Efficiency or Property Rights: Thomas Woods’ comments on the Chicago School of Economics

This was originally posted at City of God.

Thomas Woods, in his book The Church and the Market, spends a little time in the first chapter distinguishing the Austrian and Chicago schools of economics. One major difference between the schools is on the issue of central banking and monetary policy. We’ve had occasion to discuss this on the blog in the past, and I’m not particularly interested in raising it again here. However, Woods brought to my attention another difference which is of much greater concern to me, and this is over a moral issue. The difference is this:

The classic case in Chicago law and economics, famously described by Ronald Coase, is the example of the train that emits sparks that set fire to a farmer’s crops. (The example occurs prior to the introduction of diesel engines.) Either the farmer or the train will have to bear the cost of this damage. On the basis of strict liability, of course, the farmer has the right to the property in question and therefore the right to enjoy its fruits unmolested. The train should compensate him for his loss or install some kind of spark retarding device. But Chicago decides this case in such a way that overall wealth is maximized. (25)

Thus economic efficiency becomes an ethical value that is weighed against the property rights of people. The Austrians vehemently disagree with this point. They argue

that the rights of property should not be compromised in order to satisfy any wealth maximization calculus, and that as a rule strict liability should be observed. (They offer these critiques in their capacities as moral philosophers rather than qua economists, a point to which we shall return in our discussion of economics as a value-free science.) Walter Block has described it as “evil and vicious to violate our most cherished and precious property rights in an ill-conceived attempt to maximize the monetary value of production.” (26)

Woods provides one quote from a defender of Coase to make clear that the Chicago school explicitly teaches what he says they teach:

In defense of Coase, Chicago economic Harold Demsetz argues that “[e]fficiency seems to be not merely one of the many criteria underlying our notions of ethically correct definitions of private property rights, but an extremely important one. It is difficult even to describe unambiguously any other criterion for determining what is ethical.” Here is efficiency analysis with a vengeance. (26)

Now, I’m not sure any other way to describe this theory besides the words Block used: evil. Quite clearly, this is a form of coarse utlilitarianism, and one which will undoubtedly help the well-connected over against those who have little wealth. And I think this point is something where those on the left and those who support a view of property rights as natural rights (be they conservative or libertarian) can find agreement.

Human Rights?

Is this a human right?

[Cross-posted at City of God.]

“Whereas the peoples of the United Nations have in the Charter reaffirmed their faith in fundamental human rights, in the dignity and worth of the human person and in the equal rights of men and women…” ~ From the Preamble to the Universal Declaration of Human Rights

Here is something that I wonder: does Western civilization have a coherent argument for the existence of human rights?

How do we determine what is a right?

An article on the Mises.org blog from a while back raised this question in a vivid manner:

Every once in a while, something comes along that perfectly encapsulates the idea of so-called “social justice” in action. For all the wonderful critiques that have been written about this wretched concept by its many detractors, none quite match the elegant simplicity of a recent work by some of its advocates. I am referring here to a recent video made for the World Day of Social Justice in which students and teachers complete this sentence:

Everyone has the right to _____. Continue reading

Pacifistic Redistributionism, Or, Things That Make You Go Hmmm…

[This was cross-posted at City of God.]

I have a confession. I don’t understand something about some anarcho-socialists whose writings I follow semi-regularly.

I don’t understand how someone can simultaneously believe that Jesus took a principled stand against all violence in his life and death, and yet at the same time believe Jesus’ call for justice requires the state to violently expropriate and redistribute property. Sometimes, such proponents will go even further, and suggest that a truly free (i.e., non-violent) market would result in oppression of the poor.

Just to give an idea of what I’m talking about, here are two snippets from the writings of Brian Walsh. Walsh is not the only example of this kind of thinking I have seen, he’s just the person I have heard most recently express it, and whose writings I was able to search through most quickly. Firstly, an example from a meditation on Colossians:

If the gospel was not about the reconciliation of ‘all things’ in Christ, there would be little biblical basis for the transformation of cultural life. It is precisely such comprehensiveness that we meet in this poem.

But how is reconciliation accomplished? Note how the poem ends: God was ‘pleased … to reconcile to himself all things … by making peace through Jesus’ blood, shed on the cross.’

The irony of these words is deep. Jesus brings peace – one that goes infinitely beyond the Pax Romana – but does so through crucifixion at the hands of the imperial powers.

This is the ultimate subversion. It is not imperial political, economic and military power that brings about reconciliation but suffering love.

So here, Jesus’ politics is explicitly opposed even to bringing social harmony through “…economic…power…”. And yet, here are some comments made about tax systems in the context of the recent Canadian federal election:

So where is Jesus on the question of taxation? Let’s be clear, taxation that favours the rich and the powerful to the detriment of the poor is always unjust taxation. So any political party that advocates tax cuts for the rich in a society where there remain deep economic divisions between the very rich and the very poor is a political party that knows nothing of the way of Jesus.

When Zacchaeus met Jesus he not only abandoned the practices of an oppressive taxation, he engaged in a radically generous act of wealth redistribution. Giving away his wealth and repaying those who had been oppressed was an act of deep faith and profound economics.

