The Defenders of Liberty: Human Nature, Individualism, and Property Rights 3030394514, 9783030394516

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Neema Parvini

The Defenders of Liberty Human Nature, Individualism, and Property Rights

The Defenders of Liberty “Neema Parvini’s The Defenders of Liberty is a must-read for anyone with an interest in grasping the idea of liberty—what liberty is, and why it is important—and that should be just about everybody. Although this is a serious book on a serious topic, it is no dry-as-dust disquisition but a lively, learned and entertaining treatment of its subject. The book’s final chapter—‘What Went Wrong and What Is to be Done?’—is worth the price of admission all by itself. It had me laughing and cheering, sometimes both at the same time!” —Gerard Casey, Professor Emeritus, University College Dublin “This is an outstanding work of intellectual history and an important work for anyone interested in the intellectual history of classical liberalism. Dr Parvini tells the story of both the ideas of liberalism and its major exponents and the movements they led in a narrative that is both informative and entertaining. This will be valuable for both friends and critics of the ideas and will correct many of the misrepresentations and misunderstandings that have been current recently. Combining scholarship and dispassionate judgment with commitment this is an important work.” —Stephen Davies, Head of Education, Institute of Economic Affairs “Parvini blazes new paths, both in Austrian economics and in libertarian theory. Read this book for edification in both these important disciplines.” —Walter E. Block, Ph.D., Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics, Loyola University New Orleans, USA “The Defenders of Liberty is a major contribution to the history of libertarian thought. Parvini grasps the power of libertarian thought in a way few can match, and everyone interested in political theory will benefit from the book.” —David Gordon, Senior Fellow at the Mises Institute

Neema Parvini

The Defenders of Liberty Human Nature, Individualism, and Property Rights

Neema Parvini School of Literature and Languages University of Surrey Guildford, UK

ISBN 978-3-030-39451-6    ISBN 978-3-030-39452-3 (eBook) https://doi.org/10.1007/978-3-030-39452-3 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and ­transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Acknowledgements

I would like to thank Rachel Sangster and her team at Palgrave Macmillan; Stephen W.  Carson for all his help, terrific eye for detail; the Mises Institute, especially for a wonderful week in the summer of 2018; Jonathan Fortier, for connecting me with the right places at a crucial time in this book’s genesis; Nigel Ashford and the Institute of Humane Studies, as well as the Mercatus Center at George Mason University, for their generosity in helping to fund the many purchases that were necessary in the writing of this study; Jamie Whyte and the Institute of Economic Affairs for inviting me to all their wonderful VIP events; Jo Ann Cavallo, a brilliant Machiavelli scholar and libertarian; Larry Arnhart, for all his helpful comments; Stephen Davies; David Gordon; Peter Klein; Walter Block; Joseph T. Salerno; Patrick Newman; and Chris Calton. I’d also like to thank my parents for their love and kindness. And my wife, Sarah, who has had to put up with me talking nearly non-stop about economics for two years, has my eternal gratitude and love.

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Introductory Note

The Defenders of Liberty is an exploration of over 500 years of writing and thinking about freedom. This is not a standard history of liberal thought,1 but rather a book-length attempt to reconcile three distinct ideas which run through the liberal tradition: human nature, individualism, and property rights. This is not, strictly speaking, a political book, but rather one that spends most of its pages discussing economic theory or else the jurisprudence of private property. I have practically nothing to say about political system—that is, the question of monarchy, or democracy, or republic—because it will be one of the contentions of this book that the extent of an individual’s liberty is a question of property rights rather than what type of government they happen to live under. Neither will I have much to say about the precisely optimal size of the state or indeed whether there should be one at all. I will give no policy proposals. One of my primary aims is to come to a view of freedom that is totally realist.2 Utopianism can be prone to the nirvana fallacy, as per Voltaire’s aphorism: ‘the perfect is the enemy of the good.’ This is not to say that we must speak only of what is, and not of what ought to be, but rather that every aspect of a given ideal must be demonstrably achievable. Since the publication of E.O. Wilson’s Sociobiology: The New Synthesis in 1975,3 there has been a great flourishing of research in two related fields: evolutionary psychology and behavioural economics. We know more about how human beings function and think now than at any time in history. This book strives to reconcile what we know about humans—that we are prone to heuristics and intuitive or emotional thinking rather than reason—with thinkers in the liberal tradition who have so often been accused of assuming the vii

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purely rationalistic homo economicus. My approach is not to summarise the work of the thinkers that I will cover, but rather it is critically to evaluate their arguments, draw out what is worth keeping, and point out where necessary what they got wrong. It is another aim of this book to move beyond allegiances—to any thinker, approach, or school of thought in the liberal tradition—to a pursuit of the truth. Allegiance should not stop us pointing out errors and refining theory. It is entirely possible, of course, that a thinker or school might be correct on all issues, but this finding would be quite by accident.

I will start earlier than standard accounts, with a thinker who is not typically thought of as a liberal, Niccolò Machiavelli. This is for two reasons: first, because his rigorous analysis of the machinations of politics represents the birth of methodological individualism in modern thought. Second is because the thinkers who wrote under his influence—namely, the Italian school of elitism, as embodied in Gaetano Mosca and Vilfredo Pareto and, later, James Burnham—present genuine realist challenges to liberalism, which are observable in the present, or indeed at any time. Chapter 2 will thus focus on Machiavelli and the challenge of the elite theorists. Chapter 3 will move forward to the more familiar starting point for the discussion of liberalism in the seventeenth century: the often-juxtaposed conclusions of Hobbes and Locke, which my discussion will hope to complicate in its consideration of their contributions to the concepts of human nature, individualism, and property rights. Chapter 4 enters the eighteenth century and considers the contributions of the first modern economists: Richard Cantillon, A.R.J.  Turgot, David Hume, and Adam Smith. Chapter 5 moves forward to the nineteenth century to consider a pivotal episode in British economic history: the Repeal of the Corn Laws and with it the thinkers who ushered in and wrote at the height of laissezfaire—Nassau William Senior and Richard Cobden. It will also outline some of the errors of the classical economists by considering David Ricardo’s interventions in the Corn Law debate. The chapter closes by giving some space to the contributions of Herbert Spencer and the French classical economist, Jean-Baptiste Say, and his frequently misunderstood Law of Markets.

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Chapter 6 will focus on the Austrian School of Economics noting the contributions of Carl Menger, Eugen von Böhm-Bawerk, Ludwig von Mises, F.A.  Hayek, and Murray N.  Rothbard. Chapter 7 will draw an outline of the little-discussed London School of Economics, which had a strong free market tradition starting with William Stanley Jevons, Edwin Cannan, and Philip Wicksteed, through Lionel Robbins, and exported to the University of Cape Town by W.H. Hutt (and G.F. Thirlby). Chapter 8 will focus on ‘what has gone wrong’ with liberalism and will form a brief conclusion.

Notes 1. For an excellent one, I’d recommend Gerard Casey, Freedom’s Progress: A History of Political Thought (Exeter: Imprint Academic, 2017). 2. See on realist versus utopian visions Neema Parvini, ‘The Constrained Vision of Evolutionary Ethics’, in Shakespeare’s Moral Compass (Edinburgh: Edinburgh University Press, 2018), pp. 35–70. See also Thomas Sowell, A Conflict of Visions: Ideological Origins of Political Struggles, rev. ed. (1987; New York: Basic Books, 2007). 3. Edward O.  Wilson, Sociobiology: The New Synthesis (1975; Cambridge, MA: Harvard University Press, 2000).

Contents

1 Liberty, Human Nature, Individualism, and Property Rights  1 The Importance of Definitions    1 Liberty   3 Human Nature   9 Individualism  14 Property Rights  23 2 The Machiavellians 51 Machiavelli’s Liberty  51 Machiavelli’s Legacy  59 3 Hobbes and Locke on Human Nature; Locke on Property Rights 77 Hobbes and Locke on Human Nature   78 Locke on Property Rights   88 4 The Enlightenment105 Richard Cantillon and the Birth of Modern Economics  106 A.R.J. Turgot on Subjective Value, Diminishing Returns, and Capital and Interest Theory  112

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Splitting Hairs Between Hume and Locke on Justice and Property Rights  119 Adam Smith and the Division of Labour  126 5 The Nineteenth Century139 The Repeal of the Corn Laws  141 Herbert Spencer  158 Jean-Baptiste Say and the Law of Markets  162 6 The Austrian School175 Carl Menger  180 Eugen Böhm-Bawerk  187 Ludwig von Mises  192 F.A. Hayek  204 Murray N. Rothbard  211 7 The London School225 William Stanley Jevons  226 Edwin Cannan  230 Philip Wicksteed  234 Lionel Robbins  238 W.H. Hutt  243 8 What Went Wrong and What Is to Be Done?251 Positivism, Scientism, and Mathematical Modelling  253 Monetary Policy and Central Banking  259 Decoupling Economic Liberalism from Social and Political Liberalism 262 Selfishness, Atomisation, and Being Part of Something Bigger than Yourself  266 Controlling the Frame and Winning the Language Game  269 Bibliography283 Index307

List of Figures

Fig. 5.1 Total number of offences in England and Wales from 1901 to the end of the twentieth century 162 Fig. 6.1 Government consumption as a percentage of GDP 177 Fig. 6.2 Net national saving as a percentage of GDP 178 Fig. 6.3 The preference scale of a single individual 182 Fig. 6.4 Hayekian triangle 205 Fig. 6.5 Investments causing permanent changes to the structure of production207 Fig. 6.6 Keynesian plan enacted on Hayek’s model 208

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List of Tables

Table 1.1 Table 1.2 Table 3.1 Table 4.1 Table 5.1 Table 5.2 Table 6.1 Table 6.2 Table 6.3 Table 6.4 Table 6.5 Table 6.6 Table 8.1 Table 8.2

The relationship between power and liberty Different positions within the broad church of liberalism Three distinct stages of Locke’s state of nature Locke and Hume’s conclusion Decade average price of bread versus average wages for nineteenth century Decade average per-acre revenues and profits from 1810 to 1859 Decade-average statistics for the UK economy from the 1840s to the present day Menger’s theory of exchange and a theory of prices Coca-Cola sales records Böhm-Bawerk’s positive theory of capital Footfall and average spend per person Comparison of British consumer prices from 1973 compared with prices from 2019 Examples of linguistic inversion Cost in average wages measured in time to produce one hour of light

9 38 89 126 142 148 176 184 186 189 210 213 273 275

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1 Liberty, Human Nature, Individualism, and Property Rights

The Importance of Definitions I write this book at a time when many have been proclaiming the imminent death of liberalism.1 Critics from the radical left and conservative right have argued that Western liberalism is failing. These writers are certainly correct that something is failing. However, it is not liberalism but social democracy—a movement led by the enemies of liberty that hijacked the term ‘liberalism’ at the turn of the twentieth century2—that is currently in crisis. We have seen the ‘coming slavery’ of which Herbert Spencer warned us in 1884,3 which is why we are currently witnessing a clash between the people and ensconced Bismarckian elites too full of their own hubris to make sense of what might be ailing the plebeians. The collapse of the centre-left vote across Europe should be a strong signal that it is not the free market or the fundamental concepts of individual liberty or property rights that have caused such agitation.4 Rather, we are witnessing a revolt against an overbearing and overwhelmingly technocratic regulatory framework that attempts to manage the global economy through central banks and a financial system marked by its extraordinary fragility.5 In such a climate, this book aims to reconnect readers with a

© The Author(s) 2020 N. Parvini, The Defenders of Liberty, https://doi.org/10.1007/978-3-030-39452-3_1

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sense of what liberty really means by tracing the history of the concept in the West from the early 1500s to the present day. In so doing, I aim to define what freedom is, and what it is not. When I use the term ‘liberalism’, I mean it, as Milton Friedman did, ‘in its original meaning’.6 The central thesis of this book is that liberty, as it has emerged through centuries of political economy, must be founded on three core pillars: human nature, individualism, and property rights. The enemies of liberty do not deal in clear definitions or rational argumentation. Instead they deal in obfuscation, doublespeak, and smears; they twist originally accepted definitions beyond recognition; in George Orwell’s terms they deal solely in Newspeak.7 The enemies of liberty are the cheerleaders of state control. They are nearly always intellectuals for whom market demand is perennially low. The market is an intrinsically bottom-up phenomenon which no one planned or designed; the intellectuals in their hubris fancy they might be able to do better through their allegedly superior insight. They imagine the economy to be an engineering problem or a puzzle to be solved from the top down. They imagine they can foresee and therefore plan better outcomes for millions of people on their behalf; after all, they are intellectuals, so it stands to reason that they must know better. Peter Saunders summed it up best: Nobody planned the global capitalist system, nobody runs it, and nobody really comprehends it. This particularly offends intellectuals, for capitalism renders them redundant. It gets on perfectly well without them. It does not need them to make it run, to coordinate it, or to redesign it. The intellectual critics of capitalism believe they know what is good for us, but millions of people interacting in the marketplace keep rebuffing them.8

Intellectuals have some options artificially to increase their market value. They can gain employment, prestige, and power for themselves as apologists for the current regime; they can present themselves as ostensibly vocal critics of the current regime who end up nonetheless advocating for expanding its possible jurisdiction; or they can become lobbyists for special interest groups.9 Joseph A. Schumpeter observed, ‘Intellectuals are in fact people who wield the power of the spoken word and the written word, and one of the touches that distinguishes them from other people

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who do the same is the absence of direct responsibility for practical affairs.’10 Their primary talent is linguistic; they exert control in the flow of information and the dissemination of ideas. The first battle to win is the language game. Therefore, the rest of this chapter is devoted to definitions of the terms of my title: liberty, human nature, individualism, and property rights. Incidentally, there is one final possible path open to intellectuals, that of discovering and disseminating the truth, despite the possible social and professional costs. This option is taken only by the brave: these are the Defenders of Liberty to whom this book is dedicated. A look at the list of the names I discuss will bear out the extent to which smear tactics have been used by their cowardly and intellectually dishonest opponents. Machiavelli is perhaps the most vilified philosopher of all time, his name becoming synonymous with evil.11 Adam Smith was caricatured as a ‘bourgeois apologist’,12 when he was nothing of the kind. Herbert Spencer, who despite being one of the greatest thinkers of his day and a bastion of liberty, is now mostly forgotten except as a byword for ‘Social Darwinism’.13 Ludwig von Mises, despite being one of the lone voices for freedom in the dark period of totalitarianism that mired the mid-­ twentieth century, and despite being demonstrably correct in both his socialist calculation problem and in his theory of the business cycle, was dismissed by many at the time as a crank.14 Ayn Rand and Murray Rothbard were attacked as cult leaders (and not always by each other). Thomas Sowell has even been abused on racial grounds as ‘an Uncle Tom’. Yet all of these people and the others I discuss in these pages dared to stick out their necks against the prevailing visions of their respective eras.

Liberty In discussing liberty for the remainder of this book, I maintain that any sensible definition must fulfil three criteria: 1 . It must not contradict human nature. 2. It must respect the individual as opposed to a collective or group. 3. It must protect property rights.

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This may seem like a narrow definition of freedom to some, but those people are confusing liberty with a concept that is in many respects its opposite: power.15 An individual is said to be ‘free’ if left to his or her own devices. Liberty is not, as Patrick J. Deneen seems to think, ‘the agent’s ability to do whatever he likes’.16 This is a fundamental misunderstanding of liberalism. It is a concept from Jean-Jacques Rousseau: ‘That man is truly free who desires what he is able to perform and does what he desires.’17 Rousseau was a Romantic utopian thinker, and this line of thought has no place in the liberal tradition. As Isaiah Berlin puts it, in a seminal essay, Rousseau’s definition of freedom, later adopted by John Stuart Mill, ‘will not do’.18 Freedom is hence, as Berlin suggests in that same essay, the absence of coercion or violence. I am free to walk down the street so long as I do not punch you in the face, and vice versa. Some have called this definition of liberty the ‘non-aggression principle’, which has its origin in this famous passage by John Locke: The State of Nature has a Law of Nature to govern it, which obliges every one: And Reason, which is that Law, teaches all Mankind, who will but consult it, that being all equal and independent, no one ought to harm another in his Life, Health, Liberty, or Possessions. … [and] when his own Preservation comes not in competition, ought he, as much as he can, to preserve the rest of Mankind, and may not, unless it be to do Justice on an Offender, take away, or impair the life, or what tends to the Preservation of the Life, the Liberty, Health, Limb, or Goods of another.19

You are free to own a property for which you can afford to pay, whether up front or through mortgage repayments. You are free to get a job to exchange your time and labour for money. You are free to use your money to buy food and clothing. However, you are not entitled to a property, a job, food, or clothing. It is not incumbent on anyone else to provide you with those things, and strictly speaking, the failure of everyone else to buy you a house or give you a job, food, and clothing is not at all a violation of your freedom. Naturally, should you by own efforts acquire these things, your range of possible choices—that is, your power to act in certain ways—will increase. Assuming nothing else has changed, even though your power has increased, in this case your liberty has remained

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constant. You were as free before you had the house, the job, the food, or the clothing, as you are now that you have acquired all of those things. To use the terminology of Ludwig von Mises, you have substituted ‘a more satisfactory state of affairs for a less satisfactory’, because you desired ‘conditions which suit [you] better’. Your actions aimed ‘at bringing about this desired state. The incentive that impels a man to act is always some uneasiness.’20 Murray N.  Rothbard usefully distinguishes between ‘power over nature’ and ‘power over man’. It is easy to see that an individual’s power is his ability to control his environment in order to satisfy his wants. A man with an ax has the power to chop down a tree; a man with a factory has the power, along with other complementary factors, to produce capital goods. A man with a gun has the power to force an unarmed man to do his bidding, provided that the unarmed man chooses not to resist or not to accept death at gunpoint. It should be clear that there is a basic distinction between the two types of power. Power over nature is the sort of power on which civilization must be built; the record of man’s history is the record of the advance or attempted advance of that power. Power over men, on the other hand, does not raise the general standard of living or promote the satisfactions of all, as does power over nature.21

The modern concept of ‘human rights’, tainted by Rousseauian thinking, fundamentally confuses freedom and power. In fact, in many cases, ‘human rights’ violate liberty by using the ‘power over men’ embodied in the state to coerce individuals to sacrifice their ‘power over nature’ for the benefit of others. As Paul L. Poirot puts it in 1962, ‘human rights’ are more properly defined as ‘special privileges conferred upon some persons at the expense of others’.22 In the allocation of scarce resources which have alternative uses,23 as Mises noted, there are only two methods: trade and force.24 Despite the claims of countless despots and politicians, there is no ‘third way’. If individuals are not to take resources from others by coercive means, then they must acquire them through trade.25 Let us return to the passage by Locke above and focus on his call that individuals ‘ought … as much as [they]

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can, to preserve the rest of Mankind’. It is possible that Locke was simply repeating the conventional Christian call for charity for the needy and unfortunate. However, there is a second sense in which we may interpret this phrase: that individuals may dedicate themselves to ‘preserving the rest of mankind’ by producing things that their neighbours want and offering them for provision in exchange for money. Since individuals will only trade their own resources for things they want, the producer of consumer goods must, by definition, be satisfying some need or else their business would not sustain itself. This is the central insight of Adam Smith: ‘In the absence of coercion, [individuals] can realise [their] self-­ interest only in serving the interests of others; so in helping themselves, they help others too.’26 This is a positive-sum game in which all participants gain. Naturally, some individuals in this system of trade will have greater resources and therefore greater purchasing power than others. Assuming the total absence of coercion, this can only be because they have provided more things that people want when compared with others or that they have inherited the wealth from a relative who did. The inheritor of wealth who ceases to provide things that people want will see their resources dwindle over time. Because it is both proportional and reciprocal, trade is the fairest system of allocation.27 However, as Niccolò Machiavelli noted in 1517, ‘human appetites are insatiable’.28 People tend to want more than there is, and so the system of prices that underpins market exchange is ultimately a form of rationing. Allocating resources in some way other than trade does not resolve the need for rationing: ‘there would be the same scarcity under feudalism or socialism or in a tribal society.’29 Since the only other method of allocation is force, what happens in those societies is that some people gain at the expense of others. When you replace market mechanisms with central command and control planning, every decision becomes a zero-sum game. Since government properly defined constitutes a monopoly of violence its scope for oppression is great. Politics is force by another name. As Mises said, ‘it is the characteristic mark of state and government that they apply violent coercion or the threat of it against those not prepared to yield voluntarily.’30 It stands to reason, therefore, that the defender of liberty should seek, in Rothbard’s phrase, ‘the separation of government

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from virtually everything’.31 Since the precondition of liberty is the establishment of rule of law—that is, a mechanism to ensure that violations of the non-aggression principle are properly punished—thinkers in the liberal tradition have been split for over two centuries on what the precise limits of governance should be. Broadly, there have been three positions: 1. ‘the social safety net’, in which in addition to the functions of the ‘night-watchman state’ detailed below, and assuming it can afford it, the state administers necessities such as food, clothing, and shelter to the poorest individuals and/or maintains some public infrastructure such as roads; 2. ‘the night-watchman state’, or ‘minarchist’ view, in which the state provides the basic law and order functions of the courts, the police, and the military; and 3. ‘anarcho-capitalism’, in which the state has been abolished and all functions are handled by private enterprise on the free market. Each of these three positions confronts some major obstacles and challenges. For those who accept the social safety net, the immediate question is to how and why the line is drawn. Since there is no moral objection to a safety net, then why not indulge in welfarism beyond this? Arguments from utility or efficiency (the stance mostly adopted by Milton Friedman) or even practicality (this is ultimately F.A. Hayek’s view vis-à-vis the knowledge problem) do not preclude the theoretical possibility that more concessions to welfarism might be made. Those who maintain the minarchist position must grapple with the conundrum of how to stop the state from growing beyond their desired limit. This is not a problem of political system, since the issue persists under aristocracy, absolute monarchy, or democracy. This is because, no matter the system, as Friedman puts it, ‘political power by its nature tends to be concentrated’.32 That a given leader has the backing of most people does not necessarily serve as a check on their power. As Wordsworth Donisthorpe of The Liberty and Property Defense League observed in 1891:

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We may agree with John Locke that there ought to be some limit to despotism, and we may keep on shifting the concentrated force from the hands of the One to those of the Few; from the hands of the Few to those of the Many; and from the hands of the Many to those of the Most—the numerical majority. But this handing of power cannot alter its nature; it still remains unlimited despotism, as Hobbes rightly assumes.33

Lord Acton puts it more pithily: ‘Absolute power and restrictions on its exercise cannot exist together. … Democracy tends to the unity of power.’ Acton’s own solution was a ‘restricted federalism’; however, it is worth noting that he supported the American secessionists in the Civil War and wrote of being ‘broken hearted’ at Robert E. Lee’s defeat. Acton seemed to envision a system of smaller micro-nations under an umbrella macro-­ state, perhaps somewhat similar to the current European Union, albeit one would imagine without the Kafka-esque regulatory framework.34 Those who defend the anarcho-capitalist position, meanwhile, face some altogether different challenges. First, in convincing others even to conceive of an ordered society without a state—which is beyond the imagination of the vast majority of people. Second, in convincing others that life in the stateless free society would be preferable to the current situation under the state. Third, assuming their desired arrangements could come about, anarcho-capitalists must explain what safeguards there might be against new states inevitably forming, since it is not obvious or guaranteed that they would not. And then we are back to square one. The inextricable logic of power is that it has an incentive to grow at the expense of liberty. There is a paradox: power is the prerequisite and guarantor of the rule of law on which the system of liberty depends, and yet power and liberty have a directly inverse correlative relationship. Let us imagine respective ratings out of ten for power and liberty, where a ten out of ten rating is full totalitarian state control, and one is life under anarcho-capitalism35; the relationship between power and liberty thus follows this general pattern (Table 1.1). We must accept a modicum of power or there is no liberty, but how can we halt its will to grow? This central puzzle has preoccupied most of the thinkers I discuss in this book.

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Table 1.1  The relationship between power and liberty Power

Liberty

0 1 2 3 4 5 6 7 8 9 10

0 10 9 8 7 6 5 4 3 2 1

Human Nature While human nature is complex, it is not unknowable. Indeed, there are many things that we know about it. Humans are social creatures, marked by an ability to communicate and cooperate with each other in a way that distinguishes us from most other mammals. We have the capacity to feel compassion for the suffering of others. However, unlike ants or bees, we are not able to eliminate individual self-interest to become entirely altruistic.36 Also, our sociability does not extend to all of humanity, but rather to specific groups. Humans are tribal. Even since the development of the nation state, and beyond that globalism, most people consistently show strong revealed preferences for the in-group as compared with out-groups. These groups demand loyalty and respect for authority. They also demand a proportional fairness that will not tolerate free riders. Individuals within such groups are acutely aware of hierarchical status. We are also prone to competition both between groups and between individuals, and such competition can and often has become violent throughout history.37 Humans are industrious in mixing the soil with their labour to produce consumer goods and entrepreneurial in finding new ways to do so.38 But we are not only creatures of work; we show a strong preference for leisure and entertainment and a deep desire to experience beauty. Partly to fulfil this demand, and partly to foster greater social cohesion in tightening the moral foundations that bind us, we produce art and tell stories,

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not only about the past, but also about fictional events.39 We typically enjoy admiring art, taking in entertainments, or even just relaxing, thus leisure is desirable. Labour, meanwhile, is not always desirable and yet it is a permanent feature of human life in all known history; without it the species would die out. Given this proclivity for both labour and leisure, individuals thus must choose how much time to allocate to each. In order to devote time to labour for the accumulation of consumer goods necessary for survival, individuals must forego leisure.40 This is an inescapable fact of life. The utopia of superabundance cannot come about, because even if we had every worldly good at our disposal in unlimited supply—and if we can imagine a world in which we no longer need to have haircuts, take transport, or use any other service—our days are still rationed by minutes and hours. Post-scarcity can never happen because time is always a scarce resource. Furthermore, leisure is subject to the law of diminishing marginal utility,41 and eventually enjoyment will diminish to the point where the boredom and inertia of idleness would result in a desire to reallocate one’s resources to more productive ends. This is a phenomenon that psychologists have called ‘idleness aversion’.42 It perhaps explains the persistence of Aristotle’s notion of eudaimonia, which has been variously reinvented as ‘the calling’ in the theology of John Calvin—later dubbed ‘the Protestant work ethic’ by Max Weber—and ‘self-actualisation’ in Maslow’s hierarchy of needs.43 Ayn Rand built her entire philosophy on this concept.44 It has also long supported a massive self-help industry. Humans near automatically sort, categorise, label, and rank everything they observe. There is a natural tendency, then, for taxonomy: classification is a permanent feature of the way we see the world universal to all known cultures.45 But such classifications are seldom neutral and most often hierarchical. Individuals are not all created equal in respects to their physical attributes or their talents. We have differential traits in terms of height, weight, speed, strength, intelligence, and attractiveness. Some capabilities might be developed through training, but every individual operates against hard genetic limits on their full potential. I might very well train to sprint faster than I can right now, but it is likely impossible for me to compete at the Olympics.46

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The human propensity for classification and the diversity of individual talents combine to produce specialisation and the division of labour. Individuals are at their most useful to their fellow humans if they focus their efforts on those areas at which they are most productive. If Peter has a talent for baking bread and Paul for chopping meat, the whole society is better served if Peter specialises as a baker and Paul as a butcher. More bread and meat are produced than if Peter and Paul both divided their time between baking bread and chopping meat. In fact, as per Ricardo’s Law of Association, this even remains true if Peter is better than Paul at both baking bread and chopping meat.47 Egalitarianism—that is, the belief that the differential outcomes produced by these various attributes might somehow be equalised—can be explained in one of three ways. First, at the most basic emotional level, it is the misapplication of compassion. Second, at the level of critical analysis, it is a simple confusion about cause and effect. Third, at the more sinister ideological level, it is an attempt to impose a fundamentally unachievable utopian vision onto reality.48 Humans are capable of reason, and yet most of our thinking is intuitive and emotional, prone to systematic confirmation biases and various other heuristics. Empirical data have proven David Hume right that reason is ‘the slave of the passions’.49 The vast majority of reasoning turns out to be post-hoc justification for decisions already made by instinctual intuition. Furthermore, our relative blindness to these heuristics leads to a systematic overrating of our capabilities, our contributions to projects, our capacity to assess risk, and our ability to predict the future.50 Humans are thus guilty of endemic hubris, which likely explains why the tale of Icarus who flew too close to the sun was codified into a narrative by ancient wisdom.51 Nonetheless, humans are capable of the deeper cognitive process that we call reason. Reason is not the norm for humanity, but it is humanity at its best. Allied to this is the fact that humans are agents in the world who have a capacity to think and therefore to make decisions and to act. Every action entails a choice. Individuals must constantly weigh up alternatives and choose. We can call this capacity for choosing and acting in the absence of coercion, liberty. Every individual has different preference scales for every decision they make. Such scales are ordinal not cardinal.

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We cannot know what drives any other person to make the decision they did, but we can observe their revealed preference in the action that they took.52 Nonetheless, there are certain enduring propensities we can observe in human decisions when self-interest and reason are combined. If Bob is selling a book, which in his mind is worth $5, and he receives offers of $10 from Alice and one of $100 from Mike then which offer does he take? Humans will have a strong tendency to take the higher offer. If Bob were a purely altruistic and irrational being, he would tell both Alice and Mike that the book is only worth $5 and in the strict interest of fairness he will only take $5 for it. However, there is only one book, so how can he decide to sell it to Alice or to Mike? If he sells the book to Alice, in her mind she has got it for cheap, and perhaps Mike—who wanted the book a lot more—might be outraged and harbour a grudge against both Bob and Alice. In trying to be fair, Bob has made the situation much worse than it might have been. It stands to reason, then, that the fairest action here is for Bob to sell the book to Mike for $100. Both are happy, and Alice can be safe in the knowledge that someone paid ten times over her calculated odds for the book. In the final analysis, self-interest and reason produce a fairer and more favourable outcome for all than an irrational attempt to be ‘fair’ driven by misplaced altruism. Finally, an often-overlooked aspect of human nature is time preference. We must make decisions and act in time, and so the element of time factors into all our judgements. Just as most people will take the higher offer above the lower one when selling an item, when given a choice between $100 now and $100 in one week’s time, most will take the money today. Present goods therefore have a higher value than future goods, partly because we want it now, and partly because of the element of risk. However, if the choice is between $100 today and $1000 in one month’s time, the decision is more difficult. Some will take the money now (high-time preference) and some will have the foresight to delay consumption for the promise of a higher reward in a month (low-time preference). However, in so doing, they take a risk since any number of things could happen in a month.53 Most people are both risk averse and loss averse, but to make profits an individual must speculate about the future, delay their own consumption, and take a risk on the prospect of

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future returns.54 Planning for the future thus always entails judgement under uncertainty; there is no such thing as a sure bet.55 As Machiavelli famously puts it, fortune is like ‘one of these violent rivers which, when they become enraged, flood the plains, ruin the trees and the buildings, lift earth from this part, drop in another’.56 We can take every precaution, make every contingency plan, but we can never eliminate uncertainty or risk. Just as individuals are unequal in other respects, so they have different propensities for risk-taking.57 In these short few passages, I have summarised established facts about human beings to which no serious scholar who respects reason, evidence, or observable history would deny. The question for us is the extent to which the vision of liberty that I am seeking to uphold in this book is commensurate with these established facts. This question shall remain in focus in my discussion of the thinkers in the following chapters. Even here at the outset, there are several potential stumbling blocks. I will touch on just two. First, it has been established that humans are naturally tribal, and this, at face value, seems to jar with the phrase ‘individualism’, I will return to this question in my definition of the term below. But, for now, it will suffice to say that the apparent contradiction between ‘tribal’ and ‘individualist’ is based on a misunderstanding of what is meant by the second term. ‘Individualism’ does not refer to an atomistic individualism which assumes that humans cannot cooperate and are only for themselves, purely selfish creatures, it refers rather to ‘methodological individualism’ which maintains that the individual must be the smallest unit of analysis. It also maintains that only individuals can make decisions and act; collectives are not and can never be decision-making units, they are simply descriptions for groups of individuals.58 Second, liberalism is predicated on humans taking the most reasonable course of action in the long run. We have seen that reason is the exception rather than the rule for human decision-making. This may be resolved very simply by distinguishing between economic and political decisions. In economic decisions, the individual actors need only concern themselves with their immediate interests. The baker needs only concentrate on turning a profit from their bread-making activities. The purchaser of the bread needs only think about satisfying their desire to eat

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bread in trading their money in exchange for it, and so on. Even the capitalist and entrepreneur when forecasting for their investments need only concentrate on one market for their opportunity. In making these sorts of decisions, individuals only need reason enough to focus on a desired end and then on devising means to achieve it. The market coordinates their efforts without design by a ‘master mind’.59 Political decision-making, however, whether for leaders, or for the voters in a democracy, is a whole different matter. One reason for this is because, as politics is force by another name, it is only ever involved in making zero-sum decisions. Resources are simply taken from place A and relocated to place B.60 Most often this reallocation is carried out in the form of taxation coerced from the multitude and funnelled to special interest groups.61 The nature of such decisions, therefore, sends passions flaring. Everyone wants to be on the winning side, and naturally, not everyone can win. In the arena of political decision-making, therefore, the emotional dog does indeed wag the rational tail.62 Political leaders with an eye on their own popularity are prone to making short-term, high-time preference decisions that have deleterious effects in the long run.63 Likewise, voters have trouble thinking beyond their immediate interests and often vote for bad policies or else for politicians who make promises they cannot possibly keep.64 Here there are no solutions, only trade-offs.65

Individualism As we have seen definitions are important, especially because the enemies of liberty often twist words to mean the opposite of their original definitions. This is especially the case with ‘individualism’, which perhaps more than even ‘liberalism’ and ‘liberty’ has been subject to linguistic terrorism. As F.A. Hayek complained: [T]he same term often means nearly the opposite to different groups. … No political term has suffered worse in this respect than ‘individualism’. It has not only been distorted by its opponents into an unrecognizable caricature—and we should always remember that the political concepts which

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are today out of fashion are known to most of our contemporaries only through the picture of them drawn by our enemies—but has been used to describe several attitudes toward society which have as little in common among themselves as they have traditionally regarded as their opposites.66

Hayek distinguishes between ‘true’ and ‘false’ individualism. For Hayek, ‘the fundamental attitude of true individualism is one of humility toward the processes by which mankind has achieved things which would not have been designed or understood by any individual and are indeed greater than individual minds.’ This is the spontaneous order tradition of Smith, Burke, and Hume. The false individualism meanwhile is that derived from the Cartesian rationalism of Rousseau, which has a more hubristic, unconstrained, and utopian vision of what human beings can know and achieve by design. We are back with the philosopher kings of Plato’s republic. Hayek argues this second, ‘false’ form of individualism is actually collectivism in disguise and will lead ‘directly to socialism’.67 I have discussed much of this already in the prior section on ‘Human Nature’, but suffice it to say that just as with the Rousseauian concept of liberty, the version of ‘individualism’ that spawned from that intellectual line has no place in the liberal tradition. Neither is individualism what Patrick J. Deneen seems to think a form of libertinism or hedonism.68 To clarify the definition of individualism that will serve for the remainder of this book, let us look at one of the most wilfully misunderstood passages of the late twentieth century in Britain, namely Margaret Thatcher’s statement in an interview in Women’s Own magazine: [T]hey are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families and no government can do anything except through people and people look to themselves first. … There is no such thing as society.69

It is obvious from this that Thatcher did not literally mean ‘there is no such thing as society’, she was talking figuratively. What she meant was that ‘society’ is not a decision-making unit. The only agents that can think and act are individuals. ‘Society’ is a merely descriptive term, it refers to a group of individuals living in a time and place, but it has no

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mind of its own. As Ludwig von Mises puts it, ‘Society neither thinks nor acts. Individuals in thinking and acting constitute a complex of relations and facts that are called social relations and facts.’70 This is the key insight of what is typically meant by ‘individualism’: when analysing human affairs, the individual should and must be the smallest unit, groups and collectives cannot act except through the separate wills of individuals. However, Thatcher makes a second claim in the same interview: It is our duty to look after ourselves and then also to help look after our neighbour and life is a reciprocal business and people have got the entitlements too much in mind without the obligations, because there is no such thing as an entitlement unless someone has first met an obligation.71

This is a restatement of John Locke’s ‘when [their] own Preservation comes not in competition’, individuals ‘ought … as much as [they] can, to preserve the rest of Mankind’, as quoted above. By stressing reciprocity, Thatcher emphasises trade as the bedrock of cooperation between individuals. This is nearly identical to how Mises defines methodological individualism in Human Action (1949): First we must realize that all actions are performed by individuals. A collective operates always through the intermediary of one or several individuals whose actions are related to the collective as the secondary source. … For a social collective has no existence and reality outside of the individual members’ actions. The life of a collective is lived in the actions of the individuals constituting its body.72

And later: ‘Society is concerted action, cooperation. … The individual lives and acts within society. But society is nothing but the combination of individuals for cooperative effort.’73 When Mises says, ‘cooperative effort’, he means, just as Thatcher did, the mutual reciprocal benefit brought about by trade through the division of labour. And it is precisely on the understanding of this idea of cooperation through the reciprocal trading arrangements brought about by the division of labour that the enemies of liberty become so confused in their mangling of ‘individualism’. This largely owes to two factors. The first,

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and there is no kind way to say this, is that they do not read the key materials written by the defenders of liberty carefully. Attempts to discuss liberalism by its enemies frequently result in the painful exposure of their unfamiliarity with the tradition. As Hayek noted in my earlier quotation, too often they rest on caricature and strawmen rather than direct engagement. Hence, in one particularly egregious example, we are told without a hint of awareness that Russell Kirk—a staunch and romantic conservative, who was still lamenting the repeal of the Corn Laws in 195374—was, in fact, a classical liberal! The author quickly footnotes that the terms ‘classical liberal’ and ‘conservative’ are ‘largely interchangeable’.75 It is a shame that nobody ever told Kirk himself this, he would have saved himself a lot of ink. The second reason for confusion, and again there is no kind way to say it, is the near total ignorance of economics among the enemies of liberty. To illustrate this point, and so as not to deal with strawmen myself, let us turn to an anti-liberty thinker who was much more robust than most in his critique of individualism, C.B. Macpherson. There is much to admire in the clarity of the exposition in his classic study, The Political Theory of Possessive Individualism, but perhaps it will be instructive to pinpoint exactly where he goes wrong in his otherwise lucid account. He posits that a functional possessive market society requires the following postulates: 1 . There is no authoritative allocation of work. 2. There is no authoritative provision of rewards for work. 3. There is authoritative definition and enforcement of contracts. 4. All individuals seek rationally to maximise their utilities. 5. Each individual’s capacity to labour is his own property and is alienable. 6. Land and resources are owned by individuals and are alienable. 7. Some individuals want a higher level of utilities or power than they have. 8. Some individuals have more energy, skill, or possessions, than others.76

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So far, so good. There is little if anything to which a defender of liberty would object in Macpherson’s definition. But now we come to economic matters and Macpherson’s reason seems to abandon him: As between a simple market model (where everyone has land or materials to work on) and the possessive market model (where some men have no land or capital of their own), what some men have lost is free access to the means of turning their capacity to labour into productive labour. Having lost this part of their powers they must continually sell the remainder of their powers to those who have land and capital, and must accept a wage which allows part of the product to go to the owners of land and capital. This constitutes a transfer of part of their powers to others. It is a continual transfer, since it proceeds as production takes place.77

There are two principal issues with this analysis, which is a soft rehash of Marxist exploitation theory: first, his attempt to differentiate labour from other commodities, and second, his claim that there is a ‘continuous transfer’ of powers from workers to their employers. I shall deal with both of these in turn. Macpherson seems to want to make a distinction between labour and other commodities traded on the market, but there is no sensible reason to make this. When two items are traded, both parties in the trade must make a profit in their own mind. If Bob agrees to exchange his loaf of bread for Alice’s fish, he wanted the fish more than he wanted the bread. By the same token, Alice wanted the bread more than she wanted the fish. They both made a ‘psychic profit’.78 In the same way, if Bob has $5 and agrees to exchange it with Alice’s fish, he wanted the fish more than he wanted the $5, while Alice wanted the $5 more than the fish. And in the same way again, if Bob agrees to work for Alice as a fishmonger on her stall in exchange for $10 an hour for eight hours a day, it is because he wants the $80 a day more than he wants eight hours of idle leisure time. By the same token, Alice wants help on her fish stall more than she wants the $80 a day. Bob, while giving up his time and efforts, still ‘profits’ from the exchange otherwise he would not agree to it. For some reason Macpherson seems to ignore this part of the transaction. He forgets that trade is always a positive-sum, not a zero-gum, game. This is because he

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is not focused on the exchange of money for labour that is taking place, but rather on the returns accruing to the owners of land and capital. This brings us to his second claim, which is that powers ‘continuously transfer’ from workers to their employers, in my example from Bob to Alice. But this is simply not true. Macpherson overlooks three crucial facts of life in a market economy: first, the role of time; second, the fact that the owners of capital and land can make a loss; and third, the role of savings and investment. To return to our example, Alice pays Bob his $80-­ a-­day up front, that is, before she sees the returns on her investments. Let us say that Bob is paid in a lump sum at the end of the week after five days of work. Alice has already paid the wholesale prices for the fish that were sold all week; she must also pay the maintenance costs of the stall, plus bills, rents, and any other costs. Alice will find out if she has made a profit after she has paid all this and Bob’s weekly salary. Therefore, Bob is paid whether or not Alice has turned a profit. Let us pretend that, after paying all her costs, Alice has made a loss this week of $10. This means that after a week, Alice is $10 down and Bob is $400 up. Obviously, this situation cannot continue indefinitely, or else Alice will have to close the stall. Bob, of course, does not have to spend all his $400; he can delay consumption and save his money. Eventually, Bob might be able to afford a fish stall of his own. Perhaps after Alice has gone out of business, he might make a bid for her old stall to try his own hand at turning a profit in the tough world of selling fish. But we can see from this example that it is a patent nonsense that powers ‘continuously transfer’ to the owners of land and capital. Those owners must constantly make decisions under uncertainty, and there is no guarantee that they will see returns from their endeavours. In the real world, there are whole sectors of the economy where companies struggle to turn profits. For example, in the US tech sector which employs thousands of people, in 2017 only 17% of companies were profitable.79 To use Macpherson’s terms, what is happening here is that that the ‘powers’ of investors and shareholders are being ‘continuously transferred’ to the pay packets of the employees of these unprofitable firms. Naturally, they cannot continue to make losses indefinitely, but so long as the situation persists, their employees still get paid even as they post losses.

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And this brings us to the crux of the fatal flaw in Macpherson’s analysis, and indeed to why an individualist analysis will always be more accurate than a collectivist one. Macpherson treats ‘owners of land and capital’ as a homogenous group. This fact is exposed later in his critique when he refers to these owners as ‘a possessing class’ who unify their interests against a ‘non-possessing class’ of wage earners.80 He does not seem to care that individuals can lose their land and capital just as individuals who previously were ‘non-possessing’ can accrue land and capital to themselves through saving, shrewd investment, and entrepreneurship. Neither does he seem to care that individual members of each class might be in competition; I will return to this point presently. His analysis is entirely static. In Thomas Sowell’s words, he has confused ‘abstract statistical categories’ with ‘flesh-and-blood human beings’.81 Again, to draw on the real world, in the USA, 73% of people will find themselves in the top 20% at some point in their lives, and 39% of people in the top 5% for at least a year. A total of 12% will find themselves in the top 1% for a year.82 What does it mean for ‘powers’ to be ‘continuously transferring’ from one group to another when the individuals in those groups are continuously changing? Even beyond this, even on Macpherson’s own terms, the claim is factually untrue. A look at empirical data for the UK reveals that the top 1% possessed a 70% share of wealth in 1895 but this continuously fell during the twentieth century until it reached 20% in 2015. Similarly, the top 1% had a 70% share of estates in 1895 and this had reduced to around 18% in 2015.83 Plainly this is not a ‘continuous transfer’ of powers from Macpherson’s ‘non-possessing class’ to the possessing one. Furthermore, real wages increased 521.17% from 1895 to 2015, while the Consumer Price Index has only risen 99% in that time, which means the purchasing power of the average wage earner has increased.84 We have seen, then, that Macpherson’s analysis fails to withstand scrutiny when approached by reason or by the evidence. This is because it based on a false premise: namely, that society has two abstract statistical categories of collectives of a ‘possessing class’, who have shared interests, and a ‘non-possessing class’ who also have shared interests which are antagonistic to the first group. As ever, Mises provides the doctrinal liberal view:

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For the sake of argument we may admit that man’s thoughts must result in doctrines beneficial to his interests. But are a man’s interests necessarily identical with those of his whole class? Marx himself had to admit that the organization of the proletarians into a class, and consequently into a political party, is continually being upset again by the competition between the workers themselves. It is an undeniable fact that there prevails an irreconcilable conflict of interests between those workers who are employed at union wage rates and those who remain unemployed because the enforcement of union rates prevents the demand for and the supply of labor from finding the appropriate price for meeting.85

And later: The first error in this interpretation is that it considers the ‘bourgeoisie’ as a homogeneous class composed of members whose interests are identical. A businessman is always under the necessity of adjusting the conduct of his business to the institutional conditions of his country. In the long run he is, in his capacity as entrepreneur and capitalist, neither favored nor injured by tariffs or the absence of tariffs. He will turn to the production of those commodities which under the given state of affairs he can most profitably produce.86

Collectivists have no answer to this point. To rebut it they must invent spurious concepts, such as ‘false consciousness’,87 to explain away workers acting in their own interests, which was later extended to all individuals living under capitalism.88 Collectivists also must reckon with another fact that Mises raised: The We cannot act otherwise than each of them acting on his own behalf. They can either all act together in accord; or one of them may act for them all. … Only in this sense does the officer of a social entity act for the whole; the individual members of the collective body either cause or allow a single man’s action to concern them too.89

We have seen all through history how it goes for people to put their trust in a single person to act on their collective behalf. Individual members of the collective might project their own desired preferences onto their ruler

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and it is this hope that sustains their support, but in the end only one person will decide, and invariably they will act in their own interests. The critiques of intellectuals such as Macpherson can be understood as little more than post-hoc rationalised justifications for their own projected and ultimately emotional desires. In this case, it boils down to the problem with which we started, Locke’s call that individuals ‘ought … as much as [they] can, to preserve the rest of Mankind’. Intellectuals such as Macpherson imagine that this means that ‘society’—that is, the men and women who comprise it—should be helping those people who lack the productivity to help themselves for ‘free’, by compulsion if necessary. Leaving aside the question of whether such people are, in Herbert Spencer’s phrase, ‘deserving’ of such help,90 the intellectual’s emotion wells up, and rather than acting on it by private charity, instead it leads them to chastise ‘society’. The intellectual writes furious articles, or gives sermons on the mount, lambasting his or her fellow individuals that ‘something must be done’. Invariably, what they mean is that the separate interests of all the other individuals should be overridden by their own, with the use of coercion. As George Orwell wrote in 1946: [Intellectuals] look towards the USSR and see in it, or think they see, a system which eliminates the upper class, keeps the working class in its place, and hands unlimited power to people very similar to themselves. It was only after the Soviet régime became unmistakably totalitarian that English intellectuals, in large numbers, began to show an interest in it.91

Utopians tend to imagine themselves in charge. To come back to the case in hand, the enemies of liberty imagine that if state-backed help for those they deem needy is not provided by threat of violence, the ‘selfish’ and individualistic market will ignore them. This is simply not observed. Private charity has a directly inverse correlation with levels of taxation: the lower the tax burden, the more people give of their own volition to the least well off. As one example, in 2006 the citizens of the USA gave 1.67% of their GDP to private charity, while the people of the UK, which has a bigger welfare state and higher taxes, gave 0.73% which is still generous compared to the French who have a much larger bureaucratic state and gave only 0.14%.92

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To summarise, when I use ‘individualism’ in this book, it is to refer to the fact that only individual human beings can think and act. Collectives are only descriptive labels for groups of individuals who, by nature, always have separate interests. For a ‘collective’ to act they must anoint a representative to do so on their behalf, but this representative is still ultimately just one individual with their own interests and personal motivations. This, of course, remains as true of government as it does of any other walk of life—if not more so considering the sizable personal incentives individuals might have to get close to the levers of power. Individualism, however, does not entail the abnegation of personal responsibility implied by hedonism or libertinism. Neither does it entails the shunning of the ‘social’ side of human nature. On the contrary, in the absence of coercion individualism promotes cooperation which is facilitated by the market mechanism and does not need top-down coordination or explicit design from a philosopher king.

Property Rights So far we have seen that liberal thinkers have largely been united in their definitions of liberty and individualism. Liberty is defined as non-­ aggression, which is a universal and equal right for all humans, sometimes called ‘the law of equal freedom’.93 Individualism is defined by the fact that only individuals can make decisions and act on them and the fact that collectives are not decision-making units but simply descriptions of groups of individuals; therefore, the individual must be the smallest unit of analysis in human affairs. However, although all defenders of liberty hold private property as being fundamentally important for freedom, they have differed in how they justify it. Accordingly, my discussion in this section must be much fuller than in those prior. Norman P. Barry divides thinkers in the liberal tradition between ‘consequentialists’ and ‘rights theorists’.94 We can subdivide these two categories further. In the consequentialists’ camp, there are deductive and positivist utilitarian approaches. In the rights theorists’ camp, there are those who advocate the Lockean labour theory of property and those who lean on pre-social customs of property rights which evolved as a naturally

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emergent phenomenon before the formation of any state or government. In fact, those who argue from customs tend to posit that property rights are a precondition for civilisation itself. The consequentialist approach is the oldest with its origin in Ancient Greece. Democritus (460–370BC) argued that private property leads to superior economic results in terms of both efficiency and total wealth, because individuals make better use of resources when they own them.95 Aristotle largely agreed arguing that ‘when everyone has a distinct interest, men will not complain of one another, and they will make more progress, because everyone will be attending to his own business. … how immeasurably greater is the pleasure, when a man feels a thing to be his own’.96 This is ultimately the same justification as that found in Adam Smith and all later economists who argued from consequences, who include William Stanley Jevons, Ludwig von Mises, Lionel Robbins, Henry Hazlitt, Milton Friedman, George Stigler, and Ronald Coase. Keen readers will note that I have not mentioned the most famous exponents of utilitarianism here, Jeremy Bentham or John Stuart Mill. This is for two reasons. First, I do not consider these thinkers ‘defenders of liberty’. Despite Mill’s incredibly famous On Liberty (1859), his reputation, as Ralph Raico argues, is ‘vastly inflated’ because he is ‘responsible for key distortions in the liberal doctrine on a number of fronts’.97 Second, they followed David Ricardo’s Labour Theory of Value which posits that value is in some sense objective and therefore measurable. As William Stanley Jevons puts it: The conclusion to which I am ever more clearly coming is that the only hope of attaining a true system of economics is to fling aside, once and forever, the mazy and preposterous assumptions of the Ricardian school. … When at length a true system of economics comes to be established, it will be seen that that able but wrong-headed man, David Ricardo, shunted the car of economic science on a wrong line—a line, however, on which it was further urged towards confusion by his equally able and wrong-headed admirer, John Stuart Mill.98

One issue with Mill’s utilitarianism is that, like Thomas Hobbes, he views property rights as positive rights—that is, a right bestowed, and just as

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easily taken away, by government. Another, and perhaps more fatal one, is that he abandons individualism not only by adopting Rousseau’s erroneous definition of it, but also by indulging in crass class analyses. His calculations also presume to know the interests of the majority on their behalf. With Mill, we have already taken several steps on the road to serfdom. In Knowledge and Decisions (1980), Thomas Sowell encapsulates the value-free consequentialist mode of arguing for private property: This goes to the heart of why property rights are socially important in the first place. Property rights mean self-interested monitors. No owned creatures are in danger of extinction. No owned forests are in danger of being levelled. No one kills the goose that lays the golden eggs when it is his goose. Even chickens who lay ordinary eggs are in no danger of being killed before their replacements have been provided. No logging company is going to let its own forest become a mass of stumps, though it may do that on ‘public’ land. By creating monitors with a vested interest in the maximization of a given set of values, property rights reduce the social cost of monitoring efficiency. …. [T]he right of free speech is not an opaque ‘sacred’ right of an individual, any more than other rights such as property rights are ‘sacred’ individual possessions. All are justified (or not) by the litmus test of their social expediency.99

Sowell is explicit that his arguments for the free market are ‘not moral’. Private property is justified for its maximisation of utility ‘from the point of view of the efficiency of the economy as a whole’.100 However, consequentialist justifications for private property are split along epistemological grounds between those, such as Ludwig von Mises and other members of the Austrian School of Economics, who use deductive reasoning from a few self-evident principles to demonstrate the greater efficacy of private property over common property, and those, such as Milton Friedman and other members of the Chicago School of Economics, who use inductive reasoning from empirical evidence to show the same thing. This epistemological divergence between a priori and a posteriori reasoning has some far-reaching consequences. The Austrians reject the idea that economics can be a hard science like physics

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because there are no constant variables in human affairs. The Chicago School, meanwhile, are thoroughgoing positivists who utilise mathematical models and Rational Choice Theory to make testable and falsifiable predictions about the real world.101 Following Carl Menger, the Austrian School, perhaps owing to its rationalism, is much more consistent in both its adherence to subjectivism and in keeping economics value-free. Somewhat confusingly, given the name ‘rationalism’, Austrians make no assumptions about the rationality of individual actors in the economy—that is, they do not say that their decisions will be maximally efficient in achieving their own desired ends. ‘We live in a world of uncertainty. Efficiency is therefore a chimera.’102 As William Jaffe memorably puts it, Menger’s economic man is ‘a bumbling, erring, ill-informed creature, plagued with uncertainty, forever hovering between alluring hopes and haunting fears, and congenitally incapable of making finely calibrated decisions in pursuit of satisfactions’.103 We know individuals have ends, but because all value is subjective and because we cannot read minds, we cannot know what those ends might be in any specific case. Mises is particularly consistent on this point. Let us say we see Bob walking down the street with his arms full of bananas. We witness him employing means to some end. In this case, he believes that the Mighty God of Apes, King Kong, is due to arrive and wishes to pay him homage. From any ‘objective’ third-party viewpoint we might scoff at Bob’s ‘irrational’ behaviour as having practically no utility, especially since we suspect that there is no King Kong, but from Bob’s own point of view his actions are perfectly rational. Hence the tribal dancers who perform a rain dance in the belief it will increase their harvest are no less ‘rational’ than commuters who board a train in the belief it will get them closer to work, even if, again, from the magical third-eye perspective we can see that there is higher ‘social utility’ in taking the train to work than dancing in the hope it will rain. Because people can have such wildly competing ends, according to Mises, there can be no ‘perennial standard … of right and wrong’.104 How can one defend property rights from this position? This is his answer: Human effort exerted under the principle of the division of labor in social cooperation achieves, other things remaining equal, a greater output per

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unit of input than the isolated efforts of solitary individuals. Man’s reason is capable of recognizing this fact and of adapting his conduct accordingly. Thus social cooperation becomes for almost every man the great means for the attainment of all ends. An eminently human common interest, the preservation and intensification of social bonds, is substituted for pitiless biological competition, the significant mark of animal and plant life. Man becomes a social being.105

For Mises, private property makes this possible. As Enrico Colombatto and Valerio Tavormina write, the social arrangement in which private property is abolished is ‘of limited practical interest’, because ‘Theft is thus de facto legalised … because there are no legal owners and no member of the community has the right to prevent others from taking.’ This ‘would quickly lead to the demise of the community’, because ‘hardly anybody would produce goods and services, except for situations in which they can be manufactured secretly and consumed immediately’, or else ‘to slavery’, because ‘the most effective looters would force the rest of the community to produce and surrender their output.’106 Anthony De Jasay puts it more plainly: ‘Where everybody “owns” a thing, nobody owns it.’107 This is perhaps the central insight of liberalism.108 A small caveat must be made concerning the claim that Mises is ‘value free’ in his consequentialist ethics. According to J. Mikael Olsson, Mises does make some normative claims: On the one hand he asserts that it is people’s preferences that should be considered, on the other hand he asserts that it is the preferences of the majority that matters. By and large, this is what Mises means by utilitarianism: not the greatest amount of happiness, but the greatest possible satisfaction of preferences.109

This is true in a general sense, but Mises never presumes to know what those specific preferences might be or, indeed, how they might be calculated. The only way we would know is after the fact as a measure of total sales of consumer goods and services. Such sales would be the revealed preferences of the individuals at that given snapshot in time, which are de facto ‘satisfied’ or else the exchanges which produced those trades would

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not have been made. The greater the number of goods and services (actually bought by consumers), the greater the level of satisfaction. He holds this as a human universal: What [liberals] maintain is that the immense majority prefer a life of health and abundance to misery, starvation, and death. The correctness of this statement cannot be challenged. It is proved by the fact that all antiliberal doctrines—the theocratic tenets of the various religious, statist, nationalist, and socialist parties—adopt the same attitude with regard to these issues. They all promise their followers a life of plenty. They have never ventured to tell people that the realization of their program will impair their material well-being. They insist—on the contrary—that while the realization of the plans of their rival parties will result in indigence for the majority, they themselves want to provide their supporters with abundance.110

Although Mises strongly objected to using aggregate measures because of their many inaccuracies, his point is borne out by looking at the very strong correlation between GDP per capita and net migration. In 2016, countries with GDP per capita above $25,000 had positive net migration, and those with GDP per capita below $12,500 had negative net migration.111 When voting with their own feet, people seem to want to be where there is greater material wealth. ‘There is but one yardstick for the appraisal of human action: whether or not it is fit to attain the ends aimed at by acting men.’112 By looking at the revealed preferences as shown in net migration data, it seems obvious that those countries with GDP per capita above $25,000 are more fit to ‘attain the ends aimed at by acting men’ than those with GDP per capita below $12,500. The Chicago School, in contrast to the Austrians, were closer to the tradition of Jevons in stressing the ‘mathematical character of the sciences’, and thinking in terms of ‘pleasure and pain as quantities’,113 even as they recognised following ‘the ordinal revolution’ that it was not possible to measure utility as cardinal units.114 Accordingly, Chicago liberals tended to think exclusively in terms of welfare economics, which ‘identifies certain stakeholders as “counting” and then aggregates their utility or satisfaction’.115 A pamphlet written jointly by Milton Friedman and

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George Stigler in 1946 illustrates the point. They were writing on rent controls: The fact that, under free market conditions, better quarters go to those who have larger incomes or more wealth is, if anything, simply a reason for taking long-term measures to reduce the inequality of income and wealth. For those, like us, who would like even more equality than there is at present, not alone for housing but for all products, it is surely better to attack directly existing inequalities in income and wealth at their source than to ration each of the hundreds of commodities and services that comprise our standard of living. It is the height of folly to permit individuals to receive unequal money incomes and then to take elaborate and costly measures to prevent them from using their incomes.116

This apparently caused Ayn Rand to fly into a rage and decry the pamphlet as ‘evil’ because it failed to recognise that the central problem with rent control is that it violates property rights.117 My view is that this passage fails to be properly ‘value free’ because it has smuggled in the concept of the social desirability of equality as a normative goal. Michael Munger counters objections by arguing that this passage is only a problem ‘if you are a destinationist. A directionalist has no trouble granting the premise that equality is politically demanded, and then working out which policy that achieves that end is most consistent with efficiency and liberty.’118 I am not convinced of this. I think a more charitable reading is to say that Friedman and Stigler knew fully well that liberty and equality are ultimately incompatible ends but as a disarming rhetorical strategy to convince the enemies of liberty of their proposal. Friedman himself noted years later quoting Adam Smith that ‘equality of outcome is in clear conflict with liberty… only force or threat will work … [because it goes] against one of the most basic instincts in all human beings … “the effort of every man to better his own condition”.’119 Friedman and Stigler state later in the paper that there is ‘no solution’ that ‘can benefit everyone; some must be hurt’.120 They accepted the desired ends of the egalitarians as valid only to highlight its ultimate futility and the trade-offs that would result from their policy propose. Of course, on its own merits, Friedman and Stigler’s argument works because of the long-observed fact that rent

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controls produce the inefficient allocation of accommodation spaces, a reduction in housing stock, and therefore shortages. In other words, supply is reduced as demand is increased, and yet the price that would convey this information is prevented from being signalled which causes waiting lists and shortages. This exacerbates inequality by creating a lucky few who rent at low prices and for longer periods than they would otherwise and an unfortunate many who cannot find anywhere to live.121 This is the inevitable outcome of the zero-sum allocations produced by categorical government decision-making. An even more famous example of the Chicago School appearing to show an ambivalent attitude to property rights is Ronald Coase’s essay, ‘The Problem of Social Cost’ (1960), currently cited over 33,000 times, in which he outlines what has since been called The Coase Theorem.122 This is the problem of what is sometimes called ‘negative externalities’; let us say a factory blowing smoke onto someone’s house or a cattle-raiser’s herd wandering onto a farmer’s field. His insight was that such situations are reciprocal since ‘To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A?’ The problem is to avoid the more serious harm.123 Coase ultimately argued that with well-defined property rights, A and B can internalise the externality by striking a bargain, provided the transaction costs were low enough. However, if they were not, Coase recommended that the judge choose the party with the higher social utility. This prompted the exasperated outcry from Walter Block, ‘Coase, get your cattle off my land!’124 This is a moral objection based on the violation of property rights, especially if the judge’s ruling goes the cattle-­ raiser’s way. Perhaps it is the case that the farmer produces very few crops and the cattle-raiser brings a lot of wealth to the society. According to Coase, the judge should award in the cattle-raiser’s favour. As with the passage by Freidman and Stigler above, my main concern with the Coase Theorem is that his analysis contains the Trojan horse of a normative value judgement: namely, in this case, that ‘society’ would prefer meat at quantity X than crops at quantity Y. Lord Robbins demonstrated in 1935 the impossibility of making meaningful comparisons of interpersonal value.

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It is a comparison which necessarily falls outside the scope of any positive science. To state that A’s preference stands above B’s in order of importance is entirely different from stating that A prefers n to m and B prefers n and m in a different order. It involves an element of conventional valuation. Hence it is essentially normative. It has no place in pure science.125

The Coase Theorem puts judges and economists in the position of deciding what ‘society’ values above the separate preferences of the individuals themselves. Part of the issue is that the Chicago School accepted the notion pioneered by the Keynesian economist, Paul Samuelson, of ‘public goods’,126 which rests on the notion of ‘market failure’. For example, in Capitalism and Freedom (1962), Milton Friedman does not offer an unqualified defence of property rights. Rather, he accepts the role of government as one that helps ‘to overcome neighbourhood effects’, noting ‘The consistent liberal is not an anarchist.’127 In their many applications in the literature on ‘public goods’ and ‘market failure’, calculations of ‘social utility’ are used to justify all sorts of ‘public goods’ to be funded by taxation and provided by government from dams, to bridges, to lighthouses. Economists should not be in the business of lobbying for lighthouses, at that moment they have ceased to become the defenders of liberty and instead become the champions of a special interest group who want a lighthouse. In fairness to Coase, and somewhat ironically, he did more than anyone else to discredit the idea that lighthouses can only be provided by government.128 The issue remains, however, with the assumption that ‘social utility’ can be calculated, and, even if it can be, whether it is correct to use such calculations to make real world decisions. Robbins stated flatly that it is ‘totally illegitimate to argue that such a conclusion by itself warranted the inference that these policies ought to be carried out’.129 He was surely correct. It should be noted that both Coase and Friedman assume that we are operating under Hobbesian conditions in which eminent domain is a living reality, because ‘the government can conscript or seize property’. It should not be forgotten also that there is a strong assertion in Coase’s argument that property rights are not well defined in society as we live in it today. He also states explicitly that he thinks ‘government regulation

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should be curtailed’. However, paradoxically, The Coase Theorem opens the door to greater government encroachment of private property in the claim that its proposal ‘would seem likely to give economically more satisfactory results than adopting a rigid rule’.130 To borrow Munger’s phrase, I wonder if this takes us ‘directionally’ towards liberty or towards power. Let us assume that Bob has been talking for weeks about how he is going to punch Mike in the face. A bookmaker has taken bets on it. Friends have offered money to Bob daring him to do the deed. In fact, videos of Bob bragging about how he is going to do this have been posted on the internet, and it has gone viral, something of a sensation. Now Bob not punching Mike in the face represents a social disutility. Let us say Bob now punches Mike in the face. Since ‘the law has recognized that the general rule must admit certain exceptions, grounded in considerations of public interest’,131 it would be hard to know on what grounds Coase’s judge could rule for damages in Mike’s favour should this case go to court. The idea of courts making decisions based on ‘social utility’ is fundamentally at odds with both the strict enforcement of private property rights and individualism. Despite Friedman’s claims to ‘consistency’, I suspect this is because he and other Chicago economists are dealing with two competing senses of ‘liberty’, namely, the correct sense which I defined above as freedom from coercion, and the Rousseauian sense of doing whatever one pleases. Rousseau sneaks his way into Chicago School thinking residually through the work of John Stuart Mill, who Friedman includes in his definition of a ‘liberal in its original meaning’.132 He speaks of ‘the triumph of Benthamite liberalism in nineteenth-century England’, which was ‘followed by a reaction toward increasing intervention in the government in economic affairs’.133 But apparently, Friedman does not see a causal relationship between Bentham’s and Mill’s ideas about calculating ‘pleasure’ in the aggregate—plus the latter’s Rousseauian emphasis on democracy as a means of achieving ‘political freedom’—and the creep towards interventionism.134 Friedman’s place as one of the twentieth century’s greatest economists and champions of the free market is secure, but as a political theorist he lacked rigour. In the final analysis, the Chicago School’s defence of property rights is entirely contingent on its ‘social utility’ which its adherents assume they can calculate. In the words of David

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D. Friedman, Milton’s son who developed a full anarcho-capitalist system on consequentialist grounds alone, the Chicago defence of private property is ‘both amoral and alegal’.135 This is a good juncture to turn to those who argue on moral grounds based on natural rights in the Lockean tradition. Block, who I have mentioned, rebukes Coase by saying simply: ‘It is evil and vicious to violate our most cherished and precious property rights in an ill-conceived attempt to maximize the monetary value of production.’136 On what basis does his moral conviction rest? Block has in mind John Locke’s definition of property rights: Though the Earth, and all inferior Creatures be common to all Men, yet every Man has a Property in his own Person. This no Body has any Right to but himself. The Labour of his Body, and the Work of his Hands, we may say, are properly his. Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned to it something that is his own, and thereby makes it his Property. It being by him removed from the common state Nature placed it in, hath by this labour something annexed to it, that excludes the common right of other Men. For this Labour being the unquestionable Property of the Labourer, no man but he can have a right to what that is once joyned to, at least where there is enough, and as good left in common for others.137

Locke therefore asserts that every individual possesses self-ownership over their own body. The individual can extend ownership to other objects by ‘mixing’ it with their labour. To prove his point Locke imagines an individual picking an apple from a tree and asks, ‘When did they begin to be his? When he digested? Or when he eat? Or when he boiled? Or when he brought them home? Or when he picked them up?’138 Locke reasons that it is, and can only be, when he picks up the apple. The most faithful and rigorously systematic adherent to the Lockean concept of private property as a natural right has been Murray N.  Rothbard. In a large volume of work, but especially in For a New Liberty (1973) and The Ethics of Liberty (1982),139 he builds an entire system of ethics from the single axiom that the only human rights are property rights. Although he was an economist of the Austrian school,

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and the protégé of Ludwig von Mises, Rothbard maintains a distinction between his economics, which as per Mises, is ‘value free’, and libertarian political philosophy, which is necessarily moral. He was very clear that he did not see libertarianism as a complete ethical system, but only as a political and legal framework: ‘Only an imbecile could ever hold that freedom is the highest or indeed the only principle or end of life. Freedom is necessary to, and integral with, the achievement of any of man’s ends. The libertarian agrees completely with [Lord] Acton … that freedom is the highest political end, not the highest end of man per se: indeed, it would be difficult to render such a position in any sense meaningful or coherent.’140 Liberty is the precondition of morality, but not morality itself. ‘It is not the business of the law—even if this were practically possible, which is, of course, most unlikely—to make anyone good or reverent or moral or clean or upright. This is for each individual to decide for himself.’ The libertarian must strive to maintain for individuals ‘the most precious part of his or her humanity—the freedom to choose’; to be stripped of this freedom is to be stripped of our humanity itself.141 I am reminded of Alex in A Clockwork Orange by Anthony Burgess. He is a thoroughly immoral character who indulges in acts of ultraviolence on a regular basis, but when he is finally apprehended by the state, the authorities attempt to reprogram him so that he can no longer commit acts of evil. Alex literally throws up at the mere thought of violence. In one memorable scene as Alex is undergoing ‘aversion therapy’, the prison chaplain objects: ‘Choice? … He has no real choice has he? … He ceases to be a creature capable of moral choice.’ The doctor comes back: ‘We are not concerned with … the higher ethics. We are concerned only with cutting down crime.’ The Minister of the Interior adds that they are also concerned with ‘relieving the ghastly congestion in our prisons’.142 Liberty is thus the means to reach all other moral ends, and therefore the denial of another person’s liberty constitutes a great evil. For Rothbard, the freedom to choose depends on property in the form of self-ownership. His ethics often entail a root-cause analysis which finds that the ultimate issue at stake is a question of ownership. For example, when discussing freedom of speech, he says:

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Freedom of speech is supposed to mean the right of everyone to say whatever he likes. But the neglected question is: Where? Where does a man have this right? He certainly does not have it on property on which he is trespassing. In short, he has this right only either on his own property or on the property of someone who has agreed, as a gift or in a rental contract, to allow him on the premises. In fact, then, there is no such thing as a separate ‘right to free speech’; there is only a man’s property right: the right to do as he wills with his own or to make voluntary agreements with other property owners.143

Likewise, on the issue of street marches and protests: A particularly thorny question is the whole matter of picketing and demonstrations. … even ‘peaceful picketing’ is not clearly legitimate, for it is part of a wider problem: Who decides on the use of the streets? The problem stems from the fact that the streets are almost universally owned by (local) government. But the government, not being a private owner, lacks any criterion for allocating the use of its streets, so that any decision it makes will be arbitrary.144

As Rothbard goes on to point out in his discussion of education, whatever policy decision any government takes will necessarily create winners and losers and exacerbate social divisions.145 If an individual owns a theatre, a street, or a school, he can set the rules and policies of that theatre, street, or school, and the policies create no losers. Those who agree to the rules laid down by the owner can trade with money in exchange for his services. They would not make these trades if they did not think they might gain by them. Should the parent sending their child to an explicitly progressive school convert to becoming a conservative, they can naturally withdraw from paying the fees and relocate their child to a conservative school. But where the state insists on a one-size-fits-all model for schooling, parents have no such choice. Someone will be unhappy about perceived biases and emphases, and in the event of a compromise, perhaps even the majority would end up less happy. But for Rothbard, the reason for preferring private schooling is not in this increase of psychic satisfaction for parents or children, this is the utilitarian view. Rather, it is in the fact that public schools remove the element of choice, and

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since they have been made compulsory, children are involuntarily ‘dragooned’ into ‘vast prisons in the guise of “education”’.146 The state tries to create an army of Clockwork Oranges. One final note on the Lockean conception of property rights concerns the claims of Rothbard’s own protégé, Hans-Hermann Hoppe, to have found a single exception to Hume’s Guillotine, otherwise known as the is-ought gap. Hoppe argues that it is absurd to deny property rights because the very act of argumentation presupposes as a necessary condition the self-ownership of the other person.147 Finally, let us consider some thinkers who defend property rights because they are a natural and emergent phenomenon. In ‘On Commerce’ (1752), David Hume described the state as arising from the ‘superfluous hands’ produced by successful agriculture and manufacturing. At first these ‘superfluities’ turn themselves to producing ‘luxuries’: ‘Thus men become acquainted with the pleasures of luxury and the profits of commerce; and their delicacy and industry, being once awakened, carry them on to farther improvements, in every branch of domestic as well as foreign trade.’ All of which ‘raised in them a desire of a more splendid way of life than what their ancestors enjoyed’.148 However, such conditions render a society ripe for sustaining an army, but paradoxically as this army grows the state, it reduces the happiness produced by luxuries. There seems ‘to be a kind of opposition’, Hume says, between the greatness of the state and the happiness of the subject. A state is never greater than when all its superfluous hands are employed in the service of the public. The ease and convenience of private persons require, that these hands should be employed in their service. The one can never be satisfied but at the expense of the other.149

Hume argues that it is desirable to try to keep taxation to a minimum and widely dispersed in order to let commerce flourish because it will raise the general level of prosperity for ‘the great number of persons to whose share the productions of these arts fall’. ‘Every person, if possible, ought to enjoy the fruits of his labour, in full possession of all the necessaries, and many of the conveniences of life.’150 Hence, Hume describes the gradual emergence of the rule of law, even if his justification for

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property is ultimately utilitarian. Adam Smith largely follows, and greatly elaborates on this, in The Wealth of Nations (1776). In the nineteenth century, Herbert Spencer argued that the development of property rights was practically inevitable because the ‘desire for property is one of the elements of our nature’. He argues that ‘the right of property is deducible from the law of equal freedom, that it is presupposed by the human constitute, and that its denial involves absurdities.’151 For Spencer, as for Hume and Smith, property and trade come prior to the development of the state. He demonstrates this by citing examples from history and from various tribal peoples: ‘The fact is that property was well recognized before law existed; the fiction is that “property is the creation of the law.”’ Spencer goes on to describe in detail how property rights naturally emerge from the practical need for ‘mutual restraints’, first between tribes, and then between individuals within societies. He notes that customs which maintained property rights arose in ‘tribes which have either nominal governments or none at all’.152 It is not that societies that do not maintain property rights are impossible, but rather that the ones that do will endure through in F.A. Hayek’s phrase ‘selective elimination’.153 ‘Hayek’s evolutionism’ is the ‘consummate expression’ of this tradition of thinking about property rights.154 Even though he claims not to have read Spencer, and usually names Lord Acton as his nineteenth-century British liberal of choice, Hayek’s ideas of a liberal spontaneous order have much in common with Spencer’s. Like Spencer, and Hume before him, Hayek traces ‘the growth from the tribal organizations’ through a process that has ‘been going on for millennia’ to ‘the spontaneous order’ of a liberal society.155 For both Hayek and Spencer, property rights are founded not in labour, but rather in the notion of individual liberty. This is a subtle and easily missed point of difference from writers in the Lockean tradition such as Rothbard and his followers. For the Lockeans, property (‘self-ownership’) is the source of liberty: the non-aggression principle comes from the fact of ownership. For the evolutionists, liberty is the source of property rights: that is, the non-aggression principle is the justification for property rights.

