaning liberals everywhere should be making markets work for ordinary people. To do that you need to couple free markets with a strong, efficient safety net that rewards risk and hard work but doesn’t let people fall through the cracks. A market-based, bottom-up liberalism should still embrace the reality that market failure is both necessary and causes a great deal of pain. The role of the state is ameliorating that pain for ordinary workers – not bailing out or protecting the wealthy and well-connected.

Now, I’m occasionally accused of being at “definitional war” with political reality. This criticism pertains to my oft refusal to accept the “accepted” political categories. But there is good reason to refuse them. And,frankly, the Wilkinson/Kain interpretation of the redistribution problem demonstrates the peril of accepting them. That’s because the premise of the their argument, to begin with, is utterly bunk. Namely: that the conservative position regarding poverty/wealth/markets=rugged individualism, or more precisely, rejects any consideration of “social forces.”

I’ve composed many a post outlining the incongruence of philosophical conservatism with “free markets.”¹ The raison d’etre of (modern) Conservatism proper, as outlined by Russell Kirk, for example, is a “republican” form of government to serve as a bulwark against the tide of change from “social forces.” Conservatism accepts the market, but not the “free market,” not in the libertarian sense. This should be clear from reading Kirk(indeed for the likes of Kirk, a free market is a threat to the necessary transcendence that must underlie a stable social order). Conservatives use the phrase “free market” but there is an implicit social context behind the conservative usage of that term. The market must exist within defined social limits and can only function properly within these defined limits. Indeed, if it goes outside these limits then it can be a social force for structural poverty–for example, in weakening the foundation of the traditional family.

Therefore, we actually find that both liberals and conservatives view poverty/wealth/markets, in terms of an individual agency problem, as a function of social context. ²

So, the initial premise of the Wilkinson/Kain interpretation that views left/right as “social context vs atomism” is not correct.

The Liberal vs Conservative debate over poverty/wealth =False Premise #1

Thus, obviously, if Premise #1 is not correct, then Premise #2 becomes problematic. Now one would have to show that libertarians are in agreement with conservatives over the necessary and proper social context for individual agency. But equivalence between conservatives and libertarians on this matter is demonstratively false. For example: the drug war, contractual arrangement between consenting adults(whether prostitution or “marriage” between same-sex adults, etc), immigrant labor.

Libertarians side with the conservatives =False Premise #2

So we have dispensed with the assumptions that (i) conservatism with respect to poverty/wealth/markets is atomistic and rugged individualist and (ii) that libertarianism is equivalent to the actual conservative view of individual agency and social context.

This leaves to address a dangling claim of sorts: Do hold libertarians hold atomistic and rugged individualist ideas often attributed to conservatives but not actually held by conservatives? That is, is libertarianism, in terms of it’s individualism, defined by an atomistic social analysis built over: “libertarians attribute success and failure to the personal strengths and flaws of individuals.”

I suppose one could appeal to Rand’s objectivist ethics to make this case, but even I would think that to be a vulgar reading of Rand. After all, Rand certainly didn’t invent the concept of the “American Dream.” When I think of libertarian social analysis, I tend to start with Charles Comte, Charles Dunoyer and Jean-Baptiste Say from the radical French liberal tradition.

There is an oft asked question concerning the origin of libertarianism. We can find the hint of the ideas historically embedded in virtually all cultures in one form or another, but certainly we would likely start with Étienne de La Boétie and the French Physiocratic tradition. But, as a social/political theory proper, it is the French Liberal tradition, specifically the social analysis that stems from liberal class theory, that serves as its modern origin.

To me, it is absurd to equate libertarian social analysis with late nite American Dream infomercials.

Libertarian Social analysis of poverty/wealth/markets is atomistic and rugged individualist =False Premise #3. Possible Notable Exceptions include: The biased sample of Will Wilkinson’s DC cocktail circuit and DC libertarian think tank employment.

