A SPONTANEOUS ORDER, HISTORY/CULTURE, POLITICS/ECONOMICS
A Spontaneous Order: What About the Poor?!
By RadCap
Consider purchasing a copy of A Spontaneous Order: The Capitalist Case For A Stateless Society
It is often asserted that, in a free market, the rich get richer at the expense of the poor growing ever poorer. It is true that most decent human beings believe everyone should have access to basic education, healthcare, food, and shelter. However, the overwhelming majority remains convinced that it is only through the State that such complex social issues may be sufficiently remedied. It is widely believed that without the State compelling its subjects to contribute to the “common good,” there would be insufficient aid available for those in need. In addition to providing for the common good, many believe the State is necessary for protection against the predation of the wealthy and elite.
Contrary to this picture, however, Statist measures used to “fight poverty” tend to result in its exacerbation. What separates the State from its market counterpart is its power to limit freedom of contract, coercively redistribute wealth, and to impose rules on how its subjects may employ their property regardless of their consent: That is, the State imposes rules above and beyond restricting us from using aggression against the persons or property of others. Unfortunately, exercising such powers diminishes the incentive to trade, produce, and maintain the value and integrity of one’s property. This manifests as a decrease in overall wealth and standard of living. Logically, this may be confirmed by reflecting on the nature of human action within the context of economic relationships. For one to contract, trade, or deliberately do anything is to indicate that he believes this action will transform his current state of affairs into one more desired. Consequently, insofar as one’s non-aggressive behavior is artificially restricted, the potential value of his actions will be diminished. One need only extrapolate this fact to a market wide scale to realize State regulations prevent millions of valuable trades from coming into existence.
Unlike agents of the State, private actors have the ability and greater incentive to maintain their property value and to produce desired goods/services. The ability stems from having direct access to market prices which themselves are generated through the voluntary exchange of goods/services, and the incentive from the fact that it is only through their production that they may accrue wealth. The beauty of the free market is that every transaction results in mutual benefit, increasing the wealth of each person involved. Unfortunately, the current situation is far removed from the market narrative depicted above.
In the absence of clear and consistent property norms, significant obstacles to economic planning or investing would arise due to the lack of criteria for rationally arbitrating between mutually exclusive desires on how to employ scarce resources. Interpersonal conflict would abound in such an environment at the expense of time, energy, and resources, which may have otherwise been employed for economic production and cooperation. The question then becomes “what rules or norms are best suited for mitigating such interpersonal conflict?” It is the contention of this work that the private property norm, whereby economic goods may only be acquired via original appropriation or voluntary exchange, is the one best suited for this end. Consequently, adhering to this norm leads to the greatest production of wealth.[1] Hoppe explains:
The reason this institution [the Libertarian/Private Property Ethic] leads to the greatest possible production of wealth is straightforward. Any deviation from this set of rules implies, by definition, a redistribution of property titles (and hence of income) away from user-producers and contractors of goods and onto non-user-producers and non-contractors. As a consequence, any such deviation implies that there will be relatively less original appropriation of resources whose scarcity is realized, there will be less production of new goods, less maintenance of existing goods, and less mutually beneficial contracting and trading. This naturally implies a lower standard of living in terms of exchangeable goods and services. Further, the provision that only the physical integrity of property (not property values) be protected guarantees that every owner will undertake the greatest possible value-productive efforts, i.e., efforts to promote favorable changes in property values and to prevent or counter any unfavorable changes in property values (as they might result from another person’s actions regarding his property). Thus, any deviation from these rules also implies reduced levels of value productive efforts at all times.[2]
Thus, the true obstacles to wealth generation are the entities which attempt to artificially regulate the use of economic goods for which they themselves have no just claim. The State is a prime example of just that: an institution which asserts control over economic goods that its agents never acquired through original appropriation or voluntary exchange.
With such an institution in place, the alleged atrocities of the free market are now able to come to fruition under a Statist framework. The rich are now able to become richer at the expense of everyone else. They may accomplish this by persuading the State’s agents to erect artificial barriers to entry into various industries in the form of taxes, intellectual property laws, minimum wage laws, occupational licensures, etc. These barriers are then sold to the public as protections for the consumer and the employee. Tragically, this could not be further from the truth. Such barriers only benefit the State and the businessmen who beckon for them while limiting the temperance provided by market competition. This perversion undermines the market’s ability to sustainably generate wealth and a destructive cycle ensues:
[1] State intervention destroys and/or hinders the production of wealth
[2] The resulting economic woes are attributed to an “under-regulated” market
[3] The State increases the scope and degree of its interventions
[4] Steps one through three are repeated until the economy falls to ruin
Fortunately, this cycle is not inevitable; it merely reflects past tendencies. With all this in mind, the best solution to poverty becomes quite clear: allow the market to operate unimpeded. This entails the widespread recognition and respect for private property rights. Thus, to reach the point where this solution may be feasible, we will first demonstrate how the free market is in fact the cure for destitution, and not its cause. Before examining how things can go wrong, let us, as Hayek suggests, examine how things should ever go right.