At its best, taxation is a means of redistributing income to create a more level economic playing field. At its best, taxation is the way that we all contribute to the common good. In a radically individualist culture, the notion of something that is “common” is difficult to imagine. But if we root our lives in a commitment to love our neighbour, then progressive and responsible taxation could be one way that we seek justice and promote the common good.

I honestly cannot understand how these two positions fit together. I would appreciate some help.

Anarcho-Socialism vs. Anarcho-Capitalism

[This is cross-posted at City of God]

In the wake of the emerging church movement, new attempts to grapple with a Christian approach to economics have become more intensely discussed and put into practice. One of the most popular “third-way” economics, at least in theory, seems to be anarcho-socialism. While, as with most things intellectual, there are variations on this position, there seems to be one or two positions that these variations all hold in common: (1) a labour theory of value, and (2) a dislike of economization and the price-system.

Lurking within many of these positions is a deep suspicion of “private property”. Of course, as with general view of anarcho-socialism, so in the case of private property, there are variations on how it is opposed. Nevertheless, if any sense is to be made of the “socialism” part of anarcho-socialism, some degree of opposition to private property must be present.

Part of the suspicion of private property comes from (1) above. That is, a labour theory of value, most fundamentally, believes that the value of any product must be the same as the value of the input of labour that produced it. By implication, this means if a labourer is paid less by an employer for the production of a good than the employer will make by selling it, so that the employer makes a profit off of the labourer, the labourer is actually being defrauded by the amount that the employer makes in profit. For, as was explained, if the object is worth however much the labour was worth, then there is no room left for an employer to make a profit, unless the employer is simply underpaying the labourer, or else is defrauding the customer.

Austrian economists, the consummate free-marketeers, in response, developed what is called the subjective theory of value (otherwise known as marginal utility theory). The subjective theory of value argues that the value of any product is determined by individual according to their preferences, and that market prices therefore are simply what the buyer and seller can agree on as a mutually beneficial compromise between their two value schemes, leading both to agree that economic exchange is more worthwhile than not exchanging. This fundamental view of value has many implications. It implies that wealth is not a zero-sum game. In any voluntary exchange, in fact, both parties believe they are actually increasing their wealth, simultaneously. It is a win-win situation, because both are getting something they prefer in exchange for something they prefer less. This means that real wealth is created every time a voluntary exchange occurs. It also means that the labour theory’s criticisms of profit are misguided.

The fact is, the existence of profit-making by an employer does not imply that the labourer has been stolen from, because it is entirely possible for a labourer to voluntarily prefer a fixed wage lower than the market price of a product rather than the chance of making the higher profit along with the attendant risks of being an entrepreneur. The labourer prefers a guaranteed wage now to a possible profits in the future, whereas the employer prefers potential higher profits in the future to a more secure income in the present. In the end, some people voluntarily prefer to be employees and have a more reliable source of income, and some people prefer to be their own employers and take on higher risk for the chance of a higher income. In situations like this, employers and employees have a mutually beneficial relationship; no one is being stolen from. Rather, the employer’s profit margin is higher than wage rates because the employer is the one risking his or her own capital; the labourer is not.

Some socialists have also issued criticisms of the principle of economy and of the price system. The former principle basically means just this: it is just a fact of existence that resources are scarce, and so rational agents will act to meet their ends with the least amount of waste possible. Waste, the destruction of wealth, is ultimately a harmful thing in a world where we do not have infinite goods to meet our needs. Rational people perceive this, and so act to avoid unnecessary waste. The converse of this point is that they act in the way they believe is the most efficient to achieve their ends. The price system is simply the social outworking of this principle. As was explained above, prices are just agents communicating to other agents what they think the value of a product is. When a price is agreed upon between a buyer and seller, both are convinced that the product has been appropriately valued, and they believe that they will be benefitted more by what they are receiving than what they are giving away. Socialists (again, as far as I know, some, though perhaps all) have criticized these principles as inhuman. Murray Rothbard, in a 1970 article, “The Death Wish of the Anarcho-Communists”, quotes one socialist making this point:

The anti-rational spirit of anarcho-communism was expressed by Norman O. Brown, one of the gurus of the new “counter-culture”:

The great economist von Mises tried to refute socialism by demonstrating that, in abolishing exchange, socialism made economic calculation, and hence economic rationality, impossible … But if von Mises is right, then what he discovered is not a refutation but a psychoanalytical justification of socialism … It is one of the sad ironies of contemporary intellectual life that the reply of socialist economists to von Mises’ arguments was to attempt to show that socialism was not incompatible with “rational economic calculation” — that is to say, that it could retain the inhuman principle of economizing. (Life Against Death, Random House, paperback, 1959, pp. 238-39.)

But, in response, Rothbard argues that it is in fact the denial of this system that is inhuman:

The fact that the abandonment of rationality and economics in behalf of “freedom” and whim will lead to the scrapping of modern production and civilization and return us to barbarism does not faze our anarcho-communists and other exponents of the new “counter-culture.” But what they do not seem to realize is that the result of this return to primitivism would be starvation and death for nearly all of mankind and a grinding subsistence for the ones remaining.