Libertarian social analysis is fundamentally concerned with the social context of human individual agency. So much so, in fact, that the actual historical divisions in libertarianism, e.g., social vs individualist, are a direct function of bitter disputes regarding social context and human agency. Joseph Déjacque, for example, is famous(well at least famous in hard core libertarian circles) for accusing Pierre-Joseph Proudhon of being “liberal, but not libertarian.” This is a familiar charge that has been often repeated by “social anarchists” against “individualists,” calling them “liberals.” It is an accurate charge to the extent that individualists accept “liberal institutions” of civil society that includes such things as private property and markets. But the term liberal, in this context, is meant as a slur of sorts against an identity of the “petty bourgeoisie.” Carson’s use of the term “vulgar libertarianism” is actually a criticism of identifying the “petty bourgeoisie” with the constraints of American conservatism.

The point here is that libertarianism, as evidenced by it’s internal divisions, very much takes it’s social analysis foundations seriously. However,theses divisions are not indicative of weakness or wrongness of the theory. That is to say, “vulgar libertarianism” is no more of a problem for libertarianism than the problem of “petty bourgeoisie” is a problem for libertarianism.

Vulgar Libertarianism is a disqualifying factor exposing the relevant limits of libertarian social analysis =False Statement

At this point, what I have attempted to refute is the Wilkinson/Kain logical case against any libertarian objection to a Wilkinson/Kain moral claim for the necessity of some version of a redistributive state.

So Wilkinson’s appeal to racism and sexism, and Kain’s appeal to market failure, are not actually in the clear in terms of escaping a libertarian critique.

Wilkinson appears to have now adopted a progressive view of civil society, that is, a view that assigns a necessary role for the State to correct the oppressive tendencies of civil society. One of the important contributions of the historical deconstructive scholarship of Thaddeus Russell, particularly with respect to his work, “Renegade History of the United States,” is to punch serious holes in Wilkinson’s cultural impediment argument. Eternal vigilance often emanates from the bowels of civil society and not from the upper echelons of legislative chambers or Washington think tanks. No doubt that racism and sexism are components of a social structure impediment, but, more often than not, the State is an enforcer of the Status quo, and not liberating agents. You certainly not going to find “11 Freedoms That Drunks, Slackers, Prostitutes And Pirates Pioneered And The Founding Fathers Opposed” in the official state textbooks.

Kain’s mistakenly equates market failure with “winners and losers.” In the neoclassical sense, market failure may or not make the case for government agency, but this government agency has nothing to do with “redistribution.” In the classical sense, there is an economic analysis concerned with the flow of economic rents to factors of production, and the taxation of persistent economic rent in terms of certain factors(for example, land) serving as a basis for a “redistributive government agency.” In the classical liberal sense, the taxation of economic rent is the fiscal source of government.

Kain, like many others, totally turns economics(the study of political economy) on its head with an argument for a role of government agency to subsidize economic rent. This to me is obscene, and any moral argument to legitimize this serves as the moral foundation for plunder. This can be demonstrated.

For example, consider Rawls. One of the gripes I have about those who rely on Rawls–for example, Wilkinson–is that Rawls significantly modified his theory of Justice in his later years. The later Rawls was (i)public reason (ii) overlapping consensus and (iii) “propertarian democracy.” In a very real sense, the “social justice” rationale of government agency in the US in the 90s followed the later Rawls. The “welfare state” was reformed and an aggressive program to subsidize home ownership–as part of the ownership society– was kicked into high gear.

The results have been catastrophic. I contend that subsidizing economic rent is a grave error; but, in particular, I contend that subsidizing land and home ownership is an utterly disastrous policy(economic rent from land should be a primary fiscal source of any government agency; government agencies should not serve a moral objective to subsidize this). The extent the later Rawls viewed Property-owning democracy as guaranteeing a widespread bulwark against concentration of economic and financial power only demonstrates how wrong he was. A moral objective of a Property-owning democracy, enforced by government agency, has given us the greatest oligarchical concentration of financial power and control in human history.