In a truly free market, resources flow to their most value-productive ends. This occurs in a decentralized process with each individual simply doing that which he believes will yield him the greatest satisfaction. This pursuit of satisfaction/profit will motivate actors to minimize their costs and maximize their benefits. They are also able to evaluate the costs of various actions by comparing market prices which themselves are byproducts of voluntary exchange. The advent of moneyenables this process to be even more efficient by providing the actor with quantitative figures by which he may be able to compare the costs of heterogeneous or different types of goods/services directly. The use of money allows for a common denominator by which an actor can compare his opportunity costs more easily than he can in barter. He then compares the costs of his chosen endeavor with the gain in satisfaction he projects he will receive in its execution. If his projected gain exceeds the costs of his project, then he may conclude it to be a profitable one. However, being merely profitable is not sufficient in itself; the task must be profitable enough to warrant the time and energy he puts into it versus any other action he could have taken. Our actor determines this by evaluating other courses of action he may take, and how profitable he thinks they will be. For instance, if he makes one thousand shoes and only receives five dollars in monetary profit, he may see this as an ultimate loss as he may value the time it took to make the shoes more than he values five dollars. (Important to keep in mind is that profit or satisfaction may be of a psychic nature, instead of purely a monetary one. Subjective desires are the ultimate cause of man’s actions, and it would be incorrect to presume man is guided solely by money.)
This process is then repeated by himself and all other market participants until large, sustainable trading networks and markets form. As these market participants bid for various resources, their prices begin to reflect their demand in relation to their supply. The resulting prices of goods in turn influence the individuals’ evaluations of these goods and the profitability of their projects, which in turn causes them to modify their own behavior accordingly. Through this fluid and organic cycle, an incredibly efficient economy emerges through the mere acts of individual actors peacefully pursuing their own self-interest. Market prices serve as their guides; potential value opportunities and desire for profit serve as their motivation.
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Taxation
Perhaps the most notorious tool of the State is its ability to lay taxes. Do not be fooled by the seemingly innocuous wording of “laying taxes,” this phrasing simply serves as a belittling euphemism for theft on a mass scale. If taxes were voluntary, they would instead be considered “donations” or payments. It is important to consider that before the State is able to do anything, it must first violate the property rights of its citizens through the collecting of taxes. Despite this fact, however, the State is still predominately held as the single institution capable of competently protecting private property rights. This blatant paradox may only be perpetuated through incessant propaganda. For the few who do reflect upon this clear contradiction, they generally respond by appealing to the equally paradoxical “necessary evil” argument.
In addition to its purely criminal nature, taxation also hinders the production of wealth. The funds taken by taxes do not reflect consumer demand for a given good or service, but rather are the result of violent confiscation. This mass expropriation of wealth nonetheless affects market prices as the purchasing decisions of market participants will be altered due to smaller money balances. Moreover, the State will spend these expropriated funds in a manner wholly divergent from their unfettered market allocation. As such, and insofar as this State interference extends, the capacity for prices to reflect genuine consumer demand for various economic goods will be undermined. These price distortions then result in less efficient economic activity as the information-guiding role prices once conveyed has been tainted by violent redistributions of wealth on a mass scale. This destructive process culminates in an underproduction of some goods/services and overproduction of others relative to an otherwise free market yield. Hoppe brilliantly sums up the economic effects of taxation:
One last remark on the economic effects of taxation: Every tax is a redistribution of wealth and income. Wealth and income is forcibly taken from their owners and producers and transferred to people who did not own this wealth and did not produce this income. The future accumulation of wealth and the production of income are thus discouraged and the confiscation and consumption of existing wealth and income is encouraged. As a result, society will be poorer. And as for the effect of the eternally popular, egalitarian proposal of taxing the “rich” to give to the “poor” in particular: Such a scheme does not reduce or alleviate poverty but, quite to the contrary, it increases poverty. It reduces the incentive to stay or become rich and be productive, and it increases the incentive to stay or become poor and be unproductive.[3]
Working Conditions
Like all other services in the free market economy, the price of labor is determined by the subjective valuations of those looking to hire labor along with its corresponding availability. Thus, contrary to the popular narrative that people are slaves to the terms on which a given employer may be willing to hire them, the employers themselves are subject to concrete economic incentives not to short change employees either on the basis of wages or working conditions. Such incentives are due to competition between employers for labor, just as there is competition between prospective employees for jobs. If employer A offers wages or working conditions that are substantially less appealing than what employer B offers, then the most productive labor will tend to be allocated to employer B whilst employer A is left with the less productive leftovers. Because employer B’s labor would be more productive, he would be able to afford to pay his employees more, provide them with better working conditions, and/or sell his goods at lower prices than the miserly employer A. Such a situation will eventually lead to employer A’s bankruptcy if he does not offer better working conditions or higher wage rates. A common response to this explanation is to say, “There are too few options available for this competitive mechanism to work!” First of all, what constitutes successful “working” in this context is completely subjective. Someone choosing to work at company A is an indication that he would rather work there than work somewhere else or not at all. Thus, this is still a mutually beneficial relationship, and in fact from the perspective of the employee and the employer, it’s the most beneficial arrangement relative to the available known alternatives. Mainstream economics promotes the fallacy that the number of firms is what demonstrates “monopoly,” but so long as entry into the field is permitted, this can create competitive results. Potential competition can act as real competition. The free market is one in which competition is able to most abundantly thrive as it is defined as the lack of aggressive barriers to entry into any given industry.