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Table 1.2  Different positions within the broad church of liberalism Epistemology ↓ Ethics → Consequentialist

Lockean

Evolutionist

Rationalist

Murray N. Rothbard X John Locke

Herbert Spencer Thomas Sowell F.A. Hayek

Positivist Empiricist

Ludwig von Mises Milton Friedman David Hume

In closing I think it is worth summarising the myriad different positions within the broad church of liberalism. To make this easier, I have devised the below table (Table 1.2). Liberalism can thus be found on different combinations of epistemological and ethical bases. Despite their differences, the defenders of liberty often agree more than they disagree across a vast number of topics. So many of the disagreements boil down to arriving at similar conclusions in different ways and will have their ultimate source in either epistemology or ethics. In Table  1.2, I have put broadly representative thinkers in each of these boxes, but they are not always mutually exclusive. For example, as we have seen, Sowell argues from consequences, but he should properly be considered an evolutionist. For the remainder of this book it may be useful for the reader to refer back to this table to try to plot a given thinker onto it. In this chapter, I have defined the key terms of this study: ‘liberalism’, ‘liberty’, ‘human nature’, ‘individualism’, and ‘property rights’. To recap: • Liberalism is the defence of liberty. • Liberty is defined by the non-aggression principle. • Humans are naturally: social but self-interested; industrious but enjoy leisure time; diverse and unequal in attributes; intuitive but nonetheless capable of reason; prefer a lower price than a higher one when buying; and, all other things equal, prefer sooner rather than later when satisfying wants. • Individualism maintains that only individuals can act hence a collective cannot be a decision-making unit; therefore, the individual must be the smallest unit of analysis when studying human affairs.

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• Property rights can be justified consequentially or on the basis of natural rights in numerous ways, but however they are justified their defence is paramount for the maintenance of a liberal order. Now that the key terms of the study have been established, we can begin our investigation proper. I will start with the central problem of law and order by considering seriously the individualist ‘political science’ initiated by Niccolò Machiavelli and continued by the Italian School of Elite Theory and, later, by James Burnham. This will help us to understand the essential character of politics, and perhaps to explain why periods of true liberalism have been so short lived in history.

Notes 1. See, some of the most prominent among many others, Patrick J.  Deneen, Why Liberalism Failed (New Haven, CT: Yale University Press, 2018); Edward Luce, The Retreat of Western Liberalism (New York: Abacus, 2018); Jonah Goldberg, The Suicide of the West: How the Rebirth of Tribalism, Populism, Nationalism, and Identity Politics Is Destroying American Democracy (New York: Crown Forum, 2018); Yascha Mounk, The People vs. Democracy: Why Our Freedom Is in Danger and How to Save It (Cambridge, MA: Harvard University Press, 2018); Douglas Murray, The Strange Death of Europe: Immigration, Identity, Islam (New York and London: Bloomsbury, 2017). 2. On the differences between Classical Liberalism and Modern Liberalism see Ralph Raico, ‘Liberalism: True and False’, in Classical Liberalism and the Austrian School (Auburn, AL: Ludwig von Mises Institute, 2012), pp. 67–110; George H. Smith, The System of Liberty: Themes in the History of Classical Liberalism (Cambridge: Cambridge University Press, 2013), pp. 7–25; and David Conway, Classical Liberalism: The Unvanquished Ideal (New York and London: Palgrave Macmillan, 1995), pp. 25–64. 3. Herbert Spencer, The Man Versus The State (1884; Indianapolis, IN: Liberty Fund, 1982), p. 31. 4. In 2017, of 946 European districts that held top-level votes for centre-left parties declined in all but 56 of them, Jon Henley, ‘2017 and the Curious

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Demise of Europe’s Centre Left’, The Guardian (29 December 2017), available at: https://www.theguardian.com/politics/ng-interactive/2017/ dec/29/2017-and-the-curious-demise-of-europes-centre-left. 5. See Mark Thornton, The Skyscraper Curse: How Austrian Economists Predicted Every Major Economic Crisis of the Past Century (Auburn, AL: Ludwig von Mises Institute, 2018); Nassim Nicholas Taleb, Antifragile: Things That Gain from Disorder (New York and London: Penguin, 2013); Anat Admati and Martin Hellwig, The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It (Princeton, NJ: Princeton University Press, 2013); Murray N. Rothbard, The Mystery of Banking (1983; Auburn, AL: Ludwig von Mises Institute, 2008); Ludwig von Mises, The Theory of Money and Credit, trans. H.E. Batson (1912; Indianapolis, IN: Liberty Fund, 1981). 6. Milton Friedman, ‘Liberalism, Old Style’ (1955), in Milton Friedman on Freedom: Selections from the Collected Works of Milton Friedman, ed. Robert Leeson and Charles G. Palm (Stanford, CA: Hoover Institution, 2017), p. 3. 7. See Neema Parvini, ‘The Prisonhouse of Political Language’, Quillette (4 June 2018), available at: https://quillette.com/2018/06/04/ prison-house-political-language/. 8. Peter Saunders, ‘Why Capitalism is Good for the Soul’, Policy, 23:4 (Summer 2007), p. 9. 9. For a superb book-length treatment of this topic see Thomas Sowell, Intellectuals and Society, rev. edn. (2009; New York: Basic Books, 2012). See also, Ludwig von Mises, The Anti-Capitalistic Mentality (Princeton, NJ: D. Van Nostrand Company, 1956); F.A. Hayek, The Fatal Conceit: The Errors of Socialism, ed. W.W. Bartley III (Chicago, IL: University of Chicago Press, 1988); Taleb, Antifragile, pp.  41–53, 83–99; Matt Ridley, The Rational Optimist: How Prosperity Evolves (London: Fourth Estate, 2010), pp. 100–3. 10. Joseph A. Schumpeter, Capitalism, Socialism, and Democracy, 2nd edn (1942; Floyd, VA: Wilder Publications, 2012), p. 161. 11. The view of Machiavelli as the author and ‘teacher of evil’ persisted as a serious scholarly position well into the twentieth century. See, for example, Leo Strauss, Thoughts on Machiavelli (Glencoe, IL: The Free Press, 1958). Strauss argues that Machiavelli was evil for his ‘“scientific” approach to society’, pp. 10–11.

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12. Christopher Berry, ‘Adam Smith: Commerce, Liberty and Modernity’, in Philosophers of the Enlightenment, ed. Peter Gilmour (Edinburgh: Edinburgh University Press, 1990), p. 123. 13. George H.  Smith, ‘Will the Real Herbert Spencer Please Stand Up’ (1978), in Atheism, Ayn Rand, and Other Heresies (New York: Prometheus Book, 1991), pp. 239–50. 14. See Jamie Peck, ‘Remaking Laissez-Faire’, Progress in Human Geography, 32:1 (2008), pp. 3–43. 15. Indeed, Murray N.  Rothbard held that history is a ‘great conflict between Liberty and Power’: Conceived in Liberty (1979; Auburn, AL: Ludwig von Mises Institute, 2011), pp. xv–xvi. 16. See Deneen, Why Liberalism Failed, p. 48. 17. Jean-Jacques Rousseau, Emilie, or On Education, trans. Barbara Foxley (1762; London: J.M. Dent & Sons, 1911), p. 48. 18. Isaiah Berlin, ‘Two Concepts of Liberty’ (1958), in Liberty, ed. Henry Hardy (Oxford: Oxford University Press, 2002), p. 189. 19. John Locke, Two Treatises of Government, ed. Peter Laslett (1690; Cambridge: Cambridge University Press, 1988), 2.7.2.6, p. 271. 20. Ludwig von Mises, Human Action: A Treatise on Economics (New Haven, CT: Yale University Press, 1949), p. 13. 21. Murray N. Rothbard, Man, Economy and State with Power and Market (1962; Auburn, AL: Ludwig von Mises Institute, 2009), p. 1330. 22. Paul L.  Poirot, ‘Human Rights are More Important than Property Rights’ (1962), in Excuse Me, Professor: Challenging the Myths of Progressivism, ed. Lawrence W.  Reed (Washington, DC: Regnery Publishing, 2015), p. 37. 23. Lionel Robbins, An Essay on the Nature and Significance of Economic Science, 2nd edn (1932; London: Macmillan & Co., 1945), p. 16. 24. See Ludwig von Mises, Liberalism: In the Classic Tradition, trans. Ralph Raico (1927; San Francisco, CA: Cobden Press, 1985), pp. 60–104. 25. Note that it is possible for one simply to give another a good, free of charge, either as a gift or as an act of charity. In this case, there is still a trade taking place since both parties in the exchange must be willing. It is always possible to refuse a gift, or to refuse charity, in which case no transfer of resources takes place. Where the recipient accepts the gift or act of charity, they give a total of ‘zero’ in exchange but may signal gratitude. The giver may receive nothing physical but may experience positive feelings for his or her altruistic act. As Mises puts it, acts of charity

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must be driven by ‘an inner voice’ (Human Action, p. 836). Action is always driven by ‘some uneasiness’ (p. 13), and in this case the suffering of another compels an individual to act to alleviate them for peace of mind. 26. Eamon Butler, Classical Liberalism: A Primer (London: The Institute of Economic Affairs, 2015), p. 100. 27. On fairness and proportionality, see Robert L. Trivers, ‘The Evolution of Reciprocal Altruism’, The Quarterly Review of Biology, 46:1 (March 1971), pp.  35–57; Jonathan Haidt, The Righteous Mind: Why Good People Are Divided by Religion and Politics (New York: Random House, 2012), pp. 158–61. 28. Niccolò Machiavelli, Discourses on Livy, trans. Harvey C.  Mansfield and Nathan Tarcov (1517; Chicago: University of Chicago Press, 1996), 2. Preface, p. 125. 29. Thomas Sowell, Basic Economics: A Common Sense Guide to the Economy, 5th edn (2001; New York: Basic Books, 2014), p. 14. 30. Mises, Human Action, p. 189. 31. Murray N.  Rothbard, For a New Liberty: The Libertarian Manifesto (1973; Auburn, AL: Ludwig von Mises Institute, 2006). 32. Friedman, ‘Liberalism, Old Style’, p. 4. 33. Wordsworth Donisthorpe, ‘The Limits of Liberty’, in A Plea for Liberty, ed. Thomas Mackay (1891; Indianapolis, IN: Liberty Fund, 1981), p. 80. 34. John Emerich Edward Dalberg-Acton, Selected Writings of Lord Acton, ed. J. Rufus Fears, 3 vols (Indianapolis, IN: Liberty Fund, 1988), vol 1, Essays in the History of Liberty, pp. 263–79, 361–8. 35. Even though there is no state in the anarcho-capitalist society, there are still the functions of military, police, and the courts, each provided on the free market. There would still, therefore, be a concentration of power in the hands of private security firms, even if competition between such firms theoretically prevents a monopoly of such power. 36. W. D. Hamilton, ‘The Genetic Evolution of Social Behaviour’, Journal of Theoretical Biology, 7:1 (1964), pp. 1–52; E.O. Wilson, On Human Nature, rev. ed (1978; Cambridge, MA: Harvard University Press, 2004), pp. 149–68. 37. Haidt, The Righteous Mind; David Sloan Wilson, Darwin’s Cathedral: Evolution, Religion, and the Nature of Society (Chicago, IL: University of Chicago Press, 2002).

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38. Locke, Two Treatises of Government, 2.27.6, p.  288; Joseph A.  Schumpeter, The Theory of Economic Development, trans. Redvers Opie (1934; New York and London: Routledge, 2017), p. 75. 39. Brian Boyd, On the Origin of Stories: Evolution, Cognition, and Fiction (Cambridge, MA: Harvard University Press, 2009). 40. Rothbard, Man, Economy, and State with Power and Market, pp. 42–7. 41. Mises, Human Action, p. 132. 42. Christopher K.  Hsee, Adelle X.  Yang, Liangyan Wang, ‘Idleness Aversion and the Need for Justifiable Busyness’, Psychological Science, 21:7 (2010), pp. 926–30. 43. Aristotle, The Nicomachean Ethics, ed. Lesley Brown (Oxford: Oxford University Press, 2009); John Calvin, Institutes of the Christian Religion, 2 Vols, ed. John T. McNeil, trans. Ford Lewis Battles (Philadelphia, PA: The Westminster Press, 1960), 3.10.6, p.  724; Max Weber, The Protestant Ethic and the Spirit of Capitalism, trans. Talcott Parsons (1958; Kettering, OH: Angelico Press, 2014); Abraham Maslow, ‘A Theory of Human Motivation’, Psychological Review, 50 (1943), pp. 370–96. 44. Leonard Piekoff, Objectivism: The Philosophy of Ayn Rand (New York and London: Penguin, 1993). 45. Donald E. Brown, Human Universals (New York: McGraw Hill, 1991). 46. See Thomas Hobbes, Leviathan, ed. J.C.A.  Gaskin (1651; Oxford: Oxford University Press, 2008), 1.13.1, p.  82; Thomas Sowell, Discriminations and Disparities (New York: Basic Books, 2018). 47. Mises, Human Action, pp. 158–60. 48. See Christina Starmans, Mark Sheskin, and Paul Bloom, ‘Why People Prefer Unequal Societies’, Nature Human Behaviour, 1: 82 (April 2017), pp. 1–8; Mark Sheskin, Paul Bloom, and Karen Wynn, ‘Anti-equality: Social Comparison in Young Children’, Cognition, 130:2 (February 2014), pp.  152–6; Thomas Sowell, The Vision of the Anointed: Self-­ Congratulation as Social Policy (New York: Basic Books, 1995); Murray N. Rothbard, ‘Egalitarianism as a Revolt Against Human Nature’, in Egalitarianism as a Revolt Against Human Nature and Other Essays (1974; Auburn, AL: Ludwig von Mises Institute, 2000), pp.  1–20; F.A.  Hayek, ‘The Mirage of Social Justice’, in Law, Legislation and Liberty: A New Statement of the Liberal Principles of Justice and Political Economy (1982; New  York and London: Routledge, 2013), pp. 169–344.

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49. David Hume, A Treatise of Human Nature, ed. L.A. Selby-Bigge, 2nd edn (1739; Oxford: Oxford University Press, 1978), 2.3.3, p. 415. 50. Daniel Kahneman, Thinking Fast and Slow (New York and London: Penguin, 2011). 51. Jordan B. Peterson, Maps of Meaning: The Architecture of Belief (New York and London: Routledge, 1999); Robin Dunbar, Chris Knight, and Camilla Power (eds), The Evolution of Culture (Edinburgh: Edinburgh University Press, 1999). 52. Mises, Human Action, pp. 119–27; Rothbard, Man, Economy, and State with Power and Market, p. 258. 53. Eugen Böhm-Bawerk, Capital and Interest, trans. George D.  Hunke and Hans F. Sennholz, 3 vols (1884; South Holland, IL: Libertarian Press, 1959), vol 2: The Positive Theory of Capital, pp. 237–48. 54. Peter G.  Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Auburn, AL: Ludwig von Mises Institute, 2010), pp. 54–7. 55. Amos Tversky and Daniel Kahneman, ‘Judgment under Uncertainty: Heuristics and Biases’, Science, 185: 4157 (27 September 1974), pp. 1124–31; Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable (New York and London: Penguin, 2008); Mises, Human Action, pp. 105–18. 56. Niccolò Machiavelli, The Prince, trans. Harvey C. Mansfield, 2nd edn (1532; Chicago, IL: University of Chicago Press, 1998), XXV, p. 98. 57. Gary Charness, Uri Gneezy, Alex Imas, ‘Experimental Methods: Eliciting Risk Preferences’, Journal of Economic Behavior & Organization, 87 (2013), pp. 41–51. 58. Mises, Human Action, pp. 41–4. 59. Leonard E.  Read, I, Pencil (1958; Atlanta, GA: Foundation for Economic Education, 2015), p. 8. 60. Henry Hazlitt, Economics in One Lesson, 2nd edn. (1946; New York: Three Rivers Press, 1979). 61. If you doubt that taxation is coerced, try pushing for it to be voluntary and see how far you get! 62. Jonathan Haidt, ‘The Emotional Dog and its Rational Tail: A Social Intuitionist Approach to Moral Judgment’, Psychological Review, 108 (2001), pp. 814–34.

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63. Hans-Herman Hoppe, Democracy—The God That Failed: The Economics and Politics of Monarchy, Democracy and Natural Order (2001; New York and London: Routledge, 2017), pp. 1–44. 64. Bryan Caplan, The Myth of the Rational Voter: Why Democracies Choose Bad Policies (Princeton, NJ: Princeton University Press, 2007). 65. Sowell, A Conflict of Visions, pp. 17–20. 66. F.A.  Hayek, ‘Individualism: True and False’ (1945), in Individualism and Economic Order (1948: Chicago, IL: University of Chicago Press, 1980), pp. 2–3. 67. Ibid., pp. 32, 10. 68. Walter Block, ‘Libertarianism and Libertinism’, The Journal of Libertarian Studies, 11:1 (1994), pp. 117–28. 69. Margaret Thatcher quoted in Douglas Keay, ‘Interview with the Prime Minister’, Woman’s Own (23 September 1987), pp. 29–30. 70. Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution (1957; Auburn, AL: Ludwig von Mises Institute, 2007), p. 251. 71. Thatcher quoted in Keay, ‘Interview with the Prime Minister’, p. 29. 72. Mises, Human Action, p. 42. 73. Ibid., p. 143. 74. Russell Kirk, The Conservative Mind: From Burke to Eliot, 7th edn. (1953; Washington, DC: Gateway Editions, 2016), p. 390. 75. Logan Paul Gage, ‘Darwin Knows Best: Can Evolution Support the Classical Liberal Vision of the Family’, Darwinian Evolution and Classical Liberalism: Theories in Tension, ed. Stephen Dilley (New York: Lexington Books, 2013), p. 155n. 76. C.  B. Macpherson, The Political Theory of Possessive Individualism: Hobbes to Locke (1962; Oxford: Oxford University Press, 2011), pp. 53–4. 77. Ibid., p. 57. 78. Rothbard, Man, Economy, and State with Power and Market, p. 20. 79. Ben Einsen, ‘No Profit? No Problem! Loss-Making Companies Flood the IPO Market’, Wall Street Journal (16 March 2018), available at: https://blogs.wsj.com/moneybeat/2018/03/16/spotify-and-dropboxto-join-a-growing-club-profitless-public-companies/. 80. Macpherson, The Political Theory of Possessive Individualism, pp. 273–4. 81. Thomas Sowell, Applied Economics: Thinking Beyond Stage One (2004; New York: Basic Books, 2009), p. 28.

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82. Kevin D.  Williamson, ‘The Politics of Poverty’, National Review (21 April 2014), available at: https://www.nationalreview.com/2014/04/ politics-poverty-kevin-d-williamson/. 83. Facundo Alvaredo, Anthony B. Atkinson, and Salvatore Morelli, ‘Top Wealth Shares in the UK Over More Than a Century’, New Institute for Economic Thinking, INET Oxford Working Paper no. 2017-01 (19 December 2016), pp. 3, 7. 84. Bank of England, ‘A Millennium of Economic Data’ (2016), available at: https://www.bankofengland.co.uk/-/media/boe/files/statistics/researchdatasets/a-millennium-of-macroeconomic-data-for-the-uk.xlsx. 85. Mises, Human Action, p. 80. 86. Ibid., p. 81. 87. Macpherson himself evokes the concept of ‘class consciousness’, The Theory of Possessive Individualism, p. 273. 88. Louis Althusser, Lenin and Philosophy and Other Essays, trans. Ben Brewster (1971; New York: Monthly Review Press, 2001). 89. Mises, Human Action, p. 44. 90. Spencer, The Man Versus The State, p. 22. 91. George Orwell, ‘James Burnham and the Managerial Revolution’, in Essays (New York: Everyman’s Library, 2002), p. 1071. 92. Charities Aid Foundation, ‘International Comparisons of Charitable Giving’, CAF Briefing Paper (November 2006), p.  6, available at: https://www.cafonline.org/docs/default-source/about-us-publications/ international-comparisons-of-charitable-giving.pdf. 93. Herbert Spencer, Social Statics, or The Conditions Essential to Happiness Specified, and the First of Them Developed (1851; London: Robert Shackleford Publishers, 1995), p. 122. 94. Norman P.  Barry, ‘The New Liberalism’, British Journal of Political Science, 13:1 (January 1983), p. 93. 95. Enrico Colombatto and Valerio Tavormina, ‘The Origins of Private Property’, IEL Paper in Comparative Analysis of Institutions, Economics and Law, 24 (June 2017), pp. 4–5. 96. Aristotle, The Politics, ed. Stephen Everson (Cambridge: Cambridge University Press, 1988), p. 36. 97. Raico, ‘Liberalism: True and False’, p. 76. 98. William Stanley Jevons, The Theory of Political Economy, 5th edn (1871; New York and London: Palgrave Macmillan, 2013), pp. lxv, lxxi.

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99. Thomas Sowell, Knowledge and Decisions (1980; New  York: Basic Books, 1996), pp. 125, 239. 100. Ibid., pp. 75, 66. 101. Mark Skousen, Vienna & Chicago, Friends or Foes?: A Tale of Two Schools of Free-Market Economics (Washington, DC: Regnery Publishing, 2005). 102. Murray N.  Rothbard, ‘The Myth of Efficiency’ (1979), in Economic Controversies (Auburn, AL: Ludwig von Mises Institute, 2011), p. 254. 103. William Jaffe, ‘Menger, Jevons, and Walras De-homogenized’, in William Jaffe’s Essays on Walras, ed. Donald A.  Walker (Cambridge: Cambridge University Press, 2010), p. 321. 104. Mises, Human Action, p. 716. 105. Mises, Theory and History, pp. 55–6. 106. Colombatto and Tavormina, ‘The Origins of Private Property’, p. 2. 107. Anthony de Jasay, ‘Property and Its Enemies’, in Political Philosophy, Clearly: Essays on Freedom and Fairness, Property and Equalities, ed. Hartmut Kliemt (Indianapolis, IN: Liberty Fund, 2010), p. 141. 108. ‘The program of liberalism, therefore, if condensed into a single word, would have to read: property.’ Mises, Liberalism, p. 19. 109. J. Mikael Olsson, Austrian Economics as Political Philosophy (Stockholm: Stockholm University, 2015), p. 110. 110. Mises, Human Action, p. 154. 111. ‘GDP Per Capita vs. Net Migration’, The Economic Voice (25 August 2017), available at: https://www.economicvoice.com/gdp-per-capitavs-net-migration/. 112. Mises, Human Action, p. 194. 113. Jevons, The Theory of Political Economy, pp. 3, 28. 114. Ivan Moscati, Measuring Utility: From The Marginal Revolution to Behavioral Economics (Oxford: Oxford University Press, 2019), p. 35. 115. Michael Munger, ‘Milton Friedman as a Liberal Philosopher’, PPE Working Paper 15.0528 (2015), p. 4. 116. Milton Friedman and George J. Stigler, Roofs or Ceilings?: The Current Housing Problem (New York: Foundation for Economic Education, 1946), p. 10. 117. Munger, ‘Milton Friedman as a Liberal Philosopher, p. 5. 118. Ibid., p. 7n. 119. Milton Friedman, ‘Created Equal’, in Leeson and Palm, pp.  140, 147, 154. 120. Friedman and Stigler, Roofs or Ceilings?, p. 22.

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121. Sowell, Basic Economics, pp. 39–47. 122. Ronald H.  Coase, ‘The Problem of Social Cost’, Journal of Law and Economics, 3 (October 1960), pp. 1–44. 123. Ibid., p. 2. 124. Quoted in Gary North, ‘Undermining Property Rights: Coase and Becker’, Journal of Libertarian Studies 16:4 (Fall 2002), p. 75. 125. Lionel Robbins, An Essay on the Nature and Significance of Economic Science, p. 139. 126. For two comprehensive refutations of the idea that we need government to be the provider of ‘public goods’, see Anthony De Jasey, Social Contract, Free Ride: A Study of the Public-Goods Problem (Indianapolis, IN: Liberty Fund, 1989); and Hans-Herman Hoppe, A Theory of Socialism and Capitalism (1989; Auburn, AL: Ludwig von Mises Institute, 2010), pp. 223–52. 127. Milton Friedman, Capitalism and Freedom (1962: Chicago, IL: University of Chicago Press, 2002), p. 34. 128. Ronald H. Coase, ‘The Lighthouse in Economics’, The Journal of Law and Economics, 17:2 (October 1974), pp. 357–76. 129. Robbins, An Essay on the Nature and Significance of Economic Science, p. 142. 130. Coase, ‘The Problem of Social Cost’, pp. 17, 18, 38. 131. David Kell, ‘Social Disutility and the Law of Consent’, Oxford Journal of Legal Studies, 14:1 (1 March 1994), p. 121. 132. Friedman, ‘Liberalism, Old Style’, p. 3. 133. Friedman, Capitalism and Freedom, p. 10. 134. F.A. Hayek identifies Mill as the inheritor of Rousseau in ‘The Principles of a Liberal Social Order’ (1966), in Studies in Philosophy, Politics, and Economics (Chicago, IL: University of Chicago Press, 1967), p. 160. 135. David D.  Friedman, ‘A Positive Account of Property Rights’, Social Philosophy and Policy, 11:2 (Summer 1994), p.  16. For his anarcho-­ capitalist manifesto see The Machinery of Freedom: Guide to a Radical Capitalism, 3rd edn (1973; New  York: Open Court Publishing Company, 2014). 136. Walter Block, ‘Coase and Demsetz on Private Property Rights’, Journal of Libertarian Studies, 11:2 (1977), p. 115. 137. Locke, Two Treatises on Government, 2.5.27, p. 288. 138. Ibid., 2.5.28, p. 288.

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139. Murray N. Rothbard, The Ethics of Liberty (1982; Auburn, AL: Ludwig von Mises Institute, 2016). 140. Murray N.  Rothbard, ‘Frank S.  Meyer: The Fusionist as Libertarian Manqué’, Modern Age, 25:4 (Fall 1981), p. 354. 141. Rothbard, For a New Liberty, pp. 127–8. 142. Anthony Burgess, A Clockwork Orange (1962; New York and London: Penguin, 2000), p. 94. 143. Rothbard, Man, Economy and State with Power and Market, p. 1338. 144. Rothbard, For a New Liberty, p. 118. 145. Ibid., p. 155. 146. Ibid., pp. 148; 146. 147. Hans-Herman Hoppe, The Economics and Ethics of Private Property (1993; Auburn, AL: Ludwig von Mises Institute, 2006), pp. 339–45. 148. David Hume, ‘Of Commerce’, in Essays: Moral, Political, and Literary, ed. Eugene F.  Miller (1777; Indianapolis, IN: Liberty Fund, 1994), p. 264. 149. Ibid., p. 257. 150. Ibid., p. 265. 151. Spencer, Social Statics, pp. 119, 121. 152. Spencer, The Man Versus The State, pp. 143, 151–2. 153. F.A. Hayek, The Constitution of Liberty (1960; Chicago, IL: University of Chicago Press, 2011), p. 77. 154. Raimondo Cubeddu, The Philosophy of the Austrian School, trans. Rachel M. Costa (New York and London: Routledge, 1993), p. 87. 155. Hayek, ‘The Principles of a Liberal Social Order’, p. 168.

2 The Machiavellians

So that we are much beholden to Machiavel and others, that write what men do and not what they ought to do. —Francis Bacon, The Major Works, ed. Brian Vickers (Oxford: Oxford University Press, 1996), p. 254

Machiavelli’s Liberty In this chapter, I will make two related arguments. First, that the three prerequisites for liberty—an understanding of human nature, methodological individualism, and defence of property rights—are all already present in the writings of Niccolò Machiavelli (1469–1527). Second, that the realist understanding of power and politics developed by the later Machiavellian thinkers, Gaetano Mosca and Vilfredo Pareto, is and should be the liberal understanding of power and politics. To some it may seem counterintuitive to start my exploration of the idea of liberty with Machiavelli, for at least four reasons: first, because he was a preliberal thinker, and standard accounts of liberalism tend to begin with John Locke; second, because this is a study of liberty and he is © The Author(s) 2020 N. Parvini, The Defenders of Liberty, https://doi.org/10.1007/978-3-030-39452-3_2

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primarily (and correctly) regarded as a theorist of power; third, because his own policy preferences tended to foreground ideas in many ways antithetical to liberal sensibilities, such as a strong centralised state with an emphasis on military might; and finally, because for many his name remains a byword for evil.1 This is further complicated by what Felix Raab called the ‘myth of the “two Machiavellis”’,2 namely the erroneous but popular idea that there is a ‘bad’ Machiavelli of The Prince, who supports would-be tyrants, and a ‘good’ Machiavelli of Discourses on Livy, who supports republics. In both cases, he ‘accepts the world as it is’3 and is arguably the first explicitly anti-utopian thinker. The picture is complicated further still by the fact that Machiavelli occupies a somewhat ambiguous position in political discourse insomuch as opinions vary on how his writings should be interpreted, and he is seldom claimed for a ‘side’.4 Socialists such as Antonio Gramsci, Robert Michels, and Louis Althusser viewed him as a vital thinker,5 but then so did advocates of liberal republicanism, such as the ‘Cambridge School’ led by Quentin Skinner,6 and conservative ‘cold warriors’, such as James Burnham,7 as I will discuss presently. The question remains then: why start with Machiavelli? The reason is because I believe that all three of the core ideas at the centre of my definition of liberty—human nature, individualism, and property rights—are already present in his thinking. These ideas are later developed by Gaetano Mosca and Vilfredo Pareto who, according to some, are ‘Machiavellians superior to Machiavelli’.8 In this chapter, I will argue that, regardless of their specific policy preferences, those thinkers in the Machiavellian tradition fundamentally uphold an individualist notion of liberty based on human nature. One of the most distinctive features of Machiavelli’s political analysis is that he nearly always considers the incentives of individual actors and therefore the possible long-run effects of any action. He assumes that ‘each man behaves according to his own intellect and imagination’.9 If you are the Prince, it is not enough to consider merely the other princes, possible rivals at the court, and so on, you must also consider the guard at the door or even the gardener outside. This is because the guard, the gardener, or any individual, no matter how low in social status, are fundamentally self-interested and driven by the same basic appetites. If they are insufficiently paid, or otherwise insufficiently terrified of you, then

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you should expect that they cannot be reliably counted on in a time of need. To say that Machiavelli has a dim view of humanity would be an understatement: ‘No other great philosopher, no great philosophical school before Niccolò [Machiavelli] holds that men are evil-prone by nature or stresses that this evil is manifested and distorted in desire, mind and perception, and compounded by choices.’ ‘These wicked and unruly men are not just a few they comprise mankind.’ This is a ‘vision of a world in which rational brutes must reach a common good’.10 It is unmistakably what Thomas Sowell calls the ‘constrained’ or ‘tragic’ vision of humanity11; such a vision is surely at the bedrock of economics since Adam Smith and an unspoken assumption in nearly all subsequent liberal thought. This is not to say that any specific individual will certainly choose X or Y, but rather that, on average, we can expect them to choose X over Y given Z constraints: a guard who is paid poorly and who does not fear his leader might be bribed by a rival who can pay him more. There is a general tendency to such self-interested behaviour in humans: ‘Machiavelli’s view of the inner world is nearer to Augustine’s than to the stoics’: man is a “sinner”, his reason and will are weakened but not completely put out by corruption. He limps to wholesomeness.’12 His central insight—or, rather, admission—is that the most effective people, at least in the political realm, are often those who are willing to transgress traditional Christian morals, whereas those who live by them to the letter will likely find themselves either left behind and outmanoeuvred by more able rivals or, worse, dead. With this assumption of the general tendency to self-interest in human action comes a second assumption, which, again, we can count on Sowell to articulate in the plainest possible terms: scarcity ‘means that what everybody wants adds up to more than there is’.13 For Machiavelli: [H]uman appetites are insatiable, for since from nature they have the ability and the wish to desire all things and from fortune the ability to achieve few of them, there continually results from this a discontent in human minds and a disgust with the things they possess.14

In Machiavelli’s view: ‘Since the scarcity of objects is the result of the nature of appetite and passion, and not the other way around,

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competition or conflict between men is natural and inevitable.’15 From this inevitably flows the desire to have—and to hold onto—private property: Men feel more grief at a farm that is taken away from them than at a brother or father put to death, because sometimes death is forgotten, but property never. The reason is evident: everybody knows that a brother cannot rise from the dead because of a change in regimes, but there is a good possibility of regaining a farm.16

This consideration of individual incentives has political consequences too because ‘men willingly change their lords in the belief that they will fare better’.17 Or as Gerard Casey puts it, ‘they will lick the hand that feeds them so long and only so long as it feeds them.’18 Let us pause here to consider the fact that before we get into any political or historical analyses, Machiavelli’s basic approach to humanity is one of methodological individualism and that his view of the single human agent is essentially libertarian. That is, he assumes that individuals choose for themselves and that human action is the principal cause of historical events. ‘In Machiavelli we find a clear conception of free will as an attribute of human nature.’19 And this is another sense in which Machiavelli is an important precursor to liberalism: his view of history is not determinist and always multifactorial. History has no direction.20 ‘Machiavelli will have no part [in] historical fatalism: there is no question but that human action can be efficacious.’21 As does Mosca after him, he ‘rejects any monastic view of history—that is, any theory which holds there is one single cause that accounts for everything that happens in society’.22 Therefore, Machiavelli not only foregrounds human action, but also decision-­making under uncertainty. As Stefan de Grazia elegantly puts it: ‘the world of human things is like a deck of cards [Machiavelli] and his pals play with up at the tavern, continuously shuffled and redealt, but the same cards … human action evinces regularities or probabilities, but not certainty.’23 In fact, Machiavelli gives extraordinary prominence to ‘fortune’, which he says accounts for at least half of all outcomes.24 Machiavellian strategising, therefore, emphasises the role of risk in all human affairs. One can

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take every precaution, try to foresee every eventuality, and still see one’s plans come to naught, such is ‘the fragility of human constructions’.25 It is a lesson still not learned today by the central-command-and-­control planners of the ‘Soviet-Harvard’ model.26 Still, he cautions that princes must constantly work to maintain their positions, especially those who came to power through ‘private fortune’: These persons rest simply on the will and fortune of whoever has given a state to them, which are two very inconstant and unstable things. They do not know how to hold and they cannot hold that rank: they do not know how, because if one is not a man of great ingenuity and virtue, it is not reasonable, that having always lived in private fortune, he should know how to command; they cannot hold that rank because they do not have forces that can be friendly and faithful to them. Then, too, states that come to be suddenly, like all other things in nature that are born and grow quickly, cannot have roots and branches, so that the first adverse weather eliminates them—unless, indeed, as was said, those who have suddenly become princes have so much virtue that they know immediately how to prepare to keep what fortune has placed in their laps; and the foundations that others have laid before becoming princes they lay afterwards.27

And hence, given what we know—that human action drives history, that risk and uncertainty are constant concerns, and that human beings are driven by self-interest—the central logic of any regime in power must be constantly to make adjustments and take manoeuvres to sustain itself, otherwise it will be overthrown and replaced by another regime. The republic ‘has need of new acts of foresight every day’.28 And from this we can draw a key lesson: the very nature of effective power—effective in the sense of its own continual renewal—tends towards political action which invariably means state intervention. Naturally, this is not what liberals want, but it is still a reality we cannot overlook. Machiavelli’s sense of liberty is mostly in the negative sense which I outlined in Chap. 1: in many passages ‘he defines liberty as the absence or elimination of tyranny’. As Marcia L.  Colish puts it: ‘The goal of Machiavellian free will is not to avoid being a puppet in the hands of an omnipotent God or an inexorable universe; it is to avoid being a puppet

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in the hands of other men upon the stage of history.’29 Quentin Skinner agrees, arguing that this is Machiavelli’s ultimate reason for preferring free states: [F]ree states are alone capable of bequeathing with any confidence to their citizens. This is personal liberty, understood in the ordinary sense to mean that each citizen remains free from any elements of constraint (especially those which arise from personal dependence and servitude) and in consequence remains free to pursue his own chosen ends.30

Although Machiavelli’s instincts tend towards maximising security first, it is security in the service of freedom as its basic precondition: and in this respect he is scarcely different from later liberal thinkers.31 In fact, despite his ostensible focus on political power, Machiavelli anticipates many other liberal arguments. For example, he insists on equality before the law. In Machiavelli there is a ‘fundamental connection between law and liberty’. ‘To be able to protect the liberty of citizens, the laws must be fair—that is, aim at the common good—and not further the particular interest of the prince or of a faction or of a social group.’32 The secure rule of law not only protects liberty but leads to ‘greatness and wealth’.33 In ‘the free way of life’, Machiavelli says, ‘riches are seen to multiply there in larger number’.34 ‘He asserts that political and economic freedom generate greater power and riches, a higher birth rate …, and more dynamic men.’35 In making these arguments, Machiavelli anticipates Giovanni Botero’s recognition in 1588 of the power of markets to bring people together in peace and prosperity: This Profit is of such power, to unite and tye men fast unto one place; as the other causes aforesayd, without this accompany them with all, are not sufficient to make any city great. … profite is the verie thing from whence, as from the principall cause, the greatnesse of citties growth. … There is not a thing of more importance to encrease a state, and to make it both populous of Inhabitants, and rich of all good things; than the industrie of men, and the multitude of Artes.36

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This is not to suggest that Machiavelli was a thoroughgoing free marketeer, he was far from that,37 but rather that the consummate realist recognised, both in his own time, and in history, that the freer the people, the more prosperous the society. The Italian city states had flourished when they were freer and, conversely, had suffered under imperial rule. The GDP of Italy as a whole is estimated to have increased by 413% from 1000 to 1500. As a basis of comparison, in the same period, the GDP of the British Isles increased by only 252%, and in 1500 was less than a quarter of the size of the combined Italian city states.38 Given that the Florentine Republic was ‘threatened, for three quarters of a century, from the 1380s to the 1450s’ by the Milanese and other foreign powers,39 and underwent numerous invasions and regime changes in Machiavelli’s own lifetime, it is perhaps understandable why he makes security his top concern. If power is the prerequisite for freedom, then in some respects it makes sense that one should focus on the maintenance of power. However, Machiavelli seems to be willing to sacrifice a great deal more individual liberty in the pursuit of this end than most liberals would be willing to accept, even if his emphasis on self-government, a voluntary army, and equality under the law is liberal in spirit. Nonetheless, he seems to envision the power games of the ruling class as something that leaves most ordinary people untouched: In Machiavelli’s account, there are two fundamentally different political interests. The people want to be left alone, while the great want to dominate them. … Machiavelli introduces the idea that ambition can counteract ambition, but the competition between ambitious people is not necessarily meant to limit them. It is meant to distract them. When the great compete among themselves, they (or the ones who win) secure dominion and glory, and the people are, by and large, left alone.40

One reason for this is because even though the ‘two most powerful incentives are love of power, i.e. ambition, and love of “substance” (“roba”), i.e. greed’,41 the former is dominant. The ‘most relevant appetites for Machiavelli are not the hunger for food, the lust for women, nor the desire for wealth, but the longing for political security and the passion for political glory’.42 It stands to reason, then, that those who prioritise

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appetites other than power (such as wealth, food, lust, etc.) should find themselves largely in the category of the ruled, whereas those who prioritise power gravitate towards the ruling class. However, although ‘the people’—by and large those who are ‘left alone’ to get on with everyday life—must at some level accept the dominion of the rulers, there is a natural limit to the extent to which they will allow them to interfere in daily affairs. Machiavelli expects regimes that become openly tyrannical to be overthrown in the long run. And thus he develops ‘the idea of social equilibrium’, which is based on social conflict, the ‘friction between plebs and patricians’. In Machiavelli’s view, ‘politics is a kind of dialectical process characterized by a clash of opposites, their temporary reconciliation in a rather tenuous social balance and then the need to readjust the equilibrium because of new causes of conflict.’43 Similar to classical thinkers, he saw political history as being essentially cyclical. Regimes tend to follow this pattern: 1. A virtuous individual will rise to become leader and establish themselves as a prince. 2. However, when the crown is inherited there is no guarantee that the new prince will have any of the necessary virtues to be an effective prince. Eventually, such a prince will turn to more tyrannical methods to hold onto power, and thus the principality degenerates into a tyranny. 3. The elite class below the prince will not brook tyranny for long and so will agitate to overthrow the prince and establish themselves to rule directly as the new regime. 4. However, after a generation or two, the elites forget about the old tyranny and start to become tyrannical themselves. The aristocracy thus degenerates to become an oligarchy. 5. The people will not brook an oligarchy for long and eventually will agitate for their overthrow by popular revolution by establishing a democracy. 6. However, realistically ‘the people’ cannot rule collectively—which would be anarchy—and so to ensure order and direction a single individual will rise to become a prince—and so the whole process begins again.44

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For Machiavelli, this constant change from one regime to another is too disruptive and unstable to create the stable and prosperous state for which he aims. He does not believe that it is possible to remove any of the fundamental categories—the prince, the elites, or the people—and therefore resolves to lock all three into place in a mixed republic. As evidence for his claim that republics are the most stable system of government, he pointed to ancient Sparta, which lasted around 800 years as a republic, and to the Roman republic, which lasted around 700 years from Romulus to Caesar.45 GDP per capita for the Italian peninsula under the Roman Republic (which ended in 27 BC) is estimated to have increased by 101.6% from 300 BC to 14 AD. As we have seen, Machiavelli observed similar results over a thousand years later with the rise of the Italian city states, which more than quadrupled their total wealth between 1000 and 1500. The period in between, from 1 AD to 1000 AD, saw a 65% decline in total GDP for Italy—so in many ways Machiavelli’s conclusions from the available evidence are entirely natural.46 However, it is this emphasis on the strength and stability of the state that stops Machiavelli from truly being a liberal, because he foregrounds the ‘common good’, a sort of communitarianism, in which independent wealth for individuals should be sacrificed to increase loyalty to the city: ‘if citizens need the state they are more likely to labour patriotically for the Republic.’47 Whether deliberately or unwitting, Machiavelli’s means for acquiring the ultimate end of liberty quietly shift into becoming the ultimate end in itself. In other words, rather than the maintenance and security of the free state serving as the chief means with which to ensure the end of the freedom for the people, the people themselves end up serving as the chief means through which the free state is maintained entirely for its own sake.

Machiavelli’s Legacy Machiavelli was indisputably the first political scientist, ‘the first modern analyst of power’,48 and his subsequent influence is incalculable. Lord Acton dubbed him the ‘first modern utilitarian’.49 Although it was a social taboo in many places, contemporary readers in Italy revealed their ‘fascination’ for The Prince ‘in papers and letters written in private

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circulation’.50 He undoubtedly influenced Thomas Hobbes, although because ‘Hobbes is notorious for his failure to cite sources’, he ‘never mentions Machiavelli by name or refers directly to him’. Machiavelli also influenced James Harrington, later himself an influence on Thomas Jefferson, who emphasised ‘social equilibrium’, the connection between landownership and power, and pioneered the vote by ballot and term limits for magistrates and legislators.51 John Locke was ‘an avid collector of Machiavelli’s works’ but does not mention him anywhere in his writings.52 Still, we can detect some Machiavellian undertones in Locke, especially his view that humans have unlimited appetites: ‘you will as fruitlessly endeavour to delight all Men with Riches or Glory, as you would to satisfy all Men’s Hunger with Cheese or Lobsters.’53 Many have argued that David Hume was a Machiavellian political scientist.54 However, to locate Machiavelli’s truest inheritors we must look to the late-nineteenth-and-­ early-twentieth-century Italian thinkers, Gaetano Mosca (1858–1941) and Vilfredo Pareto (1848–1923), often called ‘the school of elitism’ or ‘elite theory’. Mosca’s chief political insights are to be found in The Ruling Class, first completed in 1896, but revised and expanded until its final form in 1939.55 Pareto’s political theory is a part of his larger sociological study The Mind and Society (1935), a mammoth book published in four volumes—it was republished and reedited into a more manageable single volume called Compendium of General Sociology in 1980.56 In what follows, I will briefly outline some of their key insights and add them to Machiavelli’s, given that they had the benefit of an additional 350 years of historical data from which to draw. Mosca and Pareto are often discussed in tandem with Robert Michels who pioneered ‘the iron law of oligarchy’—while this is a useful concept, I think there are good reasons to concentrate only on Mosca and Pareto and to divest ourselves of Michels, who was a socialist and committed revolutionary despite his thoroughgoing realism.57 One particular issue for us is that Michels abandons methodological individualism and sometimes drifts into class analysis. All three thinkers were grouped together with Georges Sorel by the disillusioned former socialist turned conservative, James Burnham, in his seminal book The Machiavellians (1943). But only Mosca and Pareto were self-described liberals. Burnham himself was not a liberal, but rather what one might call today a neoconservative, who

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sought to use the insights of the Machiavellians, especially on the cynical use of myths to guide the masses by the nose, almost as a guidebook for American domestic and foreign policy. Murray N.  Rothbard once quipped: ‘In a lifetime of political writing, James Burnham has shown only one fleeting bit of positive interest in individual liberty: and that was a call in National Review for the legalization of firecrackers!’58 George Orwell, who seems to have maintained a strange fascination with Burnham throughout the 1940s, also commented that ‘the sudden outburst in favour of freedom of speech, which occupies a chapter or two [of The Machiavellians], is probably the only part of Mr. Burnham’s quarrel with the [Franklin D.] Roosevelt Administration’.59 In other words, Burnham saw no essential problem with big government. Nonetheless, Burnham’s The Machiavellians remains an excellent introduction to the basic thought of Mosca and Pareto and I will use it as my ‘way in’ to exploring their ideas. Also, it seems to me that Burnham’s prediction that capitalism would be eroded from within by a bureaucratic ‘managerial class’ has come to fruition and, therefore, the central thesis of The Machiavellians and the underlying ideas of Mosca and Pareto on which it is based deserve serious consideration. Orwell provides a useful summation of Burnham’s central claims derived from Mosca and Pareto based on Machiavellian ideas: 1. Progress is largely an illusion, Democracy is impossible, though useful as a myth to deceive the masses. 2. Society is inevitably ruled by oligarchs who hold their position by means of force and fraud and whose sole objective is power and still more power for themselves. No revolution means more than a change of rulers. 3. Man, as a political animal, is moved solely by selfish motives, except so far as he is under the influence of myths. 4. Conscious, planned action for the good of the community is impossible, since each group is simply trying to secure its own advantage. 5. Politics is, and can be, nothing except a struggle for power. 6. Human equality, human fraternity are empty phrases.

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7. All moral codes are ‘idealistic’ conceptions of politics, all visions of a better society in the future are simply lies, conscious or unconscious, covering the naked struggle for power.60 Orwell, who still retained some residual commitment to socialism, objects to much in these seven claims. For example, he complains that the conclusions are not true, that ‘human equality is technically possible’. Predictably, Orwell offers no evidence for his utopian claim and even contradicts himself within the same passage—by ‘equality’ he seems to mean not equity of wealth, talents, looks, geographical location, height, and so on, but simply that ‘every human being should … enjoy a fairly high standard of living’.61 This is not ‘equality’ but simply lifting people out of poverty. However, whatever Orwell’s personal objections, I wonder how many of Burnham’s seven points a committed liberal could seriously dispute. I contend that the Machiavellian view of power is the liberal view of power: the only difference is in emphasis and ultimate ends. Both Machiavellians and liberals have the dimmest and most demystified possible view of power, their difference lies only in the fact that liberals seek to reduce power to its barest exercise (whether through the state or by entirely private means) as a prerequisite for liberty, whereas the Machiavellians potentially see power either as something that can be harnessed or as an end in itself. I think it may be useful to examine each point in turn, with some reference to Mosca and Pareto, as a kind of scholastic exercise to illustrate how each does not contradict liberal principles. 1. Progress is largely an illusion, Democracy is impossible, though useful as a myth to deceive the masses. The word ‘progress’ here is a linguistic trick by Orwell. He means it in its social rather than technological sense, whereby anything that moves towards the utopian vision of social democracy is ‘progress’, and anything that resists it is regressive. Democracy is not necessarily a liberal aim, even if many notable liberals have supported it. It has, rather, been the obsession of the Rousseauians, radicals, and allegedly ‘moderate’ advocates of social democracy. If politics is force by another name, and liberals stand

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against the use of force except as a mechanism for self-defence, then their chief political interest is not necessarily that the form of government should be participatory, but rather that it should be limited in scope. During the twentieth century, probably the most excellent example of a state run according to liberal principles was Hong Kong, which has consistently ranked at the top of the Index for Economic Freedom.62 From 1961 to 1997, it experienced a 12,714% increase in GDP and a 6,128% increase in GDP per capita; the average citizen of Hong Kong was over 62 times better off in 1997 than they would have been in 1961. But Hong Kong did not operate under a democracy, and one strongly suspects that if it had done, then the state almost certainly would have grown, become more interventionist, and ultimately would have worked to hamper the operation of the free market. A similar case might be made for the country most frequently at number two in the Economic Freedom Index, Singapore. The usually left-leaning Huffington Post wondered in an article in 2017 how things seem to be going so well in Singapore when so many of the erroneous Rousseauian notions of freedom appear to be missing. The article compares negative and positive freedom, or to put it much more precisely, as per my definition in Chap. 1, liberty and entitlements: Singapore stands at the top of the international competition on ‘freedoms from’: It ranks first internationally in the World Bank’s measure of ‘regulatory quality’ and second on The Heritage Foundation’s scale of economic freedom, while the U.S. comes in 13th. Gallup’s 2014 World Poll found that eight in ten Americans see ‘widespread corruption’ in the U.S. government, compared with seven in the Philippines, six in Zimbabwe and one in Singapore. On the World Bank’s ‘rule of law’ index, Singapore scores in the 95th percentile of nations, the U.S. scores in the 91st, the Philippines in the 42nd and Zimbabwe in the 2nd. With a population of almost six million, Singapore’s incidents of robbery were only a seventh of Boston’s, which has a population of only 650,000. When we turn to ‘freedom to’ metrics, however, one-party Singapore scores well below the U.S. on three of our core freedoms: ‘freedom of expression and belief ’, ‘associational and organizational rights’ and ‘political pluralism and participation’. In its overall freedom score, the U.S. earns Freedom

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House’s highest ranking, Singapore stands in the middle of the contenders and the Philippines about halfway between the two.63

The author notes with some surprise that, despite this, Singaporeans are better off, better fed, better educated, healthier, happier, longer lived, and more satisfied by consumer services than their American counterparts. This is surely not at all surprising to principled liberals, who have long seen that democracy can ultimately serve as a Trojan horse through which the state can grow.64 2. Society is inevitably ruled by oligarchs who hold their position by means of force and fraud, and whose sole objective is power and still more power for themselves. No revolution means more than a change of rulers. In Pareto’s famous phrase, ‘History is a graveyard of aristocracies’,65 which sees one set of elites replace another. ‘Aristocracy’ here does not mean a set of hereditary nobles; it means whoever finds themselves at the top of society and at the levers of power. For Machiavellians the shape of society ‘is virtually unchangeable, although the individuals composing it … are never at rest moving up and down’ and ‘depends on the distribution of physiological and psychological characteristics in a given population’.66 Thus, it is a statistical concept, true to the principles of methodological individualism, and not an actual ‘group’ that acts as a ‘group’ as such. For Mosca, no matter the political system, there are certain enduring traits and qualities that those who rise in social status will possess: ‘capacity for work, energy, will to rule, knowledge of men and, also, a certain affective sensibility that is very helpful to rulers’. In a passage that is reminiscent of Machiavelli’s discussion of virtue and fortune that I outlined above, Mosca argues that those who inherit wealth and power are prone to lapse into idleness. ‘Idleness generates softness and sensuality, stimulates frivolousness of mind and creates an aspiration to a life of pleasures unaccompanied by duties.’ A life of hedonism free of personal responsibility is likely to result in a fall in status, even for the individual born to every advantage. ‘For to rise in the social scale, even in calm and normal times, the prime question, beyond any question, is the capacity for hard work;

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but the requisite next in importance is ambition, a firm resolve to get on in the world, to outstrip one’s fellows.’67 The game of seeking social status, and therefore political influence, is thus zero sum: one person’s name is on the invitation list only at the expense of another. In a critique that anticipates F.A. Hayek’s The Road to Serfdom,68 Mosca analyses the incentive structures of the public sector and warns that ‘bureaucratic aristocracies’ tend to promote the worst sorts of people: [P]ersonal merit is one of the things that the passions and interests of men best manage to counterfeit. In autocratic systems, where success depends upon the judgement of one person, or of a few persons, intrigue may be enough to produce the counterfeit semblance of personal merit. In liberal systems, especially when there the democratic tendency is also prevalent and the regard and active sympathy of many people are necessary, intrigue has to be coupled with a good dose of charlatanry. … The public employee knows perfectly well that it will not help him to do any more or any better than others. He will therefore do the minimum that is indisputable if he is not to lose his position or his promotion. In such circumstances the bureaucratic career tends to become the refuge of the talentless, or of people who absolutely need to have salaried positions in order to provide for their daily wants. If an intelligent man does happen to stray into the bureaucracy, he devotes only part of his activity and his talent to his office, and often it is not the best part.69

It seems that Mosca prefers systems that reward personal merit rather than its counterfeit which is, I think, a wish that is liberal in spirit. Along similar lines, Pareto argues that the liberal society (i.e. one under a laissez-­ faire economic system) ensures maximum social mobility and the unhampered circulation of elites. All obstacles to this circulation represent so many limitations upon the creation of new cultural values, an upsetting of the delicate social ‘equilibrium’, and with it an increased danger of revolutions and social crises.70 Both Pareto and Mosca, it seems to me, favour an aristocracy of the most productive. This is simply another way of saying that they are for free and open competition, which does not in any respect violate core liberal values.

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3. Man, as a political animal, is moved solely by selfish motives, except so far as he is under the influence of myths. Here Orwell has somewhat undersold the sophistication of the analysis in Mosca and Pareto, because their emphasis is less on the brainwashed and easily swayed masses, and more on how the ruling class control the flow of information and perpetuate ‘myths’ to set the parameters of political opinion. Orwell, as well as anyone, understood the relationship between language and power—as demonstrated in my discussion of ‘intellectuals’ in Chap. 1. Pareto distinguishes between ‘a governing élite, comprising individuals who directly or indirectly play a considerable part in government, and a non-governing élite, comprising the rest’. ‘The élite falls into two parts’, he says, ‘a minority ruling primarily by force, a majority neither able nor inclined to use force.’71 As Burnham puts it, the ruling class consists of those who are in ‘the highest and key positions of society; and a much larger group of secondary figures—a “middle class”, as it could properly be called—who, though not so prominent nor so much in the limelight, constitute the day-by-day active directors of the community life’. Ultimately, ‘this secondary level of the ruling class is, in the long run at least, more decisive than the top.’72 It is this secondary level—the ‘nongoverning elite’—who attempt to police thought itself. Speaking of our current order, Milton and Rose Friedman dubbed the elites as ‘an iron triangle of beneficiaries, politicians, and bureaucrats’.73 We have seen in very recent memory how this non-governing elite react if popular votes throw up results that are not to their taste. In 2016, the people of the UK voted for Brexit, the withdrawal from the European Union, and the people of the USA voted for Donald Trump to become president. At the time of writing in 2019, it could not be clearer in either country that the establishment—that is, the non-governing elite—have sought at every turn to delegitimise or overturn these results. Why should career politicians, career bureaucrats in the civil service, and career intellectuals who work as journalists and academics be so resolutely opposed to popular revolts that directly challenge their own influence and power? Again, it is not at all surprising either to the Machiavellian or to the principled liberal who consider human nature and incentive structures, in fact it is entirely what Mosca and Pareto would predict.

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I should note again, for clarity, that the elite is never homogenous. There are always some dissident members of the non-governing elite, and even of the governing elite. For example, between 2016 and 2019 there were some elites, although they were overwhelmingly in the minority, who supported Brexit and/or Donald Trump. The elite consists of various competing groups, one might say alternative governing elites in waiting, who stay ready to cycle in if the currently dominant groups lose advantage. ‘Both sides, old elite and new elites, declare that they are not fighting or working for their interests but for the good of the many.’74 Both sides are invariably lying. I would challenge those who dispute this to find me a budget proposal from any of the major parties since 1688 in either the UK or the USA which does not offer a single subsidy, tax break, tariff on specific goods, promises to help specific groups, or otherwise punish group A to appease group B. Even William Gladstone, about as principled a liberal as one can find to ever hold high office, passed the Licensing Act 1872 dictating hours of operation to privately owned public houses as well as regulating the content of beer. This Act was passed almost entirely to appease elite Liberal MPs who had a moral disdain for working-class drunkenness—in fact this nakedly illiberal policy was a significant factor for Benjamin Disraeli’s 1874 electoral victory as he capitalised on popular resentment against the Licensing Act.75 4. Conscious, planned action for the good of the community is impossible, since each group is simply trying to secure its own advantage. 5. Politics is, and can be, nothing except a struggle for power. Politics is a zero-sum game, and the ruling class is always a coalition of minority groups promoting their own interests. Even in popular revolutions, ‘the people’ end up being directed because collective decision-­ making is impossible: ‘the members of the lower strata are captained by leaders from the higher strata.’76 In an analysis that anticipates Mancur Olson’s The Logic of Collective Action,77 Mosca argues that ‘the power of any minority is irresistible as against each single individual in the majority, who stands alone before the totality of the organized minority.’78 ‘Power then is always power organized.’79 We are not far here from the Public Choice theory of James M. Buchanan and Gordon H. Tullock in

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which various special interest groups compete to feed at the trough of public resources. In fact, one can draw a straight line of influence from Mosca and Pareto to Buchanan and Tullock.80 Sidney Hook sums up Mosca’s core assertion as follows: … that irrespective of ideologies or leading personalities all political rule is a process—now peaceful, now coercive—by which a minority gratifies its own interests in a situation where not all interests can receive equal consideration. … In peaceful times, the means are public myths and secret frauds; in crisis, force. Whichever side wins, the masses who have fought, bled, and starved are made the goat. Their saviours become their rulers under the prestige of the new myths. The forms change, but the essential content remains.81

Hook obviously finds this distasteful but can do little if anything to disprove Mosca. In the allocation of scarce resources which have alternative uses, how can a mechanism which categorically moves resources from A to B work in the service of both A and B? B gains, A loses. Even in cases where B is ostensibly a service for A, let us say the military which is there to protect its society from external threats, there is little to say that B will not transgress its remit. To deny this while looking back at the past 150 years of history is to deny history itself. Although minority sections of the ruling class will be organized, there can, of course, be rifts between various types of people in the non-­ governing elite. For example, Pareto distinguishes between two types of capitalists, which socialist writers typically conflate: Writers have confused and persist in confusing under the term ‘capitalists’ (1) owners of savings and persons who live on interest from property and (2) promoters of enterprise—‘entrepreneurs’. In reality these two sorts of ‘capitalists’ often have interests that are diametrically opposed and stand in even greater conflict than the interests of the classes known as ‘capitalist’ and ‘proletarian’. From the economic standpoint it is to the advantage of the man of enterprise, the entrepreneur, that the interest on savings and on other capital that he borrows should be the lowest possible. It is to the interest of the saver that it should be as high as possible. The promoter of enterprise profits when the goods he produces go up in price, while rises in

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the prices of commodities are of slight importance to him if he finds compensation in the profits netted by his own goods. But all such increases in prices are to the loss of the mere saver. Tax imposts on the goods he produces do little harm to the entrepreneurs—in fact they are sometimes an advantage in that they scare off competition; but they are always injurious to the consumer whose income derives from lending of savings at interest. In general, the owner of enterprise can always pass on to the consumer the increase in costs that results from heavy taxes. The mere saver almost never can.82

Pareto’s careful distinction between the functions of the entrepreneur and the pure capitalist anticipates the Austrian School of Economics in interesting ways.83 The model of artificially low interest rates, which promote cheap credit, high-time preference, and immediate consumption adopted by Western governments since the second half of the twentieth century, has been to the advantage of ‘promotors of enterprise’ and to the disadvantage of ‘owners of savings’. One need only look at political donations from Silicon Valley companies to the US Democratic Party (over 90% in the cases of Facebook, Apple, Amazon, Netflix, and Google), which has long advocated such an economic policy, to see the extent to which this is true.84 6. Human equality, human fraternity are empty phrases. Mosca asserts flatly that ‘equality is contrary to the nature of things’.85 But how might anyone realistically challenge this when looking at the facts of history? As Thomas Sowell puts it recently: Neither in nature nor among human beings are either equal or randomly distributed outcomes automatic. On the contrary, grossly unequal distributions of outcomes are common, both in nature and among people, in circumstances where neither genes nor discrimination are involved. … The idea that it would be a level playing field, if it were not for either genes or discrimination, is a preconception in defiance of both logic and facts.86

Equality is not, and cannot be, the goal of the principled defender of liberty, not only because egalitarianism in practice necessitates the virtual

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elimination of liberty, but also because equality is quite literally impossible. Height is a strong predictor of lifetime earning potential.87 What might a campaign of ‘social justice for short people’ look like? As someone who stands only five feet and seven-and-a-half inches tall, it seems only fair that those who are over six-feet tall should have a few inches of their shins surgically removed. Another study has found that people whose appearance is judged to be ‘very unattractive’ enjoy a significant pay advantage over those who are ‘unattractive’, ‘average’, or even ‘very attractive’.88 To adapt the title of L.P.  Hartley’s novel,89 there must be facial justice! We ‘very attractive’ people will not stand for this. 7. All moral codes are ‘idealistic’ conceptions of politics, all visions of a better society in the future are simply lies, conscious or unconscious, covering the naked struggle for power. There is no contradiction between the Machiavellians and the liberals here. The Machiavellians assert that politics is devoid of genuine morality. The liberal asserts only that the state should not be involved in administering morality, which is for each individual to decide for himself or herself. In this chapter, I have shown that human nature and methodological individualism—two of the three pre-requisites for liberty—are already present in nascent form in the writings of Machiavelli. He hints at recognising the third (property rights), but ultimately is more concerned with security than liberty. I have also shown that there is no fundamental contradiction between the subsequent thought of the Machiavellian thinkers, Mosca and Pareto, and the defenders of liberty. However, we are faced with a possible dilemma, since both liberals and Machiavellians wish to lay claim to being truly ‘realist’ and ‘anti-utopian’. The thoroughgoing Machiavellian might think that the liberal who imagines it possible to minimise the state, or even to abolish it completely, is hopelessly naïve. The liberal might counter by showing times and places in history where the state has successfully been reduced in size—the UK under Gladstone for example—but needs to be cognisant of the incentives and constraints under which political leaders operate, and further, of the true nature of power, which the Machiavellians help to demystify.