This leads to the actual “redistribution problem.” How to reverse the concentrated economic power enabled and legitimized by moral claims of social and economic justice.

¹ For example: No Bridge Between the Libertarian and Conservative Worldviews

² A more accurate and thorough contemporary social analysis of “left/right” places the debate over individual agency within the context of communitarian recognition.

The Corporation as Social Contract

This is a follow up post to an earlier piece, Anarchism and The Firm. A re-summarization of that piece:

If we accept the institution of the market, then we must accept the concept of economic rent–if we wish to engage in economic reasoning. Markets will then have rent-seeking participants/actors¹. Economic rent is simply earnings or income for use of a resource in excess of that resource’s opportunity costs. In a world of perfect competition equilibrium, there is no economic rent(or firms). But we don’t live in that world(that is, a world where every resource/asset is traded at opportunity cost). We have (i) economic inefficiencies or (ii) relatively inelastic supply curves for specialized labor² or (iii) product heterogeneity and/or shifts in demand and supply curves³, etc,etc.

Competition in these types of economic rents is a good thing and improves the human condition, at least from an economic standpoint. A dynamic perspective views the entrepreneur as rent-seeking agent that both “creates quasi-rent” and dynamically enforces economic rent as quasi-rent, that is, long-term earnings for asset usage that approach opportunity cost.

Economic inefficiencies explain why we might expect “firms” in a complex economy. For one explanation of this, we can turn to the work of Oliver Williamson regarding the Firm. In a complex economy, you will end up with assets that are specific to one another that may have a trade value much greater than opportunity cost. If these assets are owned by different entities or agents, these mutually dependent trading partners, absent long-term contracts, will have substantial quasi-rents to bargain over in actual returns. This creates the following bargaining dynamic: (1) trading partners have an incentive to “haggle” to maximize their share of the available quasi-rents; this is a type of transaction cost (2) when it is difficult to switch trading partners, the defection state–that is, a failure in negotiations–represents large surplus losses.

The “Williamson Firm” then is a type of DRO, a form of economic governance that arises as means to minimize the bargaining costs of quasi-rents and the costs of defection.^4,5

The “Williamson Firm” provides a plausible bargaining foundation for “the Firm” in a free market. A number of qualifiers, however.

(i) the “Williamson Firm” is not necessarily equivalent to the legal construct of the “Limited Liability Corporation”
(ii) the “Williamson Firm” would only be specific to certain economic sectors and would not be universal across all sectors. It arises out of the quasi-rents of asset specificity. Vertical integration is explained in terms of efficiency, and not “market power.”
(iii) The bounds of the “Williamson Firm” are an important consideration

To succinctly rephrase the qualifying remarks: If the Williamson framework is defined in terms of rent-seeking and adaptation, we should give important consideration to bounds of the firm, given that, in a sense, the vertical integration is explained by the inefficiency of completeness in contracting(for certain sectors). In short, the rent-seeking can very easily become a matter of contrived rents and not quasi-rents.

As I pointed out in my original piece, Stephan Kinsella’s claim of a contractual foundation of “shareholder limited liability,” which he implied had been substantiated by the likes of Robert Hessen, was not an accurate claim. Hessen actually denied the possibility of any strong contractual foundation of shareholder limited liability. Hessen instead appealed to the legal principle of respondeat superior backed by a claim of investor passivity.

My response was that in the absence of a strong contractual foundation, to avoid “the Corporation as Social Contract,” you had to provide an economic or bargaining rationale for the the thing you are claiming. In particular, I was referring to limited liability in torts. There is no economic bargaining foundation for this legal protection aspect of the Firm.

I then noted that “investor passivity” was a myth, that it was actually a quite active institutional agent on it’s own. In fact, I identified this institutional agency as the foundation of “too big to fail.”