The tendency of the free market economy is to develop technology and machinery which enables each individual to produce more output with the same or similar levels of input. As workers are able to produce more with the same level of input, the employer is both able and incentivized to pay them higher wages or to provide more satisfactory working conditions, lest his competitor draw away his labor by implementing said measures at his place of business.
Conversely, an employer cannot be reasonably expected to pay his employees more than he projects their labor will produce, for to do so would be to deliberately generate losses. Thus, even if a noble intentioned employer decided to pay his employees a “living wage” of $20/hour despite the fact that their labor only brings in $15/hour of revenue, he would eventually go bankrupt and his resources freed up to be used more efficiently by those who did not engage in such wasteful practices.
Industrial Revolution
One may concede that the preceding analysis sounds good in theory, but in practice has yet to be the case! The industrial revolution and the infamous working conditions associated with it are generally cited as damning evidence against the capitalism-as-free-trade theory. However, this assessment is generally marred by mistakenly comparing those working conditions with the ones enjoyed today, as opposed to comparing them with previously existing alternatives. The fact that workers in the industrial revolution chose to work at the factories logically indicates that such conditions were preferable to the available alternatives.
The free market is not claimed to be a Utopian environment where everything is always cheap and abundant and where work is always pleasant and enjoyable. Rather it is only claimed that instituting a free market will perpetually improveupon current economic conditions. So, if working conditions start off as terrible and improve to “bad,” then this is an improvement despite it not being ideal. Working conditions today are much improved not due to legislation, but rather to the increase of the marginal productivity of labor brought on by the accumulation of capital and the development of more productive technology. It is true that the passing of “pro labor” legislation coincided with improvements in working conditions, however so too did the accumulation of capital and development of technology, which allowed workers to be more productive. Hence, the State conveniently took credit for improved working conditions while it was indeed the Capitalist who was responsible for making such improvements sustainable and permanent. Mises cogently remarks:
The history of capitalism in Great Britain as well as in all other capitalist countries is a record of an unceasing tendency toward the improvement in the wage earners’ standard of living. This evolution coincided with the development of prolabor legislation and the spread of labor unionism on the one hand and with the increase in the marginal productivity of labor on the other hand. The economists assert that the improvement in the workers’ material conditions is due to the increase in the per capita quota of capital invested and the technological achievements that the employment of this additional capital brought about. As far as labor legislation and union pressure did not exceed the limits of what the workers would have got without them as a necessary consequence of the acceleration of capital accumulation as compared with population, they were superfluous. As far as they exceeded these limits, they were harmful to the interests of the masses. They delayed the accumulation of capital thus slowing down the tendency toward a rise in the marginal productivity of labor and in wage rates. They conferred privileges on some groups of wage earners at the expense of other groups. They created mass unemployment and decreased the amount of products available for the workers in their capacity as consumers.[4]
In reference to the horrid working conditions that existed during the Industrial Revolution, Mises stated:
In the first decades of the Industrial Revolution, the standard of living of the factory workers was shockingly bad when compared with the contemporary conditions of the upper classes and with the present conditions of the industrial masses. Hours of work were long, the sanitary conditions in the workshops deplorable. The individual’s capacity to work was used up rapidly. But the fact remains that for the surplus population, which the enclosure movement had reduced to dire wretchedness and for which there was literally no room left in the frame of the prevailing system of production, work in the factories was salvation. These people thronged into the plants for no reason other than the urge to improve their standard of living.[5]
Mises then concludes his argument by comparing the conditions that existed prior to the Industrial Revolution with those that existed after its inception:
The factory owners did not have the power to compel anybody to take a factory job. They could only hire people who were ready to work for the wages offered to them. Low as these wage rates were, they were nonetheless much more than these paupers could earn in any other field open to them. It is a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchens and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation.