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Notes 1. See especially Leo Strauss, Thoughts on Machiavelli (Glencoe, IL: Free Press, 1958); see also Murray N. Rothbard, An Austrian Perspective on the History of Economic Thought, 2 vols (1995; Auburn, AL: Ludwig von Mises Institute, 2006), vol 1, Economic Thought Before Adam Smith, pp. 188–93. 2. Felix Raab, The English Face of Machiavelli: A Changing Interpretation 1500–1700 (1964; New York and London: Routledge, 2010), p. 255. 3. Raymond Angelo Belliotti, Niccolò Machiavelli: The Laughing Lion and the Strutting Fox (New York: Lexington Books, 2010), pp. 25–6. 4. For a useful overview of the main lines of interpretation of Machiavelli’s thought, see Isaiah Berlin, ‘The Originality of Machiavelli’, in Against the Current: Essays in the History of Ideas, ed. Henry Hardy (London: Hogarth Press, 1979), pp. 25–39. For an extremely useful and comprehensive collection of the key essays and articles, see John Dunn and Ian Harris (eds), Machiavelli: Great Political Thinkers 5, 2 vols (Cheltenham: Edward Elgar Publishing, 1997). 5. See Antonio Gramsci, ‘The Modern Prince’, Selections from Prison Notebooks, ed. Quentin Hoare and Geoffrey Nowell Smith (London: Lawrence and Wishart, 1971), pp.  313–441, Robert Michels, On Political Parties: A Sociological Studies of the Oligarchical Tendencies of Modern Democracy (New York: The Free Press, 1962); and Louis Althusser, Machiavelli and Us, ed. François Matheron, trans. Gregory Elliott (New York and London: Verso, 1999). 6. See Quentin Skinner, ‘The Republican Ideal of Political Liberty’, in Machiavelli and Republicanism, ed. Gisela Bock, Quentin Skinner, and Maurizio Viroli (Cambridge: Cambridge University Press, 1991), pp. 293–309. 7. See James Burnham, The Machiavellians: Defenders of Freedom (London: Putnam, 1943). 8. Jérémie Barthas, ‘Machiavelli in Political Thought from the Age of Revolutions to the Present’, in The Cambridge Companion to Machiavelli, ed. John M. Najemy (Cambridge: Cambridge University Press, 2010), pp. 265. 9. Niccolò Machiavelli, Letter 244, quoted in Maurizio Viroli, Machiavelli (Oxford: Oxford University Press, 1998), p. 174.

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10. Sebastian De Grazia, Machiavelli in Hell (New York: Random House, 1989), pp. 264, 269, 270. 11. See Thomas Sowell, A Conflict of Visions: Ideological Origins of Political Struggles, rev. ed. (1987; New York: Basic Books, 2007); and for my own in-depth consideration of the concept Neema Parvini, ‘The Constrained Vision of Evolutionary Ethics’, in Shakespeare’s Moral Compass (Edinburgh: Edinburgh University Press, 2018), pp. 35–70. 12. Anthony Parel, ‘Commentary’, in Machiavelli and the Nature of Political Thought, ed. Martin Fleischer (London: Croom Helm, 1973), p. 152. 13. Thomas Sowell, Basic Economics: A Common Sense Guide to the Economy, 5th edn (2001; New York: Basic Books, 2014), p. 2. 14. Niccolò Machiavelli, Discourses on Livy, trans. Harvey C. Mansfield and Nathan Tarcov (1517; Chicago: University of Chicago Press, 1996), 2. Preface, p. 125. 15. Martin Fleischer, ‘A Passion for Politics: The Vital Core of the World of Machiavelli’, in Machiavelli and the Nature of Political Thought, ed. Martin Fleischer (London: Croom Helm, 1973), p. 130. 16. Letter to Giovanni de’ Medici, quoted in James B.  Atkinson, ‘Introduction’, Niccolò Machiavelli, The Prince, trans. James B. Atkinson (1532; Indianapolis, IN: Hackett Publishing Company, 2008), p. 62. 17. Niccolò Machiavelli, The Prince, trans. Harvey C. Mansfield, 2nd edn (1532; Chicago, IL: University of Chicago Press, 1998), III, p. 8. 18. Gerard Casey, Freedom’s Progress: A History of Political Thought (Exeter: Imprint Academic, 2017), p. 344. 19. Marcia L. Colish, ‘The Idea of Liberty’, Journal of the History of Ideas, 32:3 (July to September 1971), p. 325. 20. This is the central argument of Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution (1957; Auburn, AL: Ludwig von Mises Institute, 2007). 21. Fleischer, ‘A Passion for Politics’, p. 115. 22. Burnham, The Machiavellians, p. 61. 23. De Grazia, Machiavelli in Hell, p. 273. 24. Machiavelli, The Prince, XXV, p. 98. 25. Harvey C. Mansfield, Machiavelli’s Virtue (1966; Chicago, IL: University of Chicago Press, 1998), p. 273. 26. Nassim Nicholas Taleb, Antifragile: Things That Gain from Disorder (New York and London: Penguin, 2013), p. 5. 27. Machiavelli, The Prince, VII, p. 26.

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28. Machiavelli, Discourses on Livy, 2.49.1, p. 308. 29. Colish, ‘The Idea of Liberty’, pp. 335, 327. 30. Skinner, ‘The Republican Ideal of Political Liberty’, p. 302. 31. For a developed argument along these lines see Jo Ann Cavallo, ‘On Political Power and Personal Liberty in The Prince and The Discourses’, Social Research: An International Quarterly (Spring 2014), 107–32. 32. Viroli, Machiavelli, pp. 128, 120. 33. Skinner, ‘The Republican Ideal of Political Liberty’, p. 302. 34. Machiavelli, Discourses on Livy, 2.2.3, p. 132. 35. De Grazia, Machiavelli in Hell, p. 188. 36. Giovanni Botero, A Treatise, Concerning the causes of the Magnificencie and greatnes of Cities, Devided into thre books, trans. Robert Peterson (London, 1606), pp. 11, 14, 48–50. 37. Neither was Giovanni Botero, see Rothbard, Economic Thought Before Adam Smith, pp. 196–8. 38. Angus Maddison, Contours of the World Economy: Essays in Macroeconomic History (Oxford: Oxford University Press, 2007), p. 379. 39. Rothbard, Economic Thought Before Adam Smith, p. 184. 40. Margaret Michelle Barnes Smith, ‘The Philosophy of Liberty: Locke’s Machiavellian Teaching’, in Machiavelli’s Liberal Republican Legacy, ed. Paul A. Rahe (Cambridge: Cambridge University Press, 2005), p. 51. 41. Frederico Chabod, Machiavelli and the Renaissance (Cambridge, MA: Harvard University Press, 1958), p. 139. 42. Fleishcer, ‘A Passion for Politics’, p. 132. 43. Neal Wood, ‘The Value of Asocial Sociability: Contributions of Machiavelli, Sidney, and Montesquieu’, in Machiavelli and the Nature of Political Thought, ed. Martin Fleischer (London: Croom Helm, 1973), pp. 289, 291. 44. Machiavelli, Discourses on Livy, 1.2.1–7, pp. 10–14. 45. J. Patrick Coby, Machiavelli’s Romans: Liberty and Greatness in Discourses on Livy (New York: Lexington Books, 1999), pp. 21–54. 46. Maddison, Contours of the World Economy, pp. 57, 379. 47. Belliotti, Niccolò Machiavelli, p. 48. 48. Max Lerner, ‘Introduction’, in Niccolò Machiavelli, The Prince and the Discourses, ed. Max Lerner (New York: Random House, 1950), p. xxvi. 49. John Emerich Edward Dalberg-Acton, Selected Writings of Lord Acton, ed. J. Rufus Fears, 3 vols (Indianapolis, IN: Liberty Fund, 1988), vol 3, Essays in Religion, Politics, and Morality, p. 533.

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50. Brian Richardson, ‘The Prince and Its Early Italian Readers’, in Niccolò Machiavelli’s The Prince: New Interdisciplinary Essays, ed. Martin Coyle (Manchester: Manchester University Press, 1995), p. 36. 51. Raab, The English Face of Machiavelli, p. 194, on James Harrington see pp. 185–217. 52. Smith, ‘The Philosophy of Liberty’, p. 37. 53. John Locke, An Essay Concerning Human Understanding, ed. Peter H. Nidditch (1689; Oxford: Clarendon Press, 1979), 2.21.55, p. 269. 54. For a book-length argument along these lines, see Frederick G. Whelan, Hume and Machiavelli: Political Realism and Liberal Thought (Lanham, MD: Lexington Books, 2004). 55. Gaetano Mosca, The Ruling Class, ed. Arthur Livingstone, trans. Hannah D. Khan (1923; New York: McGraw Hill, 1939). 56. Vilfredo Pareto, Compendium of General Sociology [Abridged version of The Mind and Society], ed. Elisabeth Abbott, trans. Guilo Farina (1935; Minneapolis, MN: University of Minnesota Press, 1980). 57. On this see especially Peter A. LaVenia, Jr., Breaking the Iron Law: Robert Michels, The Rise of the Mass Party, and the Debate over Democracy and Oligarchy, PhD diss (New York: State University of New York, 2011), pp. 54–111. 58. Murray N. Rothbard, The Betrayal of the American Right (Auburn, AL: Ludwig von Mises Institute, 2007), p. 167. 59. George Orwell, ‘Review of The Machiavellians by James Burnham’, in Essays (New York: Everyman’s Library, 2002), p. 525. 60. Ibid., p. 524. 61. Ibid., p. 525. 62. See https://www.heritage.org/index/country/hongkong. 63. Graham Allison, ‘Singapore Challenges the Idea That Democracy Is the Best Form of Governance’, Huffington Post (5 March 2015), available at: https://www.huffingtonpost.com/graham-allison/singapore-challengesdemocracy_b_7933188.html. 64. See especially, Hans-Herman Hoppe, Democracy—The God That Failed: The Economics and Politics of Monarchy, Democracy and Natural Order (2001; New  York and London: Routledge, 2017); and Bryan Caplan, The Myth of the Rational Voter: Why Democracies Choose Bad Policies (Princeton, NJ: Princeton University Press, 2007). 65. Pareto, Compendium of General Sociology, 806, p. 278.

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66. Ferdinand Kolegar, ‘The Elite and the Ruling Class: Pareto and Mosca Re-Examined’, The Review of Politics, 29:3 (Jul., 1967), p. 365. 67. Mosca, The Ruling Class, XV, pp. 400, 421, XVI, p. 449. 68. F.A. Hayek, The Road to Serfdom: Texts and Documents—The Definitive Edition, ed. Bruce Caldwell (1944; Chicago, IL: University of Chicago Press, 2007). 69. Mosca, The Ruling Class, XV, pp. 406–8. 70. Pareto, Compendium of General Sociology, 791–812, pp. 271–9. 71. Ibid., 793, 1080, pp. 274, 382. 72. Burnham, The Machiavellians, p. 67. 73. Milton Friedman and Rose Friedman, Tyranny of the Status Quo (New York and London: Harcourt Brace Jovanovich, 1984), p. 166. 74. Mustafa Delican, ‘Elite Theory of Pareto, Mosca and Michels’, Journal of Polices and Social Science, 3:1 (2000), p. 326. 75. Simon Heffer, High Minds: The Victorians and the Birth of Modern Britain (London: Windmill Books, 2014), p. 766. For an excellent summary of illiberal Acts of Parliament passed by the Liberal Party in the late-nineteenth century, see Herbert Spencer, The Man versus The State (1884; Indianapolis, IN: Liberty Fund, 1982), pp. 71–122. 76. Pareto, Compendium of General Sociology, 811, p. 279. 77. Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (1965; Cambridge, MA: Harvard University Press, 1974). 78. Mosca, The Ruling Class, II, p. 53. 79. James H. Meisel, The Myth of the Ruling Class: Gaetano Mosca and the Elite (Ann Abor, MI: University of Michigan Press, 1962). 80. See J.S. Maloy, ‘A Genealogy of Rational Choice: Rationalism, Elitism, and Democracy’, Canadian Journal of Political Science, 41:3 (September 2008), pp. 749–71. 81. Sidney Hook, ‘The Fetishism of Power’, in Makers of Modern Social Science: Pareto & Mosca, ed. James H.  Meisel (Englewood Cliffs, NJ: Prentice-Hall, 1965), pp. 135–6. 82. Pareto, Compendium of General Sociology, 959, p. 328. 83. See especially Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Auburn, AL: Ludwig von Mises Institute, 2010). 84. Jake Kanter, ‘This graph shows 90% of political donations from Google workers went to the Democrats’, Business Insider (15 December 2018), available at: https://www.businessinsider.com/facebook-apple-amazonnetflix-google-political-donations-graph-2018-11?r=US&IR=T. 85. Mosca, The Ruling Class, XVII, p. 470.

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86. Thomas Sowell, Discriminations and Disparities (New York: Basic Books, 2018), p. 17. 87. Timothy A. Judge and Daniel M. Cable, ‘The Effect of Physical Height on Workplace Success and Income: Preliminary Test of a Theoretical Model’, Journal of Applied Psychology, 89:3 (2004), pp. 428–41. 88. Satoshi Kanazawa and Mary C. Still, ‘Is There Really a Beauty Premium or an Ugliness Penalty on Earnings?’, Journal of Business and Psychology, 33:2 April 2018), pp. 249–262. 89. L.P. Hartley, Facial Justice (1960; London: Penguin, 2014).

3 Hobbes and Locke on Human Nature; Locke on Property Rights

The seventeenth century was a period of moderate growth in England. The old feudal system had long since broken down—as far back as the 1400s—and virtually all employment was now through voluntary association.1 The population increased 26% from 4.11  million in 1600 to 5.2 million people in 1700. Average per-acre agricultural output between 1600 and 1700 grew by 27.3% in wheat production, 55.1% in rye production, and 58% in barley production. Total yields increased 34.9% in wheat and 89.3% in barley but shrank by 14.6% in rye which ‘reflected the growing preference for the more expensive bread grain’.2 In 1522, 55.6% of the labour force had been in agriculture; by the start of 1700, 34% of the labour force was already in industry and 27.2% in the service sector with the remaining 38.9% in agriculture. At the start of the seventeenth century only 16% of households in Kent could afford upholstered furniture, but by its end this figure had risen to 79%. There was a 45% increase in GDP per capita between 1600 and 1700. In terms of real wages and consumer prices, the average worker was about 20.5% better off in 1700 than in 1522 and there was a significant reduction in poverty among the labouring classes.3 Writing during this period, Thomas Hobbes and John Locke would have seen many of the material changes brought © The Author(s) 2020 N. Parvini, The Defenders of Liberty, https://doi.org/10.1007/978-3-030-39452-3_3

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by this nascent market economy. Both lived during the English Civil War, though Locke only as a teenager. England was significantly more prosperous after the Restoration of Charles II in 1660 than during the civil war or the interregnum or the preceding reign of Charles I during which the average labourer was worse off than at any time since 1290.4

Hobbes and Locke on Human Nature Thomas Hobbes (1588–1679) and John Locke (1632–1704) are undoubtedly the most important English political philosophers; one might easily stock a generous library with all that has been written about them.5 Therefore, in the space available to me here I must confine my comments to two relatively narrow concerns. The first is the extent to which Hobbes and Locke share Machiavelli’s predominantly dim view of human nature—a version of the tragic vision which I outlined in the previous chapter. This is an issue which requires clearing up, because of the many errors that have built up around both thinkers over the decades and centuries. The second pertains exclusively to Locke’s view of property rights, which is very commonly misunderstood in crude shorthand. In what follows, I am less concerned with assessing Hobbes’s and Locke’s contrasting justifications for the state than I am in teasing out what is most useful for the defender of liberty who is grounded in a realist view. I also assume that the methodological individualism long-recognised as ‘the thoroughly modern element’ in both thinkers is not in question.6 It has become customary to contrast Hobbes’s pessimistic view of human nature as ‘solitary, poor, nasty, brutish, and short’ with Locke’s more optimistic idea of humans as naturally sociable and even charitable.7 The caricatured version of Hobbes—which is surprisingly prevalent among scholars of all stripes—that is, from the socialist left, the conservative right, and even among classical liberals and libertarians—maintains that he viewed humans as fundamentally asocial and exclusively selfish. In the Hobbesian state of nature, individual egoists run amok and descend into a war ‘of every man, against every man’,8 which of course, for Hobbes, justifies the need for a sovereign power. David Hume called this ‘the selfish system’, which, interestingly, he attributed to both Hobbes and Locke.

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However, it is simply not true that Hobbes says humans are only selfish, only that they are self-interested insomuch as they pursue desired ends. It is possible for those ends to ‘Desire of good to another’,9 but in practice humans are more often focused on their own (or their children’s) benefit and survival. Studies which seek to maintain the idea that Hobbes viewed humans as asocial, and wholly selfish, typically turn to his earlier book, De Cive, written in 1641 before the English Civil War and a decade before Leviathan. In that earlier work Hobbes admittedly overstates his case and is perhaps guilty of the ‘psychological egoism’ of which many accuse him. However, in one such recent study, when turning to Leviathan, Paul Sagar is forced to admit that Hobbes ‘incorporates a more realistic, wider psychological account’.10 There is no reason to take De Cive as more broadly representative of Hobbes’s developed thought than Leviathan—he wrote the latter book as an older man having experienced a civil war. The more mature work refines the testier claims he had made earlier and elaborates on them. Nonetheless, Leviathan puts forward a strong statement of what Thomas Sowell calls the constrained or tragic vision of man. In the constrained vision, each new generation born is in effect an invasion of civilization by little barbarians, who must be civilized before it is too late. Their prospects of growing up as decent, productive people depends on the whole elaborate set of largely unarticulated practices which engender moral values, self-discipline, and consideration for others.11

In The Selfish Gene, Richard Dawkins presents a similar view: ‘we must teach our children altruism, for we cannot expect it to be part of their biological nature.’12 I would maintain, however, that Hobbes does not rule out the possibility of individuals being naturally altruistic, but rather says that most people most of the time are not. In any case, even the existence of a few people who lack natural altruism would be enough to break any system that relies on it as a norm. This is not to say humans are incapable of friendship or genuine charity, but rather that to ensure a certain degree of cooperation we require a set of institutions to incentivise it. The point is that while humans are capable of altruism, they are not reliably or consistently so in their actual decisions; in contrast, they can

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generally be counted on to act in (what they perceive to be) their own self-interest. Like Machiavelli, Hobbes sought to write as men are, not as they ought to be: in the parlance of modern economics, he looked at the gap between stated preferences (what people say) and revealed preferences (what people actually do) and found the vast majority of humans to be hypocrites. Modern research consistently suggests that Hobbes might have been onto something. A recent study analysing unique data from 147 Swiss referenda between 1987 and 2007 showed there to be 9% mean gap between stated preferences in surveys and revealed preferences at the ballot box.13 The biggest gap (12–17%) was on issues such as integration and immigration, on which participants were more likely to give a ‘socially acceptable’ or ‘politically correct’ answer in the survey, going along with the perceived majority, only to vote a different way in the referendum. How can we explain this behaviour? Why do people give survey answers that do not reflect their true opinions? For Hobbes, this is a straightforward case. Either these people are fearful of social pressure or they are signalling prestige and status seeking, that is, looking to advance themselves in the eyes of others: ‘honour’ and ‘advantage’. The strongest drivers of human action for Hobbes are ‘for gain’, ‘for safety’, and ‘for reputation’.14 Of these the desire for safety (motivated by fear)—just as in Machiavelli— is stronger than the other two. But is Hobbes wrong? Let us stick with immigration as an issue. The costs of casting a vote are relatively low compared to the considerably greater costs of moving to a new house. There is an observable and persistent pattern of white populations moving away from areas which have seen an influx of non-white people,15 despite ‘an almost universal [stated] preference for cultural assimilation’.16 Here the gap between stated and revealed preference is considerably greater than 17%. What motivates these people to move away if not the desire to maintain their own reputation in the eyes of their peers (i.e. wishing to live in an exclusive neighbourhood) or else fear for their own safety? Note that it is a nonsense to say that an individual obsessed with reputation—as Hobbes says explicitly, ‘dependent of the need and judgement of another … their true value is no more than it is esteemed by others’17—is unsocial. Self-interest and sociability are not mutually exclusive:

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a person can care about their own reputation, rank in a hierarchy, or status within a group while also self-evidently caring about that group. Indeed, if the individual did not care about the group at some level he or she would not seek status and acceptance within it. This view is only a problem to those who feel uncomfortable about the hard realities of hierarchy and in-group preference in human relations—which Hobbes saw as perfectly natural—because such realities clash with their own anointed egalitarian visions. He recognised also that while some humans seek status, virtually all humans do not like others lording it over them and ‘denying their equality’—a sort of knee-jerk ‘what? You think you’re better than me!’ response. Sagar puts this very well: ‘whilst not everybody seeks glory in terms of absolute positional superiority, nobody wishes to be gloried over.’18 He quotes Leviathan: ‘every man looketh that his companion should value him, at the same rate he sets upon himself.’19 Part of Hobbes’s argument for the sovereign state, and for absolute monarchy in particular, is to try to mitigate this tendency by keeping the total number of glory-seekers to a minimum.20 In his introduction to Leviathan, C.B. Macpherson provides a clear-­ sighted summary of Hobbes’s central argument: 1 . Men are moved by appetites and aversions. 2. The power of a Man (to take it Universally), is his present means, to obtain some future apparent Good. 3. Every man must always seek to have some power, although not every man is self-impelled to seek as much power as others have, or to seek more than one now has. 4. Every man’s power resists and hinders the effects of other men’s power. 5. All acquired power consists in command over some of the powers of other men. 6. Some men’s desires are without limit. 7. Everyone, even those with moderate as well as those with immoderate desires, is necessarily pulled into a constant competitive struggle for power over others, or at least to resist his power being commanded by others. Man’s need for power has now become a necessarily harmful thing.21

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Note that Hobbes understood fully well that human ends are subjective and therefore that individuals have divergent goals. Not every individual has the same propensity for seeking power. In other words, not every human is an asocial egoist seeking to dominate others. According to Gregory S. Kavka, Hobbes distinguished between two types of people: ‘moderates’ and ‘dominators’.22 However, just as in Machiavelli, the tone is set by the worst actor, in this case the dominators. Suppose, in the state of nature, that A is a committed pacifist, B lives by giving freely to those around herself, and C is an aggressive egoist who will kill and steal to get whatever he wants, it is surely likely that C will kill, subjugate, or otherwise impoverish A and B unless they can overpower him. Therefore, it is in the rational self-interest of the moderates, A and B, to anticipate the dominator, C, by becoming (if only for a limited time) dominators themselves. This may not be their actual course of action, but rather what they ought to do if they wish to increase their chances of survival. This is the same principle as the Machiavellian Prince who works to outmanoeuvre the Christian king; if the Christian king is to have any chance of survival he must think like the Machiavellian Prince or else lose his kingdom. Hobbes provides less a normative description of human beings in general and more a realistic assessment of outcomes in a world in which there can be bad—which is to say ruthlessly self-interested—actors. One can see immediately why it became de rigour for a period to apply Game Theory to the Hobbesian state of nature.23 Any system is only as good as its worst conceivable actor just as the security of any building is only as strong as its weakest point of access. Let us take a characteristic passage: From this equality of ability, ariseth equality of hope in the attaining of our ends. And therefore if any two men desire the same thing, which nevertheless they cannot both enjoy, they become enemies; and in the way to their end (which is principally their own conservation, and sometimes their delectation only,) endeavour to destroy, or subdue one another. And from hence it comes to pass, that where an invader hath no more to fear, than another man’s single power; if one plant, sow, build, or possess a convenient seat, others may probably be expected to come prepared with forces united, to dispossess, and deprive him, not only of the fruit of his labour,

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but also of his life, or liberty. And the invader again is in the like danger of another.24

In the absence of rule of law, it stands to reason that two individuals who seek the same resource will come into conflict, which has a strong chance of resulting in violence. And it equally stands to reason that a single person will be unable to protect his assets against an organised invasion. Hobbes does not say that these things will happen, only that it stands to reason that they could conceivably happen without a legal framework. One might be tempted to reason that the two men could conceivably strike a deal of some kind to resolve their conflict over the resource and through trust alone will honour their verbal contract. Or that the single man might strike a bargain with his would-be invaders or perhaps set elaborate traps all around his property to thwart even the most cunning of them. True enough, but here we are in the realm of saying that a king could conceivably act as a model Christian, that the president of the USA could conceivably always tell the truth, that a career criminal could finally go straight this time, and so on. The point is that when assessing risks, one can never assume the best-case scenario even though that may well transpire—we must assume the worst-case scenario, especially when there is no rule of law. Defenders of liberty must ultimately agree with Hobbes on this lest they wish to legalise theft. Radical libertarians who object to Hobbes here should note that even in anarcho-capitalist societies the functions of law, law enforcement, and security exist even if the state does not.25 Once the sovereign state is established—and this is crucial for Hobbes—the moderates can live less in fear of the dominators than they would have in the state of nature. I am reminded of William Muir’s study of chickens. He found that when breeding for egg production, selecting only the most productive hens—who tend to be more aggressive and dominant—the total number of eggs goes down because of the increased levels of aggression, which result in killings and cannibalisation. By using group selection—that is, breeding all the hens in the cage, not simply the most productive ones—the death rate fell from 67% to just 8%, and the total number of eggs produced jumped from 91 to 237 in just three generations.26 The individual egoist, like the aggressive hen, must be

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constrained from doing harm to others by institutions explicitly designed for that purpose. Civilisation starts, then, at least for Hobbes, when the dominators are kept in check by the moderates, or at least incentivised to put their efforts to less destructive and more productive ends. As I mentioned in Chap. 1, this is also the central insight of liberalism. There can be no civilisation without the rule of law to constrain would-be aggressors.27 There is a close affinity between Hobbes’s view of human nature and that assumed by modern economics. Peter T. Leeson provides this refreshingly clear passage which summarises ‘the economic way of thinking’: First, individuals are self-interested. This doesn’t mean they never care about anyone other than themselves. It just means that most of us, most of the time, are more interested in benefiting ourselves and those closest to us than we’re interested in benefiting others. Second, individuals are rational. This doesn’t mean they’re robots or infallible. It just means individuals try to achieve their self-interested goals in the best ways they know how. Third, individuals respond to incentives. When the cost of an activity rises, individuals do less of it. When the cost of an activity falls, they do more of it. The reverse is true for the benefit of an activity.28

It seems to me that Hobbes shares practically all these assumptions, including the important nuances and caveats that Leeson notes along the way. Both Hobbes and economists are sometimes accused of putting forward a narrowly atomistic vision of human nature, homo economicus— the purely self-interested rational actor. In general, this is mostly a strawman. But as it pertains specifically to Hobbes, again, it cannot stand up to any fair reading of his work. I have touched on self-interest already, so let us turn to the idea of man as ‘rational actor’. It is true that Hobbes’s epistemology is based in a crude and often mechanistic materialist scientism, but this has little direct bearing on his observations of human nature or his politics. As Michael Oakeshott argues, Leviathan ‘is not the last chapter in a philosophy of materialism, but the reflection of civil association in the mirror of a rationalistic philosophy’.29 However, we must make a distinction between the fact that Hobbes used reason as the basis of his political philosophy, and the idea that he saw human beings

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as purely rational creatures. He plainly did not. Just as Machiavelli before him and Hume after him, Hobbes knew that humans are much more easily swayed by their passions than by reason. As per my discussion of human nature in Chap. 1, behavioural economics and evolutionary psychology have confirmed this empirically. As Christopher Tilmouth has shown,30 Hobbes even anticipates the findings of modern psychologists, such as Jonathan Haidt, who have demonstrated conclusively that most cognitive reasoning is post-hoc rationalisation. Reason often explains (or tries to excuse) that which has already been decided upon by intuition.31 In Hobbes, reason does not override the passions but rather serves to optimise their fulfilment. One other striking feature of Hobbes’s description of the passions is how closely they mirror the vices of traditional Christian thought, for example, as outlined in Thomas Aquinas’s Summa Theologica.32 It would be true to say that Hobbes is an amoralist in this sense—much like Machiavelli he makes no judgement about the specific ends of humans, only that we have them.33 In fact, Hobbes is more explicitly relativistic than Machiavelli: But whatsoever is the object of any man’s appetite or desire; that is it, which he for his part call good: and the object of his hate, and aversion, evil; and of his contempt, vile and inconsiderable. For these words of good, evil, and contemptible, are ever used with relation to the person that useth them: there being nothing simply and absolutely so; nor any common rule of good and evil, to be taken from nature of the objects themselves; but from the person of the man (where there is no commonwealth;) or, (in a commonwealth,) from the person that representeth it; or from an arbitor or judge, whom men disagreeing shall by consent setup, and make his sentence the rule thereof.34

Instinctually, we might be prone to find this statement quite problematic if one imagines the desired ends of, let us say, a murderer or a rapist. However, Hobbes once again is surely correct: from the point of view of the murderer who loves to kill, his bloodlust is good and those who seek to prevent him from having it are evil. Whether in the state of nature or the commonwealth, he will only be condemned if enough other people

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disagree with him. This is an argument, ultimately, for the rule of law. Moral relativism of this sort may make many readers uneasy, but the principled defender of liberty must uphold this view to maintain the strict separation between personal morality and the typical functions of the state. For practical reasons, virtually everyone agrees that murder, rape, and theft—core violations of personal liberty—should be outlawed and punished. But this is somewhat different from a moral judgement that those crimes and the people who commit them are evil. We may well believe this privately, but the letter of the law is not strictly making such a moral judgement. Once lawmakers are in the business of prescribing moral norms beyond these core violations of personal liberty, as those I have described, we are in the illiberal realm of censoring pornographic films, prohibition of alcohol or drugs, dictating the sugar content of foods, banning prostitution, dictating who can and cannot be served in bars, which customers a baker must make cakes for, and so on. On a personal level, one may find pornography evil or even believe that lust itself is a cardinal sin, but for the liberal these social matters are not for the law to decide. The defenders of liberty cannot insist on the legal enforcement of normative moral claims beyond the non-aggression principle. Of course, in Hobbes’s Leviathan the monarch, who has license to act arbitrarily and to write laws at whim, might easily impose his own moral vision on his subjects—and this is where the liberal and Hobbes must part ways. It was also where Locke parted ways with Hobbes, so let us turn to him now. As I have argued thus far, Hobbes’s view of human nature is not two-­ dimensional; he is simply realistic—in the same way that Machiavelli was—about people’s motives and the sorts of people who will come out on top in zero-sum games. Contrary to the false shorthand dichotomy between Hobbes’s ‘selfish man’ and Locke’s ‘social man’, I contend that Locke largely shares Hobbes’s view of human nature. He dwells longer than does Hobbes on its more altruistic aspects, but he is under no illusions as to who will win between dominators and moderates in the state of nature. In fact, his very argument for rejecting absolute monarchy is rooted in this recognition.

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For he that thinks absolute Power purifies Men’s Bloods, and corrects the baseness of Human Nature, need read but the History of this, or any other Age, to be convinced of the contrary. … This is to think that Men are so foolish that they take care to avoid what Mischiefs may be done them by Pole-Cats, or Foxes; but are content, nay, think it Safety, to be devoured by Lions.35

Locke’s language here, with its animal imagery, sounds some distinctly Machiavellian notes. His scepticism about concentrating too much power in the hands of any individual rests ultimately on the tragic vision. Leaders are just like ‘every Man who loves his own Power, Profit, or Greatness’.36 If Locke had Hobbes in mind here (more likely Robert Filmer to whom the First Treatise is addressed), he is rebuking him not for cynicism or pessimism about human nature but rather for naivety. He attacks absolute monarchy precisely because Hobbes and/or Filmer have not fully considered the incentives of the monarch. The idea that Locke, at least in his view of humanity, is a crypto-Hobbesian is not new. Leo Strauss advanced it in 1953 which proved influential to his many students.37 It is extremely unlikely that this was a conscious decision on Locke’s part. Leading scholars have shown that throughout the Two Treatises of Government, Locke was scarcely engaged with Hobbes on an intellectual level.38 Yet, at least on the question of human nature, he arrives at some similar conclusions. I posit this is because Hobbes and Locke were independently attempting to describe something real with distinctly recognisable features, which is no more remarkable than two people independently remarking on the fact that a chair has four legs. Just as in Hobbes, for Locke ‘the greater part’ of men are ‘no strict Observers of Equity and Justice’ and therefore life in the state of nature is ‘full of fears and continual dangers’, it is ‘very uncertain, and constantly exposed to the Invasion of others’.39 It should be clear also that in the Two Treatises of Government, Locke does not adhere to the idea of tabula rasa with which he is associated. In fact, even in An Essay Concerning Human Understanding, he does not hold that humans have no natural instincts or traits, but rather that they are born without ideas which come to be furnished by internal and external experience.40

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Locke on Property Rights Locke departs radically from Hobbes on two crucial questions: the first is his contention that no rational person would ever accept unlimited power in the sovereign (whether a single person or an assembly), and the second is in his conception of property rights and, accordingly, how this modifies his view of the state of nature. On the first of these questions, I am sure most readers would agree with Locke and this requires no further discussion. I will thus devote the rest of this chapter to explicating the second question. In Hobbes, there are no rights in the state of nature beyond the dog-eat-dog struggle for survival. Indeed, this even extends to life under the absolute sovereign: he maintains that it is just for an individual to refuse an order from the king to commit suicide, and, likewise, to fend for their own life in the face of execution. In such cases, the individual technically ceases to be a subject and reverts to the state of nature in relation to the sovereign—in most cases, one imagines, this individual is going to be severely outnumbered. Apart from this caveat, all other rights in Hobbes, including property, are positive rights bestowed by the sovereign. Of course, what the sovereign can give, it can also take away, and so property ownership in Leviathan is always contingent and therefore insecure. Indeed, one might argue that, since the state can appropriate your property at any time, you do not really own it at all. In Locke, property is a natural negative right which exists prior to the formation of any state. As per my account in Chap. 1, individuals may appropriate objects and land as property in the state of nature by mixing their labour with it so long as it is not already owned by another. Locke distinguishes between the state of nature—simply a time before government and rule of law has been established—and the state of war which is Hobbes’s war of all against all. Hobbes tends to treat these two states as synonymous even though, as I have argued above, it is conceivable to think of a Hobbesian state of nature in which there is no war. However, with dominators about, it is probable that a state of war will break out. As we have seen, Locke ultimately agrees. Where he differs sharply from Hobbes is in the scope he gives to the state of nature which is not at war. For Hobbes, the state of nature is a fate worse than death, a

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hell on earth. This is because Hobbes thought that all morals beyond the basic struggle for survival are ‘artificial’ and emanate only from the state. He is surely mistaken on this point as evolutionary psychologists have shown.41 For Locke, even in the state of nature, we live under natural law which every individual has a duty to enforce. Therefore, in some cases— such as under a tyrant—the state of nature might actually be better than life under a sovereign. In such cases, he says that the members of society have the right (and, indeed, are duty-bound) to rise up and overthrow their rulers.42 For Locke, the need for government does not arise exclusively from the need for protection from invasion—one might imagine a scenario in the state of nature in which a large family or clan hires a group of mercenaries to protect them—but instead from the duty to mete out justice when natural laws are transgressed.43 ‘Individuals will be biased on their own behalf when determining whether they have been wronged or have wronged others.’44 The need for government thus partly comes out of the need for a neutral impartial third-party judge. Interestingly, this is also where the need for government comes from in Machiavelli for whom the first prince arises from ‘knowledge of justice’ which makes men ‘go after not the most hardy but the one who would be more prudent and more just’.45 This means that Locke’s sovereign is greatly constrained by the terms of natural law and is in some respects merely the neutral executioner of that law. The ruler who transgresses these strict limits declares a state of war against his people and can expect to be overthrown. Before continuing, it is worth noting that Locke’s version of the state of nature comprises three distinct stages, which one can see in Table 3.1. Many accounts of Locke do not fully appreciate all that this table entails, and it will take the remainder of this chapter to unpack its implications. Locke’s central concern is the defence of property rights. Humans act, but humans also own. I have thus far touched only on the core idea of Table 3.1  Three distinct stages of Locke’s state of nature Stages in the state of nature Lockean proviso

1. Hunter-gatherer 2. Homesteading

3. Trade

Not applicable

Does not apply

Applies

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originary property rights in the state of nature, that is, in a theoretical unspoiled land in which disparate and roaming groups of people have the run of the earth. In Machiavelli’s words: ‘For since the inhabitants were sparse in the beginning of the world, they lived dispersed for a time like beasts.’46 Both Machiavelli and Locke are undoubtedly referring to tribes of hunter-gatherers. In this situation, humans are surrounded by finite perishable resources. When the hunter-gather picks a berry from a bush or kills a deer in the woods, he or she does not replace either good, but rather wanders on to the next bush or woods in search of yet more berries and deer. Because of the sheer scale of the landmass when compared to the relatively few people living on it, this has the appearance of abundance, but in fact it is a situation of scarcity which carries the long-run risk of creating a tragedy of the commons. Some hunter-gatherers are kept from over-hunting and over-gathering by the inefficiency of their methods, which limits them to near subsistence levels and therefore to small populations. This is not ‘sustainability’, because they are still taking non-renewable resources without replacing them. There is evidence that early hunter-gatherers (around 13,400  years ago) hunted over thirty mammal species, including mammoths, mastodons, and giant armadillos, to extinction.47 Locke recognised that the move to claiming ownership over land—and, with it, agriculture—produced more food and created greater sustainability because now goods were renewable. [H]e who appropriates land to himself by his labour, does not lessen but increase the common stock of mankind. For the provisions serving to the support of humane life, produced by one acre of inclosed and cultivated land, are … ten times more, than those which are yielded by an acre of Land, of an equal richnesse, lyeing wast in common. And therefor he, that incloses Land and has a greater plenty conveniencys of life from ten acres, than he could from an hundred left to Nature, may truly be said, to give ninety acres to Mankind. … I have here rated the improved land very low in making its product but as ten to one, when it is much nearer as hundred to one.48

Locke goes on to compare wild, uncultivated land in America to fertile land in Devonshire in England. He points out the people in America

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require ten times as much land as those in Devon to sustain the same population. It is obvious from the constant adjustment of his numbers— ten to one, now a hundred to one—that Locke intends them as a rough estimate, but the point he is making is clear enough: a group of nomadic hunter-gathers need far more space and make worse use of their resources than a similarly sized group who exercise property rights. There can be no doubt that he is correct. At this stage, in which humans have shifted from nomadic hunter-­ gathering to ‘homesteading’ (establishing both property rights and agriculture in the process), Locke makes two provisos. Eric Mack helpfully labels these the ‘spoilage proviso’ and the ‘enough and as good’ proviso.49 The former states that individuals at this still-very-early stage of the state of nature should not hoard all their perishable goods if they would go to waste while others may have need of them. The latter, as Robert Nozick, who coined the phrase ‘Lockean proviso’, puts it: ‘is meant to ensure the situation of others is not worsened’.50 This is rooted in Locke’s principle of charity which he articulates in the First Treatise: Charity gives every Man a Title to so much out of another’s Plenty, as will keep him from extreme want, where he has no means to subsist otherwise; and a Man can no more justly make use of another’s necessity, to force him to become his Vassal, by with holding that Relief … and with a Dagger at his Throat offer him Death or Slavery.51

An example might be if one person somehow appropriates a whole island and all of its resources except for a desert region which he has fenced off and in which all of the remaining people have been shunted. Here, if the owner denies them access to his lands, it is tantamount to murder. However, this is a somewhat far-fetched scenario because it would be very difficult for one person to achieve all this without either help or the use of force. If the owner had help, that is, from people voluntarily willing to help him (i.e. because he is paying them), then de facto a situation of trade and wages has already emerged, in which case we are no longer in this early stage of the state of nature and the proviso no longer holds (more on this in a moment). If the owner has used force, then his natural right claim to the property is invalid. The Lockean proviso is quite

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difficult to conceptualise in a concrete form precisely because the scenario is so unlikely to come about without a violation of natural law. I should note briefly here that James Tully’s gloss on this passage is one of the more ridiculous ever to be written. He says, ‘This remarkable condition makes it impossible for the capitalist to appear in Locke’s theory. If a man is driven by necessity to work for another, then the relation is based on force and is, ipso facto, a master and vassal arrangement.’52 This is a truly shocking piece of sophistry. Let us say that a man is starving and is driven by necessity to pick an apple from a tree in the commons, does this render his relationship with the tree one of force? It is precisely at this juncture that many readers of Locke start to err. The confusion arises from two chief sources which are entirely at odds: the first is from leftist authors trying to ‘save’ Locke from C.B. Macpherson’s charge that he was a proto-capitalist justifying ‘unlimited appropriation’,53 and the second is from defenders of liberty trying to divest themselves, or at least explain away, aspects of his theory that seem problematic to the defence of free markets.54 There are three principal misreadings that have endured over the decades. 1. That the Lockean proviso is proto-socialist in some way, indeed, some have seen Locke as ‘the father of modern socialism in England’.55 2. That by using the ‘mixing of labour’ as the origin of property rights, Locke is putting forward an early example of the Labour Theory of Value later adopted by David Ricardo and Karl Marx.56 3. That, in any case ‘mixing of labour’ makes no sense, and for all these reasons, the defenders of liberty should abandon Locke’s labour theory of property and look for some other justification for property rights— most notably Robert Nozick argued along these lines and, later, Stephen Kinsella.57 Let me deal with each of these in turn. First, the Lockean proviso no longer holds after the development of trade. Locke provides a perfectly cogent description of the natural development of commodity money arising from the need to move from the direct exchange of perishable goods to indirect exchange using durable goods. Let us say that in the state of nature person W has appropriated an area of land and ‘gathered a

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hundred Bushels of Acorns or Apples’.58 W cannot possibly eat all of these goods. Letting them perish is a waste, not only of the goods, but also of the effort that W went to in gathering them. She could simply give them away, but this begs the question as to why she would go to the bother of collecting them in the first place. Instead, it makes much more sense for her to trade them to X, Y, and Z, who have appropriated their own parcels of land, in exchange for nuts, berries, meat, or whatever other goods they are producing. However, Locke notes that logically this situation of direct exchange could not endure indefinitely because, for example, fruit and nuts have different properties. The person who ‘bartered away Plumbs that would have rotted in a Week, for Nuts that would last good his eating a whole Year … did no injury; he wasted not the common Stock; destroyed no part of the portion of Goods that belonged to others’.59 Assuming equal numbers of both goods, the exchange rate between plumbs and nuts is going to favour the nuts because they are durable while the plumbs are perishable. And so we make the small step to precious metals or any other durable object that might serve for the purposes of exchange: ‘Shells … a sparkling Pebble or a Diamond … And thus came in the use of Money, some lasting thing which men might keep without spoiling.’60 This view of money as a naturally emergent pre-­ governmental phenomenon is shared by many later writers, including Adam Smith, Frédéric Bastiat, exponents of the Austrian School of Economics such as Carl Menger, Ludwig von Mises, Murray N. Rothbard, and Jörg Guido Hülsmann, and, finally, Matt Ridley.61 For Locke, as soon as this stage of trade is reached, his provisos no longer apply because every individual can exchange their labour for money affording a wealth of new opportunities to those who have not yet appropriated land of their own. Robert Nozick argues that the existence of the proviso in the first place prevents the final parcel of land from ever being taken. ‘Consider the first person Z for whom there is not enough and as good left to appropriate. The last person Y to appropriate left Z without his previous liberty to act on an object, and so worsened Z’s situation.’62 This is a facile objection because at no point does Locke say that every single piece of land must be taken before the system of trade and money emerges—in fact, he assumes the opposite as we shall see in my discussion of money, wages, and

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ownership below. Z might easily have found gainful employment on the lands of A to X. Since trade and the division of labour has already taken root, Z may potentially have access to far greater resources living on the lands of A to X than tilling the last piece of land which now belongs to Y. Nozick’s argument is tantamount to saying that Z should be entitled to the power to own this last piece of land. This is not Locke’s proviso at all. In a situation in which employment opportunities are available and Z owns himself and can offer his labour in exchange, Y taking the last piece of land does not condemn Z to starvation. In this scenario, Z will only starve if he is too proud to work for wages. So be it, it is his own choice, but this was not forced on him by Y or anyone else. Why? Because the opportunity to appropriate the last piece of land is available to both Y and Z, but Z logically cannot currently be taking that opportunity, or he would already be the owner of the land. And so his situation does not change by Y taking it before him—Z has gone from a position of not owning any land and having the opportunity to work for others to not owning any land and having the opportunity to work for others. For Nozick’s argument to work we must imagine a scenario in which twenty-­ four other parcels of land have been appropriated but no network of trade has been established. That is, he seems to imagine that persons A to X live in perfect isolation as subsistence farmers who have no excess goods to trade. And we are back to erecting entirely unlikely and unrealistic thought experiments to conceptualise the Lockean proviso in concrete form. The question is only one for abstract thought experiments and not for real human beings, because almost as soon as people start homesteading they also start to trade. Recall that Locke argued that appropriation of land increases ‘the common stock of mankind’, therefore, as several commentators have shown, ‘the act of appropriation from the commons is precisely what satisfies the Proviso, and the Lockean Proviso will always be automatically satisfied’.63 Many exponents of Lockean property rights have dealt with the Lockean proviso simply by disavowing it. They need not have done so since realistically it creates no issues for Locke’s theory. Let us turn now to the claim that Locke develops a proto-Marxian Labour Theory of Value and further to the objection from defenders of liberty that this is enough to disqualify his labour theory of property rights. In an excellent essay, Adam Mossoff demolishes both arguments.

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He points out that when Locke says ‘mixing labour’ what he means, consistently, is ‘productive labour’: ‘transforming wheat into bread, animals into livestock, and timber and rocks into houses’.64 This point, obvious to any careful reader of Locke with even the barest passing knowledge of early modern linguistic quirks, negates Nozick’s famous question: ‘If I own a can of tomato juice and spill it in the sea so that its molecules … mingle evenly throughout the sea, do I thereby come to own the sea, or have I foolishly dissipated my tomato juice?’65 Once again, a fair reading of Locke renders this attempt at reductio ad absurdum completely facile. Further, once one understands that labour essentially means ‘production’ in Locke’s lexicon, the idea that he is erecting anything like Marx’s Labour Theory of Value breaks down. Locke is not saying that some magic property of labour imbues objects with added value, he is saying that, because productive enterprise has increased the total number of outputs in a given area, the value of that area has increased as more people will find it desirable. Let us say labour transforms an undeveloped piece of land into a wheat farm, that land increases in value because it is now producing so many more bushels of wheat than it did previously thereby ‘increasing the stock of mankind’. There has been a net increase in ‘those things that serve a flourishing life of a rational individual’.66 No sensible person can disagree with Locke on this. Walt Disney famously bought 25,000 acres of barren scrubland and swampland in Florida and transformed it into Walt Disney World. He paid $180 per acre in 1965, around $4.5 million in total or $32.1 million in 2011 dollars adjusted for inflation. In 2011, the land was conservatively estimated at $1.3  billion or 3,946% more than what Disney originally paid for it.67 The theme park employs 74,000 people who, through gainful employment, are able to access more of those things that ‘serve a flourishing life’, the undeveloped swampland would have sustained less than 1% of that number. Sticking with the same example of Disney in Florida, one might wonder how this undeveloped land came to be owned in the first place. Tufts University owned this 25,000-acre stretch of land including mineral rights. However, they never developed it. While holding onto the mineral rights, they sold the surface land to real estate agents such as the Munger Land Company and independent investors, such as the state senator, Irlo Bronson. The land was very unattractive to investors because Tufts’

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mineral rights theoretically allowed their board of trustees to come in and tear down houses to get the minerals. In 1912, the Munger Land Company divided the land into parcels. They then sold these parcels of land—much of it underwater and infested by alligators—by mail to unsuspecting marks from New  York and elsewhere. In short, it was a scam.68 This is why, later, Disney had to track down the individual owners of these parcels of land. For us, analysing the Lockean theory of property, the question remains as to how Tufts University came to own this land. From what I can tell, it seems that this was a matter of government fiat. However, strictly speaking, if we are to follow Lockean property rights to their logical ends, their claim is invalid under natural law. To adapt a passage from Murray N. Rothbard, who is about as principled a Lockean as there has been: [Tufts’] claim may be invalid but it is also mere meaningless verbiage. [It] is not yet a criminal aggressor against anyone else. But should another man [let us say, Walt Disney] appear who does transform the land, and should [Tufts] oust him by force from the property (or employ others to do so), then [Tufts] becomes at that point a criminal aggressor against land justly owned by another. The same would be true if [Tufts] should use violence to prevent another settler from entering upon this never-used land and transforming it into use.69

A Lockean analysis of Walt Disney’s Florida land purchases must conclude that where the land had not been developed he was the rightful originary owner and should not have had to pay. That deals with the question of land value, but what of this idea that labour entitles one to property ownership? Is this not Marx’s argument for the proletariat’s ownership of the means of production? Locke implicitly understands that, once people start to trade, value is found on the market in exchange. Hence, he says, ‘Gold and Silver … has its value only from the consent of Men.’70 And it is clear that once we enter into the world of exchanges, labour can be exchanged for money. This is plain in the following passage:

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Thus the Grass my Horse has bit; the Turfs my Servant has cut; and the Ore I have digg’d in any place where I have a right to them in common with others, become my Property, without the assignment or consent of any body. The labour that was mine, removing them out of that common state they were in, hath fixed my Property in them.71

Macpherson is correct to say here that Locke was ‘taking the wage relationship entirely for granted’. The servant’s labour has been paid for by Locke, so whatever the servant appropriates acquires to him, which ‘is not at all inconsistent with the assumption of a natural right to alienate one’s labour in return for a wage’.72 As James Tully notes, there is nothing coercive about this: Since it is a freeman who makes himself a servant, the agreement must presuppose that the choice not to become a servant is available to him. This condition is fulfilled by the availability of spontaneous products of nature and utilisable land on the English Common in the ‘turfs’ passage. If, for some reason, there is no alternative, then the man is not free and the master-­servant relation cannot arise.73

The servant is not being ‘exploited’ to use Marxist jargon because it is an entirely voluntary association. And the servant has no claim to ownership to the fruits of his labour because he has effectively loaned that labour to the master in exchange for money. This does not violate any of Locke’s natural laws. When considering Locke’s theory of property rights, Richard Pipes asks: ‘How is one to justify inherited wealth, which requires no personal effort, or the fact that farm laborers and factory workers do not own what they produce?’74 But as we have seen, once we move beyond originary claims to property—that is the very first human to own a piece of land—to a system of trade, it is a nonsense to ask such questions.75 In this chapter, I have shown that Hobbes and Locke share Machiavelli’s tragic vision of humanity. Hobbes is often misunderstood as presenting humans as fundamentally asocial and incapable of genuine altruism, which is to say, wholly selfish. His view is much more fully rounded than this, ultimately deriving from a view of humans as being driven more by their passions than by reason. However, like Machiavelli, he writes about

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us as we are, not as we ought to be, and although we are capable of altruism we cannot be relied on for it. Hobbes accordingly emphasises our self-interest while exposing our hypocrisies. The view of Locke as being generally more optimistic about his fellow man than Hobbes is also erroneous, and he is, if anything, more cynical and less trusting, especially of those in power. I also argued that Locke’s Labour Theory of Property is not proto-socialist because of its ‘proviso’, which in practice applies only to the second stage of the state of nature (‘homesteading’) before the emergence of trade and money in the third stage. Since the emergence of trade and money in stage three coincides near simultaneously with the establishment of property rights in stage two, the proviso can seldom if ever be successfully invoked. Neither does Locke’s Labour Theory of Property anticipate the Labour Theory of Value found in Ricardo and Marx, because, as soon as trade and money emerge, values are found in exchange. Finally, I showed philosophical arguments which ridicule the notion of ‘mixing labour’ with the land, such as Robert Nozick’s, to be built on a linguistic misunderstanding of what Locke meant by ‘labour’. When Locke says ‘labour’, he does not mean any old labour but productive labour (i.e. involved in the active production of goods). In closing, it strikes me that Locke’s theory of property is ultimately an argument based on utility, because the justification for ownership in the first place is based on increasing ‘the stock of mankind’. As per my outline in Chap. 1, Lockean property rights are typically seen as being juxtaposed with utilitarian arguments because they are based on natural law, but upon further analysis we have seen that this distinction is somewhat artificial. This will be significant in the next chapter, in which among other things I consider David Hume’s concept of justice.

Notes 1. See Neema Parvini, Shakespeare’s Moral Compass (Edinburgh: Edinburgh University Press, 2018), pp. 139–78, 201–23. 2. Stephen Broadberry, Bruce M.S.  Campbell, Alexander Klein, Mark Overton, and Bas van Leeuwen, British Economic Growth: 1270–1870 (Cambridge: Cambridge University Press, 2015), pp. 29, 97–9.

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3. Ibid., pp. 344, 299, 236–9, 310–14. 4. Ibid., p. 311. 5. To help navigate this enormous and somewhat daunting field, I have found it useful to consult John Dunn and Ian Harris’s robust compilations of the landmark essays and articles: Hobbes: Great Political Thinkers 8, 3 vols (Cheltenham: Edward Elgar Publishing, 1997) and Locke: Great Political Thinkers 9, 2 vols (Cheltenham: Edward Elgar Publishing, 1997). Also useful: D.D.  Raphael, Hobbes: Morals and Politics (1977; New York and London: Routledge, 2004); R.E.R. Bunce, Thomas Hobbes (New York and London: Continuum, 2009); and Eric Mack, John Locke (New York and London: Continuum, 2009). 6. George H. Sabine, A History of Political Theory, 3rd edn. (1937; London: George G. Harrap & Co., 1963), p. 475. 7. Thomas Hobbes, Leviathan, ed. J.C.A. Gaskin (1651; Oxford: Oxford University Press, 2008), 1.13.9, p. 84. 8. Ibid., 1.13.8, p. 84. 9. Ibid., 1.6.22, p. 37. 10. Paul Sagar, The Opinion of Mankind: Sociability and The Theory of the State from Hobbes to Smith (Princeton, NJ: Princeton University Press, 2018), p. 27n. 11. Thomas Sowell, A Conflict of Visions: Ideological Origins of Political Struggles, rev. ed. (1987; New York: Basic Books, 2007), p. 162. 12. Richard Dawkins, The Selfish Gene, 4th edn. (1976; Oxford: Oxford University Press, 2016), p. 181. 13. Patricia Funk, ‘How Accurate Are Surveyed Preferences for Public Policies? Evidence from a Unique Institutional Setup’, The Review of Economics and Statistics, 98:3 (July 2016), pp. 452–4. 14. Hobbes, 1.3.7, p. 83. 15. Samuel H.  Kye, ‘The Persistence of White Flight in Middle-Class Suburbia’, Social Science Research, 72 (May 2018), pp. 35–52. 16. Maria Sobolewska, Silvia Galandini and Laurence Lessard-Phillips, ‘The Public View of Immigrant Integration: Multidimensional and Consensual’, Journal of Ethnic and Migration Studies, 43:1 (2017), p. 58. 17. Hobbes, Leviathan, 1.10.16, p. 59. 18. Sagar, The Opinion of Mankind, p. 35. 19. Hobbes, Leviathan, 1.13.5, p. 83. 20. Ibid., 2.19.5, p. 125.

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21. C.B.  Macpherson, ‘Introduction’, in Leviathan, ed. C.B.  Macpherson (New York and London: Penguin, 1968), pp. 30–9. 22. Gregory S. Kavka, Hobbesian Moral and Political Theory (Princeton, NJ: Princeton University Press, 1986), p. 97. 23. The first and most famous attempt to apply game theory to Hobbes was David Gauthier, The Logic of Leviathan: The Moral and Political Theory of Thomas Hobbes (Oxford: Clarendon, 1969); for an overview of developments since then see Daniel Eggers, ‘Hobbes and Game Theory Revisited: Zero-Sum Games in the State of Nature’, The Southern Journal of Philosophy, 49:3 (September 2011), pp. 193–226. 24. Hobbes, Leviathan, 1.13.4, p. 83. 25. I have in mind George H. Smith, Self-Interest and Social Order in Classical Liberalism (Washington, DC: Cato Institute, 2017), pp.  51–60. Here Smith seems unusually hostile to Hobbes and the careful intellectual charity which marks that much of his other work is missing. This leads Smith to make several errors which this chapter partly sets out to correct. 26. W.M.  Muir, ‘Group Selection for Adaptation to Multiple-Hen Cages: Selection Program and Direct Responses’, Poultry Science, 75 (1996), pp. 447–58. 27. See also Patrick Neal, Liberalism and Its Discontents (Basingstoke: Macmillan, 1997), p. 46. 28. Peter T.  Leeson, The Invisible Hook: The Hidden Economics of Pirates (Princeton, NJ: Princeton University Press, 2009), p. 5. 29. Michael Oakeshott, Hobbes on Civil Association (Indianapolis, IN: Liberty Fund, 2000), pp. 27–8. 30. Christopher Tilmouth, Passion’s Triumph Over Reason: A History of the Moral Imagination from Spenser to Rochester (Oxford: Oxford University Press, 2010), pp. 213–56. 31. Jonathan Haidt, The Righteous Mind: Why Good People Are Divided by Religion and Politics (New York: Random House, 2012). 32. Thomas Aquinas, Summa Theologiae, 60 vols (London: Eyre & Spottiswoode, 1969). 33. Note that in making this argument, I explicitly disagree with interpretations which attempt to make Hobbes a Christian moralist. The most famous Christian interpretations of Hobbes, often called ‘the Taylor-­ Warrender thesis’, are: A. E. Taylor, ‘The Ethical Doctrine of Hobbes’, Philosophy, 13:52 (October 1938), pp. 406–24; Howard Warrender, The Political Philosophy of Hobbes: His Theory of Obligation (Oxford:

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Clarendon Press, 1957); and F. C. Hood, The Divine Politics of Thomas Hobbes (Oxford: Oxford University Press, 1964). My view on this is strongly informed by Quentin Skinner, ‘Hobbes’s Leviathan’, The Historical Journal, 7:2 (1964), pp. 321–33. 34. Hobbes, Leviathan, 1.6.7, p. 35. 35. John Locke, Two Treatises of Government, ed. Peter Laslett (1690; Cambridge: Cambridge University Press, 1988), 2.7.92–3, pp. 327–8. 36. Ibid, 2.7.93, p. 328. 37. Leo Strauss, Natural Right and History (Chicago, IL: University of Chicago Press, 1953), pp. 165–251. 38. See Peter Laslett, ‘Introduction’, in Locke, Two Treatises of Government, pp.  1–126, and John Dunn, The Political Thought of John Locke (Cambridge: University of Cambridge Press, 1969), pp. 77–83. 39. Locke, Two Treatises of Government, 2.9.123, p. 350. 40. John Locke, An Essay Concerning Human Understanding, ed. Peter H. Nidditch (1689; Oxford: Clarendon Press, 1979), pp. 104–8. For an especially illuminating exposition of this, which dispels many myths, see Robert Dushinsky, ‘“Tabula Rasa” and Human Nature’, Philosophy, 87:342 (October 2012), pp. 515–18. 41. See Haidt, The Righteous Mind; David Sloan Wilson, Darwin’s Cathedral: Evolution, Religion, and the Nature of Society (Chicago, IL: University of Chicago Press, 2002); Robert Wright, The Moral Animal: Why We Are the Way We Are (London: Abacus, 1994); Robert L. Trivers, ‘The Evolution of Reciprocal Altruism’, The Quarterly Review of Biology, 46:1 (March 1971), pp. 35–57. For a systematic attempt to use evolutionary research to rebut Hobbes’s chief contentions, see Larry Arnhart, Darwinian Natural Right: The Biological Ethics of Human Nature (Albany, NY: State University of New York Press, 1998), pp. 51–63. 42. Locke, Two Treatises of Government, 2.18.199–220, pp. 398–405. 43. Alan Ryan, The Making of Modern Liberalism (Princeton, NJ: Princeton University Press, 2012), p. 238. 44. Mack, John Locke, p. 76. 45. Niccolò Machiavelli, Discourses on Livy, trans. Harvey C. Mansfield and Nathan Tarcov (1517; Chicago: University of Chicago Press, 1996), 1.2.3, p. 12. 46. Ibid., 1.2.3, p. 11.

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47. John Alroy, ‘A Multispecies Overkill Simulation of the End-Pleistocene Megafaunal Mass Extinction’, Science, 292: 5523 (8 June 2001), pp. 1893–6. 48. Locke, Two Treatises of Government, 2.5.37, p. 294. 49. Mack, John Locke, pp. 61–2. 50. Robert Nozick, Anarchy, State and Utopia (1974; Oxford: Blackwell Publishing, 2001), p. 175. 51. Locke, Two Treatises of Government, 1.4.42, p. 170. 52. James Tully, A Discourse on Property: John Locke and His Adversaries (Cambridge: Cambridge University Press, 1980), p. 137. 53. C. B. Macpherson, The Political Theory of Possessive Individualism: Hobbes to Locke (1962; Oxford: Oxford University Press, 2011), pp. 232–8. 54. For an exceptionally clear map of this hopelessly confused terrain see Gerard Casey, Freedom’s Progress: A History of Political Thought (Exeter: Imprint Academic, 2017), p. 474. 55. Tully, A Discourse on Property, p. 97. 56. See, for example, G.A.  Cohen, Self-Ownership, Freedom and Equality (Cambridge: Cambridge University Press, 1995). 57. Stephen Kinsella, ‘Locke, Smith, Marx and the Labor Theory of Value’, Mises Wire (23 June 2010), available at: https://mises.org/wire/ locke-smith-marx-and-labor-theory-value. 58. Locke, Two Treatises of Government, 2.5.46, p. 300. 59. Ibid., 2.5.46, p. 300. 60. Ibid., 2.5.46–7, p. 300. 61. Adam Smith, The Wealth of Nations, ed. Edwin Cannan (1776; New York: Modern Library, 2000), 1.4, pp.  24–32; Frédéric Bastiat, ‘What is Money’, in Essays on Political Economy, trans. David A. Wells (New York: G. P. Putnam’s Sons, 1877), pp. 174–220; Carl Menger, The Principles of Economics, trans James Dingwell and Bert F.  Hoselitz (1871; Auburn, AL: Ludwig von Mises Institute, 2007), pp. 257–61; Ludwig von Mises, The Theory of Money and Credit, trans. H.E. Batson (1912; Indianapolis, IN: Liberty Fund, 1981), pp. 30–3; Murray N. Rothbard, The Mystery of Banking (1983; Auburn, AL: Ludwig von Mises Institute, 2008), pp.  1–14; Jörg Guido Hülsmann, The Ethics of Money Production (Auburn, AL: Ludwig von Mises Institute, 2008), pp. 22–3; Matt Ridley, The Evolution of Everything: How New Ideas Emerge (New York: Harper Collins, 2015), pp. 277–98. 62. Nozick, Anarchy, State and Utopia, p. 176.

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63. Michael Makovi, ‘The “Self-Defeating Morality” of the Lockean Proviso’, Homo Oeconomicus, 32:2 (2015), p. 237. See also David Schmidtz, The Limits of Government: An Essay on the Public Goods Argument (New York and London: Routledge, 1990), pp. 21–3. 64. Adam Mossoff, ‘Saving Locke from Marx: The Labor Theory of Value in Intellectual Property Theory’, Social Philosophy and Policy, 29:2 (2012), pp. 294–5. 65. Nozick, Anarchy, State and Utopia, p. 175. 66. Mossoff, ‘Saving Locke from Marx’, p. 317. 67. Nat Berman, ‘How Much is Walt Disney World Worth?’, Money Inc. (2016) available at: https://moneyinc.com/disney-world-worth/. 68. Richard E.  Foglesong, Married to the Mouse: Walt Disney World and Orlando (Princeton, NJ: Yale University Press, 2001), pp. 41–2. 69. Murray N. Rothbard, The Ethics of Liberty (1982; Auburn, AL: Ludwig von Mises Institute, 2016), p. 64. 70. Locke, Two Treatises of Government, 2.5.50, p. 301. 71. Ibid., 2.5.28, p. 289. 72. Macpherson, The Political Theory of Possessive Individualism, pp. 124–5. 73. Tully, A Discourse on Property, p. 137. As I noted earlier, Tully errs in his subsequent analysis because he seems to think that a ‘capitalist-worker’ relationship is coercive in some way—this is patent nonsense for which he offers no justification: the relationship functions in exactly the same manner as ‘master-servant’ in the passage I have quoted from him. 74. Richard Pipes, Property and Freedom (New York: Vintage Books, 1999), p. 36. 75. For a very thorough account of Locke on inheritance see Jeremy Waldron, ‘Locke’s Account of Inheritance and Bequest’, Journal of the History of Philosophy, 19:1 (January 1981), pp. 39–51.