Interestingly, over the weekend, I read this summary post at Global Guerrillas that linked to this complexity analysis, The Network of Global Corporate Control, authored by a trio of theorists from Swiss Federal Institute of Technology in Zurich. The technical paper employs a complex graph analysis(a standard tool in complex network analysis) to model the global capitalist network, a network the researchers found to form a giant bow-tie arrangement knotted by a small, interconnected core of financial institutions.

For non-technical summary, refer to this informative New Scientist article.

What we empirically see is that the knot is controlled by a “super-entity” of 147 firms, almost all financial institutions. If you study the paper, what you will see, in plain startling form, is the empirical proof(or a highly compelling proof) that demonstrates the incompatibility of limited liability torts and investor passivity with the free market. Of course, we are defining the free market as a mechanism of competitive dissipation of economic rents. And we are reminded why we should never consider the free market as serving any moral ends–in this case, as means to an ends of a moral claim of ownership liability.

Complex network analysis has no need of conspiracy theories or “bad actors.” It simply models the complex order that emerges from the rules of the system. And what we find is not necessarily collusion of over economic rents, or a violation of the Williamson bound vertically for monopoly rents, but rather a complex entanglement-which violates the Williamson bound–naturally geared toward network preservation. In other words, not “public choice,” but “ruling class.”

What appears to have been empirically verified is the Corporation as Social Contract…

¹ The term “rent-seeking” is usually reserved for contrived/artificial rents that are typically a product of government action. But we can generalize it to include profit seeking that includes quasi-rents. The generalization then includes the entrepreneur as a rent-seeking agent. Of course, competition in quasi-rents results in the dissipation of such rent.

² Easy examples are highly skilled professional athletes, entertainers, or technical personnel. Most, if not all of their compensation(or income), is economic rent, meaning that they would earn much less in an alternative profession or endeavor.

³ Steve Jobs/Apple is an excellent example. Jobs perfected “taste” as a basis for product heterogeneity in consumer computing/electronics, allowing for Apple to enjoy the benefit of economic rent(in this case, profits above “normal profits). There is nothing wrong this type of economic rent-seeking, unless the rent-seeker also seeks to use the patent/copyright regime to prevent competition in product heterogeneity, which is the case with Jobs/Apple. Thus Steve Jobs attempted to use protectionism to protect Apple’s quasi-rent as permanent rent, thus disqualifying him as an “entrepreneurial ideal.” It’s amazing how many libertarians apparently miss the boat on this.

⁴ For a more detailed account, refer to the 2009 summary compiled by the Economic Sciences Prize Committee

⁵It is easy to see that the concept of economic rent is a primary dividing line between social anarchism and “free market anarchism.” Social anarchism holds hierarchy mechanisms of governance to be immoral whereas the “free market” variety, in it’s acceptance of economic rent, cannot make such blanket moral judgements regarding hierarchical forms of governance.

The One Hundred Percent

The preface of Anthony de Jasay’s 1985 book, “The State,” informs us of the central theme: how state and society interact to disappoint and render each other miserable. Indeed, de Jasay–who as a youth had fled communist Hungary–was motivated to write the book in part to explain the inexplicable: namely, how States that have no popular support nor consensus nonetheless manage to persist. In particular, de Jasay was flummoxed by the problem of early 1980s Communist Eastern Europe that literally had a condition of 100%–including the communist party members–being against the regime(s), but the regimes still persisted.

de Jasay, a retired investment banker, entered the arena of political philosophy as an attempt to explain this problem of the “0% vs the 100%.”

The eventual collapse of communism by the late 1980s/early 1990s did not relegate de Jasay’s work to a historical footnote. Quite the contrary. Today, we apparently have a new meme of “1% vs 99%.” But instead of the regimes being communist, we now have them being capitalist. But whether communist or capitalist, the common denominator is the State. This should be a hint.