It is deplorable that such conditions existed. But if one wants to blame those responsible, one must not blame the factory owners who — driven by selfishness, of course, and not by “altruism” — did all they could to eradicate the evils. What had caused these evils was the economic order of the pre-capitalistic era, the order of the ‘good old days.'[6]
Child Labor
The next common concern is that of child labor. “Do we as a society really want to allow children to be taken from their studies to work a tedious job at a factory?” The answer is simply no. However, most people want even less to starve. Virtually all parents, if given the practical choice, would not have their children work. This is evidenced by the relationship between family income and child labor as depicted by Benjamin Powell:
Take child labor for example. Anti-sweatshop groups universally condemn child labor and call for laws banning products made with it. But the process of development is the best cure for child labor. In countries with average incomes above $12,000, there is virtually no child labor. But for countries whose incomes are below $2,000, more than 30 percent of children work.
… It’s no accident that the United States didn’t pass meaningful national child labor legislation prohibitions until 1938. At that time, average per capita income was more than $10,000 (in 2010 dollars). It was simply codifying what the market process had already achieved. The same is true of other workplace health, safety, and maximum hour legislation in countries with sweatshops today.[7]
Once more, we reach the conclusion that State intervention has either a neutral or negative impact on the economy. The negative consequences of passing such legislation prior to economic conditions organically improving include unemployment and the diversion of labor to less desirable ends. Prohibiting an activity does not necessarily stop everyone from performing it; it simply increases the costs of doing so. This increases the risks and harm undergone by people in situations desperate enough to persist despite a formal legal ban. The unintended consequences of prohibiting child labor are briefly outlined by Thomas Dilorenzo:
Capitalistic competition is also why ‘child labor’ has all but disappeared, despite unionist claims to the contrary. Young people originally left the farms to work in harsh factory conditions because it was a matter of survival for them and their families. But as workers became better paid – thanks to capital investment and subsequent productivity improvements – more and more people could afford to keep their children at home and in school. Union-backed legislation prohibiting child labor came after the decline in child labor had already begun. Moreover, child labor laws have always been protectionist and aimed at depriving young people of the opportunity to work. Since child labor sometimes competes with unionized labor, unions have long sought to use the power of the state to deprive young people of the right to work. In the Third World today, the alternative to “child labor” is all too often begging, prostitution, crime, or starvation. Unions absurdly proclaim to be taking the moral high road by advocating protectionist policies that inevitably lead to these consequences.[8]
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Sweat Shops
The economic analysis of sweatshops is the same of any other voluntary labor arrangement. Insofar as the conditions for labor are artificially regulated, the level of available attractive work will decrease. The fact that people choose to work for these institutions demonstrate they value working at them more than not working at all. Competition between all industries in which one can be employed, will create a lower limit to the level of wages and working conditions he will accept for his labor. The existence of sweatshops merely indicates that the surrounding market is relatively undeveloped. Benjamin Powell comments on the developmental advantages provided by sweatshops:
In fact, sweatshop earnings even compared favorably to the average incomes in the countries where they were located. In six of the 17 countries, the average reported sweatshop wage exceeded the average income in the country — in Haiti, Honduras, and Nicaragua it was more than twice the national average. In another six countries, the average reported sweatshop wages were around the national average. In four of the five countries where sweatshop wages were 50 percent below the national average, the workers were immigrants (sometimes illegal) from other countries and their sweatshop wages exceeded the average wage in their native country.
In short, sweatshops provide the least-bad option for the workers who work in them. But sweatshops are better than just the least-bad option. Sweatshops bring with them the proximate causes of economic development — capital, technology, and the opportunity to build human capital. If countries respect private property rights and economic freedoms, these proximate causes of development lead to higher productivity, which eventually leads to higher pay and better working conditions.[9]
Wage Labor
A common Marxist critique of the employer-employee arrangement is that wage laborers are exploited by being paid less than what they produce. Such critics claim the leftover surplus is then used to line the pockets of the evil capitalist in the form of profits. However, this criticism fails to recognize the existence of choice in the matter! The employee does not have to work for the employer. If he wants, he may start his own business. If he does not have the capital or the will to do this, then he can choose to work for a cooperative. Any voluntary alternative is compatible with the free market. Thus, when someone chooses to work for an hourly wage in the free market, nothing inherently exploitative is occurring.