4 The Enlightenment

In the eighteenth century, arguments which had been nascent in Machiavelli, Hobbes, and Locke would find their most complete expression in the thinkers of the Enlightenment. This was a period of unprecedented growth for England. The population grew by over 70% from 5.4 million in 1700 to 9.2 million in 1800.1 Between 1701 and 1801, there was a 31.4% decrease in the death rate while the birth rate increased by 8.9%.2 In Lancashire, there was a 52% increase in average real wages from 1700 to 1796.3 From 1700 to 1800, GDP per capita increased by 38.6%. In the same period, the service sector grew by 144%, total agricultural output by 101.2%, and total industrial output by 171%.4 Perhaps owing to the need to explain all this growth, the 1700s also gave rise to the first writers who could properly be called ‘economists’: Richard Cantillon, A.R.J. Turgot, David Hume, and Adam Smith. In this chapter, I will argue that the central tenets of liberalism were defined, almost in their entirety, by the end of the 1770s. It is divided into four sections. The first section considers the extraordinary contributions to economic theory of Cantillon and the second considers those of Turgot. The third section compares Hume’s concept of justice and property rights with Locke’s. The fourth section discusses Smith’s contributions to the concept of social evolution and especially the idea of the division of labour. © The Author(s) 2020 N. Parvini, The Defenders of Liberty, https://doi.org/10.1007/978-3-030-39452-3_4

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 ichard Cantillon and the Birth R of Modern Economics Richard Cantillon (1680–1734), a mysterious Irish-French banker, wrote Essay on the Nature of Trade in General in 1730. It was clandestinely circulated in manuscript form to avoid censorship for twenty-five years before finally being published in 1755. William Stanley Jevons, who ‘rediscovered’ Cantillon in the 1870s described his book as ‘more emphatically than any other single work, “The Cradle of Political Economy”’.5 It is one of the few works explicitly referenced by Adam Smith in The Wealth of Nations.6 Henry Higgs called him ‘the economist’s economist’.7 F.A. Hayek was ‘convinced to rank Cantillon among the very great minds in our science’.8 Joseph A. Schumpeter praised Cantillon as being the first ‘to give us a bird’s-eye view of economic life’ and argued that his theory of inflation, which is ‘usually credited to Hume’, ‘stood unsurpassed for about a century’.9 Murray N. Rothbard called him ‘the father of modern economics’.10 The reason for this adulation is that Cantillon originates many concepts in economic theory that have since become standard. Before outlining Cantillon’s contributions to economic theory, I think it is worth mentioning also that he is the first truly ‘liberal’ writer that we have encountered. This is because he takes mostly self-interested nature of humans outlined by Hobbes and Locke for granted. He views property rights as a fundamental precondition for society in general. Cantillon’s insistence on property as the starting point of his study has led Jörg Guido Hülsmann to dub his work ‘property economics’.11 He also utilises methodological individualism in his approach to economic questions consistently emphasising the incentives and motivations of the individual. His economic world is made up of individual labourers, farmers, tailors, hatters, fishwives, bakers, brewers, merchants, sailors, craftsman, and so on, in a way that is recognisably modern. Indeed, one commentator called him the ‘First of the Moderns’.12 It is also striking that Cantillon’s analysis proceeds in the manner of later economists; he employs ceteris paribus, what Ludwig von Mises would call ‘the method of imaginary constructions’,13 or in Hayek’s words ‘the method of “isolating abstraction”’.14 For example, in one chapter he uses a thought experiment imagining a fixed

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quantity of green peas to demonstrate how supply and demand determine market prices.15 In another, he imagines that the whole world is owned by just one person who runs it as a giant estate to show how production is driven by demand. He then adjusts the model, by assuming that the owner then parcels out his land to various producers to manage on his behalf to show the importance of entrepreneurial incentives to economic life.16 Proceeding with these sorts of hypothetical scenarios and then relaxing assumptions one-by-one, Cantillon isolates various factors to demonstrate causal economic effects. Using this method, he derives a number of startling insights which I will outline presently. In the very first paragraph of the Essay, Cantillon declares that wealth is not money, but ‘is nothing other than food, commodities, and the comforts of life’.17 This single insight—what we recognise today in the common phrase ‘quality of life’—devastated the entire premise of the bullionist and mercantilist arguments prevalent in the seventeenth and eighteenth centuries, which held that nations should maintain a trade surplus and saw economics as a zero-sum game.18 Cantillon, however, did not quite come to the realisation that trade is always a positive-sum game because he maintained the early modern notion of ‘equity’, and so exchanges are always of equal value or ‘par value’. The ‘double inequality of value involved in any exchange’ in which ‘each party desires the object he desires more than he does the object given up’ would not be realised until 1765 when Abate Antonio Genovesi wrote Lessons on Civil Economy and then in 1776 when Etienne Bonnot, Abbé de Condillac, published Commerce and Government and Adam Smith produced The Wealth of Nations.19 However, Cantillon did realise that market prices are derived from supply and demand alone. Although he lacked any notion of marginal utility, he shows that sellers will adjust their prices in response to market demand while acknowledging that they are not perfectly elastic. ‘It frequently occurs’, he argues, ‘that sellers, because of their eagerness to keep up market prices, miss the opportunity to sell their commodities or merchandise advantageously and lose by this. It also happens that by maintaining their prices they will often be able to sell more advantageously another day.’20

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The example of sellers trying to anticipate the market in their price setting shows also that, for Cantillon, economic activity always happens under uncertainty: competition and tastes can change, which necessitates the role of the entrepreneurs who are the prime bearers of this uncertainty. Entrepreneurs direct resources to different industries but in so doing always risk bankruptcy if circumstances should change. Entrepreneurs ‘proportion themselves in a state to their customers or to their consumption; if there are too many hatters relative to the number of hat buyers in a city or in a street, some with the least business will be made bankrupt. If there are too few, it will be an advantageous business, which will attract some new hatters to come and open up shops. In this way all types of entrepreneurs adjust themselves to risk in a state.’21 In this Cantillon greatly anticipates Hayek’s ideas about prices as signals which entrepreneurs follow to adjust the allocation of scarce resources to more productive uses and the Misesian conception of the entrepreneurial function as one of opportunity discovery and judgement rather than the Schumpeterian emphasis on disruption.22 Another important implication of this is that wage labourers themselves are a kind of entrepreneurs who respond to the differing demand for types of labour. He reasons: ‘When too many labourers and craftsmen share work, it often happens that there is insufficient employment for them.’ They face a choice of living in poverty and very probably dying or migrating to other villages, towns, and cities in order to find gainful employment. This simple insight still escapes the grasp of many policy makers even today. For example, Cantillon says ‘It would be useless for the king of France to send a hundred thousand of his subjects to learn seafaring in Holland if, on their return, more ships were not sent to sea than formerly.’23 In the UK, two decades after Tony Blair set a target of 50% of young people to graduate from university in 1997, 47% of all recent graduates and 37.2% of all graduates total are in non-graduate roles.24 Another key recognition in Cantillon is the Law of Differentiation,25 which Mises articulates as follows: Historically the division of labour originates in two facts of nature: the inequality of human abilities and the variety of the external conditions of human life on earth. These two facts are really one: the diversity of Nature[.]26

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The Law of Association (sometimes called ‘Ricardo’s Law’) depends on the Law of Differentiation to function. ‘For there would be no scope at all for a division of labor if every person [and place] were uniform and interchangeable.’27 I will return to this idea later when discussing Hume. Cantillon pioneered the idea that opportunity costs play a role in decision-­making and accordingly affect market valuations. He uses the unfortunate phrase ‘intrinsic value’, but as Mark Thornton has demonstrated convincingly,28 what he means by this is much closer to the modern concept of opportunity cost than anything like the Smithian-Ricardian Labour Theory of Value. One can see this in his discussion of why craftsmen are paid more than labourers: A labourer’s son at the age of seven or twelve years, starts to help his father either by minding flocks, or digging earth, or carrying out other rural works that require neither art nor skill. If the father makes him learn a trade, he loses because of his absence during the time of his apprenticeship, and into the bargain is obliged to pay for several years’ worth of his upkeep and apprenticeship’s expenses.29

As Cantillon goes on to explain, these costs would not be worth it to the father if craftsmen were not paid better than labourers. However, since all decisions are made under uncertainty, this of course by no means guarantees that the son will be paid better than a labourer—it only explains the motive for taking the decision. The cost ‘needs not to be realised on the market’.30 Thus Cantillon escapes the trap that the classical economists and even some modern economists in the Marshallian tradition fall into of thinking of foregone costs as being somehow ‘built in’ to the value of the final product, which is discussed at length in James M. Buchanan’s Cost and Choice as well as in the essays of G.F. Thirlby, upon which I will elaborate in the section on Philip Wicksteed in Chap. 7.31 If these contributions were not enough, I have not yet touched on what Hayek saw as ‘undeniably … Cantillon’s greatest achievement’32: his monetary theory and insights into banking and interest. I will touch on his two main contributions in this area. First, Cantillon critiques Locke’s naïve quantity theory of money—‘a theory still basically followed by monetarist and neoclassical economists alike—which holds that a change

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in the total supply of money causes only a uniform proportionate change in all prices’.33 He shows that this is not true and that advantages in the increase of the money supply fall disproportionately on the first receivers of the new money who are able to spend it before prices adjust. This is what is known today as ‘the Cantillon effect’—which continues to be ignored in mainstream economics even as the marked inequalities produced by each boom and bust cycle become impossible to ignore. To be sure, the defender of liberty has no issue with inequality per se, but rather fights against the injustices of a ruling class pressing its advantages by using the levers of government artificially to produce inequalities through interventionist mechanisms such as inflation or monopoly privileges. This is the inequality of caste: ‘the artificial inequalities of wealth resulting from state actions’ as distinct from ‘the inequalities resulting from free action’.34 Cantillon himself was acutely aware of these issues, because of his own role in riding the Mississippi Bubble. His friend, John Law, established Banque Générale, a bank with the authority to issue notes. Cantillon worked with Law at this bank. In 1719, Law also established Compagnie d’Occident, obtaining monopoly privileges to farm tobacco on the Mississippi River. He then floated shares for this company on the stock market, which produced a speculative frenzy and an asset bubble. The price for a share in the company soared from 500 livres to 18,000 livres which bore no relation to its actual profits. Law then merged Compagnie d’Occident with Banque Générale. He hoped to retire the vast public debt accumulated during the later years of Louis XIV’s reign by selling his company’s shares to the public in exchange for state-issued public securities, or billets d’état, which consequently also rose sharply in value. This produced a stock-market boom and the French government hoped to capitalise on this by printing more money, which was readily accepted by the state’s creditors because it could be used to buy more shares of the company. Naturally, this resulted in a crash as the price of shares plummeted when expected profits did not materialise, and Law was forced to flee France disgraced and penniless.35 Cantillon, however, perhaps owing to his intuitive grasp of economics, quietly sold all his shares while encouraging speculators to invest. This made him one of the richest men in the world and one of the first private multi-millionaires. As the

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inevitable inflation took root in France, Cantillon had already bought properties and made investments with his money. He saw first-hand how unevenly new money can be distributed just as anyone who lived through the financial crisis of 2008 saw it. For Cantillon, it likely cost him his life as he was probably murdered in 1734. For France, these events sowed the seeds of the French Revolution. For us, time will tell. It is doubtful that the ostrich-in-the-sand-like stance of the economics profession on this issue can persist for much longer; it remains shrouded in the shadow of Milton Friedman’s work on monetarism in the early 1960s, but one suspects this shadow will lift.36 Cantillon’s second major contribution to banking and finance is his defence of interest in defiance of centuries-old usury laws. He was personally embroiled in legal battles over this issue after the Mississippi Bubble had burst. He demonstrates that a loan is the purchase of quantity of money today in exchange for a larger sum of money to be paid back at some future date. The promise of this profit—that is, the difference between the two sums—is what induces the lender to bear the opportunity costs (all of the other alternative uses of this money) to loan his money to the borrower. Cantillon describes the process as follows: The introduction of interest appears to have been driven by the needs of mankind. A man who lends his money on good securities or on land mortgages nevertheless runs the risk of the borrower’s ill will, or that of expenses, lawsuits, and losses. But when he lends without security, he runs the risk of losing everything. For these reasons needy people must, at the beginning, have tempted lenders by the lure of profit. This profit must have been proportionate to the needs of the borrowers and to the fear and greed of the lenders. This appears to me to be the origins of interest. But its continued use in states appears to be based on the profits that the entrepreneurs can make from it.37

A loan is thus not much different from any other consumer good in which the entrepreneur must bear risk and uncertainty, and the consumer must give their money in exchange for a product. The only conceptual difficulty arises because of the element of time involved. To help make this easier to understand, Cantillon uses examples from the world

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of wholesaling and retailing: a brewer selling kegs of beer to alehouses on credit at 500% interest and a scrivener who loans fishwives capital to buy their fish at 260% interest. He argues that these interest rates, although seemingly high, benefit the smooth operation of the economy, because it allows the alehouses and the fishwives to remain in operation, and their consumers get to enjoy beer or fish. Implicitly, the owners of the alehouses and the fishwives must be making more in profits than the rate of interest, and the brewer and the scrivener each shoulder some of the risk of them being bankrupted and thus unable to pay back their loans.38 In Cantillon, writing in 1730, we find already most of the basic framework for economics, and its subsequent development can be viewed as refining what he got right and working out where precisely, if anywhere, he went wrong. In some ways, classical economics was an unfortunate and incorrect detour from Cantillon’s insights from which economic theory did not fully recover until the Labour Theory of Value was finally dispatched by the Marginal Revolution in the 1870s—as we saw from his comments on Ricardo and Mill in Chap. 1, and his praise for Cantillon, this was certainly the view of Jevons.

 .R.J. Turgot on Subjective Value, Diminishing A Returns, and Capital and Interest Theory Anne Robert Jacques Turgot (1727–1781) was a tax collector and then controller-general of finance for France under Louis XVI. He famously opposed government borrowing and deficit financing of military activities when the king wanted to aid the American Revolutionary Cause to which Turgot was sympathetic. After his dismissal from office, the extent of government borrowing eventually led to the French Revolution.39 He wrote various essays, fragments, and letters on economics from the late 1740s to his death. Turgot was familiar with the work of Cantillon through his mentor J.C.M. Vincent de Gournay who is also widely credited with coining the phrase ‘laissez faire, laissez passer’. Although he has been grouped with The Physiocrats historically, he is best understood as writing after Cantillon and the grouping causes unnecessary confusion.

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Adam Smith does not reference Turgot directly, but met and discussed economics with him during his time in France.40 David Hume was also present. Turgot wrote directly to Hume frequently in letters between 1766 and 1768, chiefly on matters of taxation and concerning Hume’s quarrels with Jean-Jacques Rousseau.41 He is the first explicitly laissez-­ faire thinker that I have considered insomuch as he consistently argued against government interference in the smooth running of the market economy. For example, in an article called ‘Fairs and Markets’, he seems to recognise that ‘great fairs’ arise from cronyism: ‘from privileges and franchises granted to trade at certain times and places while everywhere else it is overburdened with taxes and duties’. Indeed, such great fairs ‘can only exist … in States where commerce is restricted’. Elsewhere, he argues against attempts to regulate the interest rate and against protective tariffs on international trade.42 Building on Cantillon, Turgot made three quantum leaps in economic theory: first, he pioneered what was ‘an essentially subjective theory of value’ more than a hundred years before the marginalist breakthrough of Carl Menger, William Stanley Jevons, and Leon Walras.43 Second, his ‘development of the law of diminishing returns’.44 Third, his theory of capital and interest, which, according to Schumpeter is ‘not only by far the greatest performance in the field of interest theory the eighteenth century produced but it clearly foreshadowed much of the best thought of the last decades of the nineteenth’.45 I will outline each of them. Before doing so, however, it is worth noting that, like Cantillon, Turgot starts his analysis in Reflections on the Formation and Distribution of Wealth (1766) with an absolute insistence on property rights as the starting point for the division of labour and, indeed, civilisation itself. A situation in which lands are divided equally among every person ‘could never have existed, because the earth was cultivated before it was divided; cultivation itself having been the only reason for division, and for that law which secures everyone to his property’. Much of his analysis in the stages of progress in the division of labour—from hunter-gathering to agriculture to trade until ‘finally all land found an owner’46—proceeds in much the same way as in Hume or Smith, to whom I will return later in this chapter.

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Turgot’s insight that value is ultimately subjective can be found in his unfinished 1769 paper ‘Value and Money’. Here we can see Turgot utilising Cantillon’s concept of opportunity cost as individuals evaluate alternative ends to which they might employ their scarce means. He uses the economist’s method, ceteris paribus, to isolate how this happens in autistic exchange by imagining the proverbial Robinson Crusoe: ‘a man in isolation, without communication with other men’.47 He imagines Crusoe as being able only to work towards a single end and concludes that in such a scenario evaluation is not possible. Thus, the availability of alternative ends is the precondition of the very possibility of valuation. Now he drops this assumption: If the same man can choose between several objects suitable to his use, he will be able to prefer one to the other, find an orange more agreeable than chestnuts, a fur better for keeping out the cold than a cotton garment; he will regard one as worth more than another; he will compare them in his mind, he will appraise their worth. He will consequently decide to undertake those things which he prefers, and leave the others.48

There is also the recognition that taking one option necessitates paying an opportunity cost of the options that are forsaken: The savage has killed a calf, which he takes to his hut; on the way he finds a roe; he kills it and takes it instead of the calf in the expectation of eating a more delicious meat. In the same way a child, who has first filled his pockets with chestnuts, empties them in order to make room for some sugared almonds which have been given to him.49

Here the savage values roe so highly that he is willing to forsake his calf for it, and likewise, the child forsakes his chestnuts because he prefers sugared almonds. Turgot is also alert to the fact that valuations are contingent on the individual’s desired ends. In the case of oranges versus chestnuts, the end is a pleasant taste. In the case of the fur versus the cotton garment, it is keeping warm in the cold. Value is therefore not only subjective insomuch as individuals will have differing tastes (i.e. some will prefer chestnuts to oranges), but also relative to the particularities of

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situation, time, and place. The valuation of Crusoe of the relative worth of the fur and cotton garment may well change in the summer when what he wants from an item of clothing is to keep him cool not help to insulate him from the cold. And this brings Turgot to his remarkable realisation of the law of diminishing returns. He understands that a good whose valuation is dependent on the satisfaction of a need will see its worth reduced when that need is met. [T]hese appraisals are not permanent, they change continually with the need of the person. When the savage is hungry, he values a piece of game more than the best bearskin; but let his appetite be satisfied and let him be cold, and it will be the bearskin that becomes valuable to him.50

This is a startlingly ‘modern’ analysis for 1769. All that Turgot is missing, as Rothbard notes, is the concept of the marginal unit.51 He is also hampered, like Cantillon, by not applying Occam’s Razor in his exchange theory because he remains wedded to notions of ‘equal value’.52 As I mentioned, it would take Etienne Bonnot, Abbé de Condillac, to realise the ‘mutual profit’ of the positive sum-game. As he puts it in Commerce and Government: ‘We want to give up something which is useless to us to get ourselves something which we need: we want to give less for more.’53 However, Turgot comes very close to the notion of ‘psychic profit’ as the basis for trade, as Peter Groenewegen has made clear.54 Turgot imagines two individuals trading quantities of corn and wood who make internal ‘mental comparisons’ of their competing interests until making a trade: At the moment of exchange the one who, for example, gives four measures of corn for five armfuls of wood, without doubt prefers these five armfuls of wood to the four measures of corn; he will give them a higher esteem value. But for his part, the one who receives the four measures of corn also prefers them to the five armfuls of wood.55

Thus, Turgot already realises what Rothbard calls the ‘double inequality of value’ in exchanges but, for some reason, feels the need to label this phenomenon ‘precisely equal’. This, I think, is a semantic issue. Turgot is

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merely saying that if both parties did not agree, the trade would not take place, and so the value must be ‘precisely equal on each side’.56 This final claim about the valuations being ‘precisely equal’ is superfluous and potentially misleading, because meaningful comparisons between the subjective psychic valuations of each party are not possible or necessary. It suffices to say that A prefers X quantity of corn to Y quantity of wood and that B prefers Y quantity of wood to X quantity of corn. It is perfectly possible that A might have given Y+1 wood or that B might have given X+1 corn. A might have been in a rush and so settled the deal because any amount of corn is better than no corn. B might have so much corn that his psychic valuation of giving up X or X+1 or X+2 is arbitrary. In short, the insistence that their separate valuations are ‘equal’ at the point of trade creates complications that we can do without. ‘Nevertheless’, Turgot’s ‘discussion of the problem is a remarkable performance for an eighteenth-century economist’.57 Finally, on the subject of capital and interest and why usury laws are wrong-headed, Turgot follows Cantillon quite closely in viewing both commodity money and loans as being virtually identical goods involved in ordinary market transactions subject to the law of supply and demand, save for the elements of time, uncertainty, and risk. His key work on this is ‘Paper on Lending at Interest’ written in 1769 in connection with a real-life lawsuit. Turgot draws on the old maxim: ‘a bird in the hand is better than two in the bush.’ He asks: ‘If it is assumed that a thousand francs and a promise of a thousand francs are exactly of the same value, an even more absurd assumption is made; if these two things are equivalent, why do people borrow?’58 It should be noted that, in Britain, Jeremy Bentham made the key breakthrough against old usury laws in his letters to Adam Smith, who had been in favour of a maximum 5% interest rate. These letters were collected in a book called Defence of Usury and published in 1787; it sold very well. Bentham simply pointed out that fixed interest rates are arbitrary and that rates have varied from time to time and place to place. There is no principle that can delineate which interest rate is ‘reasonable’.59 Where Turgot moves beyond Cantillon is in his theory of capital, and specifically why an entrepreneur would wish to borrow to invest in capital goods. He says that people might wish to borrow money for any number of reasons, but in the main there are three

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main ones: to borrow for consumption, to borrow to acquire land, and to borrow for capital investment. For this we must turn back to the Reflections in which he appears to recognise what Eugen Böhm-Bawerk, over a hundred years later, would call ‘capitalist roundaboutness’.60 As an economy becomes more complex and the division of labour more specialised, the length of the chain of production increases becoming more capitalistic and roundabout: ‘there is a fairly long temporal gap before the raw materials are transformed into final products.’61 A vast number of crafts, and even of those crafts engaged in by the poorest members of society, require that the same materials should pass through a multitude of different hands, and undergo, for a very long time exceedingly difficult and varied operations.62

He uses the example of producing leather shoes. The tanner in his workshop cannot possibly produce all of the hides, lime, tan, utensils, and so on, in isolation. There is a delay between the final sale of the shoe and the initial investments required to establish all the buildings and equipment necessary for this industry as well as training all of the workers who will be involved in production. Turgot asks who and what will sustain all these people while they are setting up their operations and waiting for their first sales? It will be one of those owners of capitals, or moveable accumulated values, who will employ them partly in advance for the construction of the establishment and the purchase of materials, partly for the daily wages of the workmen who labour in the preparation of them. It is he who will wait for the sale of the leather to return him not only all his advances, but also a profit sufficient to compensate him for what his money would have been worth to him, had he turned it to the acquisition of an estate, and moreover, the wages due to his labour and care, to his risk, and even to his skill; for surely, if the profits were the same, he would have preferred living without any exertion on the revenue of the land which he could have purchased with the same capital.63

This is a trailblazing analysis because it recognises that not all of the capitalist’s return is pure interest but divides ‘into pure interest, depreciation, and

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entrepreneurial remuneration including a risk premium’.64 While Cantillon recognised the vital importance of the function of the entrepreneur-­ producer as the chief driver of capital reallocation in any economy, Turgot recognised the vital function of the entrepreneur-­capitalist whose savings and investments make the operation of new enterprises in the economy possible. Incidentally, as Israel M. Kirzner has pointed out, the pure capitalist who does nothing but sits and waits for guaranteed interest can only exist as an imaginary analytical construct and not in the real world, because conditions are ‘ever-changing’; risk and uncertainty are permanent factors, and the pure capitalist would need an Evenly Rotating Economy (or conditions of perfect general equilibrium) to survive.65 Between Cantillon and Turgot then—with some additional insights from Condillac—we already have a robust understanding of the following fourteen economic laws66: 1. The Law of Differentiation: nature is diverse, which means people are individuals and hence are unequal in abilities, and places have variety and hence are unequal in resources. 2. The Law of Association: given these facts of nature, individuals will be more productive as a whole if they specialise in the division of labour and trade rather than attempting to produce goods in isolation, assuming the co-operating partners differ in some regard. 3. The Law of Subjective Value: the desired ends of individuals, the fulfilment towards which they employ scarce means, are subjective. 4. The Law of Diminishing Returns: an individual’s valuation of a given end will reduce if it is satisfied. 5. The Law of Supply and Demand: where demand outstrips supply, we expect the price to rise, and where supply outstrips demand, we expect the price to fall until supply and demand are in equilibrium. 6. The Law of Wealth: wealth is not money but access to goods and services which are limited by the extent of the market. 7. The Law of Positive-sum Game: voluntary trade is a positive sum-­ game of mutual benefit. 8. The Law of Zero-sum Game: whenever an exchange is not voluntary but coerced, one party profits at the expense of the other.

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9. The Law of Inflation: whenever the quantity of money is increased while the demand for money to be held as cash reserve on hand is unchanged, the purchasing power of money will fall. 10. The Law of Interest: the rate of interest is determined by supply and demand and dictated by the differing time preference of borrowers and lenders. 11. The Law of Profit: profit is a bonus for bearing uncertainty without which entrepreneurial activity would not take place. 12. The Law of Production: production precedes consumption. 13. The Law of Consumption: consumption is the final goal of production. 14. The Law of Opportunity Costs: All economic decisions imply opportunity costs. There is only one fundamental law missing from this list: 15. The Law of Marginal Utility: Whenever the supply of a good increases by one additional unit, provided each unit is regarded as of equal serviceability by a person, the value attached to this unit must decrease. For this additional unit can only be employed as a means for the attainment of a goal that is considered less valuable than the least valued goal satisfied by a unit of such good if the supply were one unit shorter. This would not be realised (by Jevons, Menger, and Walras) until the 1870s and to be sure it is a powerful analytical tool with transformative implications for economic theory. But it is also astounding that practically the entire edifice of modern economics sans marginal utility can be found in the writings of Cantillon and Turgot.

 plitting Hairs Between Hume and Locke S on Justice and Property Rights In the previous chapter I argued that, contrary to its reputation as being rooted in ‘natural rights’, John Locke’s justification for property is—in the final analysis—based on utility, its capacity to ‘increase the stock of

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mankind’. David Hume (1711–1776), writing fifty years after Locke, inherits and expands on his central insights principally in his meditations on justice found in book III of A Treatise of Human Nature (1739–1740) and later refined in An Enquiry Concerning the Principles of Morals (1751).67 Hume reputedly ranked the latter as his best philosophical work, so I have generally followed his argument there as being the closest to his final vision. Like Locke, Hume argues that justice arises from the need to maintain and defend property rights, which are justified solely by their utility. Like Cantillon and Turgot, Hume is already thinking like later economists and making use of the ceteris paribus method. He asks us to imagine a world of superabundance in which ‘every individual finds himself fully provided with whatever his most voracious appetites can want’. ‘Why call this object mine, when upon the seizing of it by another, I need but stretch out my hand to possess myself of what is equally valuable?’ Under such conditions the need for property rights could never arise. Hume then imagines the opposite extreme scenario in which there is extreme scarcity such that people are desperate, starving, and in misery. ‘Is it any crime, after a shipwreck, to seize whatever means or instrument of safety one can lay hold of, without regard to the former limitations of property?’ Hume also imagines a city under siege whose inhabitants were in danger of perishing with hunger or a civil war. In such conditions we expect the normal laws of justice to be suspended, because they no longer serve any purpose. Thus, Hume concludes that justice is defined solely by its use. This is a major departure from the natural law theorists of the past, and especially from Locke, because, if one follows Hume’s argument to its logical conclusion, laws are not universal or God-given but rather contingent on giving some advantage to the group which adopts them. As evidence, Hume points to the many situations in history in which groups have ‘thrown off all restraints of justice, and even of humanity’ in their treatment of rival groups which they consider to be inferior to them, as well as to the appalling treatment of women ‘in many nations’.68 However, like Locke, Hume gives a special place to property rights above all other laws and rights as being of primary and originary importance to any system of justice regardless of historical contingencies. He starts by rejecting egalitarianism as an impossibly utopian idea, which is in contradiction to human nature. He does this through a blistering

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attack on the mid-seventeenth-century agrarian socialist group, the Diggers (also known as ‘The True Levellers’): Perhaps the levellers, who claimed an equal distribution of property, were a kind of political fanatics, which arose from the religious species … But historians and even common sense, may inform us, that, however specious these ideas of perfect equality may seem, they are really, at bottom, impracticable; and were they not so, would be extremely pernicious to human society. Render men’s possessions ever so equal, men’s different degrees of art, care, and industry will immediately break that equality. Or if you check these virtues, you reduce society to the most extreme indigence; and instead of preventing want and beggary in a few, render it unavoidable to the whole community.69

Hume points to the failure of the Agrarian laws of Rome as evidence, which—interestingly—echoes Cantillon whose work he ‘must in fact have known’70: When Rome was first settled, each inhabitant was given two acres of land; nevertheless, this did not prevent as great an inequality soon afterward in the ownership of estates as that seen today across all the states of Europe.71

Like Hume, Cantillon cites the inherently unequal distribution of human dispositions as the root cause of this: One inhabitant may have several children and thus be unable to leave each of them an equal portion of the land similar to his own; another may die childless and leave his portion to someone who has none; a third may be lazy, prodigal, or infirm and will be obliged to sell his portion to someone else, who, through his frugality and industry, will continually increase his lands by buying more land, which he will then develop through the work of those who, being landless, will be obliged to offer their labour in order to subsist.72

Incidentally, Turgot makes much the same point: ‘Even if this state of affairs could have existed, it could not possibly have endured.’73 For Hume, the situation is so unstable as to require constant government

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intervention ‘to watch over every inequality on its first appearance; and the most severe jurisdiction, to punish and redress it … [so that] authority must soon degenerate into tyranny’.74 Here, a writer in the mid-­ eighteenth century foresaw the brutality and totalitarianism that would emerge in various socialist regimes in the twentieth century as generations of intellectuals, captured by the allure of egalitarianism, failed to appreciate the simple but undoubtedly true insights offered by himself and Cantillon.75 As per the previous sections, this has been called the Law of Differentiation, which is a vital precondition to the Law of Association and the division of labour which I will discuss in the following section on Adam Smith.76 So far, Hume has not given a justification for private property rights, but rather provided reasons for rejecting impractical utopian ideas of distributive justice. He has also demonstrated at least one precondition for property rights: the fact of scarcity. To justify property rights beyond this, Hume makes a distinction between possessions and property (which can be thought of as ‘legally secured possessions’). He gives his own version of Locke’s three stages of development from hunter-gatherer status to ‘homesteading’ to trade. The central issue for Hume is one of scale and practical stability: once human groups expand beyond the basic family unit—that is, beyond what we would call today Dunbar’s number77—we come up against a fundamental limitation in our own nature: our ‘selfishness and confin’d generosity’ given the ‘scanty provision nature has made’ for our ‘wants’.78 In much the same way as in Hobbes, while we have some capacity for altruism, this becomes increasingly limited beyond immediate loved ones, and self-interest predominates. Yet in societies larger than a hundred or so people, individuals must cooperate to overcome their ‘inconveniences’, which are ‘insufficient individual capacity or power to meet needs, inability to specialize and thus be forced to “make do” when meeting needs and basic vulnerability to any small change of fortune’.79 Society requires some mechanism to induce stability and the cooperation required for mutual flourishing. Property rights, as secured by justice, are that mechanism. These rights ensure three key functions: first, stability of possession; second, transfer by consent; third, the keeping of contractual obligations. Like Locke, and unlike Hobbes, for Hume these rights are ‘antecedent to government’.80 That is, they are a precondition for the very

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possibility of a society in which the need for a government to fulfil the function of enforcing these rights may arise in the first place.81 Indeed, ‘human society, or even human nature could not subsist, without the establishment of [property rights]’.82 Hume’s analysis consistently emphasises the ‘artificial’ nature of justice and property rights. By ‘artificial’ he means that there is nothing instinctual about their establishment, and, indeed, ‘men will not instinctively let others keep the goods they have gained’.83 Individuals must come to respect these rights through experience and convention and eventually develop ‘a sympathy with public interest’. ‘Whereas Locke wishes to show that property is a natural right, Hume’s view is that the rules of property, like the institution itself, are conventional artefacts which cannot be grounded on a supposed right of self-ownership.’84 Self-interest should induce humans to accept justice and property and eventually a government that ensures their strict and fair enforcement. In other words, most people realise that they stand a better chance not only of survival but also of prosperity if they submit to the rules of a wider society which will secure their possessions rather than ‘going it alone’. Once part of this wider society, they will be induced to remain part of it through loss aversion. While these realisations both rely on self-interest, they also require humans to overcome their impulsive short-term selfishness in favour of long-run gain. It requires some degree of mastery over one’s natural passions. Hence, you do not simply take food that does not belong to you at the first pang of hunger. Even though reason is ‘the slave of the passions’, it can and must prevail in these limited cases if there is to be civilisation. But, Hume argues, society persists not because individuals continually ‘reason’ in this way, but rather because they develop new feelings ‘whereby we enter into the sufferings of others as into the sufferings of our own. … Even the artificial virtues, therefore, rest on feelings and instinct.’85 Property rights and justice are thus maintained by a form of communitarianism. Much has been made of the differences between Locke and Hume on property rights: the former emphasising it as a natural right, while the latter maintaining that it is ‘artificial’. Are these differences anything more than semantic? After all Hume himself acknowledges that ‘The word, natural, is commonly taken in so many senses, and is of so loose

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signification, that it seems vain to dispute, whether justice be natural or not.’86 As we saw in the last chapter, Locke’s ultimate justification is utility. And as we have seen in the present discussion, although Hume does not accept that property is ‘natural’, he insists that society or even human nature could not subsist without it. He also maintains that although habits, customs, and laws can vary from place to place and time to time, the importance of establishing property rights as the bedrock of justice seems to be universal. At any rate it is a universal prerequisite of all known civilisations that have had any degree of prosperity or flourishing. By ‘artificial’, Hume does not mean that property rights are unnatural, but rather that they are inherently social. He is quite explicit about this in a, perhaps obscure, footnote in Appendix III of Enquiry Concerning the Principles of Morals: Natural may be opposed, either to what is unusual, miraculous, or artificial. In the two former senses, justice and property are undoubtedly natural. But they suppose reason, forethought, design, and a social union and confederacy among men, perhaps, that epithet cannot strictly in the last sense, be applied to them.87

The desire to own something might well be ‘natural’ in this last sense: but in Hume’s lexicon this would amount to a possession instinct to rank alongside hunger, thirst, other appetites, resentment, love of life, attachment to offspring, and so on. But property goes beyond mere possession and entails ideas which are ‘infinitely complicated’, including but not limited to: occupations, industry, prescription, inheritance, contract, laws, and judges.88 To Hume, the notion that there could be an instinct for such complicated things as employment as a baker, contract law, or judges is patently absurd. He is making a distinction between human nature in the individual and ‘artificial’ social evolution—even if the limitations of human nature are such that different groups will likely evolve similar conventions and laws. It seems to me that Locke’s view is not much different from this: he also sees the development of property rights as a socially evolutionary process arising from human nature and the fact of scarcity. The difference boils down to the basis of making originary claims of ownership. In Locke, as we saw, this amounts to production. In

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Hume, this amounts to ‘“first come, first served” and “finders keepers”’.89 In both cases, unless the possession can be secured by property rights, how one came to own it is largely irrelevant because it is insecure and therefore can just as quickly be taken. However, there is a substantive difference between Locke and Hume, which is the one I drew between Lockeans and evolutionists in Chap. 1: for Locke, self-ownership (i.e. property) is the source of liberty, whereas for Hume, liberty is the source of property rights. Hume appears to view liberty as an unalienable and natural part of human nature—an innate deep-rooted passion—which can be seen in his comments on slavery: As much as submission to a petty prince, whose dominions extend not beyond a single city, is more grievous than obedience to a great monarch; so much is domestic slavery more cruel and oppressive than any civil subjection whatsoever. The more the master is removed from us in place and rank, the greater liberty we enjoy; the less are our actions inspected and controlled; and the fainter that cruel comparison becomes between our own subjection, and the freedom, and even dominion of another. … The little humanity, commonly observed in persons, accustomed from their infancy, to exercise so great authority over their fellow creatures, and to trample upon human nature, were sufficient alone to disgust us with that unbounded dominion.90

It appears that Hume asserts something like a liberty instinct, which if strongly violated provokes a disgust-reflex or revulsion. This anticipates Jonathan Haidt’s moral foundation of liberty and oppression.91 The disgust felt by Hume at the sight of domestic slavery is as natural as our capacity to taste sweet or salty foods. Hume’s friend, Turgot, it seems felt this emotion strongly too, calling it ‘the abominable custom of slavery’ which continues in all its ‘horror’.92 Slavery is thus wrong, on this account, because it goes against something in our nature. But as Gerard Casey notes this ‘sympathy’ in Hume is ‘passive’: ‘just the sentiments we have’.93 It is not clear to me here if Hume is breaking his own cardinal rule about deriving an ought from an is or just making a matter-of-fact statement about why we feel revulsion at slavery. He nonetheless generally comes down on the side of negative liberty, what Daniel B.  Klein and Erik

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W.  Matson have called ‘mere-liberty’: ‘others not messing with one’s stuff’.94 In other words, the non-aggression principle. Of course, the Lockean answer is much simpler: it is wrong because it violates our property rights. To summarise this somewhat subtle point: both Locke and Hume end up with the same conclusion (laws to ensure ‘others not messing with one’s stuff’) but the ordering of the causal logic is reversed, like so (Table 4.1): In Locke, self-ownership is a fact of human nature which gives rise to the non-aggression principle which then brings about the necessity for justice. In Hume, a passion for liberty is a fact of human nature which brings about the necessity for justice which then enforces the non-­ aggression principle as a social and moral norm. As Hayek wrote, Hume’s concept of justice and property is ‘essentially negative … a protection against injury rather than positive gifts’.95

Adam Smith and the Division of Labour The evolutionary view of the emergence of property rights and trade first outlined by Locke and then developed by Cantillon, Turgot, Hume, and Condillac is greatly elaborated upon by Adam Smith (1723–1790). Each of these writers were attempting to retrace the steps of human civilisation from its earliest history to their present. They have in common the conception of viewing development in terms of ‘stages’; they each tell a version of the same story. Take Condillac, for example: ‘When, after the formation of our tribe, the land has been divided, each settler could say: “This field is mine, and mine alone.” Such is the origin of the right of property.’ From here there emerges a natural economy of wage labours, tenancy agreements, manufacturing enterprises, wealthy cities, entrepreneurs, rights of Table 4.1  Locke and Hume’s conclusion Locke Self-ownership → Hume Passion for liberty →

Non-aggression principle → Property rights Property rights → Non-aggression principle

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inheritance—‘the arts have multiplied; trade has spread out.’96 Though Smith is remembered as the father of economics, in many ways he introduced needless error to economic theory (e.g. the Labour Theory of Value, physics envy); I will argue that his much more useful contribution to liberal thinking was in perfecting what Matt Ridley has called ‘The General Theory of Evolution’: the idea of emergent unplanned orders in language, morality, markets, law, jurisprudence, and culture.97 He certainly gives us the most fully realised version of the story of human development that many eighteenth-century thinkers had been trying to tell. Smith expands Locke’s three stages of development (hunter-gatherer to ‘homesteading’ to trade) to four: ‘1st, the Age of Hunters; 2ndly, the Age of Shepherds; 3rdly, the Age of Agriculture; and 4thly, the Age of Commerce’.98 Although buttressed by additional empirical and archaeological findings, the modern understanding of this story remains essentially unchanged. The history of homo sapiens begins around 100,000 years ago. For the first 50,000 years, humans were largely inept at hunting and did not know how to fish and used almost exclusively locally sourced stone and wood tools. After this, other materials were used sourced from farther afield including bone, antlers, teeth, ivory, and shells. More complex equipment was developed such as knives, needles, pins, blades, and missile technologies that could be used to bring down larger animals in hunting. Bows were invented around 20,000 years ago. Around this time humans learned to fish and construct boats and developed artistic implements and musical instruments.99 It is thought that language emerged just prior to this and afforded these developments. Hunter-gatherers from 20,000 years ago onwards lived in small communities, which were limited to 500 people maximum beyond which food scarcity could not sustain the population. However, the number of the tribe could not fall below 150 people to avoid dysgenic effects. Division of labour at this time was limited to men as hunters and women as gatherers. These nomadic tribes had the advantage of high-protein diets and a good life expectancy above thirty years (which would not be reached again on average until the nineteenth century).100 However, they faced problems of inefficiency. They led ‘essentially parasitic lives. That is, they did not add anything to the nature-given supply of goods … It has been estimated that one square mile of territory was

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needed to comfortably sustain one to two persons, and in less fertile regions even larger territories were necessary.’101 Hunter-gatherers had a constant problem of population control, which led to ‘excess’ population. There were only three strategies to cope with this: a zero-sum fight over resources, migration to new territories, or to invent and adopt new technologies. Of the first, it is estimated that around 30% of all hunter-­ gatherer males died from inter- or intra-tribal violent conflict at an annual death rate of 0.5% of the total population.102 To put this in perspective, in 2018 in England and Wales with a population of roughly 56.1 million people only 732 people were murdered, which is 0.0013%.103 If we applied the hunter-gatherer murder rate it would be 280,500 people. If we assume most hunter-gatherer populations were between 300 and 500 people, then losing 2 or 3 adult men every year carries significant costs. This is not viable in the long run. The second option, migration, remains viable only until all the available land is used, which means it is a temporary strategy. The third option, invention and adaptation, led to the development of agriculture and the division of labour which greatly increased human productivity in terms of per-acre units of food. However, property rights did not emerge fully formed from the start. Of Hume’s three criteria for property rights—stability of possession, transfer by consent, and the keeping of contractual obligations—the second was missing in most cases when tribal communities settled. Land was held by kin groups, not individuals, according to what we would describe today as Edmund Burke’s version of the social contract: ‘between those who are living, those who are dead, and those who are to be born’.104 As Francis Fukuyama explains, early property rights represented ‘the family’s unmovable hearth … The owner is not an individual landlord, but a community of living and dead kin. Property was held as a kind of trust on behalf of dead ancestors and the unborn descendants.’105 Smith’s great friend, Burke, recognised this link between property and kinship: ‘The power of perpetuating our property in our families is one of the most valuable and interesting circumstances belonging to it, and that which tends the most to the perpetuation of society itself.’ We ‘derive all we possess as an inheritance from our forefathers’.106 Of course, property rights rigidly organised along these tribal lines would severely retard growth in terms of wealth. The inability to trade

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land holdings leads to an essentially static society from the point of view of the division of labour because the market is hampered. As Smith points out in The Wealth of Nations: ‘the division of labour is limited by the extent of the market.’107 In this case, the tribe and its land effectively function as a single firm without clear price signals with which to calculate production inputs, allocate resources, or distribute knowledge.108 In a famous analysis, George Stigler pointed out that ‘vertical integration’ within an industry of a single monopolistic firm is less efficient than ‘transactions between firms’ based on ‘specialism … carried out to an almost unbelievable extent’.109 One can see evidence of the extent to which this is true in modern Papua New Guinea where ‘upward of 95 percent of all land is tied up in customary [tribal] property rights’.110 GDP per capita remains at 19% of the global average. Between 1960 and 2017 this figure grew by just under 37% compared to just about 207% in the UK in the same timeframe. Today 80% of Papua New Guinea’s population live in rural communities with no modern conveniences, and around 40% live below the poverty line.111 Smith’s recognition that the division of labour is the starting point for progress is surely borne out by the facts. It ‘results in a situation where the most ordinary labourer in a commercial society has more material resources’.112 There are many competing theories as to why and how some societies developed individuated property rights and the division of labour while others remained frozen in nomadic hunter-gatherer arrangements or in tribal settlements with customary-kinship property rights. Explanatory factors include: geography,113 violence,114 and intelligence.115 It is quite beyond the aims of this study to resolve this long-vexed question beyond pointing out that division of labour afforded by property rights is a hard precondition for advanced civilisation. Smith’s next key insight is that this development is largely the result of unintended consequences, it is unplanned in the sense of not being explicitly designed or even understood by any one person. This is a fundamental shift between the seventeenth-­century and eighteenth-century thinkers. Whereas Locke viewed the state of nature as a distinct phase before the establishment of government, Smith after Adam Ferguson holds that we are still in the state of nature: ‘Where is the state of nature to be found? It is here; and it matters not whether we are understood to speak in the island of Great

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Britain, at the Cape of Good Hope, or the Straits of Magellan.’116 ‘In reality’, Smith argues, it ‘serves no purpose to treat of the laws which would take place in a state of nature, or by what means succession to property was carried on, as there is no such state existing’.117 This, I think, is an important humanistic realisation that dispels nonsensical Rousseauian notions of ‘The Noble Savage’, and ideas that somehow life in Britain in 1776, or indeed 2019, is any less ‘natural’ or ‘authentic’ than life in Papua New Guinea. Trade and the division of labour are natural not ‘artificial’ by-products of individual human freedom. As George H. Smith puts it, ‘The state of nature is people as they exist here and now, with all their virtues and vices, wisdom and folly.’118 In this way, Smith also moves beyond ‘the Humean distinction between the artificial and natural virtues’119—a distinction which, as I argued in the prior section, Hume did not really need. As we saw, Hume was distinguishing between the biological and the social, but as a true evolutionist, Smith saw them as two sides of the same coin since humans are social animals. In other words, Smith recognises that the social is the natural, a fact which virtually all evolutionary psychologists now accept.120 He explains how a mostly self-­ interested creature—‘90  percent chimp and 10  percent bee’121—can cooperate in numbers which exceed ‘all computation’: The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, all must join their different arts in order to complete even this homely production. How many merchants, carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! how much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dryer, which often come from the remotest parts of the world!122

This argument for the smooth operation of free markets as the vital precondition for cooperation even between strangers—possibly even, enemies, or mean people who would otherwise not wish to help their fellows

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by providing them with goods and services—has remained substantially unchanged from 1776 when Smith wrote it to Leonard E. Read’s famous re-articulation of it in 1958  in I, Pencil to today.123 For this alone, no matter his mistakes as regards value theory, Adam Smith will always remain one of the most important defenders of liberty. In this chapter, we have seen the quantum leap in economic understanding that took place in the 1700s to the extent where it can be realistically argued that the entire scope of economic theory was already delimited except for marginal utility. Although the subsequent development of economic theory would take some unfortunate detours in the next century—especially in the writings of David Ricardo (and later John Stuart Mill and Karl Marx)—the very recognition of the basic ideas outlined by Cantillon, Turgot, Hume, and Smith would have a profound effect at the level of government policy in the 1800s and especially in the UK.

Notes 1. B.R. Mitchell, British Historical Statistics (1988; Cambridge: Cambridge University Press, 2011), p. 8. 2. Phyllis Deane and W.A.  Cole, British Economic Growth: 1688–1959 (Cambridge: Cambridge University Press, 1962), p. 127. 3. Mitchell, British Historical Statistics, p. 154. 4. Stephen Broadberry, Bruce M.S.  Campbell, Alexander Klein, Mark Overton, and Bas van Leeuwen, British Economic Growth: 1270–1870 (Cambridge: Cambridge University Press, 2015), pp.  239–42, 164, 126, 139. 5. William Stanley Jevons, The Principles of Economics: A Fragment of a Treatise on the Industrial Mechanism of Society and other Papers (London: Macmillan, 1905), p. 165. 6. Adam Smith, The Wealth of Nations, ed. Edwin Cannan (1776; New York: Modern Library, 2000), 1.7, pp. 77–8. 7. Henry Higgs, ‘Richard Cantillon’, in Palgrave’s Dictionary of Political Economy, ed. Henry Higgs (London: Macmillan, 1926), p. 214. 8. F.A.  Hayek, ‘Richard Cantillon’, in The Trend of Economic Thinking: Essays on Political Economists and Economic History, ed. W.W. Bartley III and Stephen Kresge (Indianapolis, IN: Liberty Fund, 1991), p. 267.

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9. Joseph A.  Schumpeter, History of Economic Analysis, ed. Elizabeth Boody Schumpeter (1954; New York and London: Routledge, 2006), pp. 214–15. 10. Murray N. Rothbard, An Austrian Perspective on the History of Economic Thought, 2 vols (1995; Auburn, AL: Ludwig von Mises Institute, 2006), vol 1, Economic Thought Before Adam Smith, p. 345. 11. Jörg Guido Hülsmann, ‘More on Cantillon as a Proto-Austrian’, Journal des Économistes et des Études Humaines, 11:4 (December 2001), p. 695. 12. Joseph J.  Spengler, ‘Richard Cantillon: First of the Moderns’, The Journal of Political Economy, 62:4 (August 1954), p. 281. 13. Ludwig von Mises, Human Action: A Treatise on Economics (New Haven, CT: Yale University Press, 1949), p. 237. 14. Hayek, ‘Richard Cantillon’, p. 260. 15. Richard Cantillon, Essay on the Nature of Trade in General, ed. Antoin E.  Murphy (1755; Indianapolis, IN: Liberty Fund, 2015), 2.2, pp. 56–7. 16. Ibid., 1.14, pp. 28–31. 17. Ibid., 1.1, p. 3. 18. See Mark Thornton, ‘Was Richard Cantillon a Mercantilist?’, Journal in the History of Economic Thought, 29:4 (December 2007), pp. 417–35; and Mark Thornton, ‘Cantillon, Hume and the Rise of AntiMercantilism’, History of Political Economy, 39:3 (September 2007), pp. 453–80. 19. Rothbard, Economic Thought Before Adam Smith, p. 409. 20. Cantillon, Essay on the Nature of Trade in General, 2.2, p. 57. 21. Ibid., 1.13, p. 26. 22. See Peter G.  Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Auburn, AL: Ludwig von Mises Institute, 2010), p. 96. 23. Cantillon, Essay on the Nature of Trade in General, 1.9, p. 13. 24. ‘Percentage of Employed Graduates in Non-graduate Roles, Parts of the UK, 2015 to 2017’, Office for National Statistics, 008381 (26 April 2018), available at: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/adhocs/00 8381percentageofemployedgraduatesinnongraduaterolespartsoftheuk2015to2017. 25. Hülsmann, ‘More on Cantillon as a Proto-Austrian’, p. 695.

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26. Ludwig von Mises, Socialism: An Economic and Sociological Analysis, trans. J.  Kahane (1922; New Haven, CT: Yale University Press, 1951), p. 292. 27. Murray N.  Rothbard, ‘Freedom, Inequality, Primitivism, and the Division of Labour’, in Egalitarianism as a Revolt Against Human Nature and Other Essays (1974; Auburn, AL: Ludwig von Mises Institute, 2000), p. 250. 28. Mark Thornton, ‘Richard Cantillon and the Discovery of Opportunity Cost’, History of Political Economy, 39:1 (Spring 2007), pp. 97–119. 29. Cantillon, Essay on the Nature of Trade in General, 1.7, p. 10. 30. Hülsmann, ‘More on Cantillon as a Proto-Austrian’, p. 696. 31. James M. Buchanan, Cost and Choice (Chicago, IL: Markham, 1969). For Thirlby’s essays, see James M.  Buchanan and G.F.  Thirlby (eds), L.S.E. Essays on Cost (New York: Littlehampton Book Services, 1973). 32. Hayek, ‘Richard Cantillon’, p. 264. 33. Rothbard, Economic Thought Before Adam Smith, p. 355. 34. Murray N. Rothbard, ‘A Note on Burke’s Vindication of the Natural Society’, Journal of the History of Ideas, 19:1 (January 1958), p. 116. 35. ‘Mississippi Bubble’, Encyclopaedia Britannica (20 July 1998), available at: https://www.britannica.com/event/Mississippi-Bubble. 36. For an interesting and up-to-date recent doctoral dissertation on this which strongly challenges Friedman’s claim that there is no empirical evidence for the Cantillon effect, see Simon Bilo, Back to Cantillon: On the Relevance of the Monetary Economics of Richard Cantillon, PhD diss (Fairfax, VA: George Mason University, 2013). 37. Cantillon, Essay on the Nature of Trade in General, 2.9, p. 91. 38. See also Thornton, ‘Richard Cantillon and the Discovery of Opportunity Cost’, pp. 8–9. 39. Leonard P.  Liggio, ‘Turgot and Enlightened Progress’, Literature of Liberty, 2:1 (January-March 1979), p. 3. 40. Peter Groenewegen, Eighteenth Century Economics: Turgot, Beccaria and Smith and their Contemporaries (New York and London: Routledge, 2002), p. 363. It has been suggested that Smith plagiarised Turgot, but I am not at all interested in speculating on this question. 41. See Anne-Robert-Jacques Turgot, ‘To David Hume’, in The Turgot Collection, ed. David Gordon (Alabama, AL: Ludwig von Mises Institute, 2011), pp. 483–92.

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42. Turgot, ‘Fairs and Markets’, in The Turgot Collection, pp.  91, 96; on interests rates, see ‘Observations on a Paper by Saint-Péravy’, pp.  131–46; on protectionist trade policy, see ‘Observations on the Paper by Graslin in Favour of Indirect Tax, to which the Royal Agricultural Society of Limoges has Given an Honourable Mention’, pp. 149–60. 43. Groenewegen, Eighteenth Century Economics, p. 282. 44. Rothbard, Economic Thought Before Adam Smith, p. 393. 45. Schumpeter, History of Economic Analysis, p. 315. 46. Turgot, ‘Reflections on the Formation and Distribution of Wealth’, in The Turgot Collection, pp. 5, 10. 47. Turgot, ‘Value and Money’, in The Turgot Collection, p. 169. 48. Ibid., p. 169. 49. Ibid., p. 169. 50. Ibid., p. 169. 51. Rothbard, Economic Thought Before Adam Smith, p. 390. 52. Turgot, ‘Value and Money’, p. 175. 53. Etienne Bonnot, Abbé de Condillac, Commerce and Government: Considered in their Mutual Relationship, trans. Shelagh Eltis (1776; Indianapolis, IN: Liberty Fund, 1997), p. 121. 54. Groenewegen, Eighteenth Century Economics, p. 289. 55. Turgot, ‘Value and Money’, p. 175. 56. Ibid., p. 175. 57. Groenewegen, Eighteenth Century Economics, p. 289. 58. Turgot, ‘Paper on Lending at Interest’, in The Turgot Collection, pp. 215–16. 59. Jeremy Bentham, Defence of Usury, 3rd edn (1787; London: Payne and Foss, 1818), pp. 6–15. 60. Eugen Böhm-Bawerk, Capital and Interest, trans. George D.  Hunke and Hans F. Sennholz, 3 vols (1884; South Holland, IL: Libertarian Press, 1959), vol 2: The Positive Theory of Capital, p. 82. 61. Groenewegen, Eighteenth Century Economics, p. 303. 62. Turgot, ‘Reflections on the Formation and Distribution of Wealth’, p. 36. 63. Ibid., p. 36. 64. Groenewegen, Eighteenth Century Economics, p. 307. 65. Israel M. Kirzner, ‘Ludwig von Mises and the Theory of Capital and Interest’, in The Economics of Ludwig von Mises: Toward a Critical Reappraisal, ed. Laurence S. Moss (Kansas City, MO: Sheed and Ward, 1976), p. 63.

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66. See also Hans-Hermann Hoppe, Economic Science and the Austrian Method (Alabama, AL: Ludwig von Mises Institute, 1995), pp. 14–15. 67. In navigating the potentially daunting field of Hume studies, as ever I have found it useful to consult John Dunn and Ian Harris (eds), Hume: Great Political Thinkers 10, 2 vols (Cheltenham: Edward Elgar Publishing, 1997). 68. David Hume, An Enquiry Concerning the Principles of Morals, ed. J.B. Schneewind (1751; Indianapolis, IN: Hackett Publishing, 1983), 3.1, pp. 20–6. 69. Ibid., 3.2., pp. 27–8. 70. F.A. Hayek, ‘Richard Cantillon’, p. 287. 71. Richard Cantillon, Essay on the Nature of Trade in General, trans. Antoin E. Murphy (1755; Indianapolis, IN: Liberty Fund, 2015), p. 4. 72. Ibid., p. 4. 73. Turgot, ‘Reflections on the Formation and Distribution of Wealth’, p. 6. 74. Hume, An Enquiry Concerning the Principles of Morals, 3.2, p. 28. 75. For a recent account on the persistence of the altogether stupid idea of ‘perfect equality’ in the face of both reason and overwhelming evidence, see Kristian Niemietz, Socialism: The Failed Idea That Never Dies (London: The Institute of Economic Affairs, 2019). I am not the first author to point out that Hume predicted the terrors of twentieth-century communist regimes; see also Richard Pipes, Property and Freedom (New York: Vintage Books, 1999), pp. 216–17. 76. Hülsmann, ‘More on Cantillon as a Proto-Austrian’, p. 695. 77. Robin Dunbar, ‘Neocortex Size as a Constraint on Group Size in Primates’, Journal of Human Evolution, 22:6 (June 1992), pp. 469–93. 78. David Hume, A Treatise of Human Nature, ed. L.A. Selby-Bigge, 2nd edn (1739; Oxford: Oxford University Press, 1978), 3.2.2, p. 495. 79. Christopher J. Berry, David Hume (New York and London: Continuum, 2009), p. 41. 80. Hume, A Treatise of Human Nature, 3.2.8, p. 541. 81. For a discussion of the possibility of the government ‘crowding out’ the proper enforcement of these right, see Anthony de Jasay, ‘Adaptive Selection: Property and Contract’, in Political Philosophy, Clearly: Essays on Freedom and Fairness, Property and Equalities, ed. Hartmut Kliemt (Indianapolis, IN: Liberty Fund, 2010), pp. 40–1. 82. Hume, An Enquiry Concerning the Principles of Morals, 3.2, p. 32.

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83. John Day, ‘Hume on Justice and Allegiance’, Philosophy, 40:151 (January 1965), p. 37. 84. David Miller, ‘Hume and Possessive Individualism’, History of Political Thought, 1:2 (June 1980), p. 268. 85. Norman Kemp Smith, The Philosophy of David Hume (1941; New York and Basingstoke: Palgrave Macmillan, 2005), pp. 148–9. 86. Hume, An Enquiry Concerning the Principles of Morals, Appendix III, p. 96. 87. Ibid., p. 96n. 88. Ibid., 3.2, p. 33. 89. de Jasay, ‘Adaptive Selection: Property and Contract’, p. 40. 90. David Hume, ‘Of the Populousness of Ancient Nations’, in Essays: Moral, Political, and Literary, ed. Eugene F. Miller (1777; Indianapolis, IN: Liberty Fund, 1994), pp. 383–4. 91. Jonathan Haidt, The Righteous Mind: Why Good People Are Divided by Religion and Politics (New York: Random House, 2012), pp. 197–205. 92. Turgot, ‘Reflections on the Formation and Distribution of Wealth’, p. 15. 93. Gerard Casey, Freedom’s Progress: A History of Political Thought (Exeter: Imprint Academic, 2017), p. 522. 94. Daniel B. Klein and Erik W. Matson, ‘Mere-Liberty in David Hume’, GMU Working Paper in Economics, 18: 14 (June 2018), p. 7. 95. Hayek, ‘The Legal and Political Philosophy of David Hume’, in The Trend of Economic Thinking, p. 117. 96. Condillac, Commerce and Government, pp. 138–40. 97. Matt Ridley, The Evolution of Everything: How New Ideas Emerge (New York: Harper Collins, 2015), pp. 1–5, 21–36. 98. Adam Smith, Lectures on Jurisprudence, ed. R.L. Meek, D.D. Raphael, and Peter Stein (1763; Oxford: Oxford University Press, 1978), p. 14. 99. Yuval Noah Harari, Sapiens: A Brief History of Humankind (London: Vintage Books, 2011), pp. 22–44. 100. Hans-Hermann Hoppe, ‘The Origins of Private Property and the Family’, in The Great Fiction: Property, Economy, Society, and the Politics of Decline (Baltimore, MD: Laissez Faire Books, 2012), pp. 27–30. 101. Ibid., pp. 30–1. 102. Ibid., pp. 32–3. 103. ‘Crime in England and Wales: Year Ending December 2018’, Office for National Statistics (December 2018), available at: https://www.ons. gov.uk/file?uri=/peoplepopulationandcommunity/crimeandjustice/

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datasets/policeforceareadatatables/yearendingdecember2018/policeforceareatablesyearendingdecember2018.xlsx. 104. Edmund Burke, Reflections on the Revolution in France and on the Proceedings in Certain Societies in London Relative to that Event, ed. Connor Cruise O’Brien (1790; London: Penguin, 1968), p. 195. 105. Francis Fukuyama, The Origins of Political Order: From Prehuman Times to the French Revolution (London: Profile Books, 2011), p. 66. 106. Burke, Reflections on the Revolution in France, pp. 140, 117. 107. Smith, The Wealth of Nations, 1.3, p. 19. 108. See Mises, Socialism, and F.A. Hayek, ‘The Use of Knowledge in Society’ (1945), in Individualism and Economic Order (1948; Chicago, IL: University of Chicago Press, 1982), pp. 77–91. 109. George Stigler, ‘The Division of Labour is Limited by the Extent of the Market’, The Journal of Political Economy, 59:3 (June 1951), pp. 185, 192. 110. Francis Fukuyama, The Origins of Political Order, p. 67. 111. Data from https://tradingeconomics.com/. 112. Craig Smith, The Philosophy of Adam Smith: The Invisible Hand and Spontaneous Order (New York and London: Routledge, 2006), p. 68. 113. Jared Diamond, Guns, Germs and Steel: A Short History of Everybody for the Last 13,000 Years (London: Vintage, 1997). 114. Francis Fukuyama, The Origins of Political Order, p. 85. 115. Hans-Hermann Hoppe, ‘From the Malthusian Trap to the Industrial Revolution: An Explanation of Social Evolution’, pp. 63–83. 116. Adam Ferguson, An Essay on the History of Civil Society (New Brunswick: Transaction Publishers, 1991), p. 8. 117. Adam Smith, Lectures on Jurisprudence, p. 398. 118. George H. Smith, The System of Liberty: Themes in the History of Classical Liberalism (Cambridge: Cambridge University Press, 2013), p. 150. 119. Jesse Norman, Adam Smith: What He Thought and Why It Matters (London: Penguin, 2018), p. 69. 120. See E.O. Wilson, On Human Nature, rev. ed (1978; Cambridge, MA: Harvard University Press, 2004). 121. Jonathan Haidt, The Righteous Mind: Why Good People Are Divided by Religion and Politics (New York: Random House, 2012), p. 369. 122. Smith, The Wealth of Nations, 1.1, p. 12. 123. Leonard E.  Read, I, Pencil (1958; Atlanta, GA: Foundation for Economic Education, 2015).

5 The Nineteenth Century

The laissez-faire principles developed by thinkers in the eighteenth century did not win the support of ruling elites until the nineteenth century, which saw an extraordinary level of economic growth for the UK. The total population of England and Wales at the start of the century was 8.893 million, by the start of the twentieth century it was 32.528 million. The death rate per 1000 of population fell by 31.8% from 26.7% in 1800 to 18.2% in 1900. Despite all these extra hands, the available data from 1855 to 1900 show an average unemployment rate of 4.3%, with the rate in 17 out of 45 years under 3% reaching a low of 0.9% in 1872. This data show remarkable recoveries from recessions without any of the fiscal stimulus which has been so fashionable since the unfortunate rise of the Keynesians in the 1930s. For example, in 1879, the peak of the so-­ called Long Depression, the unemployment rate reached 10.7%; by the following year this had more than halved to 5.2%; and by 1882 this was back down to 2.3%. In contrast, in the twenty-first century, with all our sophisticated econometric models and central banking mechanisms such as Quantitative Easing, the unemployment rate peaked in 2012 at 8.3% and five years to hit a lot of 3.8% in 2019. In other words, it took five times as long to achieve a recovery that the Victorians had managed in a single year. From 1800 to 1900, raw industrial output increased by © The Author(s) 2020 N. Parvini, The Defenders of Liberty, https://doi.org/10.1007/978-3-030-39452-3_5

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1321.7%. In the same period, imports increased by 739.6%, and domestic exports by 672.4% and 329.3%. As protective tariffs were dropped, and regulations and taxes relaxed, consumer prices from 1800 to 1899 decreased by 63.79% for vegetable products, 32.23% for animal products, 56.91% for agricultural products, 46.62% for principal industrial products, and 52% overall. After the repeal of the Corn Laws in 1846, average money wages increased by 79% from 1850 to 1900.1 As working men and women had more disposable income in their pockets, the period saw deflation in nominal money prices which meant that they got a greater quantity and range of goods and services for lower prices. Yet, despite the orthodoxy that deflationary effects are negative, which has prevailed in economic thinking since the 1930s, the economy did not suffer long-term ill effects from this and continued to grow at an unprecedented pace. It is perhaps because the nineteenth century defies virtually every economic idea promoted by the enemies of liberty that they are so keen to denigrate and smear it, taking a few stories by Charles Dickens to obscure the exceptional achievements of this most dynamic of ages. It is seldom noted that Bob Cratchit in A Christmas Carol would have experienced a pay rise in real terms in the 1840s despite the fact Ebenezer Scrooge does not adjust his nominal wages. It is even less frequently noted that Oliver Twist would have been one of the first victims of the 1833 Factory Act which denied an orphan like him the chance to work and pushed him into a life of gangs and crime. To recognise the explosive growth of the nineteenth century would force the enemies of liberty to admit that the average worker was better off, better fed, and lived longer in 1900 than in 1800 and that this had been afforded virtually exclusively by unleashing the full potential of the unhampered free market. In this chapter, I will focus on the defenders of liberty in the 1800s. The bulk of this chapter will consider a key episode in British economic history, the Repeal of the Corn Laws. The genuine champions of repeal were Nassau William Senior and, of course, Richard Cobden and John Bright who campaigned for over a decade as the leaders of the Anti-Corn Law League. However, by way of contrast, I will chiefly focus on the arguments made by David Ricardo, who was not the unrestrained champion of international free trade that one might imagine, and in the

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process outline some of the errors of the classical economists. I will then turn, in two briefer sections, to the inheritor of Cobden’s Anti-Corn Law League, Herbert Spencer, and to the inheritor of Cantillon and Turgot in the French Liberal School, Jean-Baptiste Say.