There is no serious argument that our current condition of State Capitalism is characterized by a non-interventionist State. Empirically, it undeniable that we have a highly interventionist State. This highly interventionist State has given us the condition of “1% vs the 99%.” What rational argument, then, is there for an even greater interventionist State to resolve this problem of “1% vs the 99%.”? de Jasay gives us the outcome of total intervention: “0% vs the 100%.”

The lesson to be drawn, one that has been empirically reinforced by history, is that whatever political adjective we choose to decorate the State with–whether capitalist, socialist, communist–we nonetheless end up with the same condition. The “1% vs the 99%,” which is supposed to represent a repudiation against “free markets,” is actually the final validation of the libertarian critique of the State. Once “Democratic Capitalism” falls, there is nothing left standing. There is no credibility in retreading the “dictatorship of the Proletariat” or the “Socialist Calculation Debate” as alternatives.

What we have,ironically, is a “libertarian moment” that offers no libertarian resolution. This is because the resolution to the problem is actually not less intervention by the State, or even a “non-interventionist State.” This goes back to Benjamin Tucker’s postscript to “State Socialism and Anarchism,” wherein he noted–40 years later after the fact–that the problem of monopoly trust had become so dire that political confiscatory redistribution had become a necessary pre-requisite for any success of a post-anarchist order. And this was 90 years ago. The conditions today are orders of magnitude worse.

This is to say that liberatarianism, politically, has a “redistribution problem” to consider. Tucker’s notion of “forcible confiscation” sounds quite a bit similar to Marx’s so-called temporary dictatorship by the proletariat, which is no solution. In other words, the “redistribution problem” is not a propaganda problem, it’s a problem that demands a well-thought out solution(if there is one, or any, to be had).

The problem is that there has been absolutely no progress made toward a plausible resolution of this problem. Indeed, a primary criticism of the 20th century american libertarian alignment with the right is that this problem is not even considered a problem. Instead, the problem became how to “privatize” monopoly actions/claims by the State.

So, in our libertarian moment, we end with claims from the likes of Peter Boettke that Richard Epstein represents the sharpest libertarian thinker currently alive. Epstein argues that the “1% vs the 99%”, with Bill Gates and Steve Jobs as the maestros, is the fulcrum of human progress.

Frankly, if Epstein is the best we’ve got, then we’re fucked…

Anarchism and The Firm

This recent piece, Corporate Personhood, Limited Liability, and Double Taxation, is not Stephan Kinsella’s finest hour. The piece is riddled with problems and inaccurate representations.

Let’s begin by defining our terms, particularly with respect to this thing “left-libertarianism” which seems to be a perpetual bone of contention with Kinsella. In many respects, the political adjectives “left” and “right” are superfluous in terms of the libertarian political critique. We only resort to such decorative adjectives because of (1) the modern association of the term libertarianism with the American political right and (2) the oft apparent identity of civil society to be Wal-Mart minus the State.

Politically, libertarianism is by definition “left-wing” since it’s a rejection of the Status quo ante. Apart from politics, or the political critique, the terms “left-wing” or “right-wing,” however, have little relevance. “Left-wing” or “Right-wing” as adjectives in terms of describing property rights regimes offer little illumination. I certainly reject yeah or nay regarding property property to be the dividing line between left and right. That is to say, private property is not in any sense inherently a right-wing concept.

But let us recall our history. As I outlined in previous post, we can identify three libertarian wings that emerged from French liberal history: capitalist(Bastiat), Socialist(Proudhon), and Communist(Déjacque). We can plot these three wings on a line segment of sorts and then loosely bifurcate the segment into “individualist” and “social” parts. Both parts shared the political critique of the State, but they differed in regards to the natural, spontaneous order of civil society. The “individualist” side more or less accepted the liberal, bourgeois civil institutionalism of private property, capital, and markets. The individualists however viewed the State and state privilege as corrupting it. The “social anarchists,” however, viewed the liberal, bourgeois civil institutionalism itself as product of state privilege. So it’s not corrupted by the State; rather, it serves to corrupt the State. The “Individualist” side was predominantly American while the “social” side was predominantly European, although the latter did find significant import into the United States at the latter part of the 19th century.