This analysis may seem simple and obvious, but it eludes even the more renowned economists. Employees who decide to work for a wage are demonstrating that they prefer the security a fixed wage brings as well as the immediacy of its payout to the comparatively lesser degree of certainty associated with entrepreneurship and variable payout. The business owner’s salary is completely contingent upon the whims of his customers, and he has no guarantee whatsoever that they will purchase the goods and services he offers. It is true that if a business goes under, then the employee will go unpaid as well. The difference here, however, is the employer is contractually obliged to pay the employee while customers have no such contractual obligation to patronize the services offered by an entrepreneur. Thus, all other things being equal, there is more certainty regarding ones’ pay in his capacity as an employee than there is in his capacity as an entrepreneur. The role of the entrepreneur is to bear uncertainty, and profits are the income he earns for executing that role. Therefore, the reaping of the “surplus profit” of the employee’s labor for the entrepreneur is justified by his willingness to incur greater risks and forego consumption for a date later than what his employees are willing. The employer and employee have reverse time preference orderings, thus their dealings with one another results in mutual benefit.[10]
The entrepreneur is essentially being rewarded for his ability to make profitable projections and to efficiently manage the capital at his disposal. He is a coordinator and a pioneer whose livelihood is to create goods which are valued more highly than the sum of their individual parts. The role entrepreneurship plays in the free market is perhaps the most critical. It is the entrepreneur that decides to acquire or not acquire more capital goods, it is the entrepreneur that introduces and makes accessible previously unheard of products and services, and it is the entrepreneur who lives closest to the mercy of the consumer.
Entrepreneurship is carried out for personal gain, but those who succeed at it should nonetheless be touted as heroes of mankind. The notion that one may best serve society only by depriving himself is vanquished by understanding that the greatest humanitarian contributions have come from the foresight of entrepreneurs seeking to help themselves by helping others. Without aggression, self-interest is channeled into socially beneficial, profit-earning enterprises. Self-interest and profits are therefore nothing to be ashamed of; they should instead be embraced as an integral motivating characteristic of human nature. Technically, one is precluded from even being able to conduct a truly altruistic act. If one does not intend to receive monetary gain from some form of action, then he is seeking psychic gain in its stead. Actions are always undertaken with the goal of alleviating the actor’s uneasiness. In fact, the claim that all action is self-interested is a tautology.
Being subject to aggression strongly increases the likelihood that one may fail to profit from an action or exchange. Thus, any attempt to vanquish wage labor or any other voluntary contractual relationship must necessarily displace otherwise profitable behavior. Hoppe responds to the Marxist critique of wage labor:
What is wrong with this [Marxist] analysis? The answer becomes obvious, once it is asked why the laborer would possibly agree to such a deal! He agrees because his wage payment represents present goods-while his own labor services represent only future goods-and he values present goods more highly. After all, he could also decide not to sell his labor services to the capitalist and then map the full value of his output himself. But this would of course imply that he would have to wait longer for any consumption goods to become available to him. In selling his labor services he demonstrates that he prefers a smaller amount of consumption goods now over a possibly larger one at some future date. On the other hand, why would the capitalist want to strike a deal with the laborer? Why would he want to advance present goods (money) to the laborer in exchange for services that bear fruit only later? Obviously, he would not want to pay out, for instance, $100 now if he were to receive the same amount in one year’s time. In that case, why not simply hold on to it for one year and receive the extra benefit of having actual command over it during the entire time? Instead, he must expect to receive a larger sum than $100 in the future in order to give up $100 now in the form of wages paid to the laborer. He must expect to be able to earn a profit, or more correctly an interest return. He is also constrained by time preference, i.e., the fact that an actor invariably prefers earlier over later goods, in yet another way. For if one can obtain a larger sum in the future by sacrificing a smaller one in the present, why then is the capitalist not engaged in more saving than he actually is? Why does he not hire more laborers than he does, if each one of them promises an additional interest return? The answer again should be obvious: because the capitalist is a consumer, as well, and cannot help being one. The amount of his savings and investing is restricted by the necessity that he, too, like the laborer, requires a supply of present goods large enough to secure the satisfaction of all those wants whose current enjoyment is considered more urgent than the advantages which a still greater lengthening of the period of production would provide.”[11]
Minimum Wage
The argument against the minimum wage is fairly simple and straightforward, so this analysis will be brief. Minimum wage laws do not alter the fact that employers cannot sustainably pay their employees more than they produce. The existence of competitive pressures, as mentioned earlier, will have already created a tendency where laborers earn nearly what they produce. Thus, a minimum wage law will tend to create unemployment in fields whose market wages are lower than what is mandated by the new law. Minimum wage laws thus amount to removing the bottom rungs of the economic ladder. One unintended consequence of minimum wage laws is that the resulting unemployment is mostly shouldered by the young, unskilled persons.[12] Tragically, the consequence of this policy tends to most negatively impact the very people it was “supposed” to help. The industries under the burden of this law will then face choices: they either have to lay off workers, increase all the “illegal” wages to be in compliance at their own expense, or raise the prices of the goods and services they offer. Any choice or combination among these negatively impacts, not only the standard of living for the patrons of these services, but the economy as a whole. As goods are made more expensive, consumers and their trading networks will have comparatively less money left over for other things.