The Repeal of the Corn Laws The repeal of the Corn Laws in 1846 brought the UK ‘to a policy of nearly complete freedom of foreign trade, something unique in history’.2 In 1815, at the end of the Napoleonic Wars, the British Government instituted an absolute prohibition on imports of agricultural produce until it reached a high domestic price, in the case of wheat this was 80s per quarter.3 These were the Corn Laws, which were designed chiefly to protect the special interests of wealthy agricultural landowners who enjoyed cronyist relationships with politicians, especially in the Tory Party. In some cases, the Members of Parliament were the landowners. The laws were also justified as a matter of security: so that the UK would not be dependent on imports in time of war. This second argument has been repeated recently by the conservative philosopher Roger Scruton and by Russell Kirk before him.4 The Anti-Corn Law League which formed in the late 1830s under the leadership of Richard Cobden (1804–1865) and John Bright (1811–1889) aimed to fight on both fronts at once: that is, it was as much a movement against war as it was for free trade. For Cobden in particular,5 trade and peace went hand-in-­hand as did tariffs and war. His aims for repealing the Corn Laws were as follows: First, it would guarantee the prosperity of the manufacturer by affording him outlets for his products. Second, it would relieve the ‘condition of England question’ by cheapening the price of food and ensuring more regular employment. Third, it would make English agriculture more efficient by stimulating demand for its products in urban and industrial areas. Fourth, it would introduce through mutually advantageous international trade a new era of international fellowship and peace. The only barrier to these four beneficent solutions was the ignorant self-interest of the landlords, the ‘bread-taxing oligarchy, unprincipled, unfeeling, rapacious and plundering.’6

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In other words, Cobden foresaw that the repeal of the Corn Laws would unleash the full industrial potential of the UK, while improving the quality of life for even the poorest workers and forcing the agricultural sector—made uncompetitive through cronyist protections—to become more efficient. The mutual dependence of trade relationships would also act as a bulwark against war. The Anti-Corn Law League achieved their ends effectively by becoming the first single-issue pressure group in British politics, a template that would later be followed by the Green Party and Nigel Farage—indeed the parallels between Brexit and the repeal of the Corn Laws are manifold. But they took their message directly to the public winning over popular opinion to the extent that, according to Joseph Schumpeter, ‘England remained the only great nation to embrace free trade wholeheartedly’ in the nineteenth century.7 The historical record does much to bear out Cobden’s forecast on virtually every front. Table 5.1 compiles key indicators from the available statistics.8 These are all nominal prices. The data show that prices fell as wages, even for those at the very bottom of society, rose for over six decades. As I have mentioned, the idea that deflation is always bad is one of the more nonsensical assumptions to have taken root in the economics profession since Irving Fisher’s ‘The Debt-Deflation Theory of Great Depression’ in Table 5.1 Decade average price of bread versus average wages for nineteenth century Wheat (average price per Decade quarter)

Bread (average price per 4lb)

Wages (average per-day rates for labourers)

Domestic exports (all goods, average in millions)

Population (in millions, decade end)

1810s 1820s 1830s 1840s 1850s 1860s 1870s 1880s 1890s

13.64d 9.94d 9.05d 8.65d 8.46d 8.42d 7.84d 6.5d 5.64d

32d 32d 32d 33d 34d 36d 46d 48d 50d

£42.1 £36.41 £43.93 £55.44 £100.06 £159.74 £198.28 £235.65 £237.05

11.9 13.8 15.9 17.8 19.9 22.5 25.7 28.8 32.2

89s 59s 56s 55s 53s 51s 51s 36s 28s

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1933.9 Indeed, as Lord Robbins notes, it was partly inflation through an increase in the money supply that led to corn prices reaching 177s per quarter in 1801.10 That said, it is worth noting for the subsequent discussion that Britain experienced inflation during the 1850s owing to the discovery of gold in Australia and California, which saw an artificial increase in the money supply as well as what is called ‘the golden age’ of British agriculture. Nonetheless, the average male labourer in 1819 would have had to spend 42.63% of his daily wages to buy 4lb of bread. By 1859, a decade after the repeal of the Corn Laws—and in the middle of this inflationary period—this had reduced to 24.89%, and by 1900, after half a century of laissez-faire, it had reduced to only 11.28%. On the foreign relations front, Cobden was also proved correct with Britain seeing frequent wars with European neighbours in the mercantilist and imperialist periods, most notably the Seven Years’ War against France (1756–1763) and the Napoleonic Wars (1799–1815). After this, there was unprecedented peace between Britain and her European counterparts during the period of laissez-faire (1840s to 1900). British military endeavours during this period were confined near exclusively to colonial disputes, many of which involved the East India Company, such as the Opium Wars in China (1839–1860) or the Anglo-Persian War (1856–1857). Cobden, naturally, stood against imperialism which he saw as a drain on resources and a cause of instability in British foreign relations and in the nation’s moral standing.11 Once again, the fullness of time has surely borne him out. It is estimated that if the British Empire had been disbanded in 1870 it would have accounted for just 1.1% of Gross National Product, and if it had been disbanded in 1913 just 3.3%.12 A total of 37% of UK tax receipts were allocated to defence spending and 27% to pay interest on debts from previous wars.13 Once protectionist policies took over once more in the early 1900s, there came unprecedented violence in the form of the two World Wars. Then, since 1945, with a return to free trade we have also seen a return to relative peace. The ideas that drove Cobden were inspired by the classical economists, especially Adam Smith who sounds this anti-imperialist note at the end of The Wealth of Nations:

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The rulers of Great Britain have, for more than a century past, amused the people with the imagination that they possessed a great empire on the west side of the Atlantic. This empire, however, has hitherto existed in imagination only. It has hitherto been, not an empire, but the project of an empire; not a gold mine, but the project of a gold mine; a project which has cost, which continues to cost, and which, if pursued in the same way as it has been hitherto, is likely to cost, immense expense, without being likely to bring any profit; for the effects of the monopoly of the colony trade, it has been shewn, are to the great body of the people, mere loss instead of profit. It is surely now time that our rulers should either realize this golden dream, in which they have been indulging themselves, perhaps, as well as the people; or that they should awake from it themselves, and endeavour to awaken the people. If the project cannot be completed, it ought to be given up.14

However, as William D. Grampp notes, Smith—as with David Ricardo after him—was not an unqualified free trader. He would not support any policy that ‘would weaken the military power of Great Britain, which is to be expected from economists who placed the national interest in power above that in wealth’.15 Even in the passage quoted above, one can detect that Smith’s opposition to imperialism is contingent on it being unprofitable and not on some other principle. Smith also supported the retention of The Navigation Acts on the grounds of security against the Dutch, rather than increased prosperity.16 More importantly for the specifics of the Corn Laws, Smith warned against the immediate repeal of any long-­ standing protections because of the possible shock effects which might ‘deprive all at once many thousands of our people of their ordinary employment and means of subsistence’. ‘The freedom of trade should be restored only by slow gradations, and with a good deal of reserve and circumspection.’17 Smith’s arguments for free trade are thus always cautious and hedged, small ‘c’ conservative in spirit. Indeed, arch-­conservative Russell Kirk applauded the ‘slow gradation’ approach that George Canning favoured before he died to the ‘sudden’ repeal enacted by Robert Peel. Canning’s proposed Corn Bill of 1827, according to Kirk, ‘promised the beginning of a tolerant and far-seeing balance between the land and the mills’ which might have ‘saved’ Britain from its fate as ‘the most thoroughly industrialized country in the world, perilously overpopulated,

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saddeningly decayed in taste and beauty’ with ‘the bulk of the population, from the 1840s onwards, [having] slipped towards the condition of the proletariat’.18 I suppose that is one way to describe a 73.5% reduction in the real price of bread. David Ricardo (1772–1823), despite being credited with the Law of Association (also known as Comparative Advantage)—the central principle of international free trade—was of a similar mind to Smith and Canning in wishing for a gradual reduction of duties on wheat. He outlined his stance in a pamphlet called On Protection to Agriculture (1822).19 This contained a proposal to reform the Corn Laws that were presented to Parliament. It was defeated by 218 votes to 25 on 29 April 1822.20 Incidentally, on 10 July 1822, a version of Ricardo’s 70s threshold was introduced, but imports would only be allowed once the domestic price of wheat reached 80s per quarter, which did not occur until 1828 when Parliament responded by introducing a sliding scale (at the suggestion of William Huskisson, president of the Board of Trade, but heavily modified in a protectionist direction by the Duke of Wellington, then Prime Minister) whereby the duty would be 34s 8d if the domestic price of wheat was 52s or less and only 1s when the domestic price was 73s. This was not a gradual scale but had large jumps: 13s 8d at 69s but 1s at 73s, which led to speculators withholding wheat until the price rose to avoid paying duties.21 In 1842, Peel adjusted the scale to make it smoother and reduced the maximum duty to 20s at 51s per quarter. In some respects, we can see that by 1846, Cobden and the Anti-Corn Law League were ‘knocking at an open door’.22 Let us return, however, to Ricardo’s proposal which has some interesting nuances: it is predicated on the idea that duties must remain level with taxation. That is, if there is a domestic tax on a good, it must be matched by an import tariff or else foreign producers have an unnatural advantage over domestic ones. In the degree then in which these taxes raise the price of corn, a duty should be imposed on its importation. If from this cause it be raised ten shillings per quarter, a duty of ten shillings should be imposed on the importation of foreign corn, and a drawback of the same amount should be allowed on the exportation of corn. By means of this duty and this

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drawback, the trade would be placed on the same footing as if it had never been taxed, and we should be quite sure that capital would neither be injuriously for the interests of the country, attracted towards, nor repelled from it. … By imposing tithes, &c. on the farmer exclusively, no obstacle would be opposed to him, if there were no foreign competition, because he would be able to raise the price of his produce, and if he could not do so he would quit a trade which no longer afforded him the usual and ordinary profits of all other trades. But if importation was allowed, an undue encouragement would be given to the importation of foreign corn, unless the foreign commodity were subject to a duty, equal to tithes or any other exclusive tax imposed on the home-grower.23

Ricardo goes on to argue that if the corn duty were removed entirely, labour and capital would be withdrawn from agriculture where the product was taxed and would be employed in manufacturing where it was not taxed, until the rate of profit in the two industries was equal. ‘The result would be a smaller national output than could be produced by somewhat greater employment in agriculture and smaller in manufacturing.’24 By placing a duty on corn equal to the tax on domestic corn, the government would encourage a more balanced economy in terms of the distribution of capital and labour. As a side note, the idea that agriculture was subjected to taxes to which the industrial sector was exempted was disputed by Nassau William Senior (1790–1864), a true defender of liberty, to whom I shall return later because he provides a better argument for repealing the Corn Laws than does Ricardo.25 Ricardo’s argument for allowing imports at all is ably summarised by Robbins: ‘since importing the product of superior lands abroad is like having recourse to an improvement at home, to prohibit importation is similar to importing improvements.’26 Ricardo occupied, thus, a moderate position between the total free traders and total protectionists—he wanted some protections for agriculture and some imports. Before analysing Ricardo’s argument, it is worth noting two further points. First, he did not wish to introduce his ‘parity’ scheme immediately or in free market conditions, but rather gradually and behind an

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absolute protectionist barrier: once the price of wheat hits 70s imports would be permitted with a 20s duty, and thereafter this duty would be reduced by 1s a year until it reached 10s.27 He admits that 10s is ‘rather too high as a countervailing duty for the peculiar taxes which are imposed on the corn grower … but I would rather err on the side of a liberal allowance than of a scanty one’.28 For someone arguing for freer trade, Ricardo’s instincts seem protectionist: to tilt the scales in favour of the home-­ grower. Second, the taxes in question were on agricultural landowners, which were set from the time of Henry Addington’s Act of 1803. The Act outlined five schedules as follows: Schedule A (tax on income from UK land) Schedule B (tax on commercial occupation of land) Schedule C (tax on income from public securities) Schedule D (tax on trading income, income from professions and vocations, interest, overseas income, and casual income) Schedule E (tax on employment income) Schedule E was repealed in 1816 because of its immense unpopularity and was only brought back by Peel in 1843 for those earning over £150. The other schedules were all set at a maximum of 5% by Addington, which was later raised to 10% by Pitt the Younger. The landowners—the chief opponents of the Corn Laws—would be subject to taxation on their rents under Schedule A. A typical landowner of a 3500 estate circa 1860 is estimated to have earned around £5000 a year (£422,040  in 2019 pounds).29 It would be a mistake to think these landowners were simply the remnants of the old aristocracy; it was possible at this time for capitalists to become very wealthy through shrewd land investments. As one example, Ricardo himself is said to have died with a fortune of £600,000 (£74,885,393 in 2019 pounds) having started ‘from zero, roughly speaking, and never indulging in risky speculation’.30 Around 90% of farmers during this period were tenants on privately owned estates paying rent on long-term leases; in fact the structure of rural life in this regard had changed little from the early modern period. Farming families would often occupy a tenancy for a generation or two. I estimate (see Table 5.2) that tenant farmers made between £1 and £4

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Table 5.2  Decade average per-acre revenues and profits from 1810 to 1859 Wheat (average price Decade per quarter)

Yield (average quarters per Revenue acre) (per acre)

Returns at 10% (per acre)

Returns at 20% (per acre)

1810s 1820s 1830s 1840s 1850s

4 4 4.3 6 6.25

£1 15s 7d £1 3s 7d £1 4s 1d £1 13s £1 13s 2d

£3 11s 3d £2 7s 3d £2 8s 2d £3 6s £3 6s 3d

89s 59s 56s 55s 53s

£17 16s £11 16s £12 10d £16 10s £16 11s 4d

per acre, and their leases ranged up to 900 acres.31 It’s theoretically possible, therefore, that a large tenant farmer in 1860 might have made up to £3600 a year (£434,098 in 2019 pounds), although such cases would be exceptional (see Table 5.2 for estimates of average per-acre returns). These tenant farmers would have been subject to Schedule B, on which Ricardo focuses in his pamphlet, and are estimated to have made between 10% and 20% returns up until the 1860s.32 Using the available statistics, I have calculated decade average per-acre revenues and profits for the first half of the century as follows.33 Ricardo seems to assume that the tax amount levied on these tenant farmers would be ‘passed on to the customer’ in the form of a directly proportional higher price. If a farmer was able to sell a quarter of wheat for 80s but was taxed 10% for commercial occupation of land, according to Ricardo this would result in the quarter of wheat costing 88s, so every quarter of imported wheat should carry a duty of 8s. But as we have seen he would ensure these were rounded up to 10s. Would Ricardo’s plan have worked had it not been voted down by Parliament? The premise that a 10% tax would increase the per-unit price of wheat is likely true in this case. While taxes are not simply ‘passed on’ to the consumer in the straight-forward manner that Ricardo suggests,34 it is likely that farmers would respond to raised taxes by increasing their prices because of inelastic demand. In this case, we can treat demand as the total population, 13.8  million people, on Thomas Malthus’s mundane but irrefutable premise ‘that food is necessary to the existence of man’ and that everyone consumes wheat as a staple food.35 ‘Corn’ in nineteenth century referred to all cereal grains (wheat, rye, barley, and so on) and so we can eliminate substitution effects since all the alternatives

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are affected by the taxes and duties. In other words, all grains were subject to the Corn Laws and the 10% tax on the production, so there was little question of a rise in the price of wheat causing the widescale rise in the demand for barley. Thus, the demand for wheat was somewhat inelastic and roughly equal to the total population. The total supply of wheat, therefore, near exclusively determines the price. It is obvious (and to Ricardo too) that the Corn Laws restricted supply and pushed up the prices to abnormally high levels.36 His 70s threshold is effectively a price fix—domestic producers would be incentivised to keep the price just below 70s per quarter in order to avoid facing foreign competition, in much the manner they did between 1822 and 1828 when the threshold was set at 80s. As per Table 5.1, the average price per quarter of wheat during this period was 59s; this was abnormally high when compared with prices from 1771 to 1794 which were never higher than 54s and ranged to 34s at their lowest.37 The per-acre yields of wheat in England did not increase significantly between 1815 and 1842, after which the entrepreneur John Bennet Lawes introduced superphosphate fertilisers which saw the typical yield rise from 39.7 to 54.5 bushels per acre.38 In any case, a farmer in the 1810s or early 1820s, who enjoyed absolute protections from foreign competition, could respond to a 10% tax increase with a 10% rise in prices, or indeed any corresponding increase in rents induced by taxes levied on the landowners—so long as the total price did not exceed 80s. The same would be true of Ricardo’s plan only at a slightly lower rate (70s). Ricardo was mostly correct to say that capital and labour would reallocate from agriculture to industry if the Corn Laws were repealed entirely. Imports of wheat exceeded domestic production for the first time in 1872 after more than trebling between 1850 and 1870. Even though British agriculture experienced a ‘golden age’ in these three decades, after 1872 it went into severe depression, partly owing to the cultivation of American prairies and new steam ships which could transport vast quantities of grain at prices far more competitive than the domestic market could hope to achieve. At the start of the decade 19.1% of families in Britain made their living in agriculture, by its end this had reduced to 12.6%.39 But this decline is not simply because of increased imports, an examination of Essex estates reveals that capital investment

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was very low during the ‘golden age’, with landowners typically reinvesting between 0.9% and 3% of their rents in the 1860s. Furthermore, these landowners often lived lavish lifestyles, far beyond their means, and many had racked up private debts by mortgaging their holdings. Many farm properties were in a severe state of dilapidation by the 1890s, and only 3% of farmland had implemented drainage. Landowners also showed a distinct lack of entrepreneurial nous by relying on long fixed-term tenancy agreements, failing to adjust their rents, and conservatively preferring the security of tried and trusted tenant families. This meant that while most people experienced an increase in real-terms income during this period, the agricultural landowners did not.40 The onus for capital investment therefore fell on tenant farmers, and while some did keep up with technology, the majority preferred to ‘cling to traditional methods’.41 Many farmers gradually switched from wheat to raising cattle, as registered in the 35% increase in their livestock numbers between 1867 and 1900.42 As Eugen Böhm-Bawerk puts it, ‘there is an abundance of truth’ in Ricardo ‘conveyed in a formulation that is erroneous in principle’.43 So, what (if anything), did Ricardo get wrong? One clear answer is his idea that any of these changes would be injurious to the interests of the country or result in a smaller national output. We can see this in the data (see Table 5.1), but it is key to explain the error in his economic reasoning. In part, there is an underlying normative assumption that the economy needs to be ‘balanced’ between agriculture and industry and that any disturbance of this will be ‘injurious’. This is somewhat surprising coming from the populariser of the Law of Comparative Advantage, but Ricardo saw wheat as a ‘special’ good—not for the security concerns that worried Tory MPs, but for his own peculiar reason. This boils down to his persistent belief, adapted from Thomas Malthus and James Mill, that wage rates are ultimately set by the price of wheat—‘Ricardo’s iron law of wages’.44 For this he makes the following assumptions45: 1. That labour is homogenous and of equal quality. 2. That wages are equal to the cost of subsistence. 3. That higher paid labour can be measured by ‘labour hours’ as determined by subsistence.

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4. That wage rates are therefore uniform throughout the economy. 5. That the cost of subsistence is determined by the price of corn. 6. That wage rates cannot rise above or below the cost of subsistence. 7. That land, unlike labour, is heterogenous and of different quality. 8. That rents are determined by the quality of land, with the least fertile land earning zero rent. 9. That the price of corn, therefore, is uniquely determined by the cost of labour. 10. That population increases will inevitably result in an increase in corn prices because producers will be forced to use inferior land which must employ more labour than superior land. There are some strange aspects to Ricardo’s theory. First, he assumes a uniform rate of profit for all farms. ‘Profit’ here is not the result of entrepreneurial risk, but a pure fact of long-run equilibrium—a phrase such as ‘guaranteed interest’ might be more fitting. This sum is a negligible part of the final price and can be ignored. Next, the rental costs can also be ignored because the marginal land’s rent is always zero. Quite why this is assumed is unclear, but he reasons that the corn from the supramarginal land will sell at the same prices as the corn grown on the lands with the best soil, so the rent cannot be the determining factor. Nonetheless as more farms are established on the least fertile soil, more land produces some rent as opposed to zero rent, and so total rental costs increase (even though this still has no effect on the price of corn). There was some dispute between Schumpeter and Robbins on whether this Malthusian reasoning represents the first genuine law of diminishing marginal returns in economic theory, Schumpeter following Edwin Cannan denied it, whereas Robbins affirmed it.46 My own view, as per Chap. 4, is that the law of diminishing returns was advanced by A.R.J. Turgot in the previous century. In any case, what we are left with in Ricardo given his differential theory of rent is a single determining cost for the price of corn: the quantity of labour. This is especially curious when one considers that labour typically represented between 17% and 27% of a tenant farmer’s input costs.47 Ricardo is in effect saying that less than a third of the input costs of producers in a single industry determines the wages of the whole economy. It should be noted that Ricardo eschews methodological

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individualism when making these claims and is working in the aggregate. We are not dealing with the individual tenant farmer, but the entire agricultural sector in averaged long-run numbers. ‘He dealt with abstractions without knowing they were such: he thoroughly believed he was dealing with real things.’48 Virtually no aspect of Ricardo’s argument is correct. If we begin with the first two assumptions: wages are not homogenous, and they are not equal to the cost of subsistence. For example, in the coal industry, as the legendary British economic historian, B.R. Mitchell puts it, ‘the concept of the wage rate for this period is almost entirely meaningless’ because it would fluctuate from time to time and place to place.49 Let us take 8.65d per 4lb of bread as roughly ‘subsistence’ for the 1840s; bear in mind that this is around four modern loaves of bread so this worker and their family would be far from hungry with this quantity of food. Let us use 1841 as our example. This is a good year because there are available data and it was before the 1842 Mines and Colliers Act banned boys under the age of ten years and women entirely from working—and so a very free market. A hewer (one who digs at the coal face) was paid around 3s 3d a day which we can use as a rough benchmark. This hewer would spend 22% of daily wages on subsistence. The lowest paid workers were boy trappers—these would be young children employed to open and close trap doors—who would earn around 10d a day (86% subsistence), but after some experience such boys would be promoted to drivers who led ponies on roadways (1s 4d, 54% subsistence) and later putters who push coal tubs to the surface (1s 10d, 39% subsistence). Women could also work above ground earning anywhere between 8d and 1s 4d.50 Given that most children would live with their parents until marriage age, a hewer with three working boys (let us say at ages eight, twelve, and fifteen) might easily see a daily household income of 7s 3d (10% subsistence), and family sizes were often much bigger than this. The marginal worker here— the young trapper—still earned above subsistence and yet his personal incentives were such that he only chipping in around 11% of household income. Children would not work every day, because they would sometimes attend school, help at home, or simply play. Today we might call them flexible or casual labour working on ‘zero-hour contracts’—they worked not strictly for subsistence but merely to ‘chip in’. Coming back

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to Ricardo’s theory, it is obvious that the wages of coal miners, which fluctuated considerably, were set not by the price of wheat but by the price (and therefore total demand for) of coal. This led to the adoption of ‘the sliding scale’ as negotiated between unions, mine owners, and the government—an early example of this unholy trinity of cronyism in action—which formally tied workers’ wages to the commodity price. Despite being championed by Alfred Marshall, this proved very unpopular with workers who did not understand why their wages decreased during downturns and took to industrial action many times and on an increased scale in the last two decades of the nineteenth century.51 As an important side note, modern readers may well cheer on the 1842 Mines and Colliers Act, but the fact is that this was imposed from the top-down from a concerned and paternalistic Tory government and not at all asked for by the families themselves. The real effect of this act was to impose costs on the mine owners, who would have had to pay more to ten-year-old trappers and to the workers’ families who had lost the additional income—but at least lawmakers got to feel good about themselves ‘helping’ the needy in this way. As a basis of comparison, child labour was not banned in the USA until the 1930s by which time only 6% of children were working in any case. This also set an expectation in the British coal industry of government intervention, which was near constant even during the era of laissez-faire. Owners and workers alike looked to government as a solution to all disputes and became increasingly hostile towards each other. Capital investment stalled, per-worker productivity decreased, and innovation practically stopped—to the extent that it was known for British miners still to be using pickaxes in the 1960s over a hundred years later. Suffice it to say that the USA still has a coal industry while the UK does not. This is just one industry, but Grampp showed that Ricardo’s subsistence theory of wages was empirically wrong across the whole economy simply by dividing annual average wages by average wheat prices to produce ‘wheat wages’ from 1815 to 1846.52 If Ricardo was correct ‘wheat wages’ would be fairly constant for fifteen-or-twenty-year periods, but this is not observed because they fluctuate wildly. In some years, wheat is as much as 36.1% higher than wages (1817), and in other years as much as 44.2% lower (1835). Still, this argument cannot be won by

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empiricism. As Grampp himself notes, supporters of Ricardo such as Mark Blaug have simply questioned the validity of the data. However, the eagle-eyed Ricardian could simply pick a twenty-year range—let us say from 1816 to 1836—and average the ‘wheat wages’ together to find only a +0.6% difference between wages and wheat, and only a −0.5% difference for the entire period. While this does not show year-to-year consistency, they might reason it demonstrates that prices nonetheless on average oscillate around their ‘natural rate’. Games of statistics like this can always be played, so we need to expose the error in the underlying reasoning. One obvious issue was outlined by Ricardo’s contemporary, Nassau William Senior, whose own argument for the repeal of the Corn Laws was far superior to his: We have observed that there is a portion of corn, that raised at the greatest expense, of which the price roughly coincides with the cost of production. And it has been said, that as it is the price of this portion which governs that of all the remainder, the price of that remainder is likewise governed by the cost of production. But first, when we say that the price of any thing is governed by the cost of production, we mean the cost of its own production,—not of the production of anything else. And, secondly, to say that it is the price of this last portion of corn, which governs that of the remainder, is to mistake the effect for the cause. The price of other corn does not rise because the last portion has been produced at a greater expense, but the last portion is produced, because the proportion of demand to supply has previously occasioned—such a rise in the price of the corn already produced, that additional capital laid out in producing additional corn, at a greater proportionate expense, will return the average profit of capital. Corn does not become dear because a portion is raised at a great expense, but a portion is raised at a great expense because corn has already become dear.53

Here Senior seems to anticipate Carl Menger in recognising that the value of a good is determined by the preferences of the consumers and that capital investment in production of that good is a recognition of this fact. The costs of the factors of production are determined with the final price of the consumer good (and possible projected earnings) already in mind.54 In fact, as Ludwig von Mises went on to argue, economic

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calculation is only made possible by this price structure.55 Individual entrepreneur-­capitalists appraise the prevailing market conditions and decide to allocate their resources to farming wheat or to establishing a coal mine, or to opening a factory manufacturing textiles, or perhaps an ironworks. They anticipate future market demand for this or that good and then invest in capital and labour accordingly, costing it against projected future returns. If they are correct, they will make some profit, if they are incorrect, they will make losses and eventually be forced to close the venture. This obvious reality of nineteenth-century life (indeed, of life at any time where markets are allowed to operate) is completely ignored by Ricardo, who ‘totally leaves out the entrepreneur’.56 We have already seen the impact of one entrepreneur on wheat farming, John Bennet Lawes, whose new fertiliser product led to a 37% increase in per acre yields in the 1840s which not only made him rich but also translated into a near 29% increase in average returns for tenant farmers (see Table 5.2). This blindness to innovation in Ricardo’s thinking ensures that, despite his reading of Jean-Baptiste Say, who I will discuss in the next section, he cannot see how the different parts of an economy might affect each other. For example, rent is not determined by the quality of land alone but by the many factors which affect demand for it, including its location and connectivity: ‘Railways affected rent by opening up distant markets to farmers and by cheapening the cost of farm inputs such as seeds, fertilisers, machinery and coal as transport costs fell.’57 The role of fixed capital investment also goes missing as a factor in Ricardo’s theory. As George Stigler noted, ‘Ricardo assumes … that all capital in agriculture is circulating capital.’58 For example, one technological innovation in the 1870s was the ‘tackle’, a steam-powered tractor and plough which greatly increased productivity. As with all automation, such contraptions reduced the need for labour while increasing output. They cost around £645, which for most tenant farmers (and their landlords) would have required some savings and investments—those early adopters would enjoy some competitive advantage over those who did not or could not invest. Ricardo’s static analysis could not foresee the effects of these sorts of changes which ultimately broke the Malthusian trap. In 2019, agriculture is around 0.59% of the UK economy and 1.6% of its workforce,

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while providing 50% of the food supply.59 Neither Malthus nor Ricardo foresaw technological advancement on this level. Senior also highlights the fact that Ricardo misconstrued the relationship between agriculture and industry. He uses an analogy: Give me 80s a quarter for my corn instead of 60s, says the agriculturist to the cotton-spinner, and your market shall be prodigiously improved; I will lay out 80s instead of 50s in buying your stockings, and instead of a profit of 5s you will get one of 8s:—though to be sure, you will have given 30s for the privilege of getting this additional profit of 3s. We may put the transaction into a still simpler form, by leaving out, (what only perplexes it,) the intervention of money, and supposing it to be carried on, as practically it is, by barter. Suppose the cotton spinner, instead of paying 80s for his corn, and having that 80s returned to him in exchange for his stockings, were directly to exchange his stockings for his corn. The proposal then is, to improve his situation by obliging him to give eight pair of stockings for a given quantity of corn instead of five. … It is in this manner that all attempts to favour one part of the community at the expense of the other, not by a direct transfer of revenue, but by interfering with the natural application of capital, where they succeed, add waste to injustice, to put 5s into the pocket of the agriculturist, they would force the manufacturer to pay him 80s for a quarter of corn, which he has raised at the expense of 75s but which might have been raised elsewhere for 50s. It was on this principle that the Turks refused to introduce printing, because it would interfere with the profits of copyists, and that the watermen of the Thames requested that Westminster bridge might not be built, because it would interfere with their fares.60

Note how Senior, unlike Ricardo, employs the economist’s method, ceteris paribus, in constructing an imagined scenario to draw out the underlying logic rather than in going to real-world data first and trying to discern some pattern. In so doing, he stays true to the principle of methodological individualism, and Murray N. Rothbard even goes so far as to call him a precursor to Mises.61 In many ways it is striking to see how little the arguments for and against protectionism have changed since 1821. Senior lays bare that the Corn Laws were, in effect, telling producers and workers from other sectors that they stood to gain by paying more for their corn when it was a top-down zero-sum allocation by government in

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which agriculture won and industry lost. In anticipation of F.A. Hayek’s Prices and Production,62 Senior sees that the agricultural business leaders—in this case the landowners—would simply squander the abnormally high profits on consumption ‘on horses and servants, in residence abroad, and in all the other modes of expense which are useless to the productive labourers of the community’.63 And we have already seen this to be true of the rural landowners in the 1800s who blew the vast majority of their income on consumption in most cases less than 3% on capital reinvestments. In Hayek’s terms then, the structure of production would invariably shrink becoming less capitalistic and less roundabout, which induces higher prices and less efficient output. Indeed, Schumpeter recognised Senior’s capital theory as an important precursor to that of Eugen Böhm-Bawerk, on whose shoulders Hayek stood.64 Senior is alert to the fact that a shortening of the structure of production will stymie technological progress for the sake of preserving ‘the old ways’—today we tend to use the example of refusing to adopt personal computers for the sake of the typists, then he used the example of refusing printing for the sake of the copyists. His argument for the repeal of the Corn Laws was that industry should be allowed to prosper because this would be beneficial for everyone, including the agricultural producers themselves who would see a rise in demand for their own products. This was undoubtedly the case in the years after 1846, and it may well have remained the case after 1872 if only the landowners and tenant farmers had made the necessary capital reinvestments to stay competitive. In reviewing this episode in English economic history, I have found that in successfully repealing the Corn Laws, Cobden demonstrated in practice what Smith had said in theory. However, ironically, the first half of the nineteenth century also witnessed a significant backwards step in economic theory, particularly in the work of Ricardo. One possible reason for this is because he abandoned the economist’s method, ceteris paribus, and substituted hypothetical mental constructions for abstract long-run statistical constructions. Therefore, real flesh-and-blood human beings—the landowners, the tenant farmers, the workers, and so on— become abstract classes and methodological individualism is abandoned. This is perhaps why the British classical economists were incorrect on so many issues, and—save for perhaps Senior—they cannot be held up as true defenders of liberty.

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Herbert Spencer The true child of the Anti-Corn Law League was not John Stuart Mill, who inherited some of the worst aspects of Ricardo and, as I discussed in Chap. 1, tainted his liberalism with a Rousseauian understanding of freedom, a Hobbesian understanding of property rights as positive rights bestowed by the state, and a hubristic utilitarian presumption that he could calculate social utility. The real inheritor of the extreme and consistent laissez-faire philosophy that motivated Cobden was Herbert Spencer (1820–1903), whose uncle had been part of the League.65 In many ways Spencer is also the natural inheritor of the evolutionary view of markets, society, and morality that David Hume and Adam Smith had been developing in the previous century. He is a towering figure in the history of liberalism, who defenders of liberty should embrace, rather than apologise for or shy away from—to do this would be to submit to the linguistic terrorism of the enemies of liberty who have sought to smear Spencer for over a century. Space will not permit me to do justice to his considerable body of work here other than to note that he developed Smith’s spontaneous order ideas to their logical extreme end points in the social, moral, and economic spheres. He forms the key link between the thinkers of the Scottish Enlightenment and F.A. Hayek. Spencer’s magnum opus is the ten-volume System of Synthetic Philosophy written over thirty years from 1862 to 1892 and containing books on biology, psychology, sociology, and ethics—demonstrating his talents as a polymath. Here Spencer greatly fleshed out, with empirical data, the evolution of human societies from hunter-gatherers to civilisations based on property rights that I discussed in the final section of Chap. 4. He viewed human societies as organisms, in which ‘men are used up for the benefit of posterity’. But the general direction of travel, ‘social progress’ in his view, is from militaristic societies to more commercial societies,66 ‘from involuntary cooperation to voluntary cooperation’ in which ‘free labour and contract develop together, each making the other possible’.67 Interestingly, this theory of progress stands Spencer in stark contrast to slightly later thinkers such as Vilfredo Pareto, who saw more of an oscillation in the circulation of elites between lions and foxes (as we saw in

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Chap. 2), and Oswald Spengler, who claimed ‘man is a beast of prey’ and saw decline, degeneration, and decay in exactly the developments Spencer viewed as progress.68 My own view is that we should be careful not to mix-up the pursuit of liberty with notions of social or moral progress— the sheer malevolence of ‘progressivism’ in the twentieth and twenty-first centuries is reason enough. In Social Statics (1851), which Murray N. Rothbard famously hailed as ‘the greatest single work of libertarian political philosophy ever written’,69 Spencer produced powerful arguments for free speech, for property rights, against slavery, against discrimination on the grounds of sex or religion, for the right to ignore the government, and even against the very existence of the state itself.70 He argued against the regulation of commerce, for free currency, for free banking, to abolish the Poor Laws, and against the state provision of education, sanitation, or postal services which could each be better catered for either by private charity or the market.71 He returned to these arguments years later in his magnificent The Man Versus the State (1884), a book which remains extremely pertinent to us in the twenty-first century. By this point, Spencer was shorn of some of the naïve egalitarianism that taints his earlier work, and bitterly disappointed at the statist direction of travel. He laments ‘the divine right of parliaments’.72 He documents in detail how the system of laissez-faire was progressively hampered by increased regulations and welfarism after 1872. He notes that under Lord Aberdeen in the 1850s and Lord Palmerstone in the 1860s, both of whom William Gladstone had served as Chancellor of the Exchequer, the government had successfully repealed over 14,000 public acts. During Gladstone’s first government as prime minister, in just three years from 1870 to 1872, he wholly or partly repealed 3532 acts.73 But there was significant regression after that. As George H. Smith notes, Spencer is consistently alert to ‘the doctrine of unintended consequences’.74 Or in Spencer’s own words: ‘the law made causes of … evils.’75 He shares also with Gaetano Mosca and Vilfredo Pareto, who I discussed in Chap. 2, a fundamentally realist view of the ruling class and the personal incentives of politicians, regulators, and bureaucrats. ‘Under the natural course of things each citizen tends towards his fittest function. … But it is quite otherwise in State-organizations.’76

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There is occasionally a certain cold callousness of tone in Spencer’s writing upon which the perennially dishonest enemies of liberty who always deal in smears and never in argument have seized. Perhaps the most often quoted passage is in his discussion of ‘Sanitary Supervision’, in which he discusses the fact that in nature those maladapted for survival will die. Nature enforces a kind of ruthless efficiency in which ‘the whole effort … is to get rid of such’ maladapted creatures which it ‘is perpetually withdrawing by death’. Few would disagree with this until one realises that Spencer includes human beings as part of nature. He warns that if this law of nature is ignored ‘a sad population of imbeciles would our schemers fill the world with’.77 And now the infamous passage: Being thus imperfect are nature’s failures, and are recalled by her laws when found to be such. Along with the rest they are put upon trial. If they are found sufficiently complete to live, they do live, and it is well they should live. If they are not sufficiently complete to live, they die, and it is best they should die.78

Of course, those seeking to strawman Spencer do not quote the passage just beneath in which he invokes the principle of natural private charity: Of course, in so far as the severity of this process is mitigated by the spontaneous sympathy of men for each other, it is proper that it should be mitigated: albeit there is unquestionably harm done when sympathy is shown, without any regard to ultimate results.79

Still, let us make no mistake about what Spencer is saying, which he clarifies further in the next passage. If ‘regard to ultimate results’ is not given in showing sympathy, Then, however, it defeats its own end. Instead of diminishing suffering, it eventually increases it. It favours the multiplication of those worst fitted for existence, and, by consequence, hinders the multiplication of those best fitted for existence—leaving, as it does, less room for them. It tends to fill the world with those to whom life will bring most pain, and tends to keep out of it those to whom life will bring most pleasure. It inflicts positive misery, and prevents positive happiness.80

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To apologise for this passage, or to make excuses for it, is to concede the moral turf to the enemies of liberty. It is to allow them off the moral hook themselves for the carnage their social welfare schemes have wrought. This is where we must be fearless and face certain home truths about the genuinely harmful effects of the welfare state. To take the UK as an example, in figures that would have horrified Spencer, currently over 23 million people (43%) pay no tax contributions and are supported either partially or wholly by the remaining 31 million people.81 In 1950 there were not more than 60 users of heroin in the whole country, between 2017 and 2018 there were 17,031 hospital admissions for drug misuse and 7258 for drug-related mental and behavioural disorders and 2503 drug-related deaths in England alone.82 The graph in Fig. 5.1 shows the total number of offences in England and Wales from 1901 to the end of the twentieth century (Fig. 5.1).83 Since the 1990s the British population, in line with those of other welfare states across Europe, have been declining in average IQ.84 As recent studies have argued, the time for pathological altruism being enshrined in law at the expense of all else must surely come to an end85 and so must our squeamishness about the difficult truths Spencer outlined in the starkest terms. Some have criticised Spencer for what they perceive as a turn from the radicalism of his youth to conservatism in his older years. Perhaps controversially, I disagree and believe he was correct to withdraw his support for Henry George’s quasi-communist ideas about landownership and to withdraw his support for the expansion of suffrage because he could see even in the 1880s that more democracy would entail more socialism. He did not live to see the election of Clement Atlee in 1945 and his ‘cradle to grave’ welfare state, or the disaster of Harold Wilson’s 98% top rate of tax in the 1960s, or James Callaghan’s ‘winter of discontent’ in 1978, or, indeed, the empty promises of Tony Blair and Gordon Brown to end boom-and-bust in the early 2000s as they turned the UK into a police state.86 But were Spencer with us today, he would have every right to say, ‘I told you so’. To borrow a phrase from Henry Hazlitt, we have gone from ‘Spencer’s 1884 to Orwell’s 1984’.87

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Fig. 5.1  Total number of offences in England and Wales from 1901 to the end of the twentieth century

Jean-Baptiste Say and the Law of Markets As we have seen, David Ricardo focused on developing the worst aspects of Adam Smith, such as the Labour Theory of Value, which produced considerable error in the British classical school and an unfortunate detour in economic theory more broadly. Jean-Baptiste Say (1767–1832) might be said to represent the opposite side of the coin: developing what was best in Smith’s theory while purging its most erroneous elements. Unlike Ricardo, ‘he believed that economics should begin with the reason and experience of the human person rather than with abstract

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mathematics and statistical analyses.’88 Hence, while ‘the concept of the entrepreneur is virtually excluded’ in Ricardo, Say inherits the idea from Cantillon and Turgot and makes it central to economic theory.89 He also gives a more robust defence of property rights than Ricardo as an absolute precondition of a market economy. He even goes as far as to defend the minarchist ‘night-watchman’ state maintained solely to defend property rights and maintain social order. For Say, ‘every step it takes beyond these limits, is an actual spoliation; for taxation, even where levied by national consent, is a violation of property’.90 This makes him arguably the most radical defender of liberty we have thus far encountered. In what follows, I will limit myself to a discussion of the theory for which he is most famous, Say’s Law. Perhaps no theory in the history of economic thought has been as mangled, misunderstood, or wilfully obscured as Say’s Law. It had two periods of intense debate: the first during the ‘general glut controversy’ of the early 1820s91 and the second after John Maynard Keynes claimed to have debunked a strawman version of Say’s argument—in fact, a quotation from John Stuart Mill and wrenched out of context at that—in the 1930s.92 Both episodes were induced by recessions and fuelled by theories of underconsumption. In the 1820s, it was Thomas Malthus (who Keynes held up later as a hero) who led the charge against Say—quite directly in a famous exchange of letters—but when the economy recovered in 1824 quickly ‘lost interest’ in the topic.93 Say won that round and his principle held as common economic wisdom until the depression of the 1930s and the Keynesian revolution. The view that Say’s Law had been debunked then held sway until the early 1970s when, during the years of stagflation, there came a slew of reassessments and rehabilitations, most notably from Thomas Sowell, W.H. Hutt, and William J. Baumol. More recently, Steve Kates has contributed what many now regard as the final word on the matter.94 Before analysing the argument, we must first note as Ludwig von Mises did, what Say’s reasons were for making it. He was not trying to explain business cycles, but rather expelling two erroneous explanations for them. Say ‘exploded the belief that the recurrence of periods of bad business was caused by a scarcity of money and by a general overproduction’.95 As Mises stresses, Say’s theory in this respect is negative: it is only a

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destruction of fallacious theories of the business cycle, it does not offer an alternative explanation. Rather than quote Say himself at length, I have adapted the following list of propositions from Baumol’s excellent summary, which remains the clearest available: 1. A community’s purchasing power (effective demand) is limited by and is equal to its output, because production provides the means by which outputs can be purchased. 2. Expenditure increases when output rises. 3. A given investment expenditure is a far more effective stimulant to the wealth of an economy than an equal amount of consumption. 4. Over the centuries the community will always find demands for increased outputs, even for increases that are enormous. 5. Production of goods rather than the supply of money is the primary determinant of demand. Money facilitates commerce but does not determine the amounts of goods that are exchanged. 6. Any glut in the market for a good must involve relative underproduction of some other commodity, or commodities, and the mobility of capital out of the area with excess supply and into industries whose products are insufficient to meet demand will tend rapidly to eliminate the overproduction. 7. Supply and demand are always equated by a rapid and powerful equilibration mechanism.96 Say’s first point is no more profound than saying one cannot make a trade without offering something in return. In the barter economy, in order to exchange a fish for a bag of apples, one must first have a fish. If a community has more fish and more bags of apples, they can trade for more goods. Opening a fishery or an apple orchard will produce more wealth for the community than simply eating all the fish and the apples. If too many fish are produced, or too many apples, in time the community will find alternative uses for the land and resources that produced them. Money does not change any of this, but simply makes it easier to trade goods by eliminating the double coincidence of wants. Total demand is determined by production of goods on the principle that if there were no fisheries, no apple orchards, and so on, there would be no fish or apples

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with which to trade. Or, with money included: no one can spend money if they are not making money through a productive enterprise. If resources—that is, land, capital, and labour—are allocated to producing a good, let us say fish, it means that those resources are not allocated to producing all the other goods: eggs, bread, apples, and so on. If too many fish are produced (supply outstrips demand) it means that there has been a misallocation of resources which will be rectified as entrepreneur-­ capitalists withdraw land, labour, and capital from fish and reallocate them to some other end which consumers demand. In this way, supply and demand will equilibrate, and entrepreneurial errors are punished and rectified by the market process. ‘In sum, Say’s Law was merely the denial of the possibility of a general overproduction of all goods and services.’97 There are several features I would like to draw out of this. First, as Sowell emphasises: ‘It is clear that Say’s Law … did not preclude disequilibrium, and that the “balance” referred to was not an accounting identity persisting through all conditions of the market, but an equilibrium condition that could be reached in a “properly” functioning economy.’98 Second, an underrated aspect of Say’s theory of growth is the extent to which successful enterprises lead to increased demands of their own. The apple merchant as he becomes more successful may require a larger cart, a new horse to draw it, a bank in which to store his gold, a warehouse in which to store his apples, and so on. The structure of production becomes more capitalistic and more roundabout and expenditure through the economy increases: more money is exchanged, and more people are employed in the factors of production as more apples are produced and sold. This highlights the third and possibly most underrated aspect of Say’s Law, drawn out by Knut Wicksell in 1906,99 which is his recognition that no part of the economy can be isolated from any other part. All markets are fundamentally interconnected and affect each other. Collapse in apple demand (a short-run overproduction or ‘glut’ of apples) would adversely affect also: the makers of carts, the breeders of horses, the bankers, the warehouse owner, and so on, that is vertically up the chain of production. But it would also have some effect on markets ‘horizontally’—that is, ‘there has been a change in the exchange ratio’ between apples and fish, apples and shirts, apples and bread, as well as between carts and fish, horse and fish, and so on.100 As W.H. Hutt puts it, ‘the

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source of demand for any particular input or output produced is the flow of inputs and outputs of all the things which do not compete with it; for some part of that flow is destined to be exchanged for it.’101 Among other things, this is key to understanding Say’s steadfast opposition to practically all forms of violent government intervention in the market: because no government can possibly know what the unforeseen knock-on consequences of such interventions will be. The resources that went into producing apples may well have been better employed producing some other good—but a government attempt to ‘save’ this failing market would prevent that reallocation from taking place. Any attempt to regulate the apple market may end up, therefore, having consequences for practically all other markets in the economy—the only people to gain are the apple growers and merchants. ‘The effect is always the same’, Say comments, ‘whatever the means employed. An exclusive privilege, a species of monopoly, is created, which the consumer pays for, and of which the privileged persons derive all benefit.’102 One final implication of Say’s Law upon which requires some elaboration is the debate over hoarding. Say held that hoarding is irrational: When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus, the mere circumstance of the creation of one product immediately opens vent for other products.103

I believe this is an error from Say. First, it appears Say assumes an extreme inflationary environment or else the assumption that money is ‘perishable’ would not hold. And, as we saw in the previous section, the nineteenth century saw periods of deflation. Second, to use the parlance of Austrian economics, Say seems to be suggesting that all individuals have extremely high time preference. This is obviously not true either, although it is true that all individuals must have a time preference higher than zero (or else we would starve). Hence, in the long run we might say that Say is correct: the hoarder cannot hoard indefinitely and stay alive. And Rothbard attempts to save Say here by stating simply: ‘eventually the

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hoard will be spent, either on consumption or investment.’104 Hutt stresses that Say recognised that holding money incurs a cost whereas ‘the acquisition and spending of money … is costless’.105 All this is true enough, but it is obvious Say had the short run and not the long run in mind because he uses the word ‘immediately’. Nevertheless, let us pretend someone on 100 gold pieces a week spends 5 and hoards the remaining 95 under his bed. What then? After a year this person has 4940 gold pieces being ‘withheld’ from the economy. No matter how rational or irrational we consider this hoarding, his own preference scales tell him to hold. Is this really a problem as Say, and later, Keynes thought? Walter Block provides an excellent answer echoing A.R.J. Turgot in his classic essay, ‘The Miser’: In withholding money from the consumer’s market, and not making it available for the purchase of capital equipment, the hoarder causes a decrease in the amount of money in circulation. The amount of available goods and services remains the same. Since one of the most important determinants of price in any economy is the relationship between the amount of money and the amount of goods and services, the hoarder succeeds in lowering the level of prices.106

It strikes me that Say did not grasp this point himself because he assumed the neutrality of money: that is, he took money as a straightforward oneto-one cipher for the value of any commodity without considering that it is, in fact, a commodity which has an exchange rate with all other products. Say would inspire Frédéric Bastiat (1801–1850) to lead the French Liberal School which championed laissez-faire for the rest of the century. Bastiat hoped to achieve there what Richard Cobden had done in the UK and was in frequent correspondence with him. He was a great populariser of free market ideas, who remains highly readable to this day. F.A. Hayek thought he was a ‘genius’.107 His hilarious ‘Petition by the Manufacturers of Candles [against The Sun]’ (1845) exposes many of the fallacies of protectionist arguments.108 ‘What Is Seen and What Is Not Seen’ (1850) outlines the core idea around which Henry Hazlitt based his extremely influential Economics in One Lesson (1946): ‘The art of economics

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consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.’109 It was to the insights of Say that both Bastiat and Hazlitt owed their arguments: his view of markets as being fundamentally interconnected and mutually dependent is indispensable for tracing the long-run effects and the ‘seen and unseen’ of any government intervention.

Notes 1. B.R. Mitchell, British Historical Statistics (1988; Cambridge: Cambridge University Press, 2011), pp. 9, 53–8, 124, 432, 451–3, 722–3, 149–50. 2. William D.  Grampp, The Manchester School of Economics (Oxford: Oxford University Press, 1960), p. 95. 3. Norman McCord, The Anti-Corn Law League: 1838–1846 (1958; New York and London: Routledge, 2006), p. 15. 4. Roger Scruton, Where We Are: The State of Britain Now (New York and London: Bloomsbury, 2017), pp.  199–200; Russell Kirk, The Conservative Mind: From Burke to Eliot, 7th edn. (1953; Washington, DC: Gateway Editions, 2016), p. 390. 5. John Bright’s motives for leading the league were more political in nature; see Grampp, The Manchester School of Economics, pp. 98–9. 6. Asa Briggs, The Age of Improvement: 1783–1867 (1959; New York and London: Routledge, 2014), p. 271. 7. Joseph A.  Schumpeter, History of Economic Analysis, ed. Elizabeth Boody Schumpeter (1954; New York and London: Routledge, 2006), pp. 374–5. 8. Mitchell, British Historical Statistics, pp. 756–7, 769–70, 165, 452–3, 9. Note that the prices for bread are average for London. 9. Irving Fisher, ‘The Debt-Deflation Theory of Great Depression’, Econometrica, 1:4 (October 1933), pp. 337–57. 10. Lionel Robbins, A History of Economic Thought: The LSE Lectures, ed. Steven G. Medema and Warren J. Samuels (Princeton, NJ: Princeton University Press, 1998), p. 176. 11. Simon Morgan, ‘Richard Cobden and British Imperialism’, Journal of Liberal History, 45 (Winter 2004), pp. 16–21.

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12. Michael Edelstein, ‘Foreign Investment and Empire, 1860–1914’, in R.  C. Floud and D.  N. McCloskey (eds.), The Economic History of Britain since 1700, 3 vols, 2nd edn (1981: Cambridge: Cambridge University Press, 1994), vol 2, p. 185. 13. Patrick O’Brien, ‘The Costs and Benefits of British Imperialism, 1846–1914’, Past and Present, 140 (August 1988), p. 187. 14. Adam Smith, The Wealth of Nations, ed. Edwin Cannan (1776; New York: Modern Library, 2000), 5.3, p. 1028. 15. Grampp, The Manchester School of Economics, p. 16. 16. Smith, The Wealth of Nations, pp. 493–4, 644–6. 17. Ibid., p. 499. 18. Kirk, The Conservative Mind, p. 132. 19. David Ricardo, ‘On Protection to Agriculture’, in The Works and Correspondence of David Ricardo, ed. Piero Sraffa, 11 vols (1951; Indianapolis, IN: Liberty Fund, 2004), vol 4, pp. 210–70. 20. Scraffa, ‘Note on “Protection to Agriculture”’, in Ibid., p. 201. 21. Cheryl Schonhardt-Bailey, From the Corn Laws to Free Trade: Interests, Ideas and Institutions in Historical Perspective (Cambridge, MA: The MIT Press, 2006), p. 10. 22. Grampp, The Manchester School of Economics, p. 98. 23. Ricardo, ‘On Protection to Agriculture’, p. 218. 24. Grampp, The Manchester School of Economics, p. 18. 25. Nassau William Senior, ‘Report—On the State of Agriculture’, Quarterly Review, 25:2 (July 1821), pp. 467–504. 26. Robbins, A History of Economic Thought, p. 180. 27. Scraffa, ‘Note on “Protection to Agriculture”’, p. 201. 28. Ricardo, ‘On Protection to Agriculture’, p. 264. 29. Stephen John Pam, Essex Agriculture: Landowners’ and Farmers’ Responses to Economic Change, 1850–1914, PhD diss (London: London School of Economics, 2004), p. 89. 30. Robbins, A History of Economic Thought, p. 181. 31. See David R.  Stead, ‘The Mobility of English Tenant Farmers, c. 1700–1850’, The Agricultural History Review, 51:3 (2003), pp. 173–89. 32. Pam, Essex Agriculture, p. 133. 33. Mitchell, British Historical Statistics, pp. 756–7, 195. 34. See Murray N.  Rothbard, Man, Economy and State with Power and Market (1962; Auburn, AL: Ludwig von Mises Institute, 2009), p. 928. A near-identical analysis can be found using neoclassical language in

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Greg Mankiw and Mark P.  Taylor, Economics, 3rd edn (Andover: Cengage Learning, 2014), p. 193. 35. Thomas Malthus, An Essay on the Principle of Population, ed. Geoffrey Gilbert (1798; Oxford: Oxford University Press, 2004), p. 12. 36. Ricardo, ‘On Protection to Agriculture’, p. 263. 37. Mitchell, British Historical Statistics, p. 756. 38. Ibid., p. 195. 39. Ibid., pp. 103, 111. 40. For a fascinating account of this see Pam, Essex Agriculture. 41. Cormac Ó Gráda, ‘British Agriculture, 1860–1914’, in Floud and D. N. McCloskey, vol 2, p. 153. 42. Mitchell, British Historical Statistics, p. 202. 43. Eugen Böhm-Bawerk, Capital and Interest, trans. George D.  Hunke and Hans F. Sennholz, 3 vols (1884; South Holland, IL: Libertarian Press, 1959), vol 2: The Positive Theory of Capital, p. 336. 44. Grampp, The Manchester School of Economics, p. 25. 45. See David Ricardo, ‘On the Principles of Political Economy and Taxation’ (1817), in The Works and Correspondence of David Ricardo, ed. Piero Sraffa, 11 vols (1951; Indianapolis, IN: Liberty Fund, 2004), vol 1, especially pp. 95–109. 46. Edwin Cannan, A History of the Theories of Production and Distribution (1893; New York: August M. Kelley, 1967), p. 142. See Schumpeter, History of Economic Analysis, p.  553; Robbins, A History of Economic Thought, p. 182. 47. Pam, Essex Agriculture, p. 132. 48. Walter Begehot, quoted in Murray N. Rothbard, An Austrian Perspective on the History of Economic Thought, 2 vols (1995; Auburn, AL: Ludwig von Mises Institute, 2006), vol 2: Classical Economics, p. 98n. 49. B.R.  Mitchell, Economic Development of the British Coal Industry, 1800–1904 (Cambridge: Cambridge University Press, 1984), p. 192. 50. Ibid., pp. 197–9. 51. Christopher Hanes ‘The Rise and Fall of the Sliding Scale, or Why Wages are No Longer Indexed to Product Prices’, Explorations in Economic History, 47:1 (January 2010), pp. 49–67. 52. Grampp, The Manchester School of Economics, p. 32. 53. Senior, ‘Report—On the State of Agriculture’, pp. 475–6. 54. Carl Menger, The Principles of Economics, trans James Dingwell and Bert F.  Hoselitz (1871; Auburn, AL: Ludwig von Mises Institute, 2007), pp. 149–74.

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55. Ludwig von Mises, Socialism: An Economic and Sociological Analysis, trans. J. Kahane (1922; New Haven, CT: Yale University Press, 1951), pp. 114–22. 56. Rothbard, Classical Economics, p. 86. 57. Pam, Essex Agriculture, p. 43. 58. George Stigler, Production and Distribution Theories: The Formative Period (New York: Macmillan, 1941), p. 285. 59. ‘Food Statistics in Your Pocket 2017—Global and UK Supply’, Department for Environment, Food and Rural Affairs (9 October 2018), available at: https://www.gov.uk/ government/publications/food-statistics-pocketbook-2017/ food-statistics-in-your-pocket-2017-global-and-uk-supply. 60. Senior, ‘Report—On the State of Agriculture’, p. 496. 61. Rothbard, Classical Economics, p. 150. 62. F.A. Hayek, ‘Prices and Production’ (1931), in Business Cycles, Part 1, ed. Hanjoerg Klausinger (Indianapolis, IN: Liberty Fund, 2012), pp. 193–284. 63. Senior, ‘Report—On the State of Agriculture’, p. 496. 64. Schumpeter, History of Economic Analysis, p. 607. 65. Alberto Mingardi, Herbert Spencer (New York and London: Continuum, 2011), p. 25. 66. John Offer, Herbert Spencer and Social Theory (Palgrave Macmillan, 2010), p. 227. 67. Herbert Spencer, Principles of Sociology, ed. Stanislav Andreski (1896; London: Macmillan, 1969), pp. 781, 767–8. 68. Oswald Spengler, Man and Technics: A Contribution to a Philosophy of Life, trans. Charles Francis Atkinson and Michael Putnam (1931; London: Arktos, 2015), p. 33. 69. Quoted in Mingardi, Herbert Spencer, ibid., p. 49. 70. Herbert Spencer, Social Statics, or The Conditions essential to Happiness specified, and the First of them Developed (1851; London: Robert Shackleford Publishers, 1995), pp. 132, 123, 145, 138, 192, 185, 189. 71. Ibid., pp. 185–366. 72. Herbert Spencer, The Man versus The State (1884; Indianapolis, IN: Liberty Fund, 1982), p. 123. 73. Ibid., p. 80. 74. George H. Smith, The System of Liberty: Themes in the History of Classical Liberalism (Cambridge: Cambridge University Press, 2013), p. 189.

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75. Spencer, The Man versus The State, p. 83. 76. Herbert Spencer, ‘Over-Legislation’ (1853), in Ibid., pp. 286–7. 77. Spencer, Social Statics, pp. 339, 338. 78. Ibid., pp. 339–40. 79. Ibid., p. 340. 80. Ibid., p. 340. 81. Joel Adams, ‘How nearly HALF British adults pay NO income tax: HMRC data reveals a record 23 million leave 31m to foot bill for running the country’, Daily Mail (6 August 2019), available at: https:// www.dailymail.co.uk/news/article-7326881/How-nearly-HALFBritish-adults-pay-NO-income-tax-data-reveals-23-million-adultsexempt-PAYE.html. 82. ‘Statistics on Drug Misuse, England, 2018’, NHS Digital (28 November 2018), available at: https://digital.nhs.uk/data-and-information/publications/statistical/statistics-on-drug-misuse/november-2018-update. 83. Gavin Thompson, Oliver Hawkins, Aliyah Dar, and Mark Taylor, Olympic Britain: Social and Economic Change since the 1908 and 1948 Olympic Games (London: House of Commons Library, 2012), p. 154. 84. Oliver Moody, ‘Dumb and Dumber: Why We’re Getting Less Intelligent’, The Times (12 June 2018), available at: https://www.thetimes.co.uk/article/dumb-and-dumber-why-we-re-getting-lessintelligent-80k3bl83v. 85. Barbara Oakley, Ariel Knafo, Guruprasad Madhavan, David Sloan Wilson (eds), Pathological Altruism (Oxford: Oxford University Press, 2012); Paul Bloom, Against Empathy: The Case for Rational Compassion (New York: Harper Collins, 2016). 86. Neema Parvini, ‘How the United Kingdom Became a Police State’, Mises Wire (6 July 2018), available at: https://mises.org/wire/ how-united-kingdom-became-police-state. 87. Henry Hazlitt, ‘From Spencer’s 1884 to Orwell’s 1984’ (1969), in The Wisdom of Henry Hazlitt, ed. Hans F.  Sennholz (New York: The Foundation for Economic Education, 1993), p. 174. 88. Edward W. Younkins, Champions of a Free Society: Ideas of Capitalism’s Philosophers and Economists (New York: Lexington Books, 2008), p. 138. 89. Charles S.  Telly, ‘The Classical Economic Model and the Nature of Property in the Eighteenth and Nineteenth Centuries’, Tulsa Law Review, 13:2 (1978), p. 451.

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90. Jean-Baptiste Say, A Treatise on Political Economy, trans. C.R. Prinsep, 6th edn (1832; Philadelphia, PA: Claxton, Remsen & Haffelfinger, 1880), 1.14, p. 130. 91. Thomas Sowell, Say’s Law: An Historical Analysis (Princeton, NJ: Princeton University Press, 1972), pp. 115–41. 92. Ibid., pp. 201–28; W.H. Hutt, A Rehabilitation of Say’s Law (Athens, OH: Ohio University Press, 1974), pp. 24–5. 93. Rothbard, Classical Economics, p. 34. 94. Steve Kates, Say’s Law and the Keynesian Revolution How Macroeconomic Theory Lost its Way (Cheltenham: Edward Elgar, 1998). 95. Ludwig von Mises, ‘Lord Keynes and Say’s Law’ (1950), in Planning for Freedom: Let the System Work, ed. Bettina Bien Greaves (1952; Indianapolis, IN: Liberty Fund, 2008), p. 97. 96. William J. Baumol, ‘Say’s (at Least) Eight Laws, or What Say and James Mill May Really Have Meant’, 44:174 (May 1977), pp. 145–61. 97. Henry Hazlitt, The Failure of the New Economics: An Analysis of Keynesian Fallacies (Princeton, NJ: D. Van Nostrand Company, 1959), p. 32. 98. Sowell, Say’s Law, p. 22. 99. Knut Wicksell, Lectures on Political Economy, ed. Lionel Robbins, trans. E. Classen, 2 vols (1906; London: Routledge & Kegan Paul, 1961), vol 2, pp. 159–60. 100. Mises, ‘Lord Keynes and Say’s Law’, p. 96. 101. Hutt, A Rehabilitation of Say’s Law, pp. 5–6. 102. Say, A Treatise on Political Economy, 1.17, p. 176. 103. Ibid., pp. 134–5. 104. Rothbard, Classical Economics, p. 32, emphasis mine. 105. Hutt, A Rehabilitation of Say’s Law, p. 68. 106. Walter Block, Defending the Undefendable (1976; Auburn, AL: Ludwig von Mises Institute, 2008), pp. 113–14. 107. F.A.  Hayek, ‘Frédéric Bastiat (1801–50)’, in The Trend of Economic Thinking: Essays on Political Economists and Economic History, ed. W.W. Bartley III and Stephen Kresge (Indianapolis, IN: Liberty Fund, 1991), p. 347. 108. Frédéric Bastiat, Economic Sophisms and ‘What Is Seen and What Is Not Seen’, trans. Jane Willems and Michel Willems (Indianapolis, IN: Liberty Fund, 2016), pp. 49–52. 109. Henry Hazlitt, Economics in One Lesson, 2nd edn. (1946; New York: Three Rivers Press, 1979), p. 17.

6 The Austrian School

In the previous chapter, I outlined how the nineteenth century in practice, if not quite in thought, had freed Britain from The Malthusian Trap. However, we have not yet freed ourselves from The Keynesian Trap. In Table 6.1,1 I have compiled various decade-average statistics for the UK economy from the 1840s to the present day. GDP figures are given in 2015 £billions. Population is given in millions of people. I have derived the Gross Domestic Private Product (GDPP) by subtracting government consumption from GDP.2 GDPP is used here to distinguish genuine growth from government bloat. Looking at this, several things should become starkly apparent. In the 1800s, despite sustained population growth and genuine economic growth as measured by GDPP, combined public and private saving consistently managed to stay above 8.7% and well over 10% in most decades until 1910. The generations of Victorians during this period maintained a genuinely far-sighted economic policy of leaving the country in a more financially secure state than that into which they had been born. Sometimes this meant sacrificing some economic growth in the short term for long-term sustainability, in other words, they delayed consumption to produce net national savings—money that could be used for the capital investments necessary to produce the next round of innovation © The Author(s) 2020 N. Parvini, The Defenders of Liberty, https://doi.org/10.1007/978-3-030-39452-3_6

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GDP

64.633 79.476 97.135 124.001 145.525 173.855 208.319 247.705 231.401 273.493 362.342 437.491 605.263 801.56 988.384 1265.43 1657.64 1836.53

Decade

1840s 1850s 1860s 1870s 1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s

4.048 4.494 5.88 6.025 8.519 11.496 18.809 81.543 23.376 36.659 133.521 78.47 107.659 197.336 208.421 246.708 350.442 352.158

Government consumption

18.56 22.97 22.22 27.66 17.36 19.47 19.82 18.9 −5.82 18.19 32.49 20.74 38.35 32.43 23.31 28.03 30.99 10.79

Decade-ondecade GDP growth (%) 6 6 6 5 6 7 9 33 10 13 37 18 18 25 21 19 21 19

60.585 74.982 91.255 117.976 137.006 162.359 189.51 166.162 208.025 236.834 228.821 359.021 497.604 604.224 779.963 1018.72 1307.2 1484.37

Government consumption as a percentage of GDP GDPP 21.04 23.76 21.7 29.28 16.13 18.51 16.72 −12.32 25.19 13.85 −3.83 56.9 38.6 21.43 29.09 30.61 28.32 13.55

19.372 21.687 24.243 27.438 30.921 34.519 38.409 41.35 43.472 45.557 47.943 49.754 52.45 54.408 55.141 56.323 58.835 62.332

Decade-ondecade GDPP Average growth (%) population

Table 6.1  Decade-average statistics for the UK economy from the 1840s to the present day

13.19 11.95 11.78 13.18 12.69 11.64 11.27 7.66 5.13 4.8 5.24 3.78 5.42 3.73 1.35 2.14 4.46 5.94

Decade-­on-­ decade population growth £3127 £3457 £3764 £4300 £4431 £4703 £4934 £4018 £4785 £5199 £4773 £7216 £9487 £11,105 £14,145 £18,087 £22,218 £23,814

GDPP per capita

7.05 10.55 8.89 14.23 3.05 6.15 4.90 −18.56 19.08 8.64 −8.19 51.19 31.48 17.06 27.37 27.87 22.84 7.18

GDPP per capita growth (%)

10.09 8.73 9.65 13.85 13.4 14.95 12.64 7.18 6.45 4.61 −3.5 6.12 10.33 9.45 6.19 4.95 2.14 0.01

Net national saving as a percentage of GDP

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and growth. This was an orientation which, in effect, put their children’s future ahead of their own present consumption. It was a policy which induced a low time preference. Such was their fiscal prudence that even the disaster of the First World War, which negatively affected real growth, did not reduce savings to less than 7.18% for the whole decade. However, as interventionist policies took root in the years of depression after the war, savings reduced in the 20s and 30s. The catastrophe of the Second World War saw a 3.5% dent in national savings. What we see, in effect, in the period from 1910 to 1950 is the abject squandering of eighty years of capital accumulation. In the post-war consensus that followed, we can see that despite a brief return to nineteenth-century style saving in the 1960s, national savings have since been in total free fall. To the extent that, in the 2010s, they are now scarcely above zero. A glance at the following two graphs should make this more explicit. Figure 6.1 shows government consumption as a percentage of GDP and Fig. 6.2 shows net national saving as a percentage of GDP. The economic growth of the period from the 1950s to the 2010s may look more impressive on paper than that of the nineteenth century, even when using GDPP instead of GDP, but this masks the fact that this growth is something of a sugar rush. In effect, the economic policies of this period have reversed the mantra of the Victorians. It has sacrificed long-term sustainability for short-term growth. It has substituted delaying consumption to 40 35 30 25 20 15 10 5 0

1840s 1850s 1860s 1870s 1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s

Fig. 6.1  Government consumption as a percentage of GDP

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20

15

10

5

0

-5

1840s 1850s 1860s 1870s 1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s

1840s 1850s 1860s 1870s 1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s

Fig. 6.2  Net national saving as a percentage of GDP

produce net national savings for present consumption at the expense of any savings at all. This is an orientation which, in effect, puts our present consumption ahead of our children’s future. It is a policy which induces a high time preference. It is a policy which, looking at the data above, as well as negative interest rates around Europe,3 is surely reaching the end of the line. None of this would be at all surprising to adherents of The Austrian School of Economics, who have repeatedly warned against the dangers of living on easy credit. Many of the theoretical dead ends of classical economics were resolved in the early 1870s in the Marginal Revolution. Three thinkers—Carl Menger in Austria, William Stanley Jevons in England, and Leon Walras in Switzerland—independently arrived at a subjectivist understanding of the theory of value based on the concept of the marginal unit. These gave birth respectively to The Austrian School, The London School, and The Lausanne School. Of these, The Lausanne School, to which Vilfredo Pareto belonged, was short lived. Walras was excessively mathematical and abstract in his adherence to General Equilibrium—as Milton Friedman noted, a case of form over substance4—yet it was this school that was to have the greatest influence on the Keynesians after the 1930s, especially on John Richard Hicks and Paul Samuelson.5 In 1890, Alfred Marshall synthesised elements of the new marginalist thinking and tried to reconcile them with classical economics.6 This synthesis is today called neoclassical economics, which

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dominates the mainstream; its chief inheritors are the Chicago School, who I will discuss in the course of Chap. 8. I will discuss The London School in the following chapter. In this chapter, I will cover the contributions of the key thinkers of The Austrian School: Carl Menger, Eugen Böhm-Bawerk, Ludwig von Mises, F.A. Hayek, and Murray N. Rothbard. Each of these were true defenders of liberty committed to recognising human nature, utilising methodological individualism, and insisting on the paramount importance of property rights during the darkest years of the twentieth century when the twin evils of fascism and communism reigned abroad and the coming slavery of ever-increasing statism justified by fallacious mercantilist and protectionist arguments reigned at home. Such is the importance and urgency of overcoming the Keynesian miasma that has plagued political and economic thought for almost ninety years now that this chapter differs from most of the others in this book. Where most other chapters adopt a critical and analytical stance, here I aim to provide the educated reader a one-chapter summary of the most important Austrian ideas in the plainest and easiest-to-understand language possible. This is because, whatever the faults, quirks, eccentricities, or excesses, of any of its individual adherents, I believe that the Austrian School provides the most acute and clear-sighted analysis of what has been going wrong in Western economies over the past few decades. Time and again its insights appear simple, but all too often they are not grasped by supposedly intelligent and sophisticated thinkers— especially those with a background in economics. To give an example, what about the most intelligent and sophisticated of them all, Paul Samuelson? Readers should never forget that: In the 1961 edition, Samuelson predicted that the Soviet national income would overtake that of the United States possibly by 1984, but probably by 1997. In the 1980 edition there was little change in the analysis, though the two dates were delayed to 2002 and 2012.7

It seems odd that those who made such hilariously incorrect predictions continue to be taken seriously and venerated, while those who have correctly diagnosed so many boom and bust cycles continue to be ignored.8 I encourage readers to think deeply about the arguments I am about to

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present. Rather than reach for ready-made counter arguments, statistics, survey results, and so on, which may well be the product of an entrenched ruling class that encourages learned confirmation bias (see Chap. 2), instead focus on the causal logic in these arguments. What errors of reasoning are to be found? Admittedly, I have looked myself and come out empty handed.

Carl Menger Carl Menger (1840–1921) had read Commerce and Government (1776) by Etienne Bonnot, Abbé de Condillac, which I discussed in Chap. 4. In 1871 he wrote a book called The Principles of Economics, but his contributions are a lot deeper than being a mere co-signatory to Jevons and Walras in the Marginal Revolution. His originality is sometimes not given due attention even by those steeped in Austrian theory. Menger’s economics are grounded in one central principle: that all things are subject to the law of cause and effect. All his insights flow from this. Thus, a good is defined as a useful thing employed in the satisfaction of human needs. The designation of something as a good depends on this causal relationship. If any of the sufficient conditions no longer apply—say, the need is gone or the knowledge that the thing can be used to fulfil a need—the thing ceases to be a good.9 This is significant because Menger establishes what Joseph T. Salerno has called the ‘causal-realist’ approach to economics.10 As we shall see, this distinctive feature of Austrian analysis—namely, the insistence on isolating the causal factor in any economic relationship—leads it to spot unresolved contradictions in other approaches. Menger distinguishes between first-order goods (consumer goods) which are employed directly in the satisfaction of needs, and second-­ order, third-order, fourth-order goods (intermediary goods and raw materials), which are higher up the supply chain. For example, bread fulfils the human need for hunger, but requires flour, a second-order good, and wheat, a third-order good, to be produced. These higher orders of goods are the means of production. Menger points out that if the first-­ order good ceases to be a good—let us say if the need for it disappears— then the second-order and third-order goods also cease to be goods. In

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other words, assuming no other uses of flour or wheat, if bread ceases to be a good, then so do flour and wheat. The value of the wheat depends on its ability to be transformed into flour which in turn depends on its ability to be transformed into bread. The demand for flour would collapse if there was no demand for bread. This may seem like an obvious point, but it spectacularly escapes neoclassical economists in the Marshallian tradition who maintain a cost-based production theory, an embarrassing residue of the Labour Theory of Value. Menger correctly shows how the chain of value starts with the fact that people value the first-order good for its ability to satisfy their needs—as we saw in Chap. 5 this was hinted at by Nassau William Senior. Producers value higher-­ order goods only for their ability to satisfy their need to produce lower-­ order goods. The causal relationship starts at the bottom of the supply chain, at the consumer level, not at the top.11 To develop his theory of value, Menger makes several further observations. First, concrete needs diminish with each act of their satisfaction. Second, goods have discrete units of specific quantities. That is, it makes no sense to talk about any particular good in the abstract, but their employment for specific uses in specific quantities. Third, goods only attain an economic character if they are scarce. Menger uses the example of Robinson Crusoe alone on an island with access to a spring of water. He employs the water in many different ways, but as long as the supply of this water is seemingly unlimited it is not an economic good. However, imagine that he is restricted for some reason only to 100 units of water per day. Now he must economise and make decisions about how best to allocate that water because it is now scarce. In coming to this definition, Lord Robbins credited Menger with ‘the modern origin of the conception of economics as concerned with that aspect of behaviour and institutions which arises because of scarcity’.12 Next Menger shows how the preference scale of a single individual might work. This is best illustrated as follows (Fig. 6.3). Here, the good on the left (I) is the highest concrete need, and the one on the right (X) is the lowest concrete need. In this case, the highest need is food, the lowest need is for diamonds or jewellery. The concrete need for food is ten, so let us pretend the individual eats a sandwich, now the need is nine, and maybe a bowl of French fries, now the need is eight, and

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Fig. 6.3  The preference scale of a single individual

let us say an ice cream, and now the need is seven. The individual also has a need for many other things, clothes, hygiene, health, and so on. To use Menger’s own example, this individual has a need for tobacco, but this is less than his need for food. In fact, the individual will not use tobacco until other needs have been satisfied. In other words, the need for food, clothing, hygiene, and beer must be below six before this individual will seek to satisfy the tobacco need. Menger is making two crucial points with this formulation. First, that even within the preference scales of a single individual the value of any given good may change relative to how many of their needs have been satisfied. In this case, the first unit of tobacco is valued more highly than the sixth unit of food. The second point is that every person has different preference scales, so maybe another person has a lower need for tobacco and a higher need for clothing. Every individual has different scales of preference, and they are constantly subject to change. The same person may have a different scale of preference in the morning than in the evening. Another crucial insight by Menger is that there is nothing intrinsic in a given good that produces its value: only its employment to satisfy distinct needs in specific quantities. He uses wheat as an example: let us pretend there is an isolated farmer. He produces a certain quantity of

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wheat. He employs the first portion of this wheat to feed himself and his family, he uses the second portion to help maintain their health, the third portion to sow seeds for the next harvest, the fourth portion to make whisky, the fifth to help feed his cattle, and anything left over to feed his pets. Let us pretend he uses 100 units of wheat to do this. It is clear that if he only had ninety units of wheat then he would employ it to satisfy the first five wants first. There is nothing left for the pets and the cattle only get five units now. Let us reduce the stock of wheat further to seventy. Now he must also cut the production of whisky and the feeding of the cattle because these are less important to him than feeding his family and growing more wheat next season. The same good—wheat—is valued differently according to which need it is satisfying. It is clear then that what is valued is not the good itself, but the need which is being satisfied. Humans value the satisfaction of their needs and come to value goods only as a result of this causal relationship. There is nothing intrinsic to the wheat which produces the value scale of this farmer. And we can see this by substituting its various uses with other goods which can fulfil the same needs: meat and vegetables for the feeding need, medicines for the health need, seeds for a different crop for the sowing need, the production of gin for the alcohol need, and so on. The substitution of the goods does not change the farmer’s value scale—he still wants to feed his family before he makes alcoholic drinks or feeds the cattle and the pets. The fact that it is wheat or corn or pumpkins or any other good does not matter. Menger goes on to say that the qualities of particular goods do matter in how people value them, but there is usually some secondary need being satisfied. For example, if we take four different types of food, as well as satisfying the basic need for hunger they may also satisfy a secondary need for enjoyment. This person gets greater enjoyment from eating ice cream than from eating pumpkin, since they fulfil the same food need, it is likely they will plump for ice cream over pumpkin if given the choice. But what if they are hungrier? They may opt to sacrifice some enjoyment for more fulfilment of the food need by getting a pie instead. Of course, in reality there may be other needs to consider—the health need for example. In fact, there is no limit to how complex this can get. People in the real world weigh up many complex variables when making decisions all the time.