This libertarian dispute over the natural products of civil society has been there from the start. However, Kinsella seems determined to ignore libertarian history. Certainly, “anti-capitalism” means something entirely in terms of the individualist perspective as opposed to the “social anarchist perspective.” The individualist or liberal perspective does not reject private property or capital, but it does reject the current Capitalist schema being representative of a “free market.” The “social anarchist” side does reject private property and the “free market”(read: economic rent) outright.

Unfortunately, Kinsella, in his many critiques of “left-libertarianism,” makes it practice to conflate the two spheres, even after being perpetually corrected on the matter. So, in the end, Kinsella seems intent on proving his point via the logical fallacy of the Straw Man argument.

Kinsella writes that “the standard leftist critique of the corporation is the ‘concession’ theory outlined by Robert Hessen in his seminal study In Defense of the Corporation.” This is certainly not true in my case. Hessen’s treatment is more or less a legal defense of the corporation. I’m more interested in a market and/or bargaining theory treatment of the corporation. Indeed, part of my critique is that defense of the corporation invariably retreats to a legal treatment, and not a market one. And Hessen, in his book, conceded that there was no market or strong contractual foundation of tort limited liability.

Kinsella makes a silly suggestion about left-libertarianism and the “Marxist labor theory of value.” It’s silly because (1) left-libertarians on the individualist side do not subscribe to the “labor theory of value,” at least not since the 19th century and (2) the labor theory of value is Adam Smith and David Ricardo; The labor theory of value is only Marxist in the sense that Marx himself was a Ricardian.

Rather than diverge on a rant over classical economics, it is more germane to point out Kinsella’s apparent confusing reading of Hessen. Kinsella equates shareholder liability with the “paternalistic” common-law doctrine of respondeat superior. Kinsella instead argues “each person is responsible only for his own torts, not for those of others.” But my reading of Hessen’s “In Defense of the Corporation” has Hessen specifically conceding the problem of such a contractual basis of limited liability in torts. Writes Hessen:

How, if at all, can limited liability for torts be integrated into a contractual theory of corporations? The answer is that it can’t–and it needn’t be. The question poses a false alternative: either limited liability for torts is a state-created privilege or it is a contractual(which it obviously is not). In fact, there is a third possibility.

Chapter II: Are Corporations Creatures of the State?

Hessen’s “third possibility” is a direct appeal to respondeat superior to resolve the agency problem of limited liability for torts. Investors and shareholders are only passive agents. The only pertinent agency is between the employer(or active management) and the employee, and the only relevant principal is the employer(or active management). The investor(or shareholder), as a passive agent, is thus outside the scope of the agency definition. Only in the event of the investor or shareholder becoming active in management does such an agent open itself up to tort liability as a principal.

We thusly find Kinsella and Hessen to be actually at odds with one another. Hessen denies Kinsella’s contractual claim of limited liability for torts while Kinsella accuses “left-libertarians” of invoking respondeat superior– to justify a principal agent other than the causative agent–when it is actually Hessen who appeals to this common-law tradition to place the passive investor(as a principal) outside the agency definition.

I’ll readily concede the legal defense of the Corporation, in particular Hessen’s treatment(read: I’m not interested in debating his legal points). But as I previously mentioned, it is only the market treatment(and game theory strategic treatment) of the corporation that is of interest to me. From an economic standpoint, there is no consensus on the theory of the firm or why we even have them.

Oliver Williamson won the Nobel prize in Economics in 2009 for his theory of the firm that views them essentially as DROs(Dispute Resolution Organizations). I would contend this is probably the more accurate model than, say, Ronald Coase’s version of “transaction costs” model. In the Williamson version, the transaction costs are more a function of comparative governance costs.