Critics who argue from the basis of statistics which reveal no increase in unemployment after such minimum wage laws were passed are making a logically deficient argument. They are simply not accounting for other factors such as: a corresponding decrease in the overall tax/regulatory burden, an increase in the marginal productivity of labor due to accumulation of capital, which makes labor more valuable, the fact that the rate of decline in the unemployment rate may have been lessened or stagnated due to this law, etc. These critics fail to understand “ceteris paribus” (i.e. other things equal) – that existence of economic law is prior to interpretation of data. In other words, that minimum wage laws must either have a negative or neutral impact on the economy must logically follow from the nature of price floors. If one were to analyze two cases, identical in all respects save for one enacting a compulsory minimum wage law, the one where such a law is present will almost certainly generate greater unemployment than the one without (it could be the same level, though this is unlikely as wages will already nearly match the productivity of laborers for reasons outlined above). As the productivity of workers increases, so too will their wages lest their employers lose valuable employees to competitors. Thus, minimum wage laws destroy jobs which can only be feasibly compensated at a rate below the minimum wage. Murray Rothbard sums this up:
In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period. The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.
… If the minimum wage is, in short, raised from $3.35 to $4.55 an hour, the consequence is to disemploy, permanently, those who would have been hired at rates in between these two rates. Since the demand curve for any sort of labor (as for any factor of production) is set by the perceived marginal productivity of that labor, this means that the people who will be disemployed and devastated by this prohibition will be precisely the “marginal” (lowest wage) workers, e.g. blacks and teenagers, the very workers whom the advocates of the minimum wage are claiming to foster and protect.
The advocates of the minimum wage and its periodic boosting reply that all this is scare talk and that minimum wage rates do not and never have caused any unemployment. The proper riposte is to raise them one better; all right, if the minimum wage is such a wonderful anti-poverty measure, and can have no unemployment-raising effects, why are you such pikers? Why you are helping the working poor by such piddling amounts? Why stop at $4.55 an hour? Why not $10 an hour? $100? $1,000?[13]
Labor Unions
In a free market, there is absolutely no reason why voluntary labor unions could not form. In fact, they may even serve as an effective incentive for various employers to maintain satisfactory wages and working conditions for their employees. Organized strikes and collective bargaining does not entail any activity which is inherently at odds with the principles of private property or maintaining free markets. Issues arise when unions embrace the utilization of State power to further their agenda. One way this is done is by funding the political campaigns of various congressional or presidential candidates on the condition that, when in office, they pass legislation which furthers the given unions’ cause, at the expense and against the wishes of their respective employers. This is antithetical to free markets, as such legislation constitutes aggression against business owners and their property. As explained above, such aggressive intervention only serves to destroy wealth on the net to the benefit of a select, privileged few. Aggressive labor intervention can be seen when unions require prospective employees to join their ranks as a condition of their employment. If an employee wants to work for an employer and the employer is willing to hire the prospective employee, then no outside individual or organization should have the right to forcibly impose any further stipulations on this arrangement. It becomes clear that mandating union membership and payments of dues conflicts with the rights of both parties to voluntarily contract with one another. Like all other rights violations, the source of such unjustified behavior may be traced back to aggression against one’s person or property. Christopher Westley comments on the destructive Labor Union-State relationship:
In the same way, labor unionism, when state supported, removes workers from the normal coordinating mechanisms found in labor markets. These markets operate like any other market for scarce resources. Firms demand labor and pay wages for it, demanding more at lower wages and less at higher wages. Workers sell their labor to these firms, selling less for low wages and more for high wages. Through the interaction of buyers and sellers of labor, labor markets tend to clear, coordinating the movement of labor inputs in the production process.