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Table 6.2  Menger’s theory of exchange and a theory of prices Cowboy A Horse 1 = 50

Cowboy B Cow 1 = 50 Cow 2 = 40 Cow 3 = 30 Cow 4 = 20 Cow 5 = 10 Cow 6 = 0

Horse 1 = 50 Horse 2 = 40 Horse 3 = 30 Horse 4 = 20 Horse 5 = 10 Horse 6 = 0

Cow 1 = 50

From these central insights about the nature of value, Menger then builds up a theory of exchange and a theory of prices.13 He imagines two cowboys A and B. One has six horses and one cow and the other has one horse and six cows. This is best represented in Table 6.2. The numbers represent the satisfaction of needs, that is whatever they are using the horses and cows for. We can see here that in A’s case the sixth cow is not employed in the satisfaction of any needs and the same in the case of B’s sixth horse. Thus, it makes sense for A and B to exchange the cow and horse. The horse is worth more than the cow to A and the cow is worth more than the horse to B.  So now, after the exchange, more needs are being satisfied on both sides. Now, are Cow 5 and Horse 5 being employed to the maximum satisfaction of needs? Again, it is mutually beneficial for them to exchange. In so doing, both of our cowboys have maximised the satisfaction of their needs. It is not worth swapping the fourth cow for the fourth horse, since both of them satisfy the same number of needs. There is nothing to be gained from further exchange and both cowboys can go on their way. But what if our cowboy cannot find someone to trade exactly two cows for two horses? This, of course, is how the need for indirect exchange and commodity money arises. Once commodity money is established, the cowboy can sell the cows to a trader in exchange, let us say, for gold, and then go to a rancher and exchange that gold for horses. But how do prices form? Menger outlines this chiefly through competition whether between buyers or sellers. A greater number of buyers than sellers bids up the price, a greater number of sellers than buyers drives the price down. Hence the law of supply and demand intermeshes with the subjective theory of value and the law of marginal utility. It should be noted that Menger never used the term ‘marginal utility’ himself, that was coined by

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Friedrich von Weiser who led the Austrian School after the death of his brother-in-law, Eugen Böhm-Bawerk, in 1914, and who taught Ludwig von Mises, Joseph Schumpeter, and F.A.  Hayek. Nonetheless, Menger was arguably the first person to build a completely integrated, consistent, and logical subjectivist economic theory. His many insights are ‘the fountain’ from which Austrian economics springs.14 Before continuing, some readers may be tempted to dismiss Menger’s insights from 1871 as ‘obvious’ and having been incorporated into basic economic theory. I would remind such readers to consider the extent to which such fundamental concepts as price being determined by supply and demand are under attack by New Keynesians and ‘Post-Keynesians’. One common line is to suggest that nominal price rigidity and sticky wages produce conditions that are inflexible to the extent that in many cases the basic law of supply and demand no longer holds.15 This was basically a rehash of Ricardo’s ‘Iron Law of Wages’, which I dismantled in the previous chapter, given a sophisticated lick of new paint in Keynes’s General Theory.16 So the argument goes, there is no general tendency towards equilibrium because nominal rigidities exist. This claim has been redoubled in recent years by a focus on how many large firms use administered cost-based mark-up pricing strategies.17 The methodology of many of these studies focuses on survey results—that is asking price managers how often they change their prices and for which reasons18—rather than focusing on actual price data and actual sales. These arguments are a classic case of not seeing the woods for the trees. A simple thought experiment can show how the ultimate causal factor of value in every case is still consumer demand: if there was a global collapse in demand for coffee, what would that do to the prices of the land of the coffee farm, of coffee machines, or to the wages of café workers? The answer should be obvious that they would fall. Perhaps the most famous case of sticky prices in history is the 5-cent can of Coca-Cola, which held for seventy years. There were three reasons for this. First, the company’s pioneering advertising campaigns had cemented the idea that Coca-Cola was 5 cents into the minds of the public. Second, vending machines across the USA were designed to take 5 cents, and changing these would have been very costly. Third, it was their active strategy to keep the purchase price for the consumer very low

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by keeping production costs down and focusing on pumping out volume. In other words, this was an economy of scale. Here is a line from their annual report in 1922: ‘The cost of manufacture has been reduced to such an extent that our prices to dealers, together with reduced costs to them of doing business, justifies and enables them to retail Coca-Cola at five cents per glass or bottle, as the case may be, which will have a very stimulating effect upon demand.’19 As long as this remained true, they could keep growing. Prior to the 1920s, Coca Cola had only seen two years of sales declines in thirty-six years; and one of those was in 1918 when there was a 50% restriction on sugar usage issued by the US Food Administrator. So, from 1886 to 1920, the company had near constant growth in sales. And we can see this by looking at sales records (Table 6.3).20 From 1900 to 1929, Coca-Cola saw a 7,175% increase in total demand. And this trend continued into the years of the Great Depression. Table 6.3  Coca-Cola sales records Year

Gallons sold (/profits)

Average inflation (%)

Price in 2019 $

1886 1890 1895 1900 1905 1910 1915 1920 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939

25 8885 76,244 370,877 1,549,866 4,190,149 7,521,833 18,656,445 17,496,764 20,111,134 21,158,450 22,517,265 24,212,519 26,981,874 27,800,000/$13.5 million 26,700,000/$14 million $8.7 million $8.8 million $12 million $13.9 million $18.6 million $22.9 million $23.8 million $27.2 million

−3.09 −1.09 −2.33 2.44 −1.12 4.4 1 15.61 0 2.34 1.14 1.14 −1.78 0 −2.34 −8.98 −9.87 −5.11 3.08 2.24 1.46 3.60 −2.08 −1.42

1.36 1.41 1.52 1.52 1.46 1.35 1.27 0.64 0.75 0.73 0.72 0.74 0.75 0.75 0.77 0.84 0.93 0.99 0.96 0.93 0.92 0.89 0.91 0.92

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Unfortunately, the annual reports stop showing total gallons after 1931, but we still have data on the profits, one can see the company took a hit in the worst years of the Depression in 1932 and 1933, but soon recovered. One factor for these strong sales is plainly the low-price point of 5 cents, although as my inflation-adjusted figures show in 2019 prices this was closer to what we would think of today as $1 for most of the period. Although Coca-Cola’s nominal prices were fixed for all this seventy-­ year period, its real price fluctuated relative to inflation. If old-fashioned economic price theory is true, we would expect to see a fall in demand when the real price of Coca-Cola is increasing and vice versa. This is exactly what happened. Between 1915 and 1920 there was a 148% increase in sales which corresponded to a 46.9% decrease in the real price of a bottle of Coca-Cola. The real price then increased 28.5% during the Depression, because it was a period of deflation which corresponded to a 37% decrease in sales. In other words, the exchange rate between bottles of Cola-Cola and all other goods had increased. This was also true of the early 1920s, when deflation made the real price of Coca-Cola 20.3% more expensive and demand fell. Between 1920 and 1924 there was a 6.2% decrease in demand. In the 1930s, when inflation returned, the real price of Coca Cola decreased, and there was a 160.2% rise in demand. Looking at the inflation-adjusted prices in 2019 dollars, we can see that consumer demand was in fact highly responsive to fluctuations in the ratio of exchanges between bottles of Coca-Cola and other goods. If this sounds reminiscent of the general glut controversy of the 1820s, which I discussed in the previous chapter, it is because it is the same fallacious thinking repackaged. Nothing speaks more to the Keynesian inability to understand the true implications of Say’s Law than their spectacular failure to grasp this obvious point.

Eugen Böhm-Bawerk The second great master of Austrian economics was Eugen Böhm-Bawerk (1851–1914). He became famous around the world for writing a devastating critique of Karl Marx’s Capital in 1896 from which Marxists have

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never fully recovered.21 However, he is best known for his three-volume masterpiece Capital and Interest (1884). Böhm-Bawerk’s chief contribution to economic theory is his focus on time. Menger had emphasised the fact that production processes all take time.22 Böhm-Bawerk greatly expands on this. He develops the now-fundamental concept of time preference, although I should note he never actually uses that phrase, which was originated by the American economist Frank Fetter who later refined the Pure Time-Preference Theory of Interest.23 Using the central idea of time preference, Böhm-Bawerk developed a complete theory of capital and interest, and along the way refuted both Marx’s theory of exploitation and the old Christian idea of usury. Let us imagine once again Robinson Crusoe alone on an island. Let us assume that fish is all he must eat on the island. Assuming he wants a fish, if given the choice between a fish today and a fish in one week’s time he would, of course, choose the fish today. He has a positive time preference because humans in general prefer the present to the future. It is logically inconceivable for our time preference to be negative in general because otherwise we would all be dead. That is, we cannot constantly defer acting because we need to eat and drink. However, certain things might alter the time preference. How about five fish in one week? Crusoe might go for that assuming he can survive the seven days in between. Whether or not he goes for it depends on his time preference, which might be high— that is he wants things now and finds it hard to delay consumption—or it might be low, which is that he is prepared to sacrifice in the short term for the longer-term gain. People have different time preferences as a matter of nature. Children, for example, have very high time preference. Many children would not take the five fish in one week; they would want the one fish today. Other factors can affect time preference. Maybe Crusoe is a fish addict and must get his fix right now. Maybe he is starving and cannot wait. Or maybe he has saved up a stock of fish and can afford to wait the week. However, the point is that no matter what his time preference all other things being equal he would prefer one fish now than in one week. We can see this easily if we attach money prices to the two propositions. He can buy a fish for three gold pieces or a future’s contract for a fish in one week for three gold pieces. Virtually no one

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would take the future’s contract at the same price, however they might at a discounted rate.24 Crusoe is currently catching fish with his bare hands. He can manage to catch ten fish a day. He knows that if he were to make a net, he could double this amount and if he were to make a boat he could quadruple it. However, it takes seven whole days to make the net. He can just about live on five fish a day, so he effectively saves the remaining five for a whole week. Now he has thirty-five fish on which to live for the following week. And so he can spend the whole week constructing the net. Now he can catch twenty fish a day, so it is only going to take him four and a half days to save up the seventy fish he needs to survive the two weeks it will take him to make the boat (see Table 6.4). This, in a nutshell, is Böhm-Bawerk’s positive theory of capital. Crusoe must save up fish by delaying consumption of them in order to invest his time in new methods of production.25 There are a few things to note here. First, it is, of course, important that the net and the boat yield a greater return of fish than the bare hands. Crusoe is not going to delay consumption to construct something that will not improve his lot. This is a small but very important point: there must be an incentive for capital accumulation and investment otherwise there will be no innovation. This is the classic reason why socialist countries have had a hard time innovating. Second, notice the role of time preference. Let us say that Crusoe had a higher time preference and ate seven fish a day instead of only five. This would cost him around ten extra days because he is consuming more and saving less. Of course, if Crusoe ate all ten fish every day, he would be stuck at this subsistence level. This might seem obvious, but it is a point all too often not grasped. The accumulation of wealth requires some degree of saving and investment prior to production or else there is no moving forward. To summarise: Table 6.4  Böhm-Bawerk’s positive theory of capital Consumption Method Production (required to live)

Time to construct

Savings (required to construct)

Hands Net Boat

– 7 days + 9 14 days + 1

– 49 fish 98 fish

10 per day 7 per day 20 per day 7 per day 40 per day 7 per day

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• The more roundabout production process of using the boat and net costs Crusoe 350 fish in production in the short run (70 fish by hand for the week it took to make the net  +  280 fish by net for the two weeks it took to make the boat). • However, in the long run it has saved him a lot of time. • The boat is 300% more efficient than using hands and 100% more efficient than using the net alone. • Now he can feed himself for a whole week in just one day freeing up time to spend on other things. In other words, despite his short-term pain, in the long run he is much better off. • More roundabout methods of production lead to greater productivity. • But the capitalist must wait longer for a return on their investment. By using the economist’s method, ceteris paribus, Böhm-Bawerk has isolated the roles of interest, savings, investment, and returns—and most crucially the role of time in all of this. He also argues that ‘Between capitalists and labourers the economic conditions are—with very few exceptions—extremely favourable to the effecting of exchange. The labourers urgently need present goods, and cannot, or can scarcely turn their own labour to any account; they will, therefore, to a man rather sell their labour cheaply than not sell it at all. But very much the same is true of the capitalists.’26 To see what he means consider the individual incentives of the labourer and the capitalist. The labourer has a choice between simply going hungry, trying to make it on his own, let us say as a subsistence farmer, or working for the capitalist. Böhm-Bawerk notes that in some times and places—for example, in the USA during the time of its founding and expansion—many might opt to go alone. But in very settled places like old Europe, it is much more likely that working for a wage will represent the more attractive option. The capitalist’s incentives are somewhat different: he does not want to let his money sit dormant—it is not doing anything but collecting dust and cobwebs sitting in a vault. Being of low time preference he would prefer to set that capital to work somehow, and he might make a greater return in the future by giving the labourer a job today. Because of this, according to Böhm-Bawerk, very little capital just sits dormant in the coffers. Capitalists have an incentive to employ it to the most productive ends to

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maximise their returns. So, there is a tendency for them to maximise employment. In fact, if more people turned up and there was still money sitting idle, they would likely employ them to get future returns. As is often the case, this may seem a simple point to grasp, yet, even today, socialists and Keynesians tend to imagine that capitalists sit on massive piles of cash which they simply hoard—but it is seldom the case. Furthermore, Böhm-Bawerk argued that this situation was not at all exploitative because of the different rates of time preference. The worker is paid up front whereas the capitalist must wait to see a return. The worker wants the money today whereas the capitalist is prepared to wait. This situation is preferable to capitalists blowing all their money on consumption, that is, goods and services. All that would happen in that case is that the various providers of those goods and services get a one-time payday, whereas if they employ workers directly, those workers will get paid week after week so long as the firm stays in business. Of course, the capitalists may opt to invest in capital goods instead of labour. However, should this be the case the producers of those capital goods and their workers get a payday too. This brings us to a central problem, which Böhm-Bawerk pondered in much of his work: why would anyone sell fixed capital goods for a price lower than its yield? His answer is that present goods are worth more than future goods of equal quality and quantity. We prefer one fish today over one fish in one week, but we may also prefer to pay two gold pieces for the fish in one week versus three gold pieces for a fish today. In the same way, we may prefer to pay 8000 gold pieces today for 10,000 gold pieces in the future. Why? Because the capitalist is not only having to wait, but also he foregoes 8000 gold pieces worth of present goods and services for the prospect of 25% more of them in the future. In other words, the capitalist pays an opportunity cost in present goods when purchasing the fixed capital, so it must be sold at a rate discounted from its total yield. We can see this even more directly in the case of interest on a loan. If a worker borrows 100 gold pieces today and agrees to pay back 110 gold pieces in three months’ time, he is, in effect, buying 100 present gold pieces from the bank in exchange for 110 future gold pieces. The bank has a lower time preference than him and can afford to sit and wait for the interest.

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Ludwig von Mises Arguably the greatest exponent of the Austrian school was BöhmBawerk’s student, Ludwig von Mises (1881–1973). His most important books are The Theory of Money and Credit (1912), Socialism (1922), Human Action (1949), and Theory and History (1956). It is difficult to narrow down Mises’s many contributions to economic theory, but arguably his most lasting and important ideas are, first, his ‘very controversial’ insistence on the praxeological method and his insistence that economics cannot be a positivist science.27 Second, his critique of economic interventionism and so-called third way solutions between socialism and the free market. Third, his analysis of the economic calculation problem, which was at the core of his critique of socialism. And finally, his expansion of Austrian economics into monetary theory and his explanation of the role of expansionary credit in boom-bust cycles. Let us take each of these at a time. All through his long career, Mises rejected attempts to treat economics as a hard science like physics because humans are not like stones, which behave in a predictable way. Since we must decide and act under uncertainty in a constantly changing world, there are no constant variables in human action. Therefore, economics must be deduced logically from a few self-evident truths. In fact, Mises argued that the whole of economics can be derived from just one self-evident truth: humans act. We engage in purposeful behaviour to achieve desired ends. This does not need to be empirically tested, it is self-evident. Action aims to achieve a more satisfactory state of affairs from a less satisfactory one. If this were not true, no one would ever act.28 Think about the simple task of making a sandwich when you feel hungry. If the sandwich was not a move towards a more satisfactory state of affairs compared to your current situation, why would you make it? Mises implicitly builds on Menger’s law of cause and effect and Böhm-Bawerk’s recognition that all human action takes place in time, to derive a complete and systematic theory of economics exclusively through chains of deductive reasoning. There are two more subsidiary postulates Mises requires: first, the observation that leisure is a valuable good, that is, humans tend to prefer leisure to labour. Second is that individuals vary.29 Once these facts are established, everything else can be

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derived from the action axiom. We might write out some chains of reasoning as follows: • • • • • •

Cause and effect Time Leisure is a valuable good: humans generally prefer leisure to labour Individuals vary Humans act Subjective value –– Marginal utility –– Trade –– Division of labour –– Origin of money –– Theory of credit –– Austrian Business Cycle Theory

• Means employed are scarce in relation to desired ends • The future is uncertain –– Time preference (humans prefer satisfactions now to later) –– Theory of interest For example, from the fact that humans engage in purposeful behaviour towards desired ends we can derive the fact that the means employed must be scarce in relation to those ends, because if all means were not scarce but superabundant, the ends would already have been attained, and there would be no need for action. Since action must take place in time, and since humans must act in the belief that this action will make a difference, we can deduce that man does not have omniscient knowledge of the future; for if he had such knowledge, no action of his would make any difference. So, the future is uncertain. Because of this we also prefer to attain satisfactions now rather than in some future time. And so on, and so forth. There is no need to test these claims empirically because they are simply true. The strength of this logical deductive approach is that they create economic laws that cannot be falsified. Here are a few examples.30

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• Whenever two people A and B engage in a voluntary exchange, they must both expect to profit from it. • Whenever an exchange is not voluntary but coerced, one party profits at the expense of the other. • The law of marginal utility. • The law of association (i.e. the idea that specialisation in the division of labour is beneficial). • Whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result. • Whenever the quantity of money is increased while the demand for money to be held as cash reserve on hand is unchanged, the purchasing power of money will fall. If anyone wishes to question these claims, they must do it logically. Empiricism is open to abuse of all kinds—as we have seen in Chap. 5. It is not difficult to imagine, for example, a study showing that there was once a town in which managers of fast food chains that stayed in business told some people carrying out a survey that jobs were not lost after minimum wages were introduced.31 Or how about a study showing that there have been at least five cafes in which the per-millilitre price of a large coffee was higher than that of a small coffee? These sorts of arguments are absurd, not only because there are no constant variables against which to test such claims—there is no science lab of the real-world economy—but also because they are attempting to defy logic itself. These are not historically or locally contingent claims. It is not as if the law of supply and demand stops being true just because you are in California in 2019, or Philadelphia in 1994, it is always true. It is worth pausing here to consider if the Austrian insistence on praxeology—or what I have called throughout this book ‘the economist’s method, ceteris paribus’—is a fundamental split with other economists or merely a cosmetic one. Within the modern Austrian School, there has been a long-standing disagreement between members of the Mises Institute, such as Murray N.  Rothbard, Joseph T.  Salerno, and Peter G. Klein, who insist that ‘adherence to methodological apriorism is the distinguishing characteristic of the Austrian school’,32 and members of

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the faculty at George Mason University, such as Karen I. Vaughan, Peter J. Boettke, and Peter T. Leeson, who maintain that there is not much that separates Austrian microeconomic theory from neoclassical economics and that the school’s distinctive feature is in its recognition of ‘time, uncertainty, knowledge, expectations, institutions, and market processes’.33 Vaughan even goes so far as to say that Austrian price theory is merely an ‘imprecise verbal elaboration’ that has since been superseded by mathematical precision.34 Those in this latter camp typically seize on the following comment from Mises written in 1932: Within modern subjectivist economics it has become customary to distinguish several schools. We usually speak of the Austrian and the Anglo-­ American Schools and the School of Lausanne. … all that is necessary about the fact that these three schools of thought in their mode of expressing the same fundamental idea and that they are divided more by their terminology and by peculiarities of presentation than by the substance of their teachings.35

I think it is important to contextualise this comment. First, it comes from a speech that was delivered in Dresden called ‘The Controversy Over the Theory of Value’. It is clear from the speech that he was seeking to distinguish ‘The Marginal Utility School’ from Marxism and the old German Historical School, who rejected economic theory out right, many adherents of whom would have been in attendance.36 At this time, Mises’s method was squarely in the mainstream of economic practice, as suggested by Lord Robbins’s An Essay on the Essay and Significance of Economic Science written in the same year.37 It was only in the 1950s with the rise of positivism and the Chicago School that it was seen to be abnormal. One of the foremost Chicago economists, George Stigler had this to say in 1959: Professor Mises, whom many regard as of conservative persuasion, would, I believe accept the main tenor of the foregoing remarks, but he has argued that it is economic statistics, or more generally quantitative economics, which generates a radical political viewpoint. And I in turn believe that this view is precisely wrong.

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The quantitative, or better, empirical study of economic life is the only way in which one can get a real feeling for the tasks and functioning of an economic system. The completely formal theorist does not know the range or subtlety of the economic problems that arise each day, for a man is not as resourceful or imaginative as a society of men. The formal theorist therefore has a much simplified picture of the world and of the complexity of the scientific theorems required to explain its operation. He fails to realize the extent to which the successful explanation of the workings of the economy demands an enlarged scientific technique, judgement, and information, whereas the experienced empirical worker has had the complexities of the economy burned into his soul. It is not a coincidence that the theorists who have turned socialist or communist have usually been completely abstract theorists, and the more radical wing of the New Dealers was not distinguished for its empirical knowledge of the American economy.38

Interestingly, Mises himself made an almost identical accusation in the other direction, that is that it is the Austrians who see the ‘range and subtlety’ of human action, and the practitioners of econometrics like Stigler who create a ‘rigid system’ that is ‘not peopled with living men making choices and liable to error; it is a world of soulless unthinking automatons; it is not a human society, it is an ant hill’.39 My own view is that Mises is correct that empiricism has its limits. Take Stigler’s final claim that rationalism leads to radicalism: we might easily begin thinking of counterexamples from history. The utilitarianism of Jeremy Bentham and John Stuart Mill, for example, was the handmaiden to socialism. From Stigler’s own point of view, the most problematic example would be that of Sir John Cowperthwaite, the mastermind behind the phenomenal growth of Hong Kong from the 1960s onwards (see Chap. 2), arguably the closest thing the world has seen to a perfect laissez-faire liberal order. Almost at the same time as Stigler was writing, Cowperthwaite famously suppressed all attempts to collect macroeconomic data because he was convinced that it would lead to political agitation.40 If Stigler was correct, then why did Cowperthwaite do that? The point here is not insisting upon whether Mises or Stigler was correct about whether rationalism or empiricism leads to greater radicalism—I am sure every form of thinking has the capacity to produce its radicals—but rather that where there is an argument evidence to back it up can usually be found.

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And as we saw with the Ricardian ‘wheat wages’ in Chap. 5, the same data can be used to support completely contradictory arguments. The strength of a priori reasoning—the economist’s method—as we have seen throughout this book is that it can isolate causal factors in situations where empiricists become bogged down by ‘The “Complex” Complex’.41 Nassau William Senior’s a priori insight that ‘Corn does not become dear because a portion is raised at a great expense, but a portion is raised at a great expense because corn has already become dear’42 destroyed David Ricardo’s Theory of Wages in a single sentence. No amount of studying fluctuations in wheat prices could provide this insight. In fact, one of Chicago’s preeminent economists and Stigler’s protégé, Thomas Sowell, produced one of the best arguments against relying only on empiricism that has ever been written: 1. All statements are true, if you are free to redefine their terms. 2. Any statistics can be extrapolated to the point where they show disaster. 3. A can always exceed B if not all of B is counted and/or if A is exaggerated. 4. For every expert, there is an equal and opposite expert, but for every fact there is not necessarily an equal and opposite fact. 5. Every policy is a success by sufficiently low standards and a failure by sufficiently high standards. 6. All things are the same, except for the differences, and different except for the similarities. 7. The law of diminishing returns means that even the most beneficial principle will become harmful if carried far enough. 8. Most variables can show either an upward trend or a downward trend, depending on the base year chosen. 9. The same set of statistics can produce opposite conclusions at different levels of aggregation. 10. Improbable events are commonplace in a country with more than a quarter of a billion people. 11. You can always create a fraction by putting one variable upstairs and another variable downstairs, but that does not establish any causal relationship between them, nor does the resulting quotient have any necessary relationship to anything in the real world. 12. Many of the ‘abuses’ of today were the ‘reforms’ of yesterday.43

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Readers may well have noticed that I have not been averse to using statistics throughout this book, including throughout this chapter on Austrian economics. These are always intended to be illustrative—which is to say that I have made no arguments that are contingent on such statistics being true. Facts and evidence can only ever get one part of the way, but without reason and logical argumentation we will get nowhere at all. One consequence of Mises’s rigorous logic is his insight that there are only two ways of allocating resources: to trade or to do it by force. The former—only trade—is capitalism or the free market. The latter—only force—is pure socialism.44 Some people argue that there is a middle road between these two, but Mises showed that this simply leads to socialism by increment. He uses the milk industry as one example.45 There are numerous sellers in the market at different price points. The government decides that the price of milk is too high; they want more poor children to have milk and so decree that the maximum price of milk must now be only two gold pieces. The result is that the marginal producers of milk, those producing at the highest cost, now incur losses. As no individual farmer or businessman can go on producing at a loss, these marginal producers stop producing and selling milk on the market. They will use their cows and their skill for other more profitable purposes. They will, for example, produce butter, cheese, or meat. There will be less milk available for the consumers, not more. Hence, to fix the problem it created in the first place, the government will be moved to pass a second decree, and a third one, and a fourth one, and so on—until the market becomes more and more hampered by rules and regulations until we slide into total socialism. This brings us neatly to his critique of socialism itself. Up until Mises was writing in 1920, the standard critique of socialism from the economics profession had been that it does not properly consider incentives, and so will fail on the basis of human nature. Mises, however, came at the problem from a totally different angle. He said that socialism was destined to fail because, in the absence of a price system, central planners would not be able efficiently to allocate the factors of production in complex supply chains.46 To explain this, consider how this is done under a free market. At the bottom of the price structure we have consumer goods and a set of consumer prices—the stuff you and I buy at the supermarket.

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But each one of those goods is made of various producer goods that have price points in the chain of production. In order to make a profit, we know that the per-unit cost of each of those consumer goods must total less than the final price of the consumer good. These price points emerge in the market in a complex network of exchanges. Let us pick out the producer and seller of an intermediary good, for example, baking soda. This is a resource which has alternative uses. It can be used to make toothpaste, or bread, or some other good. The baking soda producer knows how to allocate this resource based on the demand from the various producers of the consumer goods. Let us say the baker wants more than the toothpaste maker, and so he buys a bigger bulk load at a lower per-unit cost. He ends up with more baking soda than the other producers. In his own production process, therefore, he can calculate exactly what his daily costs will be. Planning to sell 150 loaves of bread, he works out a per-unit cost of 0.52 gold pieces. He wants to make around 1 gold piece profit on each loaf, so sets 1.5 gold pieces as his price. He ends up selling 138 loaves, so does not make as much as he was planning, but he still makes 129 gold pieces. Not a bad day’s business. In the next week, word of this chap’s bread gets around and now demand has increased. He sells out all 150 loaves and ends up turning people away. Our baker thinks he can gain from this increased demand and—given that he cannot yet afford the 4000 gold pieces it would take to buy a new oven to increase his production capacity—he raises his price to 2 gold pieces per loaf. This booming trade and the new higher price send a signal to entrepreneurs that there is money to be made here, and soon enough another baker enters the market and undercuts our first baker to try to get a piece of the action. And should demand grow, soon enough there would be a third baker, until the average cost per loaf starts to fall again as the total demand for bread is met by supply. And this takes place across the board up and down the production chain across thousands and thousands of products in the economy. Imagine doing all this with no prices. The complex network of exchanges from which these prices emerge is now gone. Instead it is now up to a commissar to decide exactly how much of each product at every stage of production must be made. In the complete absence of all information, the commissar can only guess. He might have an idea that bread

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is important and so commands 1000 units should be made. And from this he could, I suppose, work backwards, and work out how many intermediary goods he needs. Remember that on the market, intermediary goods are allocated through a series of bids and exchanges. But when centrally planning, this must be done categorically. Maybe in this case the commissar decides bread is more important than the other uses of baking soda. Of course, because the commissar has simply guessed the level of demand, this might lead to the severe overproduction or underproduction of the goods. He can react to this the next day, but by then it is already too late since he has already invested in all the capital goods required to make, for example, bread at 1000 units per day. The equipment and workers set up for this purpose are simply wasted. However, this was not exactly Mises’s argument—his point was much subtler. He granted the commissar superhuman powers of knowledge and imagined he knows the exact preference scales of all of the consumers in the economy. He knows that today the consumers want exactly 138 units of bread and exactly 124 units of toothpaste and so on. Even in this case, the commissar comes up against some severe problems. For example, what if there are fluctuations in demand? On the free market, entrepreneurs allocate capital to produce a good with increased demand using the prices of bread and profits of bakers as a signal to get into that market. But what would our commissar do in the same circumstances? He could surely recognise a rise in demand, but now he has to go back and calculate a mind-bogglingly complex set of numbers—how many ovens do they need? How much baking soda is needed? How many farms are needed? How will this affect the supply of baking soda to toothpaste production? How much steel is needed to make the tractors to plough the fields of the farms? All these numbers need to be adjusted to reflect the new reality. I have just outlined a few products here and, even then, I have massively shortened and simplified the production chain. Doing this for the tens of thousands of goods and production processes in the entire economy gives some sense of the socialist calculation problem. But that is not all. Even imaging that, somehow, the commissar could do this, the next problem is how to deal with changing technology and changing tastes. We do not live in an evenly rotating economy, we live in a world of uncertainty and constant change. So, when a new technology

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comes through, in the market, producers can assess exactly how efficient that technology will be versus the alternatives. There are three different methods of producing 150 units of bread a day. Which one is the most efficient? The cost-per-unit price tells us that the super oven is better than the less-advanced oven, which, in turn, is better than using a less capital-­ intensive and more labour-intensive method. But take the prices away and how do we know which method is most efficient? We are faced with the same number of units and the same amount of time—so all three methods look equally efficient. The commissar would never know. He also faces a real problem when there is a consumer demand for some new technology. He has just managed to get some semblance of the rest of the economy planned, and now some new thing comes along. How many should be made? How many factories should be built? How much steel should we take from elsewhere in the economy to reallocate to this? He has absolutely no way of knowing. Whereas, in a market economy, all these questions are answered by entrepreneurs and capitalists. The key issue, then, is the question of appraisement.47 Central planners recognise the function of the manager, but they do not recognise the vital role played by entrepreneurs and capitalists in capital allocation and price formation. Thus, to use Mises’s phrase, a truly socialist economy is ‘impossible’. At the time, many socialists seized on this word ‘impossible’ and tried to answer Mises by pointing out that the Soviet Union was up and running and appeared to be functioning, even if it was inefficient. But Mises made the ‘much under-emphasised point’ that the USSR was using Western prices as a basis for its system, sold exports to market economies, and used consumer prices in its own economy—so it stands to reason that they would just be a very inefficient economy rather than an impossible one.48 One soviet economist famously joked that even if communism were to take over the world, they would leave Hong Kong there just to steal its price index. However, in the real-world USSR, we saw many examples of what Mises was talking about. Notoriously, the managers of the nail factories were given a weight quota, and so to meet their targets as soon as possible they simply made bigger nails which were useless for construction. Similarly, in the late 1950s there was an epidemic of people being killed by chandeliers falling on their heads because the managers of the chandelier factories likewise were making them as heavy as

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possible to meet a weight quota.49 Even more tragically, the USSR produced a food shortage in the 1980s by allocating too many workers to manufacture tractors and not enough to transporting diesel or to harvest wheat. They had fields full of unharvested wheat and rusting tractors while people were starving. Even worse, in 1917, after the revolution, Lenin and the Bolsheviks attempted to run Russia without prices of any kind. Things disintegrated very quickly, and people reverted essentially to scavenging. They had to break up and burn family heirlooms for fire wood. Many people starved. Incidentally, although the calculation problem was first levelled at socialism, Mises later noted that this would in fact be a problem for any monopolistic firm which came to dominate all the production factors in a given industry, what he calls ‘vertical concentration’.50 He expands on this in Bureaucracy (1944).51 This is perhaps why large companies today use internal billing or intercompany recharges—I am sure many readers with experience of working at a large firm will know how inefficient some of those internal processes are. Let us turn our attention now to another of Mises’s great insights: Austrian Business Cycle Theory, outlined in his book The Theory of Money and Credit (1912). Menger had explained the origin of money as arising spontaneously from the need for a medium of indirect exchange to solve the problem of the double coincidence of wants. In fact, historically the barter economy has never actually existed for this reason, virtually all known economies had always already developed money. Mises went far beyond Menger, however, in analysing the various functions of money. Once it is established as a medium of exchange, it can only serve four secondary functions: a store of value, that is money in your pocket or in the bank, means of payment—paying for something today—or means of deferred payment—paying for something in the past or the future, and finally to establish concrete prices used for economic calculation.52 Mises notes that as well as money in the narrow sense—that is commodity money like gold, credit money (essentially IOUs) and fiat money which is issued by a government. This is what we have in virtually every country today. Then there are a number of money substitutes—certificates and tokens—which can be fully covered by real money or uncovered.53 And Mises was particularly concerned with the role of uncovered

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substitute money which he called fiduciary media. In short, Mises identified credit expansion as being a hidden form of inflation, especially in fiat-money systems in which the government treasury uses bank loans as a way of issuing new money. The first receivers of the new money are the ones who profit at the expense of everyone else. I outlined much of this in my discussion of Richard Cantillon in Chap. 4. The reason why Mises recognised this, and many modern economists do not, is because they use aggregate measures rather than methodological individualism and therefore ‘miss’ what is happening under the surface. Crude macroeconomic measures such as GDP or the total money supply cannot capture what is happening on a microeconomic level. They also forget about the role of time. Expansionary credit of this sort can, according to Mises, create the intertemporal misallocation of resources. If the interest rate is artificially lower than where it should be, cheap credit can cause entrepreneurs to invest in risky projects that take longer to pay off. Let us pretend that Bob takes a low-interest loan and invests it in building a house. This house is going to take at least ten years for Bob to see a return on investment. It is possible that the constructors will run out of building materials, or there will be some change in the economic environment, and this investment will never pay off. In that, this scenario is likely. But Bob feels bullish, for whatever reason, he believes he cannot fail. The increase in fiduciary media can induce entrepreneurs like Bob to make these sorts of mistakes; it can lure them into investing in projects that will take too long to pay off. And when this starts to happen systematically, right through an industry or even the whole economy, we have conditions for a boom and bust cycle to occur. Systematic entrepreneurial error on a wide scale. This exact scenario, in fact, happened in Ireland, Spain, and right across Europe in the 2008 crisis. One issue here is that the cheap credit has induced entrepreneurs to start too many investment projects. From a macroeconomic point of view, there simply are not the resources to complete all the projects that were started. A higher interest rate would have stopped most of these investment projects from starting in the first place, and it would increase the chances of those ones which were started of being completed. As Mises himself puts it,

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Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand.54

To refer back to Table 6.1 with which I started this chapter, virtually no one in government or in the economics profession has gotten this memo. In fact, at the time of writing, government bond yields across Europe have seen a negative interest rate for a record number of months. German bonds at −0.7% at a time where the average German mortgage has a rate is only 1.85%. If all such yields reduce to zero, it is the end of the market economy.55

F.A. Hayek The contributions to economic theory of F.A. Hayek (1899–1992) are chiefly in his development of Austrian capital theory and the theory of the business cycle, and, then, what has become known as the ‘knowledge problem’. The capital theory and business cycle theory are outlined in Monetary Theory and the Trade Cycle (1929) and Prices and Production (1931). Most of the key essays concerning the knowledge production are collected in Individualism and the Economic Order (1948). I think it is fair to say that Hayek rigorously synthesised the capital theory of Böhm-­ Bawerk with the monetary theory of Mises in a language that was more readily digested by the rest of the economics profession. In the 1930s, Hayek was dismayed by the sort of macroeconomics that was becoming en vogue in both America and Britain. In America, his targets were the now mostly forgotten duo of William Trufant Foster and Waddill Catchings who wrote a book called The Road to Plenty (1928) which Hayek would later lampoon in the title of The Road to Serfdom (1944).56

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Much of Hayek’s capital theory is an elaboration designed to refute the ideas of these economists. There were fierce debates at this time, and it was in this context that Hayek wanted to explain in the clearest terms the Austrian theory of capital, price formation, and how these things relate to the business cycle. In what follows, ‘original means of production’ means land and labour, ‘consumer goods’ means finished products bought by consumers, and ‘producer goods’ means intermediate products bought by manufacturers.57 To help describe the Austrian theory of capital, Hayek devised this diagram (Fig. 6.4), what is known today as a Hayekian triangle. I have followed Roger Garrison in rotating it 90 degrees so that time runs from left to right. On the far left of the diagram, there is the original means of production. On the far right, there is the output of consumer goods, which are bought by all the people in the economy. The distance from left to right is the time it takes to make the total amount of consumer goods. The numbers on the diagram do not refer to quantities but to prices—imagine them as referring to gold pieces. The bars on the chart refer to various intermediate goods which are used to produce consumer goods. This does not refer to one firm, but we are looking at all the firms in the economy. When you are looking at these numbers, one must imagine thousands of producers of various intermediate goods and millions of people as both the workers for these producers and as the consumers at

Fig. 6.4  Hayekian triangle

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the other end. Conceptually—you must imagine that all of the workers are also all of the consumers—that is, the people engaged in the producer functions are also always engaged in the consumer function. Think about yourself at work and then yourself at the supermarket. In one role you are working for a producer, in the other role you are a consumer. All people in the economy with jobs are also at the same time consumers—one might think of Say’s Law as discussed in Chap. 5. These numbers represent the total amount spent on production by all of the producers of each factor of production. Finally, Hayek assumes for analytical purposes that we are in an evenly rotating economy. That means that the forty gold coins spent on consumer goods, thirty-two on the first factors of production, twenty-four on the second factors, and so on are also spent in week 2 and in week 3 and week 4. Working at this level of abstraction, it is obvious we are in the realm of macroeconomics. However, it was precisely because of the way macroeconomics was being done by the likes of Foster and Catching, and by Keynes, that Hayek had a problem. Foster and Catchings had written a book called The Dilemma of Thrift (1926) in which they argued that savings can be harmful to an economy because they can lead to ‘underconsumption’.58 In his Treatise on Money (1930), Keynes agreed.59 This created a problem because in order to invest in capital goods—new machinery, new workers, new intermediate goods for the production process—savings are necessary. So, this creates a dilemma because if money is taken out of the total money supply by producers for the purposes of investment, it means that there is less money to be spent on consumer goods. What would be the point of investing as a producer if you are going to end up with less money and less sales because of the underconsumption you have caused with your saving? Ultimately, they argued that in order to give an incentive for producers to invest more without producing this ‘underconsumption’ effect, the government needs to release more money into the total supply so that there is no decrease in consumption. It was this to which Hayek objected most. And herein comes our diagram. Let us pretend that the money supply is fixed—that is, there is no new money in this system, no central bank that can print more. The producers decide to take ten gold pieces from the general spending on consumption and to allocate it instead on new stages of

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Fig. 6.5  Investments causing permanent changes to the structure of production

production. Now those ten gold pieces are being spent in the production of intermediary goods and not on consumption (Fig. 6.5). Therefore, on the face of it, Foster and Catchings, and Lord Keynes, are right—there is less money being spent on consumption. But Hayek points out that because the production process is now more capitalistic and roundabout the total amount of bread will increase even though the total amount of money spent on bread has been reduced from forty to thirty. The per-unit price to the consumer, therefore, will naturally come down. For Foster and Catchings, and Keynes, this is bad because they have—following Irving Fisher—the idea that deflation is bad, but Hayek argues that this is a nonsense. The consumers now get more consumer goods for less money: how can this be bad? All that has happened is that the relative quantities of bread and money have changed. The ten gold which consumers would have spent on bread is now spent somewhere in the production chain to produce twenty extra units of bread. One may well ask, why would any of the producers do this? But remember that neither the total amount spent on bread as a whole nor the per-unit price of bread matters at all to the individual bread producing firm—those firms care about their market share relative to all the other bread producers. So even in this fixed economy, the producer who invests in more capitalistic and roundabout processes before his competition may well end up taking a bigger piece of the market with his more efficient

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processes. It does not matter to him if the total price is forty gold coins or thirty gold coins, what matters how many gold coins are spent with him relative to all the others. In this way, Hayek shows up the limitations of macroeconomic theory only using aggregate statistics or average prices— these, he says, can tell you nothing about what is really happening in the economy. And it can lead to errors such as thinking that savings are harmful. To show what he means, Hayek then takes his model and demonstrates what would happen if the Keynesian plan of simply giving new money to the producers were enacted (Fig. 6.6).

Fig. 6.6  Keynesian plan enacted on Hayek’s model

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The government hands the producers forty extra gold pieces to make their investments. The per-unit cost of the consumer goods would still come down but remember that money spent on the new producer goods must be reinvested year after year. In the case where the investment is made through genuine savings, the change to the structure of production is permanent because the money has been permanently taken out of the stock of consumer spending. So, all other things remaining equal, we get an evenly rotating situation year after year. However, in the case where new money was simply handed to the producers, who saw an increase in their revenue (and profits), the change in the structure of production was induced by an artificial cash injection by government and therefore only temporary. In time, the money given to the producers would filter back to the consumer side. The total stock of consumer spending increases, but it can only increase at the expense of producer spending. Therefore, the structure of production necessarily regresses becoming shorter and less capitalistic, less roundabout over time. The new equipment bought solely for the longer process is lost. What about the plan of Foster and Catchings, which is, instead of giving the money to the producers as in Keynes’s plan, giving it directly to the consumers? Here the producers have already saved and invested as per our original scenario, but the consumers are handed fifteen extra gold coins, so total spending is now forty-five. Hayek says this would frustrate the gains made from savings and would result in a reversion to a less capitalistic structure of production because the ratio of producer spending to consumer spending has not changed. For these reasons, Hayek viewed monetary intervention by government as being nearly always bad. Whether you give the money straight to producers or to consumers, it creates malinvestments, less capitalistic production processes, and exacerbates the severity of the business cycle. Where Mises focused on the effects of credit expansion, Hayek specifically looked at the role of government invention and engaged in debate with contemporary economists. In much the same way, Hayek developed what is known today as the knowledge problem in response to the chief socialist response to Mises’s calculation problem.60 If you recall, Mises said that even with perfect knowledge of value scales, socialism would run into the problem of

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calculating exactly which technology to use because of the absence of prices. The Polish Economist, Oskar Lange, essentially conceded this point to Mises, but then argued that central planners could essentially simulate the market internally using trial and error, and therefore simulate pseudo-­prices which they could use in lieu of actual prices. Lange famously joked that a statue of Mises be given a place of honour by the socialist Central Planning Board for his insights.61 Hayek’s response was to say that what Lange suggests is impossible because the statistics on which central planners would have to rely cannot capture the local knowledge of particular times and places, and because knowledge is always dispersed among the millions of people in any given economy. Imagine you are an investor looking to open a new restaurant in a town by taking over an existing site. The data tell you that based on the last three years of business, these four sites have the following footfall and average spend per person (Table 6.5). Those of you with quick arithmetic will have worked out that site D will make the most money, followed by B, followed by A, while C makes the least money. Therefore, you should invest in D, correct? But the calculus may change if we ask some further questions. What does the surrounding area look like? What does the typical customer look like? How safe is the area? What parking facilities are nearby? How far away is the local market? Some or all these factors may well affect your final decision. One may try to collect data on all this, gathering more and more numbers, but the point is that these restaurants as they exist right now serving the sorts of meals they do are perfectly honed to their local markets in a way that could never come about by explicit design, they emerged from their particular local settings. Of course, in the real world, all these local factors will be expressed in the relative costs of the different restaurants which we could see in money prices. Perhaps Restaurant A must pay a Table 6.5  Footfall and average spend per person Site

Footfall

Average spend per person

A B C D

200 250 150 400

$5 $4.5 $6 $3

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premium for being in the middle of a pedestrian zone, and Restaurant D faces increased costs for security and insurance for being in a higher crime area, whereas Restaurant C keeps down its transport costs from being located very close to the market. Now we have these costs against each restaurant it is easier for us to decide. And this is one of Hayek’s central insights: prices convey information even if we know nothing else. We do not need to know anything else about Restaurant D other than its daily costs to know that there is some reason for us to avoid taking over that site. To use another example, imagine a baker. He has got one supplier of wheat that he absolutely swears by. He has never met this supplier in person; he does not even know where the farm is: he just likes this variety which he purchases at the local market. But let us say that miles away, the farm gets struck by some freak weather event drastically reducing the stock. This will naturally affect the price of the wheat and, without knowing anything else, the baker can switch to another variety of wheat. Now what if the reduction in supply is so big that it affects wheat prices across the board? In such a scenario, the baker might switch to a substitute good like rye or barley. Perhaps the baker might even buy a bit of both to see which customers like best while wheat bread is too expensive for most. In this way, producers and consumers alike can use price signals to adjust their decisions in response to changing circumstances as if they had full knowledge of those circumstances. Thus, millions of individuals with disparate and dispersed knowledge can coordinate their activities in the spontaneous order of the free market.

Murray N. Rothbard Murray N. Rothbard (1926–1995) kept the flame of the Austrian School alive during its darkest hours in the 1960s. In his political writings, he was a staunch Lockean distilling all legal questions to a matter of property rights in For A New Liberty (1973) and The Ethics of Liberty (1982) while outlining his vision for a total free society—that is, an anarcho-­ capitalist one in which the state has been completely abolished. He was chiefly an economic historian focusing on key episodes in American history such as The Panic of 1819 (1962) and America’s Great Depression

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(1963) or the history of banking, as in The Mystery of Banking (1983). I am more concerned here, however, with his work purely as an economic theorist. Rothbard’s economic contributions are confined to his masterpiece of Austrian synthesis Man, Economy and State (1962), its sequel Power and Market (1970), and the essays collected in The Logic of Action (1995) now published as Economic Controversies. For the most part Rothbard was a strict disciple of Ludwig von Mises but developed his thought in two crucial areas. The first is in the area of production theory and especially cost theory, which was underdeveloped in Mises, and the second is his distinctive theory of monopoly, which is somewhat influenced by Jean-Baptiste Say. To understand Rothbard’s production theory, first we need to understand what he was disagreeing with, namely, the neoclassical view of price formation. Neoclassical economists view production in a firm a little bit like a black box. Inputs go in, and these are the firm’s costs. Outputs come out and these generate the firm’s revenue. The price must be set above the costs in order to make a profit. This view is chiefly derived from Alfred Marshall, who famously used the analogy of a pair of scissors. Prices he said are determined by two blades of the scissors: on one blade there are the subject values of customers, on the other there are the objective real costs of production. In the short run, it is the consumer tastes and the overall level of demand that determine the price, but in the long run, when the market becomes more settled, the costs of production emerge as the real factor determining the price.62 In this way, Marshall ‘saved’ the classical economists such as Adam Smith, David Ricardo, and John Stuart Mill from the onslaught of the Marginal Revolution and the subjective theory of value. That is, he found a way to smuggle a new version of the Labour Theory of Value back into his cost theory. As per my discussion of Ricardo in Chap. 5, this is hopeless. Costs are determined, in the final analysis, by consumer demand. On the face of it, Marshall’s scissors seem like common sense. Surely the costs of production do determine the price? If one looks at data adjusting for inflation, Marshall seems correct that price fluctuations settle down and hover just above the cost of production. One can see this by looking at a comparison of British consumer prices from 1973 compared with prices from 2019 (Table 6.6).63

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Table 6.6  Comparison of British consumer prices from 1973 compared with prices from 2019 Cost 1973

Allowing for inflation

Typical price today

White sliced loaf 28oz Wall’s back bacon 7½oz John West red salmon 7½oz Fairy Liquid 14½ fl oz

10p 34p 37½p

86p £2.92 £3.22

£1.00 (800 g) £2.00 (200 g) £3.50 (213 g)

15p

£1.29

McDougalls self-raising flour 3lb Maxwell House coffee 4oz Wall’s pork sausages ½lb Ariel (washing powder) 18oz Del Monte tinned peaches 15½oz Tate & Lyle sugar 2lb Birds Eye peas 10oz

15p

£1.29

£1.50 (500 ml) (an equivalent size would be £1.22) £1.00 (1.5 kg)

32½p

£2.80

£1.00 (95 g)

14p 17p

£1.20 £1.46

12½p

£1.08

£1.00 £7.00 for 2.6 kg (equivalent quantity −£1.35) £1.10

10p 10½p

86p 90p

6½p 8p

56p 69p

8p

69p

Item

Stork margarine ½lb Heinz tomato soup 15¼oz Ty-Phoo tea (loose) ¼lb

69p for 1 kg £1.30 for 375 g (equivalent quantity 97p) £1.20 95p for 400 g

Kellogg’s cornflakes 12oz 11p

95p

Heinz baked beans 15¾oz McVitie’s milk chocolate home wheat biscuits 8oz Anchor butter ½lb A dozen standard white eggs New Zealand frozen lamb 4lb

7½p

65p

£2.29 for 250 g (equivalent quantity £1.03) £2.00 for 720 g (equivalent quantity 95p) 75p for 415 g

11p

95p

£1.60 for 266 g

10½p 14p

90p £1.20

£1.93

£16.60

£1.65 for 250 g £1.69 (medium free range, Tesco) £13.50 Sainsbury’s New Zealand Whole Leg of Lamb 1.8 kg

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Of course, these numbers do not tell the whole story: the total British workforce in 1973 was around 21.3 million and they were mostly men supporting a family on one wage. The average wage adjusted for inflation using today’s money was £475. In 2019, the workforce is 32.75 million and both men and women work, very often bringing home two wages for the household. The average wage is £532. Total consumer demand is around 53.75% higher today than it was in 1973. So, what does this tell us? The real prices of those goods, by which I mean their relative costs to the total amount of consumer income has dropped, even though it looks like they have stayed relatively constant. In 1913, a loaf of bread was about 0.94% of average weekly wages; in 1973 that figure had fallen to 0.18% of weekly wages. In 2019, for a man supporting a family alone it has risen very slightly to 0.19% but when you consider that it is much more normal for two parents to be working now, the figure for the household is more like 0.094%. It is likely per-unit cost of production has come down as well in forty years. But this is clearly not the thing determining the prices. Consider the price of Stork margarine—it has doubled in price from 1973 to 2019. Why? It is because margarine was all the rage in the 1970s, but now butter has made a massive comeback. That means that there are fewer players in the margarine market, and it is more of a niche item, so the price has doubled. But undoubtedly the per-unit cost of Stork margarine—given forty years of technological development and capital investment—is less now than it was in 1973. A clear-sighted causal analysis shows that it is only supply and demand determining the price, not the production cost. Anyway, this is not the sort of analysis Rothbard made himself.64 To combat Marshall’s scissors—which endures to this day in neoclassical economics—Rothbard combined Böhm-Bawerk’s intertemporal structure of production with Frank Fetter’s Pure Time-Preference Theory of Interest. And then applied it to the Marginal Productivity Theory which had been developed by John Bates Clark in the USA and Phillip Wicksteed in the UK (more on him in Chap. 7). First, remember that interest accrues because one party is selling a present good—money in exchange for a future good, money in three months’ time. A present good, let us say, a fish, will always be worth more than a future good, the prospect of a fish in one week. Let us return to the baker from my discussion of Mises

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above. As you will recall he was pumping out 150 loaves of bread a day and he had worked out his costs. But how are these costs determined? In his role as the buyer of the factors of production, the baker is purchasing the prospect of future goods with a present good, money. In his role as the seller of bread, he is selling a present good—bread—in exchange for a present good—money. He hopes to sell all his bread to make 225 gold pieces in revenue (1.5 gold pieces per-unit sale price). From this he can work backwards to figure out how much he should be spending on each of his factors of production. The fixed capital—the oven, which cost 4000 gold pieces originally—that is money simply forsaken. He has invested that money which can only get ‘back’ through sales. His other costs—on the variable capital, the ingredients for the bread and the labour—are much like this as well, but he has to work those out on an ongoing basis—that is, he has to keep paying workers, buying flour, and so on, from day to day and week to week. To make 150 units, he knows he needs two workers, ten packs of flour, and ten packs of baking soda. A formula like this:

2A + 10 B + 10C = 150 units = 225gp

where A is the workers, B is the flour, and C is the baking soda. He can work out the marginal revenue product of each factor by isolating it. For example, if we take out the second worker, we can see that the first worker is helping to generate 120 gold pieces.

1A + 10 B + 10C = 150 units = 120gp

The first worker therefore can be paid no more than 120 gold pieces and the second worker no more than 105 gold pieces. Likewise, we can do the same with the tenth unit of flour.

2A + 9B + 10C = 135 units = 202.5gp

By removing this we can see that 22.5 gold pieces of potential revenue will be lost, and it also makes the tenth unit of baking soda redundant reducing its marginal value to zero. The combined price, therefore, of the

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tenth unit of flour and the tenth unit of baking soda can be no more than 22.5 gold pieces. And so we end up with the real Marginal Revenue Product (MRP) of each factor. But remember, our baker is not going to be paying the full MRP for these factors because the revenue is only in prospect—that is, it is a future good, and he is paying for each of these things with a present good, money. Therefore, he will pay a discounted price for them—the Discounted Marginal Revenue Product (DMRP)— to compensate for the differing time preferences of himself and those he is paying for future goods.65 Now, whatever this discounted marginal revenue product will be is established in the market. The baker goes to the farmer for the flour and knows he wishes to pay less than 56.25 gold pieces for ten packs. The farmer will have a bottom price in mind unknown to the baker. They come to a deal. The baker gets the flour—a component for a prospective future good—for thirty gold pieces. The negotiation with the worker happens in exactly the same way. He is selling labour—a component for a prospective future good—rather than flour. And the baker has established on the market the actual prices for his DMRP. The baker will make a profit or a loss depending on the accuracy of his appraisal of future market demand for bread versus his judgement on what he should pay in DMRP. If no one wants his bread, its price is zero. If the market is slow and he must slash his prices in a sale to shift stock, its price may drop to below the total cost of production. It should be abundantly clear that it is not the cost of production determining the price. The MRP is the projected future revenue generated by one factor of production. The DMRP, meanwhile, is the lower price paid by the capitalist in present goods (money) for future goods (future revenue) for one factor of production. The capitalist also takes on entrepreneurial risk as the bearer of uncertainty (i.e. he could make a profit or loss). Cost of production does not determine the final price, which is always determined ultimately by the consumer. Finally, let us consider Rothbard’s monopoly theory.66 Let us stick with the trusted bread market and say there are four firms with roughly equal market share. One firm develops a new robot which can automate the kneading of dough. This means it can drop its per-unit price down to one gold piece. As per Hayek, this firm has permanently changed the structure of production by saving up and investing in this way. Note this is not

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cost of production determining price, because if you factor in the money the firm spent on the new robot, it has spent more on production than its competitors. Anyway, this low price helps the firm to lure away customers from the other bakery firms. It now has an 80% market share. Soon enough it can afford to drop to 0.75 gold pieces for a loaf of bread, and the other players are driven out of the market. The firm now has a 100% monopoly. Rothbard argues that there is nothing bad about this because consumers are getting great bargain prices—this is a monopoly of efficiency. They are the last firm standing because they had the best product at the best price. However, the firm becomes complacent and tries to sneak up the price in the thought that it now has the luxury of a monopoly, soon enough new competitors will enter the market to undercut it. The firm will gradually lose market share until there is a new market leader, which can sell at the old price assuming consumer preferences have not changed. Rothbard argues that, in this way, a monopoly can only sustain itself on the free market if it is truly an efficiency monopoly. Any attempt to ‘price gouge’ will be punished by competition, and examples from real history are plentiful in this regard. Rothbard’s favourite is James J. Hill, a railroad tycoon who single-handedly undercut and took down an entire cartel. And he did it through entirely peaceful means, legally buying land, laying track, and even ensuring that Native Americans agreed to it through trading with them—unlike the US government who later literally killed Native Americans who stood in the way of their plans.67 In any case, the only way for a monopoly to sustain itself, argues Rothbard, is through government intervention. For a true monopoly, a firm needs some mechanism of legally keeping other firms from entering the market. Rothbard outlines fourteen different methods by which this might be achieved: 1. Cartelisation 2. Production quotas 3. Licenses 4. ‘Quality’ standards 5. Tariffs 6. Immigration restrictions

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7. Child labour laws 8. Minimum wage laws 9. Maximum hour laws 10. Compulsory unionism 11. Conscription 12. Government penalties (e.g. anti-trust laws, opening hour laws, taxes) 13. Conservation laws 14. Patents To go back to our bread market. Imagine the government introduces a new bakery license which costs 10,000 gold pieces. The biggest players in the market might easily afford this, but the smaller players likely not. It will take potential new entrants into this market longer to save up now just to buy the license. The barrier to entry is significantly raised. Thus, market leaders consolidate their position and marginal players are driven out. The government might also decree that bread production must meet certain standards—and again this favours the existing market leaders who can afford to comply with this new demand. Similarly, a patent can be used to lock out competition and the legal costs or opportunity costs for gaining the knowledge to apply for one favour the larger firm. Governments often form committees and regulatory bodies and invite comments from the market-leading firms to ‘have their say’ on what they think might be done. Workers unions can agitate for higher payer and governments can come down on their side. Again, the biggest firms can pay but the marginal firms more than likely cannot. Not only will the larger firm absorb the cost, but with a captive market and to offset the new costs, they can also raise their prices. The regulatory barriers cushion the blow for them. Once these firms are big enough, they can lobby the government to give them special protections. Let us pretend that the new higher price of bread is causing cheaper foreign imports to be bought instead. As we saw in the nineteenth century in Chap. 5, the government can put a big tariff on the imports in a bid to ‘protect’ the large bread producers. And so these firms have an even more captive market and can raise prices if they so wish, protected from competition as they are. However, if they push it too high, this might result in government stepping in on behalf of the public and issuing a price control. Now there is

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a uniform price in the bread market and still only two brands to choose from, brands who have little to no incentive to innovate or invest when they can simply rake in money from virtually guaranteed sales of bread— assuming that consumers have not switched to some other product. If too many people get wind of this, there may be agitation for an anti-trust case to be brought against these government-created behemoths. Maybe one of them can afford to settle out of court, and the other one vows to fight in court. A case they will only ever lose. Now our firm has been trust busted and exists as three smaller regional companies. Still, the public is stuck with bread that is more expensive than it might have been. True monopolies must rely on violent government intervention to sustain.

Notes 1. Data adapted from Bank of England, ‘A Millennium of Economic Data’ (2016), available at: https://www.bankofengland.co.uk/-/media/boe/ files/statistics/research-datasets/a-millennium-of-macroeconomicdata-for-the-uk.xlsx. 2. See Robert Higgs, ‘Government Bloat Is Not Growth: Real Gross Domestic Private Product, 2000–2011’, Mises Wire (December 20, 2012), available at: https://mises.org/library/government-bloat-notgrowth-real-gross-domestic-private-product-2000%E2%80%932011. 3. Thorsten Polleit, ‘The ECB’s Renewed Attack on Free Markets’, Mises Wire (June 25, 2019), available at: https://mises.org/wire/ecbs-renewedattack-free-markets. 4. Milton Friedman, ‘Leon Walras and His Economic System’ (1955), in The Indispensable Milton Friedman: Essays on Politics and Economics, ed. Lanny Ebenstein (Washington, DC: Regnery, 2012), p. 141. 5. See John Richard Hicks, Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory, 2nd edn (1939; Oxford: Clarendon, 1946); Paul Samuelson, Foundations of Economic Analysis (1947; Cambridge, MA: Harvard University Press, 1983). 6. Alfred Marshall, Principles of Economics, 8th edn (1890; London: Palgrave Macmillan, 2013). 7. Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity and Poverty (London: Profile Books, 2013), p. 128.

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8. See especially Mark Thornton, The Skyscraper Curse: How Austrian Economists Predicted Every Major Economic Crisis of the Past Century (Auburn, AL: Ludwig von Mises Institute, 2018). 9. Carl Menger, The Principles of Economics, trans James Dingwell and Bert F.  Hoselitz (1871; Auburn, AL: Ludwig von Mises Institute, 2007), pp. 51–66. 10. Joseph T.  Salerno, ‘Menger’s Causal-Realist Approach in Modern Economics’, The Review of Austrian Economics, 23:1 (March 2009), p. 1. 11. This and subsequent paragraphs follow Menger, Principles of Economics, pp. 114–74. 12. Lionel Robbins, A History of Economic Thought: The LSE Lectures, ed. Steven G.  Medema and Warren J.  Samuels (Princeton, NJ: Princeton University Press, 1998), p. 272. 13. Menger, Principles of Economics, pp. 175–225. 14. Robbins, A History of Economic Thought, p. 269. 15. See Joseph, E.  Stiglitz, ‘Toward a General Theory of Wage and Price Rigidities and Economic Fluctuations’, American Economic Review, 89:2 (May 1999), pp. 75–80. 16. John Maynard Keynes, The General Theory of Employment, Interest, and Money (1936; New  York and London: Palgrave Macmillan, 2018), pp. 220–7. 17. See Paul Downward and Frederic Lee, ‘Post Keynesian Pricing Theory “Reconfirmed”? A Critical Review of Asking about Prices’, Journal of Post Keynesian Economics, 23.3 (Spring 2001), pp. 465–83. 18. See, for example, S. Hall, M. Walsh, and A. Yates, ‘Are UK Companies’ Prices Sticky?’, Oxford Economic Papers, 52:3 (July 2000), pp. 425–46. 19. The Coca-Cola Company, ‘Annual Reports to Stockholders’, in Coca-­ Cola Collection, 1912–1990, Manuscript Collection, No. 620 (Atlanta, GA: Emory University, 1990), box 3: ‘financial’. 20. Ibid. 21. Eugen Böhm-Bawerk, Karl Marx and the Close of His System, ed. Paul M. Sweezy (1896; New York: Augustus M. Kelley, 1949). 22. Menger, Principles of Economics, pp. 67–70. 23. Frank Fetter, The Principles of Economics with Applications to Practical Problems (New York: The Century Co., 1904), pp. 131–70. 24. Eugen Böhm-Bawerk, Capital and Interest, trans. George D. Hunke and Hans F. Sennholz, 3 vols (1884; South Holland, IL: Libertarian Press, 1959), vol 2: The Positive Theory of Capital, pp. 290–301.

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25. Ibid., pp. 79–94. 26. Ibid., p. 354. See also Eugen Böhm-Bawerk, ‘Control or Economic Law?’ (1914), in Shorter Classics of Eugen Böhm-Bawerk, Volume 1, ed. Hans F. Sennholz (South Holland, IL: Libertarian Press, 1962), pp. 139–200. 27. Robbins, A History of Economic Thought, p. 316. 28. Ludwig von Mises, Human Action: A Treatise on Economics (New Haven, CT: Yale University Press, 1949), p. 13. 29. Murray N.  Rothbard, ‘Praxeology: The Methodology of Austrian Economics’ (1976), in Economic Controversies (Auburn, AL: Ludwig von Mises Institute, 2011), pp. 59–80. 30. Adapted from Hans-Hermann Hoppe, Economic Science and the Austrian Method (Auburn, AL: Ludwig von Mises Institute, 1995), pp. 14–15. 31. David Card and Alan B. Krueger, ‘Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania’, American Economic Review, 84:4 (September 1994), pp. 772–93. 32. Peter T. Leeson and Peter J. Boettke, ‘Was Mises Right?’, Review of Social Economy, 64:2 (June 2006), p. 248. 33. Peter G.  Klein, ‘The Mundane Economics of the Austrian School’, Quarterly Journal of Austrian Economics, 11:3 (December 2008), p. 168. 34. Karen I.  Vaughan, Austrian Economics in America: The Migration of a Tradition (Cambridge: Cambridge University Press, 1994), p. 17. 35. Ludwig von Mises, ‘The Controversy Over the Theory of Value’ (1932), in Epistemological Problems of Economics, trans. George Reisman (1933; Indianapolis, IN: Liberty Fund), p. 194. 36. Ibid., p. 196. 37. Lionel Robbins, An Essay on the Essay and Significance of Economic Science, 2nd edn (1932; London: Macmillan & Co., 1945). 38. George J. Stigler, ‘The Politics of Political Economists’ (1959), Essays in the History of Economics (Chicago, IL: University of Chicago Press, 1965), p. 61. 39. Mises, Human Action, p. 249. 40. Neil Monnery, Architect of Prosperity: Sir John Cowperthwaite and the Making of Hong Kong (London: London Publishing Partnership, 2017). 41. Thomas Sowell, The Vision of the Anointed: Self-Congratulation as Social Policy (New York: Basic Books, 1995), p. 87. 42. Nassau William Senior, ‘Report—On the State of Agriculture’, Quarterly Review, 25:2 (July 1821), pp. 475–6. 43. Sowell, Vision of the Anointed, pp. 102–3.