This article, at The Libertarian Standard, Continued confusion over the “rights” of corporations, implies that Kinsella is more or less in agreement with the Williamson model. Writes the author:

As Stephan Kinsella has explained, corporations are nothing more than a series of contracts enabling a large number of people to work together toward common goals.

The corporation then is a form of economic governance. But we should be careful to avoid “the Corporation as Social Contract,” in that there is actually no strong contractual foundation of this DRO organ. A market analysis may show a net benefit for, say, purchasers and suppliers, to coalesce into DRO clumps as means to efficiently reduce the bargaining costs from the gains of trade in terms of the opportunity costs of asset allocation. Put another way: “I,Pencil” is a product consisting of a number components that have opportunity costs for alternative usage. It is likely more efficiently produced by corporations up the vertical chain than by a large set of independent purchasers and suppliers bargaining over the allocation of assets that are specific to each other.

No doubt, this can be a powerful market argument for “DRO clumping,” but we should also acknowledge that we can also end up with, “I, Solyndra,” which is a recent example of DRO clumping that gives us an example of a final product representing an allocation of assets that could have best been deployed elsewhere.

The Williamson bound on Firm Size–in terms of being an efficient DRO device–is demarcated both by the bureaucratic costs of delegation and erosion of entrepreneurial incentive, which more or less means the size at which (Economic Rent) –> 0. The problem with the Williamson bound is that in political economy, the costs of bureaucracy and loss of entrepreneurial incentive have little bearing on this limit of economic rent; indeed, they are usually necessities in the competition for artificial economic rent.

This leads us to the actual political economic critique of Hessen’s contention that Corporations are not “Creatures of the State”. Namely, the empirical fact that the investor class is not all that passive. It is a professional class with it’s own agency definition that includes it’s own principals that are quite active. The term “institutional investor” should familiar with everyone these days(although it was likely not quite so familiar at the time of the original publication of Hessen’s book, in 1979), and it denotes a largely corporate investment banking principal that specializes in being quite active in Washington, DC.

With the corporatization of investment banking, the advent of institutionalization of investment, and with corporations being the primary investors in other corporations, Hessen’s contention, in 1979, that the investment class constituted passive agents and thus were immune from the agency problem can only now be viewed as laughably naive and quaint. Today, we should understand that it is the institutionalization of the investment class which gives us “too big to fail.”

The obvious conclusion, from a libertarian perspective, is that any claims of a group or class to be outside the agency definition of a DRO is fraught with problems. Incredibly, Kinsella refuses the lesson and instead makes a utilitarian argument for the legitimacy of “Corporate America.” Writes Kinsella:

This is because, if you accept Mises’s calculation argument, a centrally run economy cannot be economically prosperous. If most of corporate America is “really” part of the state, then the calculation argument means we must be in a USSR-style shambles, despite appearances to the contrary. Sure, I realize the GDP measure has methodological problems, and that the state exaggerates and propagandizes, but what’s more plausible: that we are really all poor, living in a 1970s Soviet-Style morass with just faked prosperity (hey, maybe we never made it out of the Malthusian trap in the 1800s after all; maybe the whole Industrial Revolution is a mirage!); or that there is actually a vast amount of prosperity generated by the underling genuinely free market economy despite the state’s depradations? As far as I can see, the left-libertarians have to argue the former; I think most sensible libertarians will take the latter view.

That Kinsella invokes the “Misean Calculation Argument” to justify corporate America only reminds us why the “Misean Calculation Argument” is wrong and why Mises lost the original Socialist Calculation Debate. Figures like Oskar Lange used a similar utilitarian type argument against Mises to demonstrate the ability of the Walrasian auctioneer to “discover” prices. And Lange, even back at that time–the early part of the 20th century–defrayed the criticism of the “socialist incentive problem” by citing the capitalist incentive divisions, as an agency problem, between the investment class and the management class.