And it seems hard to deny this counter-argument. For, if an agent did not act in a way that attempted to be efficient with the use of scarce resources, they would lose those scarce resources through continual waste. And if a community of agents could not, or would not, signal to each other what they thought would be the most valuable/efficient use of a particular object would be through a price system, they would have no way of collectively acting in a way that would economize their scarce resources. And eventually, the continual waste of scarce resources would indeed lead straight into “starvation and death for nearly all of mankind and a grinding subsistence for the ones remaining.”

Thus, in the end, it seems that a capitalist understanding of wealth and property is necessary to prevent poverty and death; the principle of scarcity and the need to plan accordingly can be ignored only at our own peril.

With these criticisms made of socialist versions of anarchism, though, there is one valid criticism to be made of some forms of anarcho-capitalism. It seems (at least in my limited forays into their literature) many anarcho-capitalists (usually of the atheistic variety), believe strongly that there exists only one moral wrong: aggression. This means that letting another person starve to death, when you could prevent such an end, and there was no reason not to prevent it, would be perfectly morally licit. Obviously, this sits in stark contrast to the Bible’s command to “love your neighbour as yourself”, especially when it is seen in light of Jesus’ interpretation of it in the story of the Good Samaritan. It is quite clear that our Lord interpreted this fundamental axiom of the Law to require compassion and charity. This does not mean that everyone is required to share their goods in an absolutely equal fashion. In a situation where two people are both well off enough not to need charity, but one is richer and the other is poorer, there is no moral obligation for the richer person to share with absolute equality all of his goods with the poorer person. Absolute economic equality is not a requirement of natural justice. But, that said, human beings have a moral obligation to help our truly needy neighbour, insofar as it is possible for us to help them; this is matter of justice, of the Creator’s moral law, not subjective preference. God will not accept the rationalizations of the atheistic anarcho-capitalists on judgment day.

And so, one could perhaps argue that the only morally permissible type of anarchism is one which affirms two counterbalancing propositions: (1) the ultimate choice over what to do with property should lie with its private owner, not with a community acting coercively, but (2) private owners of property are still morally obligated to help their neighbours when it is possible for them to do so. The decision should ultimately be left with the individual (in the sense that the community should not use violence against them or their property), but the individual is obligated by God to show charity.

So, what does one call this kind of anarchism? Is it capitalistic, because it opposes coercion in exchange, supports the principle of private property, and denies an absolute moral imperative to voluntarily create total economic equality? Or is it socialistic, because it opposes an inhuman disregard for the suffering of others in affirming a moral obligation to show love to our neighbour? I tend to think that, because of the possibilities available for the meaning of the term “capitalist”, it is in fact capitalist. That is, because not all capitalisms deny there are moral obligations to help our neighbour, this “socialistic” principle does not rule out the appropriateness of the term. But maybe others will disagree. I think, however, in the end, this is just a semantic disagreement.

While helping the poor, remember to be human

[Originally posted here: While helping the poor, remember to be human]

Steve Hays recently wrote a post analyzing Peter Singer’s (the infamous advocate for infanticide) arguments about poverty. To briefly sum it up: Singer argues on a strictly utilitarian principle that every dollar earned beyond what someone absolutely needs should be given to the poor. No doubt, even if we haven’t read Singer’s arguments, many readers of this blog will have heard this logic expressed by a well-intentioned person at some point in their travels.

Now, Steve already replied along some lines, focusing partly on biblical principles and partly on ones of common sense, that would problematise Singer’s argument. But I wanted to suggest another possible line of response.

Stuart Brown (M.D.) and Christopher Vaughan have written a book about the function of play in the life of human beings (with some mention of its presence in other species as well), arguing about how important it is for human flourishing. They even spend time showing that some business managers have recognized this fact of human nature and have incorporated it into their businesses in some way or another, to good benefit for productivity.

These facts about human nature, then, would seem to suggest another problem with Singer’s position. For, if as all business-people know, “time is money”, by Singer’s logic, we should never spend any time playing. Yet, Brown and Vaughan have shown that play is necessary and beneficial for psychological flourishing and for productivity. The unavoidable conclusion from their work is that, in some sense, human beings need to spend some of their resources on play, rather than only charity, to be the best people they can be. Thus, Singer’s logic will inadvertently, if obeyed, lead to people being less helpful for the poor than they would be if they behaved more like human beings, and less like machines for helping the poor.

And in case the true darkness of such a Singerian ethically pure world escapes anyone, consider what Brown and Vaughan say:

The ability to play is critical not only to being happy, but also to sustaining social relationships and being a creative, innovative person.

If that seems to be a big claim, consider what the world would be like without play. It’s not just an absence of games or sports. Life without play is a life without books, without movies, without art, music, jokes, dramatic stories. Imagine a world with no flirting, no day-dreaming, no comedy, no irony. Such a world would be a pretty grim place to live.