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44. Ludwig von Mises, Liberalism: In the Classic Tradition, trans. Ralph Raico (1927; San Francisco, CA: Cobden Press, 1985), pp. 60–104. 45. Ludwig von Mises, ‘Middle-of-the-road Policy Leads to Socialism’ (1950), in Planning for Freedom: Let the System Work, ed. Bettina Bien Greaves (1952; Indianapolis, IN: Liberty Fund, 2008), pp. 41–52. 46. Ludwig von Mises, Socialism: An Economic and Sociological Analysis, trans. J. Kahane (1922; New Haven, CT: Yale University Press, 1951), pp. 113–21. 47. This point is particularly emphasised by Joseph T. Salerno, ‘Postscript: Why a Socialist Economy is “Impossible”’, in Ludwig von Mises, Economic Calculation in the Socialist Commonwealth (1920; Auburn, AL: Ludwig von Mises Institute, 1990), pp. 51–71. 48. Norman P. Barry, On Classical Liberalism and Libertarianism (London: Macmillan, 1986), p. 73. 49. Henry Hazlitt, ‘Private Ownership: A Must’ (1967), in The Wisdom of Henry Hazlitt, ed. Hans F.  Sennholz (New York: The Foundation for Economic Education, 1993), p. 84. 50. Mises, Socialism, p. 371. 51. Ludwig von Mises, Bureaucracy (New Haven, CT: Yale University Press, 1944). 52. Ludwig von Mises, The Theory of Money and Credit, trans. H.E. Batson (1912; Indianapolis, IN: Liberty Fund, 1981). 53. Jörg Guido Hülsmann, Mises: The Last Knight of Liberalism (Auburn, AL: Ludwig von Mises Institute, 2007), p. 216. 54. Ludwig von Mises, ‘The Causes of the Economic Crisis: An Address’ (1931), in The Causes of the Great Depression and Other Essays Before and After the Great Depression, trans. Bettina Bien Greaves and Percy L. Greaves, Jr., ed. Percy L. Greaves, Jr. (1978; Auburn, AL: Ludwig von Mises Institute, 2006), p. 162. 55. Polleit, ‘The ECB’s Renewed Attack on Free Markets’. 56. William Trufant Foster and Waddill Catchings, The Road to Plenty (Boston, MA: Houghton Mifflin Company, 1928). 57. F.A. Hayek, ‘Prices and Production’ (1931), in Business Cycles, Part 1, ed. Hanjoerg Klausinger (Indianapolis, IN: Liberty Fund, 2012), pp. 193–284. 58. William Trufant Foster and Waddill Catchings, The Dilemma of Thrift (Newton, MA: Pollack Foundation, 1926). 59. John Maynard Keynes, A Treatise on Money (London: Macmillan, 1930).

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60. F.A. Hayek, ‘The Uses of Knowledge in Society’, in Individualism and Economic Order (1948: Chicago, IL: University of Chicago Press, 1980), pp. 77–91. 61. Murray N. Rothbard, ‘The End of Socialism and the Calculation Debate Revisited’ (1991), in Economic Controversies, p. 856. 62. Alfred Marshall, Principles of Economics, p. 290. 63. Steven Braggs, ‘How Much Did Things Cost in the 1970s?’, Retrowow (May 2019), available at: https://www.retrowow.co.uk/social_history/70s/ how_much_did_things_cost.html. 64. Murray N. Rothbard, Man, Economy and State with Power and Market (1962; Auburn, AL: Ludwig von Mises Institute, 2009), pp. 453–508. 65. Note Rothbard uses MVP and DMVP (‘Discounted Marginal Value Product’), I have simply updated the terms. 66. Rothbard, Man, Economy and State with Power and Market, pp. 1057–143. 67. Burton Folsom, Jr., The Myth of the Robber Barons: A New Look at the Rise of Big Business in America (1987; Herndon, VA: Young America’s Foundation, 2013), pp. 17–40.

7 The London School

In the mainstream of British economic thought in the mid-nineteenth century, John Stuart Mill had tried to resolve the contradictions of classical Ricardian theory to no avail. What followed was a generation of economists who came to see the whole edifice of classical economics as one to be entirely rethought. The first thinker to lead this charge was William Stanley Jevons who, as I discussed in the previous chapter, ushered in the marginal revolution along with Carl Menger and Leon Walras. At the London School of Economics, he was followed by Edwin Cannan, who was a pioneer of welfare economics, and Philip Wicksteed, who greatly elaborated in the areas of cost and production theory which was not fully fleshed out in Jevons. They taught a generation of economists who would come to maturity in the 1930s, including Lionel Robbins who would lead the school, and two scholars who left for The University of Cape Town, South Africa: W.H. Hutt and G.F.  Thirlby (who went back to London after the Second World War). Broadly one can characterise The London School as adopting an unfussy, practical view of economics that rested on, to use Wicksteed’s term, ‘common sense’. As we shall see, ‘common sense’ turns out to be a keen appreciation of human nature and with it the mandatory defence of property rights and the adoption of methodical individualism. The contributions of these thinkers to economic © The Author(s) 2020 N. Parvini, The Defenders of Liberty, https://doi.org/10.1007/978-3-030-39452-3_7

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theory and to the cause of liberty more generally have been neglected and underrated, partly because of the perceived and actual near total institutional victory of the Keynesians in the post-war period, and partly because, during the neoclassical revival that followed, their insights were thought to have been subsumed into the mainstream. In this chapter, I will give some consideration to the contributions of each of the five main pillars of the London School: Jevons, Cannan, Wicksteed, Robbins, and Hutt.

William Stanley Jevons William Stanley Jevons (1835–1882) was a logician as well as an economist. Perhaps owing to this background, he insisted that economics differs from other sciences because there are no constant variables. In his most important contribution to economic theory, The Theory of Political Economy (1871), he argued that we can never have ‘the nation unaltered in every circumstance except’ for a single factor. Economic arguments must be made ‘because deductive reasoning from premises of almost certain truths leads us confidently to expect such results’. Like Ludwig von Mises after him, he confined empirical data to the realm of ‘historical science’, which he proposed is more properly a branch of sociology like that developed by Herbert Spencer (see Chap. 5). For Jevons, economics, as opposed to economic history, must be rooted in ‘the mechanics of utility and self-interest’ which are arrived at axiomatically using deductive reasoning.1 However, Jevons believed that complete data would nonetheless be useful in the real world: The deductive sciences of Economics must be verified and rendered useful by the purely empirical science of Statistics. Theory must be invested with the reality and life of fact.2

But he insists that ‘correct theoretical notions’ must come prior to ‘any investigation of facts’.3 Jevons seems to say that a posteriori observations can ‘ratify’ the theory, but not challenge its fundamental ideas which must be done through logic alone. Let us take some of his core claims:

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That every person will choose the greater apparent good; that human wants are more or less quickly satiated; that prolonged labour becomes more and more painful … from these axioms we can deduce the laws of supply and demand, the laws of that difficult conception, value, and all the intricate results of commerce, so far as data are available.4

His point here seems to be that there is no empirical evidence that can disprove these cast-iron self-evident facts of life. Let us pretend that a sociologist publishes a paper that shows data which demonstrate that the majority of 1000 test subjects chose the lesser good, claimed their thirst was not satiated by a glass of water or even two glasses of water, and that after fifteen hours of hard labour felt relaxed and motivated immediately to work for another fifteen hours—would such a paper seriously challenge the claims Jevons made? Even if the entire field of sociology churned out paper after paper reproducing these results, it would not make an iota of difference to human nature and experience. Jevons gives us an echo of Machiavelli here: ‘In the science of Economics we treat men not as they ought to be, but as they are.’ And, like Machiavelli, he holds that human appetites are ‘absolutely insatiable’.5 Like the Austrians, Jevons was a subjectivist and an individualist. His approach ‘puts the individual—the economic subject—at the centre of the analytical picture’.6 He theorised that human activities bestow distinct quantities of pleasure or pain over time which differ according to the preferences of the individual. However, whereas the Austrians focus on human preferences, Jevons shifted his focus to the resources which produce these effects which he calls commodities: ‘any object, substance, action, or service, which can afford pleasure or ward off pain. … Whatever can produce pleasure or ward off pain may possess utility’ (p. 38). Drawing from Nassau Senior, he argues that utility is not intrinsic or inherent, but ‘merely expresses their relations to the pains and pleasures of mankind’.7 And from here goes on to outline his theories of utility and exchange which proceed in a similar manner to that of Menger, as outlined in Chap. 6, only with greater illustration using mathematics. The ideas of Jevons and Menger are similar but not identical. As such, it is worth zeroing in on where exactly they differ. One crucial difference, as I have alluded to, is the fact that Jevons focuses on resources whereas

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Menger focuses on satisfactions. For Menger economics is ‘related to the practical activities of economising men’,8 whereas for Jevons economics is ‘a calculus of pleasure and pain’ induced by specific quantities of resources or labour, which is a disutility. For Jevons, humans constantly try ‘to satisfy our wants with the least possible sum of labour’. ‘In other words, to maximise pleasure, is the problem of economics.’ Here ‘utility and scarcity’ are ‘the essential qualities’.9 The difference from Menger here is subtle but important. Menger’s ‘economising man’ has a certain number of wants at any given time and then seeks to employ various goods to satisfy those wants in order of need given their total availability. Jevons’s economic man tries to maximise his pleasure by choosing goods that possess the most utility employing the least possible effort. As Maurice Lagueux has shown, this subtle difference makes Jevons less thoroughgoing in his subjectivism than Menger and his analysis takes on a quasi-objective character in two crucial areas.10 The first area concerns the question of equivalence or ‘equal value’ in exchange. In Chap. 4, I showed how Richard Cantillon and A.R.J. Turgot were hampered by their commitment to the ancient Aristotelian idea that the two sides of any trade must said to be of equal value, and I showed how this notion was superseded by the more logical idea of ‘mutual profit’ outlined by Etienne Bonnot, Abbé de Condillac. In Chap. 6, we saw that Menger developed a similar idea of exchange. In this view one can draw a distinction between the individual value scales of the participants in the trade, and the exchange ratio that has taken place. To use an example from Jevons, let us imagine Bob exchanges a ton of pig-iron for an ounce of gold with Mike. Although the exchange ratio between a ton of pig-iron and an ounce of gold temporarily established for this specific trade is one to one, the fact remains that Bob values the ounce of gold more than the ton of pig-iron or else he would not have traded it, and the vice versa for Mike. In contrast, Jevons insisted that value should be defined as the ratio of exchange. In his own words: ‘The more correct and safe expression is, that the value of the ton of iron is equal to the value of the ounce of gold, or that their values are as one to one.’11 In this way, Jevons appears to forget his subjectivism and his notion of value takes on an objective character as embodied in the exchange ratio, or, in other words, the price. This may seem like splitting hairs over terminology, but the distinction is

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important—because in the Mengerian analysis, we never forget that the values involved are Bob’s and Mike’s specifically, whereas in the Jevonian analysis, the fact of their trade has somehow taken the value out of their heads and made it manifest by the objective fact of their trade. As Lord Robbins points out, Jevons explicitly maintained that ‘his theory of value makes no attempt to compare the amount of feeling in one mind with another’.12 Yet in maintaining the idea of equivalence at the point of trade, he is effectively saying that Bob values the ounce of gold as much as Mike values the ton of pig-iron. There is no good reason to maintain this, and it is not clear if Jevons does. I do not think that Menger or subsequent Austrians would have denied the objective fact of the ratio of exchange (i.e. established between the resources) or that Jevons or his subsequent followers would have denied that Bob and Mike—inside their own minds—made a ‘mutual profit’, the difference is a matter of emphasis and focus. The Mengerian focus is on the individual economic actor, whereas the Jevonian focus is on the social phenomenon of the established ratio of exchange, what he calls a ‘community of knowledge’.13 In my view, both are important considerations in economics: the first for total clarity and consistency at the level of economic theory, the second for what is typically called ‘applied economics’, that is the economic study of particular real-world issues. In this second area, the London School were pioneers. Jevons himself authored The Coal Question (1865),14 the first book to raise the question of the sustainability of non-renewable energy, and later Edwin Cannan would write The History of Local Rates in England (1896), a magnificent history of taxation in England.15 As I will discuss later, W.H. Hutt also made great contributions in this area. The second area of quasi-objectivity in Jevons’s analysis concerns the question of cost. As we shall see, Philip Wicksteed did much to rectify this, but Jevons himself after convincingly solving the water-diamond paradox of classical economics and demolishing the Labour Theory of Value then lapses into a cost-of-production theory of value as follows: Cost of production determines supply; Supply determines final degree of utility; Final degree of utility determines value16

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Note that where Jevons says ‘value’ here, he means strictly the ratio of exchange or price. Alfred Marshall, as I discussed in Chap. 6, adapted this to form his famous ‘scissors’, like so: Utility determines the amount that has to be supplied, The amount that has to be supplied determines cost of production, Cost of production determines value17

Again, ‘value’ is the ratio of exchange or price. Menger, in contrast, maintained that, in the final analysis, consumer demand determines the ratio of exchange or price not only for consumer goods but for all producer goods in the chain of production. On the question of price formation and the direction of causation, therefore, I believe that Menger was correct and that Jevons and Marshall erred.

Edwin Cannan Edwin Cannan (1861–1935) succeeded Jevons as the institutional leader of the London School, although he was also influenced by Alfred Marshall, he was ‘a severe critic of the Classical Economists’.18 He wrote many works, of which I will briefly consider only two here: A History of the Theories of Production and Distribution: 1776 to 1848 (1893) and Wealth (1914). In the first of these books, Cannan conducts a tour de force annihilation of the theories of production and distribution found in David Ricardo, Karl Marx, and John Stuart Mill. According to Lord Robbins, there was ‘some protest at the sharpness of its strictures on the masters of the past’, but it ‘established his standing in the profession’.19 Cannan gives special attention to Mill, and in particular, his treatment of land, labour, and capital as the chief factors of production which, after careful review, he declares ‘a most hopeless farrago of blunders’, an ‘extraordinary confusion’, and a ‘futile endeavour’. He calls Mill’s attempts to explain the cause of rent as extra return made to agricultural capital when employed with peculiar advantages ‘not a law at all, but only a bad definition’. Cannan concludes that ‘the theories of production and distribution

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arrived at in the first half of the nineteenth century must be visited with almost unqualified condemnation.’20 Much of his analysis is along similar lines to that which I outlined in Chap. 5 when critiquing Ricardo’s theories about wages and rent—things which appear somewhat more obvious now than when he was writing in 1893. Today, the book is much more useful for tracing how the errors of the classical economists, and Mill especially, led directly to fostering socialist malcontent. In a remarkable passage, which merits full quotation, Cannan writes: However lucky Error may be for a time, Truth keeps the bank, and wins in the long run. Mistakes which were harmless in the discussion of free trade, the poor-law and the resumption of cash payments, have often been extremely pernicious in their influence on the later controversy. … The exploitation theory of the German socialists, which even in England has done much to embitter the higgling of the market called by some ‘industrial war’, or ‘conflicts of labour and capital’—by representing the fact that ‘Labour’ does not receive, the whole produce or income of the community, as the result, not of the mere existence of private property, but of some mysterious process whereby ‘Capital’ cheats ‘Labour’ out of a part of its legitimate reward, owes its origin to the old subsistence theory of wages, to the confusions about the nature and functions of ‘capital’, and to the natural reaction against the attempt to explain interest as a reward of some painful or meritorious action. The movement for ‘nationalising’ land without compensation to present owners, on which Mr Henry George and others have wasted immense energy, would probably have never been heard of, if the Ricardian economists had not represented rent as a sort of vampire which continually engrosses a larger and larger share of the produce, and if they had not failed to classify rent and interest together as two species of one genus. The folly of endeavouring to remedy poverty by advocating the confiscation of land, or by attacking other particular kinds of property, would not so easily have escaped recognition by reasonable individuals in the second half of the nineteenth century, if the economics of the first half had given the distribution of wealth between individuals its proper place, instead of being so exclusively devoted to the distribution of wealth between economic categories such as ‘labourers’, ‘capitalists’, and ‘landlords’.21

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Here Cannan outlines plainly how the erroneous economic theories of Ricardo and Mill are directly responsible for the rise of Marxism and left-­ wing agitation in the British labour union movements, as well as the Georgist movement. His analysis utilises methodological individualism to expose the fact that aggregated and arbitrarily defined groups are not real flesh and blood human beings. There are two other points of interest to which Cannan draws attention. The first is that he claims that since 1848, professional economists had greatly increased their understanding of the role of capital. The Ricardian economists had thought of capital as effectively deciding which industries would be established. By 1893, economists in the British mainstream, possibly following the influence of J.B. Say and, more indirectly, A.R.J. Turgot and Richard Cantillon, had come to understand that capital was simply ‘an inanimate stock of goods and machinery’ which is directed by entrepreneurs ‘by virtue of their intelligent anticipation of the orders of the consumers, whose demands they have to satisfy on pain of bankruptcy’.22 This effectively overturned the top-down view of capital that had come to predominate during the years of Ricardian influence to a more bottom-up conception in which capital responded directly to the preferences of consumers. The second point of interest Cannan notes is a subtle shift in emphasis from ‘wealth’ to ‘material welfare’ that had occurred between the time of Adam Smith and his own. Economists in the early nineteenth century, following Smith, had held that wealth consists in ‘commodities and services possessed of exchange value’.23 Cannan teases out the difference between ‘material welfare’ and ‘wealth’ defined as a measure of ‘objects possessed of exchange value’: In reality, even as society is at present constituted, the amount of wealth enjoyed by individuals and nations affords very insufficient information about their material welfare. In the first place, according to a well-known rule, each successive increment of ‘wealth’ produces a smaller amount of material welfare, and consequently a given amount of ‘wealth’ will produce a greater or smaller amount of material welfare according as it is distributed more or less equally. In the second place, the effort of obtaining ‘wealth’ is a factor in the determination of material welfare just as much as the enjoy-

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ment of ‘wealth’. When the effort is, as often happens, purely pleasurable, the material welfare of people is increased by it. When, on the other hand, the effort is either excessive, and therefore painful, or accompanied by unpleasant incidents, the material of the people is reduced by it. In the third place, the great quantity of that part of the produce of industry which is created by men and women working, not for money rewards, but from other motives, such as family affection or duty to the community, is for all practical purposes incapable of being valued and set down in the sum-total of commodities and services with exchange value.24

In today’s terms Cannan is saying that such raw quantitative aggregate measures as GDP, GDP per capita, median individual income, the consumer price index, and so on cannot really give us any meaningful information about the material welfare of the individuals of nations. Cannan insists that ultimately welfare is a mental process which is subjective and cannot easily be measured. In this, he anticipates many of the arguments put forward by Ludwig von Mises in Human Action (1949), whose thinking Cannan is known to have influenced,25 and which I discussed in the previous chapter. One significant implication of this shift from ‘wealth’ to ‘material welfare’ from a policy perspective is that it refocuses the economist’s attention from methods of maximising raw production output to maximising the total satisfaction of individual wants. Cannan elaborates on this in his short and accessible book, Wealth (1914), in which he admits that ‘there is no precise line between economic and non-economic satisfactions, and therefore the province of economics cannot be marked out by a row of posts or a fence like a political territory or a landed property.’ We cannot deny that there are ‘purely non-material’ factors that motivate behaviour ‘such as that felt by a martyr dying of starvation rather than abjure to God’. Imagine, he says, ‘a Tibetan fanatic when he has immured for life in the dark’. For the best part, Cannan is happy to leave this a grey area. The satisfactions which the Tibetan monk or Christian martyr feels from their sacrifices are ‘non-economic’ while what those individuals feel from the consumption of goods and services is ‘economic’. ‘Welfare’ constitutes the combination of both economic and non-economic satisfactions, but ‘material welfare’ only the former. ‘We shall never be able to say of any man that 50 per cent of his welfare came

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from food, clothing, shelter, pictures, and concerts, 25 per cent from the love of his wife, 15 per cent from his support of his Church, and 10 per cent from his pride in his position as president of the local party caucus.’ But, we can ‘usefully’ consider what will ‘increase or diminish the more material side of his happiness’.26 This has some implications not only for the definitions of wealth or material welfare, but also for the definition of economics itself. I will return to this question in the section on Lionel Robbins below. For now, it is worth remembering that Cannan broadly aligned himself with Alfred Marshall and other neoclassical economists in adopting the ‘welfare definition’.

Philip Wicksteed The most important disciple of Jevons was Philip Wicksteed (1844–1927), who was something of a polymath and better known to the educated contemporary layman as a medievalist and an expert in Dante—it seems that every once in a while experts in old literature can turn their attentions to economics. His work features the same exceptionally grounded and practically minded ‘common sense’ approach as we find in that of Edwin Cannan. Wicksteed was somewhat adjacent to the department at the London School of Economics as he delivered the extension lectures, an adult course for members of the general public, and therefore had no formal students whether undergraduate or postgraduate. Cannan ran the main economics course for much of the period that Wicksteed was delivering such lectures. Wicksteed’s chief contribution to economics can be found in the two-volume classic The Common Sense of Political Economy (1910), in which he refined Jevons’s ideas and, as James M. Buchanan puts it, ‘shifted cost theory away from its classical, objective foundations’27 and developed the notion of marginal productivity. However, Wicksteed’s advances over Jevons do not come in his cost and production theory alone, but in the more thoroughgoing subjectivism of his analysis of marginal utility more generally and everything that follows from that. For example, unlike Jevons, Wicksteed recognised that exchanges are predicated on mutual (psychic) profit rather than equal value. He says:

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If there is a marginal price for any commodity, we supply ourselves with it till its marginal significance sinks to its market price; and seeing that all the early increments of supply have a higher value than at the margin, though all are bought at the market price, it follows that the satisfactions we secure are worth more than the price we pay for them. Only at the margin is there a coincidence between the thing gained and the price paid for it.28

Wicksteed always keeps in focus the fact that these are mental events happening inside the mind of the individual market actor. He considers a woman in a marketplace trying to do ‘something like the best that was possible with her money’ and reminds us that she must consider ‘other opportunities than those of the market in which she actually stood’, all those ‘other things (furniture, clothes, education, literature, holidays, etc.)’ represent the costs forgone when her resources are allocated to the final purchase.29 Wicksteed then, even on the level of a simple purchase at the local market, is already thinking exclusively in terms of subjective preference scales and opportunity costs. On labour, Jevons had said: The fact is, that labour once spent has no influence on the future value of any article: it is gone and lost forever. In commerce, bygones will always be bygones; and we are always starting clear at each moment, judging the values of things with a view to future utility. Industry is entirely prospective, not retrospective.30

But then, as we have seen, bafflingly seemed to forget this when it came to the cost of production. Wicksteed rectified this inconsistency as follows: What a thing has cost cannot determine its value, but what a thing will cost may determine whether or not it will be made. If it cost more to make than it is worth at the margin, it will not be made in again in such large ­quantities, and if it is worth more at the margin than it has cost to make, it will be made in larger quantities. Thus there is a constant tendency to equality between price and cost of production, but not because the latter determines the former.31

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Here, Wicksteed is really describing the process of entrepreneurial forecasting. Those goods produced which sell below cost represent poor entrepreneurial judgements and those goods which sell above cost astute ones. Poor entrepreneurs will be purged from the market by going bust while astute ones will face tougher competition as other entrepreneurs sniff the opportunity to make money in a proven market thereby reducing the margin for profit and reducing the gap between the costs of production and the price. In an incredibly insightful passage, Wicksteed teases out an underappreciated distinction between the subjective valuation of the entrepreneur and the objective price determined by the market: [H]ere as in all markets, what each man is willing to pay for a thing is determined by its relative place on his own scale, what he actually has to pay (or go without it) by its relative place on the scales of others. There is equilibrium when these places coincide.32

Here Wicksteed hints towards but does not quite explicitly articulate a quiet shift in the meaning of ‘cost’, the full significance of which was not recognised until 1960, when G.F. Thirlby pointed out: The subtle change in the meaning of cost, from the valuation of his own displaced end product to the money input required for the selected course of action, is a change leading to still another conception, which carries with it the suspicion that it is to be regarded as a social cost. It resembles the first meaning of cost, in that it is supposed to be an alternative value displaced, but differs from it in that it is not the entrepreneur’s own valuation of his own displaced end product, but other people’s (consumers’) valuations of products which might have been produced by other entrepreneurs had they not been displaced.33

This is the difference between cost as experienced mentally by the entrepreneur and cost as registered by the accountant’s ledger. The two are not the same. This is something on which it is worth pausing, especially at the present time of writing when many firms appear to be making very unusual

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decisions that seem adversely to affect their own bottom line. For example, early in 2019, the shaving razor manufacturer, Gillette, released a television commercial that appeared to criticise men for ‘toxic masculinity’ thereby instantly alienating a sizable portion of its customer base and resulting in a vocal backlash and boycott campaigns. Later that year it revealed an $8 billion net loss.34 Nonetheless, the CEO, Gary Coombe, claimed not to regret the advertisement and said that the loss of custom was ‘a price worth paying’.35 Whether such heavy losses were solely due to the commercial or due to other factors and trends, and whatever one personally made of it, here is a clear case in which the personal valuations of the CEO and the valuations of the customers were completely different. Murray N.  Rothbard has a useful passage that can explain the disjunction: From our Axiom is derived this absolute truth: that every firm aims always at maximizing its psychic profit. This may or may not involve maximizing its money profit. Often it may not, and no praxeologist would deny this fact. When an entrepreneur deliberately accepts lower money profits in order to give a good job to a ne’er-do-well nephew, the praxeologist is not confounded. The entrepreneur simply has chosen to take a certain cut in monetary profit in order to satisfy his consumption-satisfaction of seeing his nephew well provided. The assumption that firms aim at maximizing their money profits is simply a convenience of analysis.36

Wicksteed instinctively understood this, although unlike Rothbard he focused on psychic losses or costs rather than profits. In fact, he describes what modern behavioural economists would call ‘the sunk cost fallacy’ in at least two places.37 He notes the ‘irrational enamourment’ when ‘some object hits our fancy’ and ‘the pathetic attempts which we sometimes make to justify our choices post factum’. And later how we ‘try to make out that we value a thing which is really no better than rubbish to us because we paid a high price for it’.38 There is a natural unwillingness in the human mind to face unpleasant facts, and having committed an error of judgment we often shrink from recognising the fact, even though we thereby aggravate its results. In the

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same way, a commercial man who has made an error of judgement and has produced things he cannot sell at cost price …will be unwilling to recognise his error, and will make a struggle to secure a price high enough to justify his action.39

I am not suggesting that the Gillette CEO, Gary Coombe, fell afoul of the sunk cost heuristic, what is important here is that, for Wicksteed, this accounts for why certain entrepreneurs may do all they can to sell above the price that they paid to produce a good. He calls it the ‘sentimental influence’ of the cost of production in which ‘judgement may be warped by the personal feelings engaged’.40 Wicksteed possessed a more intuitive understanding of human nature than Jevons, and his economics were all the better for it.

Lionel Robbins Lionel Robbins (1898–1984), later styled ‘The Lord Robbins’, was the driving force of the London School from the 1930s onwards notable for, among other things, his invitation of F.A. Hayek to London in 1931, his general openness to Austrian ideas as opposed to Marshallian ones, and his opposition to Keynesianism. However, after the Second World War, unfortunately, his views shifted—according to the political and social gravity of the time—towards a reconciliation with Keynesianism and an acceptance of the post-war consensus. I will deal with this briefly at the end of this section, but in the main part I wish to concentrate on Robbins’s famous ‘scarcity definition’ of economics as outlined in An Essay on the Nature and Significance of Economic Science (1932). Namely, that economics is a study of the ‘relationship between ends and scarce means which have alternative uses’.41 This short book represents Robbins’s major contribution to economic theory. The rest of his output—from which I have drawn usefully throughout the present study—is concerned chiefly in reviewing the history of economic thought. He did produce one other notable work, The Great Depression (1934) which remains a textbook Misesian treatment of the role of credit expansion in the boom-bust cycle that produced the global depression following the Wall Street Crash of

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1929.42 This makes a good companion piece for Murray N. Rothbard’s more US-centric America’s Great Depression (1963).43 In the section above, we saw how Edwin Cannan—systematising developments in the neoclassical synthesis after the marginal revolution and the impact of Alfred Marshall—shifted from the Smithian ‘wealth definition’ of economics to the ‘welfare definition’. Read in this context, Robbins’s own definition is a direct attempt to refine and build on this development. In fact, Robbins is in continual dialogue with his old mentor, Cannan, throughout An Essay on the Nature and Significance of Economic Science. The whole thrust of his new scarcity definition should be read not as an attempt to overturn Cannan, but rather to be more precise: ‘There is no important generalisation in the whole range of Professor Cannan’s system which is incompatible with the definition we have chosen.’44 In moving the discussion from one of ‘material welfare’ to one of ‘ends and scarce means which have alternative uses’, Robbins successfully removed the ‘grey’ ambiguity which Cannan had left between where ‘material’ stops and ‘non-material’ starts. The economist is not concerned with ends as such. He is concerned with the way in which the attainment of ends is limited. The ends may be noble or they may be base. They may be ‘material’ or ‘immaterial’—if ends can be so described. But if attainment of one set of ends involves sacrifice of others, then it has an economic aspect.45

Let us come back to Cannan’s Buddhist monk and assume his end is to reach Nirvana and to do this he must spend at least eighteen hours a day in deep meditation. This leaves only six hours to pursue any other ends he may have, including what we might call ‘material’ ends such as eating food, exercise, socialising, and entertainment. In sacrificing so many hours to meditation, the monk gives up 75% of all his time—a scarce means. The cost is all those other things he might have used that time for, which may include time devoted to material production (whether making and trading goods and services or working in the employment of another producer) in order to pursue any of his material ends. Thus, in short, although the monk may be choosing a ‘non-material life’ of pure contemplation, according to Robbins, he does not escape the scope of

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economics because he still must economise. In essence, this re-orientates economics from a study of wealth (as in Smith) or ‘material welfare’ (as in Marshall or Cannan) to a study of individual choice. As a recent study has pointed out, in making this the starting point of economics, Robbins is more thoroughgoing in his methodological individualism than earlier economists.46 Indeed, he was to prove more thoroughgoing in this respect also than contemporary economists whose attempts at defining economics included Jacob Viner’s notorious quip: ‘economics is what economists do.’47 Since then we have also had James M. Buchanan’s attempt to shift Robbins’s focus on choice ‘which is too broad a notion to define economics’ to exchange.48 Interestingly, both Robbins and Buchanan were influenced by Ludwig von Mises in this debate, despite being on two different sides of it. Robbins’s definition of economics is closer to Mises’s concept of ‘praxeology’, that is, the wider study of human action, whereas Buchanan’s is closer to Mises’s narrower notion of ‘catallactics’ or The Theory of Interpersonal Exchange, which he saw as just one part of praxeology.49 Even though he intended it to further the defence of a free-market economy, Buchanan’s is too narrow a view of economics because it puts both Crusoe economics and the allocation of resources by force (i.e. socialist economies) out of scope. Economists can remember subjective evaluations, interactions, and exchanges without fundamentally changing the definition of economics. Despite Buchanan’s protests which were rooted in the older tradition of Frank Knight, Robbins’s definition would come to be accepted in the Chicago School, not least by Milton Friedman, who had accepted it by 1962,50 and George Stigler’s protégé, Thomas Sowell.51 More recently Steven E. Landsburg has favoured yet another definition: ‘people respond to incentives.’ ‘The rest’, he says, ‘is commentary.’52 While this might seem intuitively correct on a superficial level, technically we must be aware of its shortcomings as a definition for economics. People do respond to incentives, sure, but do they all respond in the same way? Do all people have the same ends? Can Landsburg’s definition deal with Cannan’s Buddhist monk in a satisfactory way? The issue is that this definition silently shifts from Robbins’s Economising Man to the dreaded Economic Man, that is, homo economicus. It silently substitutes a thoroughgoing subjectivism with a normative claim, namely that people

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respond to the same incentives in the same way. Let us say that all owners of firms seek money profits, as opposed to psychic profits, or that all individuals will want more material wealth as opposed to less. As we have seen in this chapter, we cannot take any of this for granted, and so this cannot serve as the definition of economics. One immensely important aspect of the way in which Robbins’s Essay replaced the old ‘welfare definition’ of economics was its role in demonstrating the fact that comparisons of interpersonal utility cannot be made because such utility is always subjective and ordinal rather than cardinal. I largely covered these arguments in Chap. 1, but welfare economists such as A.C. Pigou had tried to use the concept of diminishing marginal utility to justify wealth redistribution.53 Let us pretend that Jack has 1000 gold pieces, but Jill only has 100. So the argument goes that the marginal utility of each gold piece is worthless to Jack than to Jill. Jack’s 1000th gold piece has less utility than Jill’s 100th. We should therefore redistribute Jack’s gold piece and give it to Jill. Now she has 101 and he has 999. So why not let us keep going until they each have 1098 gold pieces? Hurrah, we have maximised social utility! Of course, this is to make the mistake of making interpersonal comparisons and treating subjective valuations as cardinal units rather than ordinally ranked units. By intervening in the market to calculate ‘social utility’ as Pigou wished to do, he unwittingly substituted his own third-party preferences and assumptions in place of those of the individuals in question. We cannot assume that Jack will value his 1000th gold piece less than Jill values her 100th gold piece. As we have seen, personal ends vary. Jill might well be the Buddhist priestess who has foresworn material things and Jack may well be a miserly Ebenezer Scrooge character who guards every penny as if it represented his life. We simply cannot say. Later economists, giddy under the mystifying spell of Lord Keynes, seemed to forget this. In any case, attempts to engineer ‘social utility’ by attempting to maximise and redistribute ‘output’ in this way are doomed to fail because its stated ends are incoherent, failing to take human nature into account. Furthermore, the more one intervenes in the market in this redistributive way, violating the property rights and greatly upsetting those from whom loot is extracted, the more one undermines the very basis of the division of labour which affords the increase of ‘material welfare’ in the first place.

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Unfortunately, as I mentioned, Robbins himself fell under the Keynesian spell after the Second World War and this to some extent impaired his judgement, causing a mixture of amnesia and error. During this later period, although generally still sharp, his thinking was muddied by lapses into sentimentality. For example, in a lecture on the contributions of John Bates Clark—the American economist who pioneered the notion of marginal productivity—comes this confused, moralistic, and almost socialist rant: Clark actually claimed in his book that if it could be shown that the pricing of marginal factor services—labour and capital and all that—was determined by marginal productivity, then distribution could be regarded as just, which is a pretty tall order and really frightfully superficial. Imagine putting to a very intelligent but very low-paid wage earner the proposition that ‘Your wages are determined by marginal productivity and therefore are just.’ And this very intelligent but low-paid man might reply saying, ‘I agree that I am rewarded according to the marginal value of my product to the employer, but you haven’t dealt with the reasons why my marginal productivity is so low—the failure of my parents to obtain access to capital which would have made my marginal productivity higher, not to mention all the institutional obstacles which prevent my mobility being greater, and having a wider range of choice, and having access to places where the wages as determined by marginal productivity are higher’. Well, I think that puts paid to J.B. Clark’s simple proposition.54

It does not. Clark starts from the basic assumption of human nature and, as per Richard Cantillon and David Hume (see Chap. 4), the Law of Differentiation. His claim, as Robbins’s worker seems to admit, is correct. Robbins starts from some utopian notion of equality, which has never existed and—again as per the arguments of Cantillon and Hume—never will exist. He appears to be saying that something more like perfect equality ought to exist, whereas Clark maintains the correct position that in a situation where this will never be the case, marginal productivity—as opposed to, let us say arbitrary fixed prices set by fiat—ought to be the decisive factor in setting wages. Besides, if this worker is so intelligent, his marginal productivity should increase relative to other workers—under the Clark proposal—his wages would increase anyway. Let us say he is in

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a job which requires manual labour as opposed to intelligence, it is not incumbent on the employer to find him a job that utilises this intelligence. This is not to say, however, that there may not be career paths available to him which may utilise it, and there is little stopping the worker pursuing such a career in a free market. Thus, we see, sadly, that Lord Robbins—in wishing to virtue signal in service of what was politically correct during the post-war consensus—became somewhat muddled in his later career. He traded logical consistency for social acceptance.

W.H. Hutt W.H. Hutt (1899–1988) was arguably Edwin Cannan’s leading protégé from the 1930s onwards when he left LSE for Cape Town where he would remain until 1965 when he moved to the USA. He became emeritus professor at the University of Dallas in his final years. He was also an active member of the Mont Pelerin Society and a contemporary of both Ludwig von Mises and F.A. Hayek in the struggle against the dominance of Keynesianism in the mid-century. His The Theory of Idle Resources (1939) was an important early demolition of Keynes’s arguments for full employment by simply pointing out that to grow, an economy must change. Therefore, full employment is neither possible nor desirable.55 Unlike Lord Robbins, perhaps because he remained outside the UK, he never joined the herd in giving up the principles of sound logic for a quiet life. He wrote many books including The Economics of the Colour Bar (1964), which revealed how South African apartheid originated as a labour union mechanism for restricting the supply of labour at the expense of black workers for the benefit of white ones,56 and A Rehabilitation of Say’s Law (1974) from which I drew in Chap. 5. In this section, I want to focus on the argument of his first book, The Theory of Collective Bargaining (1930) which concerns itself with trade unions and the efficacy—or rather futility—of strike action as a method for increasing wages. One of the more persistent economic canards, from the days of Adam Smith on, has been the idea that labour is at a ‘disadvantage’ to capital. I will illustrate Hutt’s main argument against this idea by means of an

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example. Let us pretend we have a supply of labour. A line of men looking for a job. Those at the front will work for $10, those in the middle for $9, and those at the back for $8. Henry Ford has opened a car factory. Assuming all these jobs are entirely unskilled, and that knowledge and experience are not a factor (in reality, of course, they always would be), all other things being equal, Mr. Ford will take the workers at $8 first. Now let us assume another scenario. Here Mr. Ford already has workers paid at $10 but looking at the line of potential workers outside sees that he could replace them for workers at $8. So, he announces that the new rate of pay will be $8 and anyone who does not like this new wage can leave. The workers on $10 are naturally furious at this and organise a strike. Under total free market conditions, Mr. Ford could simply fire the troublemakers and replace them with the $8 workers. But, of course, in the real world, the state usually intervenes and forces a compromise between the firm and the labour union, and the workers will be paid at the negotiated rate. Without state intervention, attempts by unions to increase wages mostly fail because of the willingness of other workers to take the jobs. Employers also have a range of options to ‘hit back’ at striking workers such as ‘lock outs’, which have been used recently in the USA. Anyway, let us say in our scenario that the $10 workers after a strike get their way, and keep their jobs at the old rate as mandated by the state. Naturally, this means the other potential workers in the line do not get a job. Union workers are granted a privilege only at the expense of non-­ union workers. The potential workers at the margin are pushed out, the employer must pay above market rates for labour, and consumers may pay more through higher prices. Ultimately, the firm itself may suffer lower sales, and therefore lower revenue, which in the long run means fewer jobs. As Hutt puts: ‘the trade union gains at the expense of excluded workers, capital and the consumer.’57 A month later, Mr. Ford might well think about investing in fixed capital instead of labour. The marginal productivity of capital may be more than labour when wages are above the market rate. In lay terms, workers jobs are automated out of existence. Further into the future, the time savings made by these capital investments might reduce the need for labour further, eliminating the very $10 job for which the workers protested. In the real world, this chain of events took place in many

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industries from elevator operators to bus conductors to cinema projectionists. In the long run, the strikers merely priced themselves out of the market. In other industries, they may have succeeded in making an industry in a particular locale so uncompetitive that entrepreneur-capitalists simply relocate to a country which does not expect workers to be paid above the market rate. Furthermore, in the real world, there is seldom simply one employer. Thus far we have assumed Mr. Ford enjoys a monopsony. He would face competition, not only in the form of other auto manufacturers, but also in the form of all other employers in the market for workers at $8. In effect, each potential employer is in competition with all others for the same pool of potential workers. Competition between employers may bid up the base rate of pay for the marginal worker. If that worker represents an above zero increase in productivity, then the capitalist will compete with his rivals to secure that worker for himself. However, as Hutt insists throughout the book, the ultimate employer of any labour is not the capitalist, but the consumers who are keeping that capitalist in business. It is their purchase of consumer goods which ultimately dictate the demand for labour in any given industry. The more people who want cars, the more car manufacturers enter the market, the more jobs there will be, and the more employers will compete for staff which helps bid up wages. If the car manufacturers attempt to collude to hold down wages in a cartel, the workers can always jump to other industries. Strike action and artificial controls will tend towards reducing the availability of the total number of jobs for the short-term benefit of the strikers, but to the long-term benefit of no one. One objection to Hutt’s argument is the fact that workers face starvation if they do not work, while their employers do not. In other words, if Joe does not go to work this week, he will starve, whereas Henry Ford will not. First, it is not necessarily the case that the capitalist is secure in the short term. They will have rents, contracts, debts, outstanding liabilities of all sorts, maintenance, and so on. Assuming that output is reduced to zero with zero workers, just a single day of a factory being closed could cost significant sums of money, while a whole week might cause the owner to go bust. Thus, it is simply not the case that labour is at ‘disadvantage’ to capital. It is a relationship of mutual benefit, by definition: a

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positive-sum exchange. Next, Hutt considers the worker that has no savings. Is it true that a worker with savings would be paid any more or less than a worker with none? To the employer, this fact is immaterial. They will employ the worker at whatever the going rate happens to be, taking into account knowledge, experience, and productivity. All other things being equal, the fact that one man has savings and the other does not cannot change the rate from the employer’s side. However, from the point of view of the worker, the savings may be a consideration. The worker with $2000 in the bank might be able to hold out from accepting a job for longer. In some conditions he might accept lower pay because he can afford it in the short term. But Hutt concludes that we cannot make any meaningful generalisations about this because it will be up to the subjective valuations of the individuals in question. ‘We can make no useful generalisations on this matter at all. It might be argued with equal justification that the worker without savings has an advantage over the worker with savings because he has nothing to lose.’58 Perhaps he will be more willing to take risks. No meaningful rule can be derived from this. Finally, the state introduction of a minimum wage does nothing to resolve this situation. It fixes the bottom rate and pushes out the marginal worker. As George Stigler puts it: Unless inefficient workers’ productivity rises … the minimum wage reduces aggregate output, perhaps rises those previously a trifle below the minimum; and reduces the earnings of those substantially below the minimum.59

More problematically, this has effectively eliminated the bargaining power of the marginal worker between industries. Wherever he turns, it is now the same rate. There is now no incentive for industries to compete over the marginal worker because their rate is set by fiat. As Stigler showed using empirical data from the US manufacturing industries in 1939, without a minimum wage, ‘low wage industries are competitive’. As much as a 34% gap between low-paid workers in different industries.60 This means, paradoxically, that the minimum wage worker today likely has fewer opportunities to bargain with employers than they did in the past. As is so often the case, what is flagged to us as progress by the enemies of liberty, is in fact a regression. As Hutt insists, the only reliable

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mechanism through which to increase wages is to increase the marginal productivity of labour. Gains from strike action are only ever short run, and for the benefit of the particular group at the expense of all others. As a stark illustration of this, recently certain colleagues of mine went on strike in a bid to secure ‘defined benefit’ pensions despite a significant shortfall in the pension fund. After the negotiated rate for this pension across the sector was secured, British universities quickly started to offer voluntary redundancy packages to reduce costs, centralised and consolidated administrative staff to stretch across multiple departments, and reduced the rate of pay of postgraduate teaching assistance by 66%. But still, rejoice, baby boomers will get their full pensions. No matter what anyone says, there is no ‘solidarity’ in strike situations; it is a union ruthlessly claiming a zero-sum prize at the expense of everyone else. Although Hutt was writing in 1930, his analysis of collective bargaining was so far reaching as to successfully predict the British experience with endemic strikes and trade unionism from 1945 to 1980, which was documented in F.A. Hayek’s pamphlet 1980s Unemployment and the Unions.61

Notes 1. William Stanley Jevons, The Theory of Political Economy, 5th edn (1871; New York and London: Palgrave Macmillan, 2013), pp. 19–21. 2. Ibid., p. 22. 3. Ibid., p. 22. 4. Ibid., p. 18. 5. Ibid., pp. 38, 40. 6. Lionel Robbins, ‘The Place of Jevons in the History of Economic Thought’ (1936), in The Evolution of Modern Economic Theory and Other Papers on the History of Economic Thought (Chicago, IL: Aldine Publishing Company, 1970), p. 174. 7. Jevons, The Theory of Political Economy, pp. 38, 42. 8. Carl Menger, The Principles of Economics, trans James Dingwell and Bert F. Hoselitz (1871; Auburn, AL: Ludwig von Mises Institute, 2007), p. 48. 9. Jevons, The Theory of Political Economy, pp. iv, 168, 37, 161.

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10. See Maurice Lagueux, ‘Menger and Jevons on Value: A Crucial Difference,’ Cahiers du département de philosophie de l’Université de Montréal, No. 97-06 (1997), pp. 1–14. 11. Jevons, The Theory of Political Economy, p. 78. 12. Lionel Robbins, A History of Economic Thought: The LSE Lectures, ed. Steven G.  Medema and Warren J.  Samuels (Princeton, NJ: Princeton University Press, 1998), p. 262. 13. Jevons, The Theory of Political Economy, p. 86. 14. William Stanley Jevons, The Coal Question; An Inquiry concerning the Progress of the Nation, and the Probable Exhaustion of our Coal-mines, 2nd edn (London: Macmillan, 1866). 15. Edwin Cannan, The History of Local Rates in England: In Relation to the Proper Distribution of the Burden of Taxation, 2nd edn (1896; London: P.S. King & Son, 1912). 16. Jevons, The Theory of Political Economy, p. 165. 17. Alfred Marshall, Principles of Economics, 8th edn (1890; London: Palgrave Macmillan, 2013), p. 674. 18. Lionel Robbins, ‘A Biographical Note on Edwin Cannan’ (1949), in The Evolution of Modern Economic Theory, p. 231. 19. Ibid., p. 230. 20. Edwin Cannan, A History of the Theories of Production and Distribution (1893; New York: August M. Kelley, 1967), pp. 300, 302. 21. Ibid., pp. 309–10. 22. Ibid., p. 314. 23. Ibid., p. 311. 24. Ibid., p. 311. 25. See Joseph T.  Salerno, ‘Mises’s Favorite Anglo-American Economists’, Mises Daily (28 August 2019), available at: https://mises.org/library/ misess-favorite-anglo-american-economists 26. Edwin Cannan, Wealth: A Brief Explanation of the Causes of Economic Welfare, 3rd edn (1914; New York and London: P.S. King and Staples Limited, 1946), pp. 4, 3, 4–5. 27. James M.  Buchanan, Cost and Choice (Chicago, IL: Markham, 1969), p. 16. 28. Philip Wicksteed, The Common Sense of Political Economy, ed. Lionel Robbins, 2 vols (1910; London: Routledge & Kegan Paul, 1949), vol 1, p. 37. 29. Ibid., p. 38.

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30. Jevons, The Theory of Political Economy, pp. 164–5. 31. Wicksteed, The Common Sense of Political Economy, vol 1, p. 358. 32. Ibid., p. 368. 33. G.F. Thirlby, ‘Economists’ Cost Rules and Equilibrium Theory’, (eds), L.S.E.  Essays on Cost, ed. James M.  Buchanan and G.F.  Thirlby (New York: Littlehampton Book Services, 1973), p. 278. 34. Douglas Ernst, ‘Gillette’s “Toxic masculinity” Ad Haunts P&G as Shaving Giant takes $8B Writedown’, Washington Times (31 July 2019), available at: https://www.washingtontimes.com/news/2019/jul/31/ gillettes-toxic-masculinity-ad-haunts-pg-as-shavin/. 35. John Gage, ‘Gillette CEO: Losing Customers over #MeToo campaign is “Price Worth Paying”’, Washington Examiner (1 August 2019), available at: https://www.washingtonexaminer.com/news/gillette-ceo-losingcustomers-over-metoo-campaign-is-price-worth-paying. 36. Murray N. Rothbard, ‘In Defence of “Extreme Apriorism”’ (1957), in Economic Controversies (Auburn, AL: Ludwig von Mises Institute, 2011), p. 107. 37. See Daniel Kahneman, Thinking Fast and Slow (New York and London: Penguin, 2011), p. 343. 38. Wicksteed, The Common Sense of Political Economy, pp. 118, 387–8. 39. Ibid., p. 386. 40. Ibid., p. 387. 41. Lionel Robbins, An Essay on the Nature and Significance of Economic Science, 2nd edn (1932; London: Macmillan & Co., 1945), p. 15. 42. Lionel Robbins, The Great Depression (London: Macmillan & Co., 1934). 43. Murray N. Rothbard, America’s Great Depression (Princeton, NJ: D. Van Nostrand, 1963). 44. Robbins, An Essay on the Nature and Significance of Economic Science, p. 21. 45. Ibid., pp. 24–5. 46. Thiago Dumont Oliveira and Carlos Eduardo Suprinyak, ‘The Nature and Significance of Lionel Robbins’, EconomiA, 19:1 (January–April 2018), pp. 24–37. 47. Quoted in James M.  Buchanan, What Should Economists Do? (Indianapolis, IN: Liberty Fund, 1979), p. 18. 48. Alain Marciano, ‘Buchanan’s Catallactic Critique of Robbins’s Definition of Economics’, Journal of Economic Methodology, 16:2 (June 2009), p. 133. 49. Ludwig von Mises, Human Action: A Treatise on Economics (New Haven, CT: Yale University Press, 1949), p. 233.

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50. Roger E. Backhouse and Steven G. Medema, ‘Defining Economics: The Long Road to Acceptance of the Robbins Definition’, Economica, 76 (August 2008), p. 813. 51. Thomas Sowell, Basic Economics: A Common Sense Guide to the Economy, 5th edn (2001; New York: Basic Books, 2014), p. 2. 52. Steven E. Landsburg, The Armchair Economist: Economics and Everyday Life (1993; New York and London: Pocket Books, 2009), p. 3. 53. See A.C. Pigou, Wealth and Welfare (London: Macmillan & Co., 1912). 54. Lionel Robbins, A History of Economic Thought: The LSE Lectures, ed. Steven G.  Medema and Warren J.  Samuels (Princeton, NJ: Princeton University Press, 1998), p. 284. 55. W.H. Hutt, The Theory of Idle Resources (London: Jonathan Cape, 1939). 56. W.H. Hutt, The Economics of the Colour Bar (London: The Institute of Economic Affairs, 1964). 57. W.H. Hutt, The Theory of Collective Bargaining (London: P.S. King & Son, 1930), p. 30. 58. Ibid., p. 39. 59. George Stigler, ‘The Economics of Minimum Wage Legislation’ (1946), in The Essence of Stigler, ed. Kurt R.  Leube and Thomas Gale Moore (Stanford, CA: Hoover Institution Press, 1986), p. 4 60. Ibid., p. 5. 61. F.A. Hayek, 1980s Unemployment and the Unions: The Distortion of the Relative Prices by Monopoly in the Labour Market, 2nd edn (1980; London: The Institute of Economic Affairs, 1984).

8 What Went Wrong and What Is to Be Done?

Having reviewed the key contributions in the defence of liberty from Machiavelli to the mid-twentieth century, the time has come to ask where we are now in the twenty-first century. A superficial reading of the past sixty years could paint it as a series of victories for the defenders of liberty. After the Second World War and the defeat of fascism, a global liberal order was established according to the rules drafted at the Bretton Woods conference in 1944. Global institutions such as the International Monetary Fund (IMF) and World Bank were created to underpin this new world order. Bretton-Woods ended in 1971 when Richard Nixon unilaterally terminated the convertibility of the US dollar to gold, which rendered the dollar a fiat currency, but the underlying order continues to this day. In economics, the post-war Keynesian consensus gave way to the prominence of Milton Friedman, the Chicago School, and monetarism—on the face of it a positive development for the prospects of liberty. On the political front, the electoral victories of Margaret Thatcher as Prime Minister of the UK in 1979 and Ronald Reagan as President of the USA in 1980 signalled the dawn of a new era. The fall of the Berlin Wall in 1989 and the collapse of the Soviet Union in 1991 seemed to signal the final victory of the defenders of liberty over the totalitarianisms that had blighted the twentieth century. So why, then, in 2019 does it not feel © The Author(s) 2020 N. Parvini, The Defenders of Liberty, https://doi.org/10.1007/978-3-030-39452-3_8

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like much of a victory? Stress and anxiety levels are on the rise.1 People are not happy and more commit suicide than ever before.2 Apocalyptic titles dominate best-seller book lists and Hollywood release schedules.3 The surprise hit of late 2019 in the cinemas has been Todd Phillips’s The Joker which paints a stark, atomised society in which there are no human relationships and in which a lonely, psychologically damaged man can become the de facto leader of an anti-establishment, anti-capitalist violent rebellion.4 Pro-socialist sentiment is on the rise in the UK and the USA, as the Labour Party and Democrats have lurched to the far left.5 The political right has shifted from defending liberty to welfare chauvinism which means defending borders and nationalism. The proportion of all UK households that receive more in tax than they contribute is 53.4% including retirees and 39.6% not including them and nearly half pay no tax at all; 55% of all families receive some sort of state support.6 Between 1979 and 2019, the Conservatives have spent a combined twenty-seven out of forty years (or 67.5% of the time) in power, and they have done virtually nothing to reduce state dependency. As we look forward to the 2020s, it feels that once more liberals are caught between communism and fascism. Rather than lament this, or to defend the current global order, in this concluding chapter, I want to analyse why so many people have turned ‘against capitalism’ and ‘against liberalism’. I seek to understand from a purely liberal point of view, ‘what has gone wrong’ and how current-day defenders of liberty might seek to rectify this in five broad areas: methodology, monetary policy, politics and culture, crass materialism, and the language game. Each of these are broad topic areas with voluminous scholarship devoted to them. It is quite beyond the remit of this study, not to mention the technical expertise of your author, to do anything more in the space available to me here than gesture towards these five areas as ‘conversation starters’ among those who care about the defence of economic liberalism. In what follows, some of the developments I discuss have their roots in the Chicago School of Economics, whose members have been undoubted defenders of liberty. Throughout this book, I have drawn from Milton Friedman, George Stigler, Thomas Sowell, James M. Buchanan (who was trained by Frank Knight), and others to bolster my own arguments. In most cases, the arguments put forward by these thinkers have not been

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substantially different from the economists from the Austrian and London Schools which I covered in Chaps. 6 and 7. However, the damage has mostly been done in those areas in which they do disagree and have departed from the mainline of liberalism. I will focus on these areas.

Positivism, Scientism, and Mathematical Modelling Throughout this book, I have stressed that one of the central tenets of liberalism is its reliance on methodological individualism: the necessary treatment of the individual as the smallest decision-making unit of analysis. I have also said that the best defenders of liberty utilised the economist’s method, ceteris paribus, which are effectively mental constructions used to isolate causal factors. We have seen this method used to good effect by many great figures in the canon of liberalism, including John Locke, Richard Cantillon, David Hume, Adam Smith, Nassau William Senior, Philip Wicksteed, and Ludwig von Mises. However, from the 1940s onwards, economics increasingly looked to become a positivist science rooted in statistics. It gave rise to a new variant of what F.A. Hayek called ‘that species of modern positivism, which we prefer to call scientism’.7 The economist’s method would remain, but now the mental constructions would be filled with real-world data and used not to isolate causal factors but rather to make predictions about the future. Since it has always been the case that there are no constant variables and therefore no controlled experiments where human beings are concerned, economists had to start building in assumptions into their models. They traded off any semblance of considering real flesh and blood human beings which correspond to life as actually lived for the sake of the mathematical elegance of their models.8 Milton Friedman laid out his vision for ‘positive economics’ in a famous essay from 1953: The ultimate goal of a positive science is the development of a ‘theory’ or, ‘hypothesis’ that yields valid and meaningful (i.e., not truistic) predictions about phenomena not yet observed. Such a theory is, in general, a complex

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intermixture of two elements. In part, it is a ‘language’ designed to promote ‘systematic and organized methods of reasoning.’ In part, it is a body of substantive hypotheses designed to abstract essential features of complex reality. Viewed as a language, theory has no substantive content; it is a set of tautologies. Its function is to serve as a filing system for organizing empirical material and facilitating our understanding of it; and the criteria by which it is to be judged are those appropriate to a filing system.9

In Friedman’s epistemological vision, theory is merely prediction and empirical data merely validation: Viewed as a body of substantive hypotheses, theory is to be judged by its predictive power for the class of phenomena which it is intended to ‘explain.’ Only factual evidence can show whether it is ‘right’ or ‘wrong’ or, better, tentatively ‘accepted’ as valid or ‘rejected.’10

Superficially, this might make sense, but viewed logically Friedman’s view opens the door to absurdities as I outlined in Chap. 6. Take the example of minimum wage, when George Stigler used deductive logical argumentation to state that the minimum wage reduces aggregate output and reduces employment for the least efficient workers,11 did he really need verification by experience or is it an unfalsifiable fact as true as ‘a triangle has three sides’ or ‘two plus two equals four’? Likewise, when Friedman himself said ‘insofar as minimum wage laws have any effect at all, their effect is clearly to increase poverty … the effect … is … to make unemployment higher than it would otherwise be’,12 what empirical evidence could possibly challenge his chain of causal reasoning? In fact, if one reads either of these arguments by Stigler or Friedman, the former only includes some empirical data to show that, in the absence of a minimum wage, low-wage industries were competitive, but this only illustrates the theory in practice—the correctness of the theory does not depend on whatever the wage rates in American manufacturing industries happened to be in 1939. Friedman does not provide any data at all. To make matters worse, economists broadly following the positivist method then constructed mathematical models which were used to make proclamations about the real world and as ‘evidence’ to support certain

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policy decisions. They have, in effect, become part of a shaman class, making current decisions based on future prediction. It seems not to matter if these predictions are wrong, nor how often they are wrong. In 2019, we have already seen the Bank of England make countless errors in their modelling of the UK economy after Brexit to the point where Paul Krugman—a long-time enemy of liberty and establishment cheer-leader of the Democrat Party in the USA—accused them of being ‘absurd’ and driven by ‘motivated reasoning’.13 Confirmation bias is a persistent phenomenon, and in a case where economists are pre-programming models with their own assumptions, how can the positivist ever be sure that they are not selecting (and even manufacturing) evidence to fit their pre-­ existing theory rather than vice versa? Krugman himself made a big display of a Road-to-Damascus conversion after reading the glorified survey of fast food chains in Philadelphia and New Jersey that I mentioned in Chap. 6.14 In The New York Times addressing people who already support the minimum wage from a position in which he is paid to cheer on politicians who propose increases in minimum wages, Krugman wrote: Until the Card-Krueger study, most economists, myself included, assumed that raising the minimum wage would have a clear negative effect on employment. But they found, if anything, a positive effect. Their result has since been confirmed using data from many episodes. There’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.15

What was that about motivated reasoning again? Positivism creates a framework in which supposedly reputable economists can defy the most basic logic ‘because this and this study said so’. The real minimum wage is always zero. Krugman asks us to believe things which are impossible. He also ignores any countervailing evidence such as the fact that a country with a flat minimum wage, such as France (€10.03 per hour), has had a youth unemployment rate above 20% for the past two years, whereas a nation with a minimum wage staggered by age such as the UK (£6.15 per hour for 18–20) has been around 11% or the fact that just under half a million people have moved from California ($12 per hour, 20% youth unemployment rate) to Texas ($7.25 per hour, 10.3% youth

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unemployment rate) since 2001.16 The point is not that these statistics prove the effects of minimum wage one way or the other—my own reasoning might be motivated, and the numbers might be explained away by other factors—but rather that positivism plunges a question which has a clear and obvious answer using logical deduction into indeterminate mystery. Causal logic gets us there a lot faster. Why not set the minimum wage at £1000 per hour? Would doing this cause fewer people to be employed? What more do we need? When mathematical models fail to predict the future, the positivist can always claim that the model needs a tweak and it will never give us the full picture. When it comes to mainstream economists, I wonder how much longer people are going to listen to these modern soothsayers—a ‘religion of the engineers’.17 At this point, they are naked lobbyists for entrenched special interests. When reality fails to meet their expectations for the umpteenth time, how long will it take for the prophets to lose their authority in the eyes of the public and their self-appointed gatekeepers in the chattering class? When Michael Gove said ‘we have had enough of experts’ during the Brexit campaign of 2016, it struck a chord for this reason.18 Too much of our current political discourse is based on ‘forecasts’. In 2002, Daniel Kahneman won a Nobel Prize for his work on behavioural economics, partly for his career-long demolition of how ‘experts’ convey statistical information: The idea that the future is unpredictable is undermined every day by the ease with which the past is explained. As Nassim Taleb pointed out in The Black Swan, our tendency to construct and believe coherent narratives of the past makes it difficult to accept the limits of our forecasting ability. …The illusion that we understand the past fosters overconfidence in our ability to predict the future.19

When someone deigns to tell you that they can predict the future, make no mistake: they are lying even if they do not know it. We cannot predict the future; it is the ultimate in human hubris to pretend that we can. Of course, the managerial elites have all read Thinking Fast and Slow at this point, but such is their arrogance it never even occurs to them to imagine

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that the irrationality might be their own. The current fetish for using predictive models to enforce political policy choices is no better than a class of priests telling the people ‘because God said so’. The Divine Right of Kings did not die with absolute monarchy. Democratic regimes that use illusory concepts such as ‘the social contract’ or ‘the general will’ brought about, what Herbert Spencer called in 1884, ‘the divine right of parliaments’—something the people of both the UK and France are now witnessing in plain sight.20 What interests me most about the current penchant for rule by predictive modelling is how effectively it disarms those of us who value reason. I am not an IMF ‘economist’ or a statistician for a central bank, and, chances are, neither are you. For most people, the opportunity cost is too great to bridge this knowledge gap, so we must take it on faith alone.21 To use Aristotle’s terms, logos (reason) is replaced by ethos, a simple appeal to authority. We are compelled to trust in the expert, which boils down to little more than a character judgement. In rhetorical terms, it is often easier to sway people through ethos, which is mostly emotional and appeals to our heuristic biases, than it is by either reason or evidence which require more deliberative thought. I am reminded of John Calvin’s three solas: Sola scriptura, ‘by scripture alone’ Sola fide, ‘by faith alone’ Sola gratia, ‘by grace alone’22

Most people do not have time to dig into the specialist literature, so they take the pronouncements of the soothsayers by faith alone and allow the current political elites—as the spokespersons for the diviners—to rule by grace. Ludwig von Mises analysed the opaque logic of ideologies that use visions of the future to justify using force to allocate resources in the present arguing that it is ‘useless to argue with mystics and seers’. From his perspective, Marxists were seers, envisaging a future paradise: They base their assertions on intuition and are not prepared to submit them to rational examination. The Marxians pretend that what their inner

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voice proclaims is history’s self-revelation. If other people do not hear this voice, it is only proof that they are not chosen. It is insolence that those groping in darkness dare to contradict the inspired ones. Decency should impel them to creep into a corner and keep silent.23

And fascists, according to Mises, were mystics, attributing a spiritual essence not to a person’s individuality or achievements, but to his or her nationality and blood. Another group sees society as a biological phenomenon; it is the work of the voice of the blood, the bond uniting the offspring of common ancestors with these ancestors and with one another, and the mystical harmony between the ploughman and the soil he tills.…The voice of the blood, contend the German racists, mysteriously unifies all members of the German people.24

Mises was writing in 1949 after seeing one half of Europe devastated by fascism and the other half fall under the evil of socialism. The communist utopia is always around the next corner; the ultimate realisation of the Übermensch, one conquest away; the next apocalypse, twelve years away; the next economic disaster, one Brexit away. Mises also candidly outlined a cast-iron law of politics in an echo of the Italian elite theorists I considered in Chap. 2: Liberalism realizes that the rulers, who are always a minority, cannot lastingly remain in office if not supported by the consent of the majority of those ruled. Whatever the system of government may be, the foundation upon which it is built and rests is always the opinion of those ruled that to obey and to be loyal to this government better serves their own interests than insurrection and the establishment of another regime. The majority has the power to do away with an unpopular government and uses this power whenever it becomes convinced that its own welfare requires it. In the long run, there is no such thing as an unpopular government.25

This has never stopped being true, but as the failed predictions pile up, do the current elites even know? Time will tell, and one day in the future I can look back and pretend I predicted it. In any case, for our purposes,

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the inherent weaknesses in the positivist method as the appropriate tool for deriving sound logical principles in economics have been a key contributing factor in the loss of pro-free market sentiment.