The rise of unionism, on its own, would normally pose no threat to labor markets’ coordinating tendencies. Any group of workers would be free to organize and demand higher wages in exchange for labor. Firms would be free to pay those wages—or not. If some workers held monopoly power in the supply of their labor—which could be the case if they had unique skills that were especially valued by firms—then firms may very well choose to pay higher wages. In a competitive labor market, these workers’ success at earning higher wages would also sow the seeds for their eventual reduction, as the higher wages would signal other workers to obtain the skills necessary for their lines of work too. This benign case of unionism becomes destructive, however, when these workers receive protection from the government. This introduces violence into what otherwise would have been peaceful, voluntary exchanges of labor between buyers and sellers. Make no mistake: absent the state, any success that organized labor might have in obtaining higher wages, and thus increasing the costs of production, would be short-lived. With government comes the introduction of force in the relationship between labor producers and consumers, either directly (such as when authorities jail unanointed nonunion laborers for working in unionized industries) or indirectly (such as when union violence occurs, as allowed by the Norris-La Guardia Act of 1932).[14]
Private Relief
The working class has been discussed, but what about the truly indigent? What about the unemployed and homeless? The first point worth mentioning is that in a truly free society, one’s reputation is intimately linked with his livelihood. For instance, if a given person is habitually belligerent, rude, violent, and obnoxious, then he may find himself relatively alone and with few friends or family to help him in times of need. The prospect of solitude and personal autarky serves as a peaceful incentive for someone to develop himself as an asset to others whether in a social or an economic capacity. There would also exist substantially more wealth in a free market society than in a society governed by a State. Thus, for an individual to get to the point where he would have no access to help, jobs, friends, family, churches, or other charitable organizations would likely mean that he had conducted himself in an extremely notorious and/or anti-social manner. In any case, concern for the poor is a prevailing one, and therefore in a society where there is more wealth being generated, one may conclude that there would also be a greater willingness to give towards charitable causes. In addition to becoming wealthier, people have a stronger incentive to give because they would be spared from the delusion that the government is, to some extent, already taking care of the poor. The truth is State agencies crowd out private charity and mutual aid. Tragically, the State rarely “helps” the poor; it merely subsidizes them, thereby increasing their number.
Having a poor, dependent class is, in fact, beneficial to the security of State power. Insofar as people believe they cannot live without the State, its longevity will be increased. Additionally, whenever the poorer classes grow under the regime of a State, the culprit is all too often thought to be a lack of funding for welfare programs. In consequence, public support and spending for the welfare State grows in concordance with the growing parasitic class that organizes, regulates, and administers the benefits. Its growth necessarily comes at the expense of taxpayers, which means there will be a crowding out of private alternatives. By requiring payment into a State program, individuals are discouraged from supporting private counterparts. The very presence of the welfare State, then, undermines and displaces private charities which generally seek to empower the poor, so that they may escape poverty and become productive members of society.
Even today, many private charities compete with one another on terms of the degree of impact on their target demographics as well as what percentage of contributions actually reach their intended recipients. Statistics are available which compare CEO salary, percentage of donations used effectively, etc. Competition between these various metrics drives charities to find ways to increase their impact per dollar and incentivizes them to discover new ways to minimize administrative costs so that a growing portion of their received contributions reach those in need. The incentives of the State are starkly contrasted with this, as the funds it uses for such programs are generated through compulsion, i.e., taxes. Because income for these State welfare programs is not generated by consumers enjoying their service and voluntarily patronizing the anti-poverty measures, they are funded regardless of their efficacy. Thus, the State’s only incentive is to make token efforts towards helping the poor, while actually minimizing their productive output.[15]
For the State, it is a win-win situation if its efforts coincide with a shrinking of the impoverished, it will usurp more revenue for this end as it has “proven to be a successful program!” The State will capture more tax revenue from an increasingly wealthier society. If, on the other hand, the poor class expands, it will yet again seek to increase its expenditures on the grounds that the programs in place are “clearly under-funded.” The resulting moral hazard renders State welfare programs much less efficient than their private counterparts. For example, in his essay “The Costs of Public Income Redistribution and Private Charity,” James Edwards reveals that only about 30% of government aid reaches its intended destination, whereas the remaining 70% lines the pockets of government bureaucrats. In contrast, the inverse is true for private charities, where on average only about 30% of funds get absorbed for administrative costs, and 70% reach the people in need.[16]
Prior to the growth of the Welfare State, voluntary and private mutual aid societies served as a social safety net for those in need. As opposed to relying on direct charity, they would operate under conditions of reciprocity, where all the members would contribute membership dues to collectively insure everyone while they were healthy and employed in the event that they may need assistance themselves should they ever become sick or unemployed. Social pressures and auditing mechanisms developed to ensure that mutual aid societies were not being defrauded or exploited. Unfortunately, the State effectively legislated them out of existence and ultimately displaced them with its own compulsory welfare system. Joshua Fulton briefly describes mutual aid societies:
Mutual aid, also known as fraternalism, refers to social organizations that gathered dues and paid benefits to members facing hardship. According to David Beito in From Mutual Aid to the Welfare State, there was a “great stigma” attached to accepting government aid or private charity during the late 18th and early 19th centuries. Mutual aid, on the other hand, did not carry the same stigma. It was based on reciprocity: today’s mutual-aid recipient could be tomorrow’s donor, and vice versa.
… By the 1920s, at least one out of every three males was a member of a mutual-aid society. Members of societies carried over $9 billion worth of life insurance by 1920. During the same period, lodges dominated the field of health insurance. Numerous lodges offered unemployment benefits. Some black fraternal lodges, taking note of the sporadic nature of African-American employment at the time, allowed members to receive unemployment benefits even if they were up to six months behind in dues.
… Mutual-aid societies also founded 71 orphanages between 1890 and 1922, almost all without government subsidy. Perhaps the largest of these was Mooseheart, founded by the Loyal Order of Moose in 1913. Hundreds of children lived there at a time. It had a student newspaper, two debate teams, three theatrical organizations, and a small radio station. The success of Mooseheart alumni was remarkable. Alumni were four times more likely than the general population to have attended institutions of higher learning. Male alumni earned 71 percent more than the national average, and female alumni earned 63 percent more.[17]
Conclusion
A free market society is one that is absent any institutionalized aggression or legal privilege. This society allows all possible mutually beneficial exchanges between parties, and it therefore produces the greatest amount of wealth. There are no artificial barriers to entry into any industry, and one’s income is completely contingent upon how competently he provides desired goods/services to others. This system harmonizes self-interest with the interests and welfare of greater society. Every transaction that takes place is of mutual benefit, and every loss that occurs frees up resources to be used for more efficient ends elsewhere. This system is organic and humanitarian. It grants each person involved the greatest opportunity to transfer the contents of their imagination to the physical realm. No voluntary association is prohibited nor is any idea patented or monopolized. This paradigm serves as a breeding ground for ingenuity, prosperity, cooperation, and peace. As time progresses, the whole of society becomes more wealthy, despite the fact that some individuals may be more so than others. The lack of regularized crime creates greater stability and motivation for everyone to save, allowing them to experience rapidly improving living standards. The absence of the State is not a lacking of governance or a social safety net, but rather the presence of a beautiful spontaneous order whose efficacy and humanitarian output could never be paralleled by central fiat.
The very principle of capitalist entrepreneurship is to provide for the common man. In his capacity as consumer the common man is the sovereign whose buying or abstention from buying decides the fate of entrepreneurial activities. There is in the market economy no other means of acquiring and preserving wealth than by supplying the masses in the best and cheapest way with all the goods they ask for.[18]
References
[1] For an elaborated proof, see Chapter 1: Libertarianism
[2] Hoppe, “The Justice of Economic Efficiency,” in Private Property, 332.
[3] Hans-Hermann Hoppe, “Interview on Taxation” (interview by Nicolas Cori of Philosophe Magazine, March 10, 2011) <http://www.hanshoppe.com/2011/03/philosophie-magazine-interview-on-taxation/>.
[4] Mises, “Work and Wages,” in Human Action, 622.
[5] Mises, ibid, 620.
[6] Mises, ibid.
[7] Benjamin Powell, “Sweatshops: A Way Out of Poverty” (interview by Ludwig Von Mises Institute, March 2014). <https://mises.org/daily/6696/Sweatshops-A-Way-Out-of-Poverty>.
[8] Thomas J. DiLorenzo, “Markets, Not Unions, Gave Us Leisure” (editorial published at Ludwig Von Mises Institute. Ludwig Von Mises Institute, Auburn, Alabama, August 23, 2004). https://mises.org/daily/1590
[9] Powell, “Sweatshops: A Way Out of Poverty.”
[10] Hoppe, “Marxist and Austrian Class Analysis,” in Private Property, 121-123.
[11] Hoppe, ibid.
[12] Walter E. Williams, The State Against Blacks (New York: New Press, 1982).
[13] Murray N. Rothbard. “Outlawing Jobs, the Minimum Wage, Once More” in Making Economic Sense (Auburn: Ludwig Von Mises Institute, 1995), 133-35.
[14] Christopher Westley, “The End of Unions,” in The Free Market 26: 9 (Sept. 2005): 9.
[15] Hoppe, “Rothbardian Ethics,” in Private Property, 391.
[16] James Rolph Edwards, “The Cost of Public Income Redistribution and Private Charity,” in Journal of Libertarian Studies Summer 21.2 (2007): 3-20. <https://mises.org/journals/jls/21_2/21_2_1.pdf>.
[17] Joshua Fulton, “Welfare before the Welfare State” (editorial published at Ludwig Von Mises Institute, Auburn, Alabama, June 21, 2011). <https://mises.org/daily/5388>. See also, Beito, Mutual Aid to the Welfare State, 2000.
[18] Mises, ibid, 621.
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