Monetary Policy and Central Banking Milton Friedman, who was the great champion of positivist economics, was also the driving force of monetarism. The arguments over the causes of The Great Depression had been between the Austrians, who followed Austrian Business Cycle Theory and pointed to credit expansions, and Keynesians who pointed to ‘animal spirits’. In the Austrian approach, the boom-bust cannot be helped if there has already been a bubble caused by easy credit, instead one needs to allow interest rates to rise and the market will self-correct. Most Austrian economists object to the existence of Central Banks, which are market distorting, and instead advocate a return to hard money (e.g. the gold standard), 100% reserve banking, or else free banking.26 The Austrian cycle with a fast ‘self-correcting’ recovery happened many times in the British economy during the nineteenth century.27 The Keynesian answer was fiscal stimulus and government intervention into markets to back growth through investment (see the section on Hayek in Chap. 6). The 1930s witnessed these policies in practice in the sorts of unprecedented government interventions made by Herbert Hoover and the various make-work schemes introduced by Franklin D. Roosevelt (FDR). The recovery after the Great Depression was exceptionally slow under both Hoover and FDR. As Richard K Vedder and Lowell E. Galloway have shown, unemployment fell from a high of 9% in November 1929 to a low of 6.3% in June 1930 without any intervention.28 At this point Hoover—contrary to his reputation, not at all a champion of laissez-faire—introduced the Smoot-Hawley Tariff Act 1930 and a raft of policies both informal, such as ‘jawboning’ industry leaders such as Henry Ford to keep their wages artificially high, and formal, such as increasing government spending as a per cent of GNP by one-third,29 and passing the following pieces of legislation:

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• Agricultural Marketing Act, 1929, which established a Federal Farm Board to ‘stabilise prices’ aka to set them artificially above or below market rates. • Davis-Bacon Act, 1931, mandating eight-hour workdays for government contractors. • Norris-Le Guardia Act, 1932, which banned ‘yellow-dog’ contracts and effectively forced employers to accept unionisation. • Revenue Act, 1932—used to raise taxes, doubled income tax for most Americans. The top rate of tax increased from 24% to 63%. • Reconstruction Finance Corporation Act, 1932, to bail out failing banks and to promote government-secured lending. Abolished credit limits. • Emergency Relief and Construction Act, 1932, a $2  billion ‘public works’ scheme, which was effectively a slew of ‘make work’ artificial labour projects. • Glass-Steagall Act, 1932, allowed the Federal Reserve to increase inflation and pump credit.30 The cumulative effect of these policies added to the impact of the protectionist Smooth-Hawley tariffs, stymied the recovery, and caused unemployment to rise to over 20% for twenty-three consecutive months from 1932 until well into the FDR era.31 As Vedder and Galloway conclude, Hoover’s attempt to keep wages artificially higher after the Wall Street Crash of 1929 exacerbated a recession and turned it into the Great Depression: Analysis of the literature and the empirical evidence leads to an inescapable conclusion: the failure of money wages to fall in the downturn beginning in the fall of 1929 was largely a consequence of public-policy intervention by President Hoover and his political allies. As a consequence of this intervention, real wages rose rather than fell, and unemployment increased to previously unattained levels. The Great Depression was not a tragic example of market failure as is conventionally believed, but rather an example of government failure. It can be argued that the failure of the academic community, government policymakers, and the general public to realize this has been one of America’s greatest mistakes.32

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The USA did not start to recover in earnest until 1946 when the global economy had been transformed utterly by the Second World War and America had a new place in the world, largely signalled by the sight of Lord Keynes himself practically begging William L. Clayton on behalf of the UK for a loan in 1946. Contrary to popular belief, the war itself did not end the Great Depression because the USA ‘merely traded debt for unemployment’ increasing the national debt ‘from $41 billion in 1941 to almost $260 billion in 1945’ which only succeeded in ‘postponing the recovery’.33 The recovery is best explained as a change in the comparative advantage between the USA and the nations of Europe which had experienced both economic and physical devastation because of the war. Friedman had a different idea from both the Austrians and the Keynesians, which involved the printing of money. Under Warren G. Harding and Calvin Coolidge, there was a rapid recovery from the depression of 1920–1921 and unemployment reduced from over 11% to just over 2% in just two years. According to Friedman and his co-author Anna J.  Schwartz, this was fuelled by printing more money, while the Great Depression was caused by a tightening of monetary policy from 1928 onwards. The chief thesis of The Monetary History of the United States (1963) is that if government can control the money supply, the economy should avoid such catastrophic downturns. The idea is that markets are lubricated by liquidity.34 Despite claims from some economists fighting rear-guard action that Friedman’s and Schwartz’s research ‘saved the world during the 2008 financial crisis’,35 the truth is that many have blamed the model established by monetarism for the severity of the crash, especially as so few saw it coming.36 Despite Friedman’s thinking on this issue finding ‘widespread acceptance’ in the economics profession and among central bankers,37 for some, it has tarnished his posthumous reputation. The combination of continual inflation and easy credit seems to produce conditions in which boom-bust cycles are less regular than they once were, but in which downturns are more totalising and more disastrous when they do occur. The modern international financial system, built on fiat currency and monetarism, has lost its anti-fragility. Banks are not allowed to fail. The market is distorted beyond comprehension by government schemes. Massive financial institutions have incentives to

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cosy up to governments because they know they will be bailed out by them.38 These cronyist relationships—which saw bankers go unpunished, IMF personnel promoted to the top ranks of the European commission, and so on—are the sorts of things that turn people ‘against capitalism’. It fuelled the Occupy Wall Street movement and, arguably, the rises of both Bernie Sanders and Jeremy Corbyn. This cronyist relationship between banks and governments expose the fact that, at present, markets are not free and that the system is rigged against ‘the many’ and for these ‘few’ in multi-national multi-billion-dollar financial organisations.

 ecoupling Economic Liberalism from Social D and Political Liberalism Another of Milton Friedman’s great ideas was that economic freedom and social and political freedoms go hand in hand. This was the thesis of his famous popular book Capitalism and Freedom.39 Again, I am afraid to say, this was wishful thinking on Friedman’s part. At the time of writing, the great symbol of economic freedom, Hong Kong, has seen ongoing protests of over two million people against the passing of an Extradition Law that would allow authorities to detain and extradite ‘fugitive criminals’ to mainland China. It seems to me that the world has looked on largely uninterested and unsupportive of Hong Kong, and therefore in thrall to China. After Deng Xiaoping introduced a measure of economic liberalisation to the Chinese economy in 1978, the expected social and political liberalisation did not follow. If anything, the Chinese have become more authoritarian and more nationalist under Xi Jinping. In what will be a counterintuitive move to some, I believe that economic freedom—that is the defence of free markets—needs to be decoupled from social liberalism, or ‘progressivism’, and from the notion of liberal representative democracy. These three quite distinct concepts have been bundled together and sold to the world as a ‘package deal’. This was not at all helped when George W. Bush, Tony Blair, and other such ‘neo-cons’ tried to bomb parts of the middle-east into their world view. Perhaps the people of those nations did not want the social or political liberalism which

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have been imposed on them by force. They can always reveal their preferences for economic freedom in the market. The problem with this ‘package deal’ is that the market should have nothing to say about the ends of individuals and there is nothing at all in democracy that intrinsically lends itself to greater economic freedom, indeed it has almost always been quite the reverse. Traditionalist or conservative societies should not be forced into accepting progressive values or vice versa. In short, they should be free to choose which products they want from the marketplace without also signing up either to gay pride or Ramadan. In fact, it will be a difficult truth for many to accept that it is precisely the ‘packaging’ of capitalism with left-wing progressive social values that has led many around the world to reject it as a fundamentally corrosive path. When the Iranian Revolutionaries held up banners which read ‘Death to the Great Satan, USA’ in 1979, it was not because they objected to theories of marginal utility, it was because they objected to the social liberalism that they perceived as transforming their country to the point where it was becoming unrecognisable. In some ways, the more conservative areas of the USA itself have been experiencing a similar revolt against social liberalism. The current prevalence of ‘woke capitalism’ is only the latest and most visible iteration of this. Companies would do well to remember they are selling trainers or chicken sandwiches or whatever other product, not a set of social values. The freedom to choose might also mean the freedom to discriminate, the freedom to disassociate, the freedom to choose the in-group over the out-group. Again, economic liberalism should remain value-free in these cases so long as no one is coerced, freedom to choose means exactly that. Granted, it is not helped when governments pass legislation which effectively mandate a set of social values, whether progressive or conservative, but this is why defenders of liberty should not passively go along with the zeitgeist but rather steadfastly oppose all such laws. In May 2019, the UK saw an illustrative case. The Labour MP, Jess Phillips, had an altercation with a group of angry Muslim parents who objected to their children being taught LGBT content in school. Phillips said to one parent: ‘Our equality laws protect us all. I want them to protect you. And, actually, I want to protect the Muslim community. I fear that you are damaging the reputation of the Muslim community and I

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will make sure that stops.’ To which the parent responded: ‘your behaviour and the behaviour of the schools is coming across as Islamaphobic.’ Phillips shot back, ‘it’s not Islamaphobic to suggest that people can have two mums or two dads.’ Here, the defender of liberty must look beyond their own personal views on these issues, whatever they may be, and look only at the question of choice. It strikes me that in this case the problem is that the school is imposing a set of values against the will of the parents.40 The problem is ultimately economic: the allocation of scarce resources which have alternative uses in this case is handled by force— that is, the state funding it through taxpayer money—as opposed to by trade. Therefore, the school is less responsive to these parents, and the ability of parents simply to withdraw children from the school is reduced because the allocation is done on the basis of catchment area and house prices as opposed to fees. If the parents get their way the problem is not resolved because it may also serve progressive parents who want LGBT classes from an early age. There is no happy medium when the allocation is made on a zero-sum basis. The defender of liberty here must advocate for the solution that maximises liberty: which in this case, in the final analysis, would be the abolition of state schools and the very notions of either a national curriculum or compulsory schooling. Greater freedom should also include the ability not to go to school at all or to specialise their knowledge from a very early age as people did for centuries as apprentices. Likewise, democracy is not necessarily the optimal political system to allow the market to operate unimpeded. In debates over systems of government, it is common for people to argue that representative democracy is ‘not perfect, but it is the best thing we have’. I discussed Hong Kong and Singapore in Chap. 2, but there are yet further alternative structures that work around representative democracy’s inherent problems, which have the tendency towards state growth, socialist infiltration of institutions of all kinds, including and most importantly, education at all levels, and entrenched elites whose interests are directly against those of the people. We might think of an order built around the Swiss canton system featuring direct democracy on specific issues on a regional basis. Matt Ridley has advocated for a similar idea.41 In such a system, governors, rather

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than being elected, might be appointed solely to execute and administer results of votes. Rather than being appointed by job interview or vote, they can be selected at random from a pool of those who enter their names into a hat and who meet the minimum entry requirements. Governors would serve for a fixed term with no reappointments. This should strip out a great deal of the incentives that lead the worst among us to become political leaders. The administrative cantons should be sufficiently local so as to prevent redistributive policies between them. That is canton A cannot vote for canton B to pay for its services. Votes take place on the first day of every month. That way everyone knows when they are coming. Citizens must use their votes or lose them. Flat majority wins. Issues put up for referenda might be decided by petition and reaching a minimum threshold, let us say 10,000 people, to be signatories including some form of citizen ID number to prevent fraud: one ID number, one signature. Bribery for signatures would be strictly prohibited and carry a stiff sentence. If the threshold is reached and it lands on the governor’s desk, he or she can schedule it for a vote on one of the voting days or else pass it back to be redrafted if it fails viability criteria. Viability criteria might include ‘It must be specific, not vague’; ‘It must state where and how resources are allocated’; and ‘It must state how the proposal will be funded’. So, for example, a question such as ‘Should this region take in refugees from the middle east?’ would be deemed too vague because it is uncosted. A redrafted version would have to specify exact numbers of refugees, exact numbers for relocation in specific towns, exact costs to the taxpayer, and so on. Such votes should feature a full leaflet or website breaking down all costs in detail for anyone to check before casting their vote. This system would make it much harder to off-set costs onto other people. The phenomena of NIMBYism—that is, Not-In-My-Backyard-ism—is exposed making it much more difficult to use a vote like this to virtue signal. In this way, there are genuine costs associated with voting—information costs, time costs, and most importantly the costs of the actual legislation itself front loaded before anyone agrees to them. This would be something for the policy wonks to work on, and naturally no system is perfect, but such a system would have some natural defences against the enemies of liberty which seem to be endemic in representative democracy.

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Pro-socialist sentiment is notably lower in Switzerland.42 Why? It is because the ‘iron triangle’ of beneficiaries, politicians, and bureaucrats that Milton Friedman identified is effectively broken, or severely weakened, by the incentives and constraints of Swiss-style democracy. The iron triangle is what pushes liberal democracies further and further away from liberty as the gap between elites—not only in terms of wealth, but also in terms of social values—widens and the state intervenes in ever greater areas of daily life from how much sugar there might be in a chocolate bar to what colour skin or genitals you need to qualify for a university place, and so on.

 elfishness, Atomisation, and Being Part S of Something Bigger than Yourself One of the most enduring analyses of free markets by social conservatives from Edmund Burke and Thomas Carlyle to Roger Scruton and Peter Hitchens and, in the American tradition, from Irving Babbitt and Russell Kirk to Allan Bloom and Patrick Deneen, has been some notion that the market rots the soul. In less elevated language, they talk about ‘atomisation’, that is, the market reduces all things to a transaction and corrodes a sense of community. Individuals are reduced to zombie-like consumers wandering around shopping malls, ‘real’ culture is replaced by the fake culture of manufactured pop music and billion-dollar film or sports franchises.43 Jonathan Haidt’s work in psychology has shown that the need to feel a sense of community, as he puts it, ‘to be part of something bigger than ourselves’ is so deeply felt that it is probably innate.44 So strong is this sense that it seems that in the absence of religion, quasi-religions such as ‘social justice’ quickly fill the void that has been vacated.45 The conservatives may well have a point about the social ills that seem to plague us—the sense of drift and purposelessness, the loss of confidence, broken families, broken people, and so on. But is the market to blame for these things? As I have continually stressed in this book, the market knows nothing of people’s ends. The market is there for the Buddhist monk as it is there for the hedonist as I argued in Chap. 7. The market does not have

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‘ends’, the market does not target GDP growth or foreground consumption over savings, these are Keynesian policy preferences which artificially induce high-time preference behaviours. If a population is 65  million people today but reduces to 40 million people in twenty years’ time, in the absence of a state pension system, it does not matter to the market that aggregate demand may fall by 38% so long as the needs and wants of 40 million people are being met. It may matter to individual firms that go out of business, but not from the point of view of the economy taken as a whole, which has no overall purposes beyond providing goods and services for those who live in it. If there is a state pension system or let us say a National Health Service paid for by continuous deficit spending and inflation, then all the societal incentives are changed and now there is ‘a need’ for the economy to keep growing through consumer spending and mass immigration. It is not the market’s fault if the church or mosque or synagogue has failed sufficiently to inculcate people with their values, just as it is not the market’s fault if the state pushes one set of values over another set—pushing this school syllabus or that, outlawing this business practice or that. It is not the market’s fault that welfare benefits produce perverse incentives which have contributed to reducing black two-parent families in the USA from 61% in 1959 to 13% in 1995. After decades of welfarism, the percentage of American black children living in poverty in fatherless families increased from 29% in 1959 to 85% in 1995.46 It is not the market’s fault if progressive crime reforms doubled the murder rate between 1961 and 1974 and tripled the violent crime rate between 1960 and 1976.47 In the UK, the market is blamed for mass immigration but the market did not sign the Commonwealth Immigrants Act 1962 or the Immigration and Asylum Act 1999. The market does not give social housing to 39% of foreign residents living in London48 or income-related benefits for 32% of Bangladeshi families, 29% of black families, 22% of mixed-race families, and 21% of Pakistani families.49 However, what of the more general claim made by conservatives that markets make us more materialistic, more selfish, more atomised, and less community-oriented? The issue here is a category error between methodological individualism—a value-free method of understanding causal effects in economics—and something like the American ideology of

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‘rugged individualism’ which preaches that we should all go it alone and be self-reliant, that every individual is for himself or herself only, and in the most extreme version that altruism is evil. The matter is not helped by the fact that some self-identified defenders of liberty—generally followers of Ayn Rand, ‘Objectivists’—have actively embraced something like this second version of individualism. This involves substituting value-free logical reasoning with a moral philosophy, which typically substitutes the neutral self-interest of economic analysis for the claim that selfishness is a virtue and that one ought not to sacrifice one’s own interests for the benefit of another.50 Nathaniel Branden expresses it like this: ‘As an ethical-­ political concept, individualism upholds the supremacy of individual rights, the principle that man is an end in himself, not a means to the ends of others.’51 This imposes a normative goal on humans which may not fit every individual: what of the person who wants to serve others? Branden continues: An individualist is, first and foremost, a man of reason. It is upon the ability to think, upon his rational faculty, that man’s life depends; rationality is the precondition of independence and self-reliance. An ‘individualist’ who is neither independent nor self-reliant, is a contradiction in terms; individualism and independence are logically inseparable. The basic independence of the individualist consists of his loyalty to his own mind: it is his perception of the facts of reality, his understanding, his judgment, that he refuses to sacrifice to the unproved assertions of others. That is the meaning of intellectual independence—and that is the essence of an individualist. He is dispassionately and intransigently fact-centered.52

As per my outline of human nature in Chap. 1 and in my discussion of Thomas Hobbes in Chap. 3, unfortunately for Branden, the facts are in and human beings are mostly not rational creatures; they are prone to systematic confirmation bias and spend most of their lives actively attempting to avoid strenuous cognitive reasoning.53 Humans are social creatures and many individuals crave group acceptance, in some cases the effects of group pressure are so strong that especially impressionable individuals can be so easily influenced as to see what is not there, other Machiavellian types may lie for the sake of a quiet life.54 Armed with such

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facts, would the ‘man of reason’ advocate that all individuals should pursue a life of faithless rational selfishness based entirely on enlightenment values? My own dispassionate and intransigently fact-centred view is that this would be a hopelessly utopian position to take. As we have seen throughout this book, this utopian position, which despite being superficially adjacent to it, has nothing whatsoever to do with the economic doctrine outlined by the defenders of liberty from John Locke to Ludwig von Mises based on human nature, methodological individualism, and property rights. Perennial confusion over the difference between methodological individualism and ‘rugged individualism’ of the Randian variety has plagued the defence of liberty for over a hundred years. It has been one of my aims to help clear the fog.

 ontrolling the Frame and Winning C the Language Game When I was a teenager, I read four works of literature that would have a lasting impact on me. The first was George Orwell’s Nineteen Eighty-­ Four, which I read in one sitting. Then, when it was finished, I started the whole thing again. I remember that it left me stunned for days on end. The second was Anthony Burgess’s A Clockwork Orange, which is ultimately a book about the importance of free will in moral decision-­ making. The third was Arthur Miller’s The Crucible, a play about the Salem witch trials in which the protagonist is coerced to confess that he has consorted with the devil. The fourth was Harold Pinter’s The Birthday Party, which ends with the immortal line ‘Stan, don’t let them tell you what to do’. On reflection, I think these works of literature inoculated me against the various ideologies of totalitarianism, and perhaps I was primed to become a classical liberal or libertarian thereafter. One common thread in these works is the relationship between language and power. Of course, this is most developed in Orwell. If you recall, in Nineteen Eighty-Four, the subjects of Big Brother were required— through a process of doublethink and Newspeak—to reject obvious and self-evident truths such as ‘2 + 2 = 4’ in favour of false dogma such as

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‘2 + 2 = 5’. Here language is simply a function of state control—and reality is whatever official doctrine dictates. Those who refuse to comply are branded as ‘thought criminals’ and sent for re-education. I do not think it is hyperbolic to suggest that this has some contemporary relevance. As I mentioned in Chap. 1, in the culture war in which we are currently engaged, the first battle to win is the language game. This comes prior to all other issues. Perhaps the number one reason why pro-liberty sentiment has been falling in recent years has been the near-total dominance of socialists on the linguistic field. As long as they can frame the issues on their terms, they will successfully prime and anchor the general populace to embrace the fallacious arguments used to oppose free markets that we have seen in the previous seven chapters. This final section focuses on how our adversaries—the enemies of liberty—have succeeded in committing linguistic terrorism and suggests some ways of countering them. Matt Ridley complained about the problem in an article for The Times: It feels as if the left has always been better at vocabulary than the right. ‘Capitalism’ was a word largely invented by the opponents of commerce … Ever since, the left has used ‘capitalism’ to imply that all free-market commerce is run by big financiers, with massive investments, rather than merchants and entrepreneurs taking risks on behalf of consumers and driving down prices. For reasons I don’t fully understand the champions of commerce fell in with this scheme and have spent the last century and a half trying to defend the word ‘capitalism,’ instead of ‘commerce’ or ‘enterprise’… Likewise, the term ‘Tory’ for a Conservative is generally intended as an insult, as is the term ‘socialist’ for a Labour person (it remains a puzzle that we have never coined a noun for Labour members). But note that a diligently impartial newscaster on, say, Channel 4 will not hesitate to use ‘Tory prime minister’ to describe Theresa May, but would never call Jeremy Corbyn the ‘socialist leader of the opposition.’ Why is that?55

Perhaps the key reason has been their superior tactics waging warfare with the spoken word and pen. I will focus on just four of these tactics, but there are likely many more. These four tactics are: 1. Linguistic inversion 2. The Motte and Bailey

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3. Gaslighting 4. The Kafka trap These methods have been used to bully and corral the defenders of liberty into submission using nothing but threats and intimidation for the past century. These are all arguments without argument, or as Thomas Sowell puts it, in the best treatment of this topic before now, ‘verbal pre-­ emption’.56 The basic strategy is to shift the register from logos (reason and evidence), where it is much more difficult to make headway, to ethos and pathos, where rhetoric can sway the passions and overcome logical argumentation. Free market economists have rarely effectively countered the language games of socialists—perhaps the best example is when James M. Buchanan and the Public Choice theorists coined the phrase ‘government failure’ in the 1960s and 1970s. I hope to provide a brief guide here to know what they are fighting—otherwise, as one well-known former communist puts it, ‘it’s Godzilla versus Bambi.’57 Linguistic inversion is when words are defined to mean the exact opposite of their everyday meaning. Let us take a phrase like ‘justice’. In everyday English, most people take justice to mean something like reciprocal just desserts. This relies on equality under the rule of law. In other words, everyone is subject to the same rules. This is fairness. But modify it with the word ‘social’, to form the phrase ‘social justice’, and we are left with an idea that certain victim groups should get special exemptions or privileges. In other words, the opposite of what most people take to mean ‘justice’. Therefore, virtually every social justice policy is unjust and unfair. For example, the Macpherson Report’s famous call to end colour-­ blind policing, now usually called ‘racially sensitive policing’, quite literally means that different ethnic groups must be treated differently by the police. How well has that gone? I need only mention grooming gangs in Rotherham to illustrate the point. Then there is ‘Affirmative action’, in other words, the blatant lowering of entry requirements for certain groups. Despite initial claims that such measures will only be temporary, and reams of evidence that it has had deleterious effects wherever it has been tried, the policy persists—especially in the American education system.58

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Another example of linguistic inversion is—dare I say it—in the language of human rights. As I said in Chap. 1, it is one thing to say that I have a ‘human right’ not to be punched in the face by you, but quite another to say that I have a ‘human right’ for you to give me food, shelter, custom, and so on. ‘Human rights’ are more properly defined as ‘special privileges conferred upon some persons at the expense of others’.59 Most of what are called ‘human rights’ are entitlements without obligations. If you are faced with someone playing this game in debate or even in private conversation, I recommend fully spelling out in plain English what they mean every time the phrase is uttered. This may sound pedantic, but it is important both to expose the linguistic concealment involved and to force the person using the term to think. Continuously ask for clarification. For example, if someone ever uses the phrase ‘consumerism’, I will always ask them ‘do you mean individuals buying products that they want at affordable price points?’ Linguistic inversion is an effective tactic for the enemies of liberty because it puts opponents into a kind of Alice in Wonderland state where ‘up’ is ‘down’ and ‘black’ is ‘white’. It is a near constant struggle against obfuscation and absurdity as demonstrated in a recent debate, watched by millions of people, between the almost comically nonsensical Slavoj Žižek and Jordan B. Peterson. Despite being quite wise to these games, Peterson still palpably struggled against such organised chaos; his opponent did not even try to be coherent or consistent.60 I have collected some useful examples of linguistic inversion below as a reference point (Table 8.1). All too often, the defenders of liberty have been trapped by these dual-­ meanings, which can be used to put them on the defensive. Given that most people in most places would not support the policies of the enemies of liberty if they were stripped of the emotive and concealed terms in which they are usually packaged, they rely on a second technique, a form of hoodwinking, which we can call The Motte and Bailey. This essentially relies on the gap between the everyday meaning of the word—let us say ‘justice’, and the more esoteric meaning, as in ‘social justice’. The first is the stronger position, ‘the motte’, the second is the weaker position, ‘the bailey’. Nobody is going to come out and say that they are against justice. Everyone is for justice—that is all individuals

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Table 8.1  Examples of linguistic inversion Newspeak word or phrase Ostensible definition Crisis

A time of intense difficulty or danger

Urgent need

Requiring immediate action or attention

Public service

Anyone providing a service for the public

Greed

Intense and selfish desire for something, especially wealth, power, or food The means or opportunity to approach or enter a place Development towards an improved or more advanced condition Something that has stopped being unusual and has become generally used or accepted Certain to happen; unavoidable No longer modern, useful, or necessary

Access

Progress

Here to stay

Inevitable Outmoded

Unrealistic

(Social) Justice

Definition of socialist intent Something that we want done must be done now because we want it Something that we want done must be done now because we want it Government-appointed bureaucrats who can make the top-down decisions we want enacted are good The sinister and malignant motives of our enemies who must be brought to heel Barriers imposed on those who we like but who are not being admitted into desirable places in high enough numbers Social or political change in a direction that we like A change that we like cannot be unchanged because we say so

A change we like is destined to happen because we say so Something we don’t like has gone away and cannot come back because we say so A change our opponents want Having a wrong idea of but which we don’t cannot what is likely to happen happen because we say so or of what you can really do; not based on facts Equality of outcomes enforced The system of laws in a through coercive top-down country that judges and redistribution punishes people; equality under the law (continued)

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Table 8.1 (continued) Newspeak word or phrase Ostensible definition Diversity is Our Strength

Representation

Austerity

It’s good when people have many different ideas or opinions about something A person or organisation that speaks, acts, or is present officially for someone else

Definition of socialist intent It’s good when people have different skin colour or genitals, as long as they agree with us

The demographics of an industry, institution, or media outlet that do not reflect the percentage breakdowns we see in the national demographics, and think, for reasons we will never explain, that they should The evil opposition is telling us we Difficult economic cannot run up huge national conditions created by debts; all they want to do is cut government measures spending (and kill innocent to reduce public children) because they are evil expenditure; sternness or severity of manner or and have no compassion attitude

being treated the same under the law. Very few people are for social justice—that is some groups being treated differently under the law for whatever reason. The intellectuals rely on this gap to gain support from their unsuspecting marks. However, occasionally, a wily opponent may point this out to them in a debate, and you will see the intellectual, almost always a creature of cowardice, retreat to the first definition of justice as a kind of cover. Then, later, they quietly shift back to the second definition. Such manoeuvrings can be seen around the word ‘racism’, which, in everyday parlance, is defined as something like ‘prejudice based on race’ but in the esoteric lexicon of the intellectual is defined as ‘prejudice plus power’. This is a classic Motte and Bailey which can be witnessed on virtually any broadcast of CNN in the past three years or in the tweets of the Labour MP, David Lammy. However, there can be more difficult examples of the Motte and Bailey to spot. Let us take ‘progress’ for example. This one is more subtle. Again, everyone is for progress—even Edmund Burke was for progress. All but the least sensible of us can agree where progress has been made in

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technological areas: for example, the combine harvester produces ‘a greater output per unit of input’ than an ox with a plough.61 This represents a saving of effort and time we can call ‘progress’. Similarly, if we look at the cost in average wages measured in time to produce one hour of light no one would doubt that we have made ‘progress’ (Table 8.2).62 This is the motte. However, on social and moral issues, it is not so clear that, let us say, the social policies of Tony Blair and their aftereffects count as ‘progress’. Does anyone really think that the change from the values of Thomas Aquinas’s Summa Theologica to the right-on values of Tony Blair is ‘progress’? Well, they might, but the point is that unlike the development of the light bulb, it is strongly debatable and a matter of some contention. This is the bailey. When intellectuals use ‘progress’ they are often relying on the gap between ‘development towards an improved or more advanced condition’ and what they really mean which is ‘social or political change in a direction that we like’. Why do intellectuals play this Motte and Bailey game to sell their ideas? It is because, in virtually every case, they must conceal the fact that they are making an active bid for power and control. If these bids were made plainly, they would be rejected by most people, so they must be concealed in this way. The best way to deal with this is to call it out and to force them to defend the bailey and not the motte. Gaslighting is a word from the world of psychology; it is a technique of manipulation to achieve power. Here are eleven warning signs: 1. They tell blatant lies. 2. They deny they ever said something, even though you have proof. 3. They use what is near and dear to you as ammunition. Table 8.2  Cost in average wages measured in time to produce one hour of light Year

Technology

Output

1750BC 1800 1880 1950 2010

Sesame oil lamp Tallow candle Kerosene lamp Incandescent lightbulb Compact fluorescent lightbulb

24 lumen-hours 186 lumen-hours 4400 lumen-hours 531,000 lumen-hours 8.4 million lumen-hours

Cost in average wages 50 hours 6 hours 15 minutes 8 seconds 0.5 seconds

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4. They wear you down over time. 5. Their actions do not match their words. 6. They throw in positive reinforcement to confuse you. 7. They know confusion weakens people. 8. They project. 9. They try to align people against you. 10. They tell you or others that you are crazy. 11. They tell you everyone else is a liar.63 One might spend a long time on any one of these, but the most prevalent form of gaslighting that I have seen in the media over the past few years has been the way in which they will persistently present an extreme, fringe, and radical view held by a tiny minority of people as being in some way representative of what the vast majority of people think and by the same token presenting views that are genuinely representative of the majority of people as being at the extreme fringes of allowable opinion. This is a persistent technique on our very own BBC, and it can be seen across a range of issues from Brexit to how seriously we should take the views of a 16-year old from Sweden on climate change. There are several studies which have shown evidence of this. In The Strange Death of Europe, Douglas Murray showed the wide gap between audiences whooping and cheering for mass immigration on Question Time, when opinion polls show that the majority of people consistently oppose it.64 Using data from the British Social Attitudes Survey, David Goodhart suggests that this tendency has gone on for many years.65 Peter Hitchens recounts an episode from 1967 in which the Rolling Stones were charged for various drug offences, and Keith Richards was imprisoned for a year. A poll at the time showed that 56% of the population aged between twenty-one and thirty-four thought the sentence was not harsh enough while only 12% thought that it was too harsh. Yet it was the view of the 12% that was amplified by the media, and indeed, the eternally right-on Tory Party, as normative.66 It could not be clearer, then, that wittingly or otherwise, the intellectuals use state institutions—the media, schools, universities—as vehicles for ideological indoctrination in much the manner described by the Marxist philosopher, Louis Althusser, a thinker that virtually all

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university graduates—who later make up the ranks of the intellectuals— are expected to read.67 This also explains the persistent belief among the non-­ruling elite that voters must have been tricked or brainwashed somehow into supporting Brexit or Donald Trump. It cannot possibly be that their own ideas are being vocalised by someone with a platform, or that those voters simply agree with what they are hearing, they must be explained away as victims of propaganda. Naturally, this is pure projection on their part because that is precisely what they need to do in order to gain support. Finally, when all else fails, the enemies of liberty must resort to The Kafka Trap. This is a pre-emptive verbal strike at their opponent designed, as ever, to avoid discussing the issues at hand. The Kafka Trap involves a serious smear of some kind, usually accompanied by a label and an accusation—‘racist’, ‘sexist’, ‘homophobic’, ‘far right’, and so on. Structurally it is identical to the accusation faced by John Proctor in The Crucible—he is accused of consorting with the devil by Judge Danforth, who is essentially a witch-finder general. It is a trap because no direct answer to the accusation will do. If you deny it, it is affirmation that you did indeed consort with the devil and must be burned at the stake accordingly. In fact, the more you deny it, the further you appear to be guilty. If you affirm it, let us say with a confession and an apology, then you did indeed consort with the devil and must be burned at the stake accordingly. There is no way out of this if you give the accuser moral authority. The technique is used to move the argument from the arena of logos— that is, reason and logic—where intellectuals are, despite their reputation, usually very weak—to ethos, that is, the moral character of the opponent. Many writers from the past, such as Shakespeare, for example, would have instantly recognised these moves. That is because they were trained in rhetoric as part of their education—they could tell logos, ethos, and pathos apart. However, as far as I can see, our state education system, despite repeated claims to teach ‘critical thinking’, does not teach logic or argumentation at any point—I suppose that is ‘progress’ for you. And so, people are just as susceptible to it as are the crowds who are swayed by Mark Anthony’s rhetoric in Shakespeare’s Julius Caesar. So how must we counter this form of linguistic terrorism? As we have seen repeatedly in recent years, the enemies of liberty pull no punches;

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they think nothing of destroying lives. There is no limit to how low they will stoop in pursuit of their own careers, which they have the temerity to dress up as an anointed vision. The ends justify any and every means. Therefore, their opponents—who represent the biggest threat to their continued hegemony—must be ritually purged from polite society. There is no way to counter the Kafka Trap if you submit to the moral authority of the accusers. The only form of defence here is to deny them moral authority and to go on the attack. Until we can argue from a position of moral strength, confident, unapologetic, and uncowed, the prospects for liberty in the next decade seem as faint as the flicker of a solitary candle.

Notes 1. Sabrina Barr, ‘Number of Hospital Admissions for Stress and Anxiety Soars in Decade’, The Independent (December 6, 2018), available at: https://www.independent.co.uk/life-style/health-and-families/stressanxiety-hospital-number-rise-nhs-office-national-statisticsmahabis-a8669911.html. 2. Damien Gayle, ‘Suicide Rates in UK Increase to Highest Level since 2002’, The Guardian (September 3, 2019), available at: https://www. theguardian.com/society/2019/sep/03/suicides-rates-in-uk-increase-tohighest-level-since-2002. 3. Sarah Goodyear, ‘We’re Doomed: Why Is Hollywood Obsessed with the Apocalypse?’, Daily News (February 6, 2016), available at: http://interactive.nydailynews.com/2016/02/why-hollywood-obsessed-withapocalypse/. 4. Ian Sandwell, ‘Here’s Why Joaquin Phoenix’s Joker Unexpectedly Proved to be such a Hit’, DigitalSpy (November 11, 2019), available at: https:// www.digitalspy.com/movies/a29663771/joker-box-office-joaquinphoenix-explained/. 5. See Thomas J.  DiLorenzo, The Problem with Socialism (Washington, DC: Regnery, 2016), and Kristian Niemietz, Socialism: The Failed Idea That Never Dies (London: The Institute of Economic Affairs, 2019). 6. ‘Are Half of British Households a Burden to the State?’, Full Fact (October 8, 2012), available at: https://fullfact.org/economy/are-halfbritish-households-burden-state/. See also ‘State Support’, HMRC

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(August 15, 2019), available at: https://www.ethnicity-facts-figures.service.gov.uk/work-pay-and-benefits/benefits/state-support/latest. 7. F.A.  Hayek, The Counter-Revolution of Science: Studies in the Abuse of Reason (New York and London: The Free Press of Glencoe, 1955), p. 105. 8. For a superb treatment of this topic see Roderick T. Long, ‘Realism and Abstraction in Economics: Aristotle and Mises versus Friedman’, The Quarterly Journal of Austrian Economics, 9:3 (Fall, 2006), pp. 3–23. 9. Milton Friedman, ‘The Methodology of Positive Economics’ (1953), in Essays in Positive Economics (Chicago, IL: University of Chicago Press, 1966), p. 7. 10. Ibid., p. 8. 11. George Stigler, ‘The Economics of Minimum Wage Legislation’ (1946), in The Essence of Stigler, ed. Kurt R.  Leube and Thomas Gale Moore (Stanford, CA: Hoover Institution Press, 1986), p. 4. 12. Milton Friedman, Capitalism and Freedom (1962: Chicago, IL: University of Chicago Press, 2002), p. 180. 13. Quoted in Andrew Lilico, ‘The Bank of England’s Forecasts aren’t Just Wrong. They’re absurd’, CapX (November 29, 2018), available at: https://capx.co/the-bank-of-englands-brexit-forecasts-arent-justwrong-theyre-absurd/. 14. David Card and Alan B. Krueger, ‘Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania’, American Economic Review, 84:4 (September 1994), pp. 772–93. 15. Paul Krugman, ‘Liberals and Wages’, The New  York Times (July 17, 2015), available at: https://www.nytimes.com/2015/07/17/opinion/ paul-krugman-liberals-and-wages.html. 16. Data taken from https://tradingeconomics.com/ and https://www.governing.com/gov-data. 17. Hayek, The Counter-Revolution of Science, p. 143. 18. Quoted in Michael Mance, ‘Britain Has Had Enough of Experts, Says Gove’, Financial Times (June 3, 2016), available at: https://www.ft.com/ content/3be49734-29cb-11e6-83e4-abc22d5d108c. 19. Daniel Kahneman, Thinking Fast and Slow (New York and London: Penguin, 2011), p. 218. 20. Herbert Spencer, The Man versus The State (1884; Indianapolis, IN: Liberty Fund, 1982), p. 174. 21. Thomas Sowell, Knowledge and Decisions (1980; New York: Basic Books, 1996), pp. 305–38.

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22. See John Calvin, Institutes of the Christian Religion, 2 Vols, ed. John T. McNeil, trans. Ford Lewis Battles (Philadelphia, PA: The Westminster Press, 1960). 23. Ludwig von Mises, Human Action: A Treatise on Economics (New Haven, CT: Yale University Press, 1949), p. 83. 24. Ibid., p. 166. 25. Ibid., pp. 189, 149–50. 26. For a useful overview, see Murray N. Rothbard, The Mystery of Banking (1983; Auburn, AL: Ludwig von Mises Institute, 2008). 27. Phyllis Deane and W.A.  Cole, British Economic Growth: 1688-1959 (Cambridge: Cambridge University Press, 1962), p. 171. 28. Richard K. Vedder and Lowell E. Gallaway, Out of Work: Unemployment and Government in the Twentieth Century (New York and London: New York University Press, 1997), p. 77. 29. Robert P.  Murphy, Contra-Krugman: Smashing the Errors of America’s Most Famous Keynesian (Ann Arbor, MI: Sheridan Books, 2018), pp. 314–15. 30. Murray N. Rothbard, America’s Great Depression (Princeton, NJ: D. Van Nostrand, 1963), pp. 185–208. 31. Vedder and Gallaway, Out of Work, p. 77. 32. Ibid., pp. 89–90. 33. Burton W.  Folsom, ‘“If FDR’s New Deal Didn’t End the Great Depression, then World War II Did”’, in Excuse Me, Professor: Challenging the Myths of Progressivism, ed. Lawrence W.  Reed (Washington, DC: Regnery Publishing, 2015), p. 182. 34. Milton Friedman, and Anna J. Swartz, A Monetary History of the United States, 1867-1960 (1963; Princeton, NJ: Princeton University Press, 1971). 35. Thomas S. Coleman, ‘Milton Friedman, Anna Schwartz, and A Monetary History of the US’, University of Chicago (February 21, 2019), p. 1. 36. Mark Thornton, The Skyscraper Curse: How Austrian Economists Predicted Every Major Economic Crisis of the Past Century (Auburn, AL: Ludwig von Mises Institute, 2018), pp. 13–22. 37. William Ruger, Milton Friedman, ed. John Meadowcroft (New York and London: Continuum, 2011), p. 170. 38. See Nassim Nicholas Taleb, Antifragile: Things That Gain from Disorder (New York and London: Penguin, 2013); Anat Admati and Martin Hellwig, The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It (Princeton, NJ: Princeton University Press, 2013).

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39. Milton Friedman, Capitalism and Freedom (1962: Chicago, IL: University of Chicago Press, 2002). 40. Sky News, ‘Anti-LGBT Protesters Clash with Labour MP’, Youtube (May 20, 2019), available at: https://www.youtube.com/ watch?v=Zy9FAko75hE. 41. Matt Ridley, The Evolution of Everything: How New Ideas Emerge (New York: Harper Collins, 2015), pp. 314–16. 42. Richir Sharma, ‘The Happy, Healthy Capitalists of Switzerland’, The New York Times (November 2, 2019), available at: https://www.nytimes. com/2019/11/02/opinion/sunday/switzerland-capitalism-wealth.html. 43. See especially Patrick J.  Deneen, Why Liberalism Failed (New Haven, CT: Yale University Press, 2018). 44. Jonathan Haidt, The Righteous Mind: Why Good People Are Divided by Religion and Politics (New York: Random House, 2012). 45. For my own analysis of this phenomenon, see Neema Parvini, Shakespeare’s Moral Compass (Edinburgh: Edinburgh University Press, 2018). 46. Stephen Thernstrom and Abigail Thernstrom, America in Black and White: One Nation, Indivisible  – Race in Modern America (New York: Simon & Schuster, 1997), pp. 236–37. 47. Thomas Sowell, The Vision of the Anointed: Self-Congratulation as Social Policy (New York: Basic Books, 1995), p. 27. 48. Jill Rutter and Maria Latorre, Social Housing Allocation and Immigrant Communities (Manchester: Equality and Human Rights Commission, 2009), p. 23. 49. ‘State Support’, HMRC. 50. Ayn Rand, The Virtue of Selfishness: A New Concept of Egoism (1964; New York and London: Penguin, 1995), p. 39. 51. Nathanial Branden, ‘Counterfeit Individualism’, in ibid., p. 129. 52. Ibid., p. 130. 53. Kahneman, Thinking Fast and Slow; Haidt, The Righteous Mind. 54. Solomon E.  Asch, ‘Effects of Group Pressure Upon the Modification and Distortion of Judgements’ (1951), in Groups, Leadership and Men: Research in Human Relations, ed. Harold Guetzkow (Pittsburgh, PA: Carnegie Press, 1951), pp. 177–90. 55. Matt Ridley, ‘How the Left is Winning the War of Words’, The Times (July 3, 2017), available at: https://www.thetimes.co.uk/article/ how-the-left-is-winning-the-war-of-words-mglqp82z8. 56. Sowell, The Vision of the Anointed, p. 183.

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57. David Horowitz, Take No Prisoners: The Battle Plan for Defeating the Left (Washington, DC: Regnery, 2014), p. 105. 58. Thomas Sowell, Affirmative Action Around the World: An Empirical Study (New Haven, MA: Yale University Press, 2004). 59. Paul L.  Poirot, ‘“Human Rights are More Important than Property Rights”’, in Excuse Me, Professor: Challenging the Myths of Progressivism, ed. Lawrence W.  Reed (Washington, DC: Regnery Publishing, 2015), p. 37. 60. Mike Watson, ‘Žižek vs. Peterson: An Engaging Mismatch’, spiked (April 23, 2019), available at: https://www.spiked-online.com/2019/04/23/ zizek-vs-peterson-an-engaging-mismatch/. 61. Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution (1957; Auburn, AL: Ludwig von Mises Institute, 2007), p. 55. 62. Matt Ridley, The Rational Optimist: How Prosperity Evolves (New York: Harper Collins, 2010), pp. 20–22. 63. Stephanie A. Sarkis, ‘11 Warning Signs of Gaslighting’, Psychology Today (Jan 22, 2017): https://www.psychologytoday.com/gb/blog/here-thereand-everywhere/201701/11-warning-signs-gaslighting. 64. Douglas Murray, The Strange Death of Europe: Immigration, Identity, Islam (New York and London: Bloomsbury, 2017), pp. 32–3. 65. David Goodhart, The Road to Somewhere: The New Tribes Shaping Britain’s Politics (New York and London: Penguin, 2017), p. 44. 66. Peter Hitchens, A Brief History of Crime: The Decline of Order, Justice and Liberty in England (London: Atlantic Books), p. 219. 67. Louis Althusser, Lenin and Philosophy and Other Essays, trans. Ben Brewster (1971; New York: Monthly Review Press, 2001).

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Index1

A

Accumulation (capital), 177, 189 Action (human), 28, 53–55, 192, 196, 240 Acton, Lord (Dahlberg-Acton, John Emerich), 8, 34, 37, 59 Admati, Anat, 40n5, 280n38 Affirmative action, 271 Agricultural (era of civilisation), 127, 143 Agricultural (sector), 142, 152 Agriculture, 36, 77, 90, 91, 113, 128, 141, 143, 146, 149, 150, 155–157 Allocation (of resources), 5, 68, 108, 240, 264 Althusser, Louis, 52, 276 Altruism, 12, 79, 97, 98, 122, 161, 268 Amoral, 33

Anarcho-capitalism, 7, 8 Anointed (vision of the), 278 Anti-fragility, 261 See also Fragility Anxiety, 252 Apartheid, 243 Apocalypse, 258 Appetites (human), 6, 227 Appraisement (entrepreneurial), 201 Aquinas, Thomas, 85, 275 Argumentation, 2, 36, 198, 254, 271, 277 Aristocracies, 7, 58, 64, 65, 147 Aristotle, 10, 24, 257 Arnhart, Larry, 101n41 Atlee, Clement, 161 Atomisation, 266–269 Austrian School of Economics, ix, 25, 69, 93, 178 Axiom, 33, 193, 227, 237

 Note: Page numbers followed by ‘n’ refer to notes.

1

© The Author(s) 2020 N. Parvini, The Defenders of Liberty, https://doi.org/10.1007/978-3-030-39452-3

307

308 Index B

C

Babbitt, Irving, 266 Bacon, Francis, 51 Banking, 109, 111, 139, 159, 212, 259–262 Barter, 156, 164, 202 Bastiat, Frédéric, 93, 167, 168 Baumol, William J., 163, 164 Behavioural economics, vii, 85, 237, 256 Belliotti, Raymond Angelo, 71n3, 73n47 Bentham, Jeremy, 24, 32, 116, 196 Berlin, Isaiah, 4 Bias (confirmation bias), 11, 35, 180, 255, 257, 268 Blair, Tony, 108, 161, 262, 275 Bloat (government), 175 Block, Walter, 30, 33, 167 Bloom, Allan, 266 Boettke, Peter, 195 Böhm-Bawerk, Eugen von, ix, 117, 150, 157, 179, 185, 187–192, 204, 214 Bolsheviks, 202 Borrowing, 112 Botero, Giovanni, 56 Bourgeoisie, 21 Boyd, Brian, 43n39 Brexit, 66, 67, 142, 255, 256, 258, 276, 277 Buchanan, James M., 67, 68, 109, 234, 240, 252, 271 Bureaucracy, 65 Burgess, Anthony, 34, 269 Burke, Edmund, 15, 128, 266, 274 Burnham, James, viii, 39, 52, 60–62, 66

Calculation debate, 209 Callaghan, James, 161 Calvin, John, 10, 257 Cannan, Edwin, ix, 151, 225, 226, 229–234, 239, 240, 243 Canning, George, 144, 145 Cantillon, Richard, viii, 105–112, 126, 131, 133n36, 141, 163, 203, 228, 232, 242, 253 Capitalism, 2, 21, 61, 198, 263, 270 Capital theory, 157, 204, 205 Caplan, Bryan, 45n64 Carlyle, Thomas, 266 Cartels, 217, 245 Casey, Gerrard, 54, 125 Castes, 110 Catallactics, 240 Catchings, Waddill, 204, 206, 207, 209 Ceteris paribus, 106, 114, 120, 156, 157, 190, 194, 253 Charity, 6, 22, 41n25, 79, 91, 100n25, 159, 160 Chicago School of Economics, 25, 252 Child labour, 153, 218 China, 143, 262 Choice, 4, 11, 12, 34, 35, 37, 53, 94, 97, 108, 183, 188, 190, 196, 237, 240, 242, 257, 264 Clark, John Bates, 214, 242 Classical economists, viii, 109, 141, 143, 157, 212, 231 Classical liberalism, viii, ix, 1, 2, 4, 13, 14, 17, 27, 38, 39, 51, 54, 84, 105, 158, 252, 253, 258, 262–266 Coal industry, 152, 153

 Index 

Coase, Ronald, 24, 30–33 Cobden, Richard, viii, 140–143, 145, 157, 158, 167 Coca-Cola Company, 185–187 Colish, Marcia L., 55 Collective bargaining, 247 Collectives, 3, 13, 16, 20, 21, 23, 38, 67 Commerce, 36, 113, 130, 159, 227, 235, 270 Commodity money, 92, 116, 184, 202 Communism, 179, 201, 252 Communitarianism, 59, 123 Comparative advantage, 261 Condillac, Etienne Bonnot, Abbé de, 107, 115, 118, 126, 180, 228 Consent, 85, 96, 97, 122, 128, 163, 258 Consequentialism, 23–25, 27, 33 Conservativism, 1, 17, 35, 52, 60, 78, 95, 144, 150, 195, 252, 263, 266, 267, 270 Consumerism, 272 Consumers, 6, 9, 10, 27, 28, 64, 69, 77, 111, 112, 140, 148, 154, 165–167, 180, 181, 185, 187, 198–201, 205–207, 209, 211, 212, 214, 216, 217, 219, 230, 232, 233, 236, 244, 245, 266, 267, 270 Consumption, 12, 19, 69, 108, 117, 119, 157, 164, 167, 175, 177, 178, 188, 189, 191, 206, 207, 233, 267 Contracts, 17, 35, 83, 124, 128, 158, 188, 189, 245, 260 Control, 2, 3, 5, 6, 8, 29, 30, 66, 128, 218, 245, 261, 270, 275

309

Coolidge, Calvin, 261 Corbyn, Jeremy, 262, 270 Corn Laws, viii, 17, 140–157 Cost, 3, 19, 25, 30, 69, 80, 84, 109, 111, 114, 119, 128, 144, 150–155, 167, 186, 189–191, 198, 199, 209–212, 214–218, 225, 229, 230, 234–239, 245, 255, 257, 265, 275 Cost theory, 212, 234 Cowperthwaite, John, 196 Credit, 69, 112, 178, 192, 203, 204, 209, 238, 259–261 Credit money, 202 Cronyism, 113, 153 Crusoe economics, 240 Culture, 10, 127, 252, 266, 270 Customers, 86, 108, 148, 210–212, 217, 237 Cynicism, 87 D

Dante Alighieri, 234 Darwin, Charles, 3 Dawkins, Richard, 79 Death rates, 83, 105, 128, 139 Decisions (humans), 12 Decline, 59, 149, 159, 186 Deductive reasoning, 25, 192, 226 Deflation, 140, 142, 166, 187, 207 Demand, 2, 9, 21, 30, 107, 108, 116, 118, 119, 141, 148, 149, 153–155, 157, 164–166, 181, 185–187, 194, 196, 199–201, 212, 214, 216, 218, 227, 230, 232, 245, 267 See also Supply and demand

310 Index

Democracy, vii, 1, 7, 8, 14, 32, 58, 61–65, 161, 262–266 Democritus, 24 Deneen, Patrick J., 4, 15, 266 Depression (The Great Depression), 186, 238, 259–261 Diamond, Jared, 137n113 Dickens, Charles, 140 Diggers, the, 121 Discounted Marginal Revenue Product (DMRP), 216 Discrimination, 69, 159 Disequilibrium, 165 Disney, Walt, 95, 96 Disraeli, Benjamin, 67 Distortions (market), 24 Distribution, 64, 69, 121, 146, 230, 231, 242 Disutility, 32, 228 Division of labour, 11, 16, 94, 105, 108, 113, 117, 118, 122, 126–131, 194, 241 Donisthorpe, Wordsworth, 7 Doublespeak, 2 Doublethink, 269 Downturns, 153, 260, 261 Dunbar’s number, 122 Duties, 16, 64, 89, 113, 145–149, 233 E

Earnings, 70, 147, 151, 152, 154, 246 Econometrics, 139, 196 Education, 35, 36, 159, 235, 264, 271, 277 Efficiency, 7, 24–26, 29, 160, 217 Egalitarianism, 11, 69, 120, 122, 159 Egoism, 79

Elastic, 107 See also Inelastic Elites, viii, 1, 58, 59, 64–68, 139, 158, 256–258, 264, 266, 277 Elite theory, 60 Elitism, viii Emotional appeals, vii, 11, 14, 22, 257 Empathy, 12, 79, 97, 98, 122, 161, 268 Empire, 144 Empiricism, 154, 194, 196, 197 Employers, 18, 19, 242–246, 260 Employment, 2, 77, 94, 95, 108, 124, 141, 144, 146, 147, 181, 182, 191, 239, 243, 254, 255 Enemies of liberty, 1, 2, 14, 16, 17, 22, 29, 140, 158, 160, 161, 246, 265, 270, 272, 277 Enlightenment, the, 105–131 Enterprise (private), 7 Entitlements, 16, 63, 272 Entrepreneur, 14, 21, 68, 69, 108, 111, 116, 126, 149, 155, 163, 199–201, 203, 232, 236–238 Epistemology, 38, 84 Equality, 29, 56, 57, 61, 62, 69–70, 81, 82, 121, 135n75, 235, 242, 263, 271 Equilibrium, 58, 65, 118, 151, 165, 185, 236 Ethics, 10, 27, 33, 34, 38, 158 Ethos (rhetoric), 271, 277 Eudaimonia, 10 Evenly Rotating Economy (ERE), 118, 200, 206 Evolutionary theory, 127 Experts, 197, 234, 256, 257 Exploitation, 18, 188, 231 Exports, 140, 201

 Index 

311

F

G

Factors of production, 154, 165, 198, 206, 215, 230 Fairness (proportional), 9 Farage, Nigel, 142 Farmers, 30, 94, 106, 146–152, 155, 157, 182, 183, 190, 198, 216 Fascism, 179, 251, 252, 258 Fetter, Frank, 188, 214 Feudalism, 6 Fiat money, 202, 203 Fiduciary media, 203 Filmer, Robert, 87 Firm, the, 65, 129, 191, 202, 205, 207, 212, 216–219, 237, 244 Fisher, Irving, 142, 207 Flourishing (human), vii, 36, 57, 95, 122, 124 Fluctuations (market), 200 Ford, Henry, 244, 245, 259 Forecasting (economic), 11, 14, 26, 61, 62, 66, 142, 179, 192, 236, 247, 253–258 Formation (prices), 201, 205, 212, 230 Foster, William Trufant, 204, 206, 207, 209 Fragility, 1, 55 France, 108, 110–113, 143, 255, 257 Franklin D. Roosevelt (FDR) See also Roosevelt, Franklin D. Freedom, vii, 2–5, 23, 32, 34, 35, 37, 56, 57, 59, 61, 63, 125, 130, 141, 144, 158, 262–264 Friedman, Milton, 2, 7, 24, 25, 29–33, 66, 111, 133n36, 178, 240, 251–254, 259, 261, 262, 266 Fukuyama, Francis, 128

Gaslighting, 271, 275, 276 General Equilibrium, 178 Genetics, 10 Georgism, 161, 231, 232 Gillette, 237 Gladstone, William, 70, 159 Glass-Steagall Act, 260 Goodhart, David, 276 Government, vii, 6, 15, 23–25, 30–32, 35, 37, 59, 61, 63, 66, 69, 88, 89, 96, 110, 112, 113, 121–123, 129, 131, 135n81, 146, 153, 156, 159, 166, 168, 175, 177, 198, 202–204, 206, 209, 217–219, 258–264 Grampp, William D., 144, 153, 154 Gramsci, Antonio, 52 Greed, 57, 111 Groenewegen, Peter, 115 Gross Domestic Private Product (GDPP), 175, 177 Gross Domestic Product (GDP), 22, 28, 57, 59, 63, 77, 105, 129, 175, 177, 178, 203, 233, 267 H

Haidt, Jonathan, 85, 125, 266 Harding, Warren G., 261 Hayek, F.A., ix, 7, 14, 15, 17, 37, 65, 106, 108, 109, 126, 157, 158, 167, 179, 185, 204–211, 216, 238, 243, 247, 253, 259 Hazlitt, Henry, 24, 161, 167, 168 Hedonism, 15, 23, 64 Hegemony, 278 Heuristics, vii, 11, 238, 257 Hicks, John Richard, 178

312 Index

Hierarchy, 10, 81 Hitchens, Peter, 266, 276 Hobbes, Thomas, viii, 8, 24, 60, 77–98, 105, 106, 122, 268 Hobbesian (conception of property rights as positive rights), 24, 158 Homesteading, 91, 94, 98, 122, 127 Homogenous (theory of wages), 152 Hong Kong, 63, 196, 201, 262, 264 Hoover, Herbert, 259, 260 Hoppe, Hans-Hermann, 36 Housing, 29, 30, 267 Hubris, 1, 2, 11, 256 Hülsmann, Jörg Guido, 93, 106 Human nature, vii, viii, 1–39, 51, 52, 54, 66, 70, 77–98, 120, 123–126, 179, 198, 225, 227, 238, 241, 242, 268, 269 Hume, David, viii, 11, 15, 36, 37, 60, 78, 85, 98, 105, 106, 109, 113, 119–126, 128, 130, 131, 158, 242, 253 Hunter-gatherers, 90, 122, 127–129, 158 Hutt, W. H., ix, 163, 165, 167, 225, 226, 229, 243–247 I

Icarus, 11 Idealism, 62, 70 Ideology, 68, 257, 267, 269 Idleness aversion, 10 Immigration, 80, 217, 267, 276 Imperialism, 143, 144 Imports, 140, 141, 145–147, 149, 218 See also Exports

Incentives, 5, 8, 23, 52, 54, 57, 65, 66, 70, 84, 87, 106, 107, 152, 159, 189, 190, 198, 206, 219, 240, 241, 246, 261, 265–267 Individualism (methodological), viii, 13, 16, 51, 54, 60, 64, 70, 78, 106, 151, 156, 157, 179, 203, 232, 240, 253, 267, 269 Individualism (‘rugged individualism’), 268, 269 Inelastic, 148, 149 Inequality, 29, 30, 107, 108, 110, 115, 121, 122 Inflation, 95, 106, 110, 111, 143, 187, 203, 212, 214, 260, 261, 267 Initial Public Offerings (IPOs), 45n79 Injustice, 110, 156 Inputs, 27, 129, 151, 155, 166, 212, 236, 275 Instincts, 29, 56, 87, 123–125, 147 Intellectuals, 2, 3, 15, 22, 66, 87, 100n25, 122, 268, 274–277 Intelligence, 10, 129, 243 Interest, 2, 14, 22, 24, 25, 27, 31, 32, 56, 61, 63, 68, 69, 109, 111–119, 123, 143, 144, 147, 178, 188, 190, 191, 203, 204, 214, 231, 232, 259 International Monetary Fund (IMF), 251, 257, 262 Interventionism, 32, 192 Intuition, 11, 85, 257 Ireland, 203 Iron triangle, 66, 266 Islam, 39n1, 282n64 Italy, 57, 59

 Index  J

Jaffe, William, 26 Jasay, Anthony de, 27 Jawboning, 259 Jefferson, Thomas, 60 Jevons, William Stanley, ix, 24, 28, 106, 112, 113, 119, 178, 180, 225–230, 234, 235, 238 Joker, The, 252 Journalists, 66 Judgement, 12, 13, 30, 65, 80, 85, 86, 108, 196, 216, 236, 238, 242, 257 Jurisprudence, vii, 127 K

Kahneman, Daniel, 256 Keynes, John Maynard, 163, 167, 185, 206, 207, 209, 241, 243, 261 Keynesian economics, 139, 163, 175, 178, 179, 185, 187, 191, 208, 226, 238, 242, 243, 251, 259, 261, 267 Kinsella, Stephen, 92 Kirk, Russell, 17, 141, 144 Kirzner, Israel M., 118 Klein, Peter G., 194 Knight, Frank, 240, 252 Knowledge problem, 7, 204, 209 Krugman, Paul, 255 L

Labour Theory of Property, 23, 92, 94, 98 Labour Theory of Value, 24, 92, 94, 95, 98, 109, 112, 127, 162, 181, 212, 229

313

Lammy, David, 274 Land, 17–20, 25, 30, 60, 88, 90–98, 107, 111, 113, 117, 121, 126, 128, 129, 141, 144, 146–148, 151, 155, 161, 164, 165, 185, 217, 230, 231, 265 Landlords, 128, 141, 155, 231 Landowners, 147, 149, 150, 157 Landsburg, Steven E., 240 Language game, 3, 252, 269–278 Laslett, Peter, 41n19, 101n35, 101n38 Lausanne School, 178 Laws of economics, 118–119, 193 Leeson, Peter T., 84, 195 Levellers, the, 121 Liberalism, viii, ix, 1, 2, 4, 13, 14, 17, 27, 38, 39, 51, 54, 84, 105, 158, 252, 253, 258, 262–266 Libertarianism, 34 Liberty, vii, 1–39, 51–59, 61–63, 69, 70, 78, 83, 86, 92–94, 110, 125, 126, 131, 140, 146, 157–159, 163, 179, 226, 251–253, 255, 263, 264, 266, 268, 269, 271, 272, 278 Licensing, 86, 218 Light (lightbulbs), 275 Lighthouses, 31 Linguistic inversion, 270–274 Literature, 31, 234, 235, 257, 260, 269 Loans, 112, 116, 203 Lobbyists, 2, 256 Locke, John, viii, 4–6, 8, 16, 22, 33, 51, 60, 77–98, 105, 106, 109, 119–127, 129, 253, 269 Lockean Proviso, 91, 92, 94

314 Index

Lockean theory of property, 96 Logos, 257, 271, 277 London School of Economics, ix, 225, 234 M

Machiavelli, Niccolò, viii, 3, 6, 13, 39, 40n11, 51–70, 78, 80, 82, 85, 86, 89, 90, 97, 105, 227, 251 Machiavellians, 51–70, 87, 268 MacPherson, C.B., 17–20, 22, 45n80, 81, 92, 97 Macroeconomics, 196, 203, 204, 206, 208 Malthus, Thomas, 148, 150, 156, 163 Malthusian theory of population, 151, 155, 175 Managerial class, 61 Manchester School of Liberalism, viii, 140–143, 145, 157, 158, 167 Manufacturing, 36, 126, 146, 155, 246, 254, 255 Marginal analysis, 10, 107, 115, 119, 131, 151, 152, 178, 184, 198, 215, 216, 218, 225, 234, 235, 239, 241, 242, 244–247, 263 Marginal productivity, 234, 242, 244 Marginal Revenue Product (MRP), 215, 216 Marginal Revolution, 112, 178, 180, 212, 225, 239 Marginal utility, 10, 107, 119, 131, 184, 194, 234, 241, 263 Marshall, Alfred, 153, 178, 212, 214, 230, 234, 239, 240

Marshall’s scissors, 212, 214, 230 Marx, Karl, 21, 92, 95, 96, 98, 131, 230 Marxism, 195, 232 Maslow’s hierarchy of needs, 10 Materialism, 84, 252 Mathematical modelling, 253–259 Menger, Carl, ix, 26, 93, 113, 119, 154, 178–188, 192, 202, 225, 227–230 Mercantilism, 107, 143, 179 Methodological individualism, viii, 13, 16, 51, 54, 60, 64, 70, 78, 106, 151, 156, 157, 179, 203, 232, 240, 253, 267, 269 Methodology (economics), 185, 252 Michels, Robert, 52, 60 Microeconomics, 195, 203 Mill, James, 150 Mill, John Stuart, 4, 24, 25, 32, 112, 131, 158, 163, 196, 212, 225, 230–232 Miller, Arthur, 269 Minarchism, 7, 163 Minimum wage, 194, 218, 246, 254–256 Misers, 167 Mises, Ludwig von, ix, 3, 93, 106, 154, 179, 226, 253 Mississippi Bubble, 110, 111 Mitchell, B.R., 152 Mixing labour with the land, 98 Modelling, 255, 257 Monarchy, vii, 7, 81, 86, 87, 257 Monetarism, 111, 251, 259, 261 Money (origins of ), 202 Monopoly, 6, 42n35, 110, 144, 166, 212, 216, 217, 219

 Index 

Monopsony, 245 Moral Foundations Theory (MFT), 85, 125, 266 Morality, 34, 70, 86, 127, 158 Mortgages, 4, 111, 204 Mosca, Gaetano, viii, 51, 52, 54, 60–62, 64–70, 159 Mossoff, Adam, 94 Motte and Bailey, 270, 274, 275 Munger, Michael, 29, 32 Murray, Douglas, 276 Myths, 52, 61–68, 101n40 N

National Health Service (NHS), 267 Nationalism, 252 Neighbourhood effects, 31 Neoclassical economics, 178, 195, 214 Neoconservatives, 60 Niemietz, Kristian, 135n75, 278n5 Night-watchman state, 7, 163 NIMBYism, 265 Nirvana fallacy, vii Normative assumptions, 150 Nozick, Robert, 91–95, 98 O

Oakeshott, Michael, 84 Objectivism, 268 Oligarchy, 58, 60, 141 Olson, Mancur, 67 Opportunity costs, 109, 111, 114, 119, 191, 218, 235, 257 Orwell, George, 2, 22, 61, 62, 66, 269 Overconfidence, 256

315

P

Papua New Guinea, 129, 130 Pareto, Vilfredo, viii, 51, 52, 60–62, 64–66, 68–70, 158, 159, 178 Passions (vs. reasoning), 11, 14, 53, 57, 85, 97, 123, 125, 126, 271 Pathos (rhetoric), 271, 277 Peterson, Jordan B., 272 Philippines, 63, 64 Philosophy, 10, 34, 84, 158, 159, 268 Physiocrats, 112 Pigou, A.C., 241 Pinter, Harold, 269 Poirot, Paul L., 5 Policy decisions, 35, 255 Positivism, 195, 253–259 Post-Keynesianism, 185 Praxeology, 194, 240 Predictive modelling, 257 Prejudice, 274 Price formation, 201, 205, 212, 230 Price theory, 187, 195 Private property, vii, 23–25, 27, 32, 33, 54, 122, 231 Producer goods, 199, 205, 209, 230 Producers, 6, 107, 145, 149, 151, 156, 157, 166, 181, 191, 198, 199, 201, 205–209, 211, 218, 239 Production theory, 181, 212, 225, 234 Productivity, 22, 128, 153, 155, 190, 234, 242, 244–247 Profit, 12, 13, 18, 19, 36, 56, 68, 69, 110–112, 117–119, 144, 146, 148, 151, 154–157, 187, 194, 199, 200, 203, 209, 212, 216, 234, 236, 237, 241

316 Index

Progress, 24, 61–65, 113, 129, 157–159, 246, 274, 275, 277 Progressivism, 159, 262 Propaganda, 277 Property rights, vii, viii, 1–39, 51, 52, 70, 77–98, 105, 106, 119–126, 128, 129, 158, 159, 163, 179, 211, 225, 241, 269 Prosperity, 36, 56, 123, 124, 141, 144, 204 Protectionism, 156 Psychic profit, 18, 115, 234, 237, 241 Psychology, vii, 85, 158, 266, 275 R

Raab, Felix, 52 Raico, Ralph, 24 Rand, Ayn, 3, 10, 29, 268 Rationalism, 15, 26, 196 Ratio of exchange, 187, 228–230 Reagan, Ronald, 251 Realism, 60 Reasoning, 11, 25, 85, 150, 151, 154, 180, 192, 193, 197, 226, 254–256, 268 Reciprocity, 16 Relativism, 86 Republicanism, 52 Revolutions, 28, 58, 61, 64, 65, 67, 163, 202 Rhetoric, 271, 277 Ricardian economics, 154, 197, 231, 232 Ricardian theory of rents, 151 Ricardo, David, viii, 11, 24, 92, 98, 109, 112, 131, 140, 144–158, 162, 163, 185, 197, 212, 230–232

Ricardo’s Iron Law of Wages, 150, 185 Ridley, Matt, 93, 127, 264, 270 Rigidity (price), 185 Risk, 11–13, 54, 55, 90, 108, 111, 112, 116–118, 151, 216 Robbins, Lionel, ix, 24, 30, 31, 143, 146, 151, 181, 195, 225, 226, 229, 230, 234, 238–243 Rolling Stones, 276 Roosevelt, Franklin D., 61, 259, 260 Rothbard, Murray N., ix, 3, 5, 6, 33–37, 61, 93, 96, 106, 115, 156, 159, 166, 179, 194, 211–219, 237, 239 Roundabout (structure of capital), 117, 157, 165, 190, 207, 209 Rousseau, Jean-Jacques, 4, 15, 25, 32, 113 S

Salerno, Joseph T., 180, 194 Samuelson, Paul, 31, 178, 179 Satisfactions (of human needs), 180 Say, Jean-Baptiste, viii, 141, 155, 162–168, 206, 212, 232 Say’s Law (Law of Markets), 165, 187 Scarcity, 6, 53, 90, 120, 122, 124, 127, 163, 181, 228, 239 Scarcity definition of economics, 238 Schedules (supply schedules and demand schedules), 147, 148, 252, 265 Schumpeter, Joseph A., 2, 106, 113, 142, 151, 157 Scientism, 84, 253–259 Scraffa, Piero, 169n20

 Index 

Scruton, Roger, 141, 266 Self-actualization, 10 Selfishness, 122, 123, 266–269 Self-ownership, 33, 34, 36, 37, 125, 126 Senior, Naussau William, viii, 140, 146, 154, 156, 157, 181, 197, 227 Servitude, 56 Shakespeare,William, 277 Shortages, 30, 202 Signals (price), 129, 211 Singapore, 63, 64, 264 Skinner, Quentin, 52, 56 Skousen, Mark, 47n101 Slavery, 1, 125, 159, 179 Smith, Adam, viii, 3, 6, 15, 24, 29, 37, 53, 93, 100n25, 105–107, 113, 116, 122, 126–131, 143–145, 157, 158, 162, 212, 232, 240, 243, 253 Smoot-Hawley Tariff Act, 259 Sociability (human), 9 Socialism, 6, 15, 62, 92, 161, 192, 196, 198, 202, 209, 258 Social utility, 26, 30–32, 158, 241 Sorel, Georgwe, 60 Sowell, Thomas, 3, 20, 25, 38, 53, 69, 79, 163, 165, 197, 240, 252, 271 Spain, 203 Specialisation in division of labour, 11, 194 Spencer, Herbert, viii, 1, 3, 22, 37, 141, 158–161, 226, 257 Spengler, Oswald, 159 Spontaneous order, 15, 37, 158, 211 Stagflation, 163

317

Statistics, 142, 148, 154, 175, 176, 180, 195, 197, 198, 208, 210, 226, 253, 256 Stigler, George, 24, 29, 30, 129, 155, 195–197, 240, 246, 252, 254 Strauss, Leo, 40n11, 87 Strawman, 160, 163 Subjectivism, 26, 228, 234, 240 Suffrage (voting rights), 161 Superabundance, 10, 120 Supply and demand, 107, 116, 118, 119, 164, 165, 184, 185, 194, 214, 227 Supramarginal firm, 151 Switzerland, 178, 266 T

Tabula rasa, 87 Taleb, Nassim Nicholas, 256 Taxation, 14, 22, 31, 36, 44n61, 113, 145, 147, 163, 229 Tenant farmers, 147, 148, 150–152, 155, 157 Thatcher, Margaret, 15, 16, 251 Thirlby, G.F., ix, 109, 225, 236 Thornton, Mark, 109 Tilmouth, Christopher, 85 Time preference, 12, 119, 166, 177, 178, 188–191, 193, 216 Toryism, 141, 150, 153, 270, 276 Totalitarianism, 3, 122, 251, 269 Trade, 5, 6, 16, 18, 27, 35–37, 41n25, 91–94, 96–98, 107, 109, 113, 115, 116, 118, 122, 126–128, 140–147, 164, 165, 184, 198, 199, 228, 229, 231, 247, 264

318 Index

Tragic vision, 53, 78, 79, 87, 97 Tribalism, 6, 9, 13, 26, 37, 128, 129 Trivers, Robert L., 42n27, 101n41 Trump, Donald, 66, 67, 277 Tullock, Gordon, 67, 68 Tully, James, 92, 97, 103n73 Turgot, A.R.J., viii, 105, 112–119, 126, 131, 141, 151, 163, 167, 228, 232 Tversky, Amos, 44n55 Tyranny, 58, 122 U

Uncertainty, 13, 19, 26, 54, 55, 108, 109, 111, 116, 118, 119, 192, 195, 200, 216 Unconstrained vision, 79 Unemployment, 139, 194, 254–256, 259–261 Unions (trade unions), 243, 244 United Kingdom (UK), 20, 22, 66, 108, 129, 131, 139, 141–143, 147, 153, 155, 161, 167, 175, 176, 214, 243, 251, 252, 255, 257, 261, 263, 267 United States of America (USA), 20, 22, 66, 67, 83, 153, 185, 190, 214, 243, 244, 251, 252, 255, 261, 263, 267 Usury, 111, 116, 188 Utopianism, vii

V

Vedder, Richard K., 259, 260 Victorians, the, 139, 175, 177 Virtue, 55, 58, 64, 121, 123, 130, 232, 265, 268 Virtue signalling, 243, 265 Voting, 28, 265 W

Wages, 18, 20, 21, 77, 91, 93, 94, 97, 105, 108, 117, 126, 140, 142, 143, 150–154, 185, 190, 194, 197, 214, 218, 231, 242–247, 254–256, 259, 260, 275 Wage theory, 231 Wales, 128, 139, 161, 162 Walras, Leon, 113, 119, 178, 180, 225 War, 78, 79, 88, 89, 120, 141–143, 177, 261, 270 Wealth definition of economics, 239 Weber, Max, 10 Welfare definition of economics, 241 Wicksell, Knut, 165 Wicksteed, Phillip, ix, 109, 214, 225, 226, 229, 234–238, 253 Wilson, David Sloan, 42n37, 101n41 Wilson, E.O., vii Z

Zimbabwe, 63 Žižek, Slavoj, 272