Chapter 7. Which economic system is just?

Here are the topics in this chapter after this introductory section: By using a process of elimination, it is easy to determine which economic system is just. Since justice is incompatible with the state, we can eliminate all economic systems that require the state. We can start by ruling out those systems such as socialism and communism in which the state owns the means of production. Next we can rule out those systems such as fascism, mercantilism, and all forms of a mixed economy in which some of the means of production are privately owned but regulated by the state. The only economic system that remains is an economy that is unhampered by systematic interventions—the free-market economy.

To have a just society, all non-invasive actions must be permitted and invasive actions need to be curbed. To have an unhampered market, all non-invasive actions must be permitted and invasive actions need to be curbed. The requirements for a just society and the requirements for an unhampered market are the same.

Critics of capitalism protest that the market does not in fact work as advertised. In so far as they are correct, the market is hampered. This is not debatable. It is a matter of definition. What economists mean by an unhampered or free-market economy is one that consists of only voluntary exchanges of legitimate property titles—in other words, a market unhampered by fraud, violence, or the threat of violence, in other words, a market unhampered by unjust or invasive actions.

In describing the workings of the unhampered market, economists describe the workings of an economy where fraud and violence are ruled out by hypothesis. They describe an economy that conforms to the principles of justice, without passing judgment on whether such an economy and such moral principles are good or bad.

How are property rights acquired in an unhampered market?

In an unhampered market, in which violence is ruled out by hypothesis, economic goods come into existence by being produced by individuals, and since they are initially possessed by their producers, the only way they can come into the possession of somebody else in this kind of economy is through gift or exchange. So in the unhampered market, initial property ownership is established de facto by production of economic goods, that is by an individual mixing his labor with previously unowned natural resources. In other words, in an unhampered economy, property rights are established in accordance with the homestead principle.

In Man, Economy, and State, Murray Rothbard explains that the alternatives to private ownership originating in the homestead principle could not work in an unhampered economy, because the alternatives require a coercive government to administer the claims of "Society." In particular, he shows that Henry George's view that Society (in the alleged person of the state) owns the land and J. K. Ingalls' view that a person can own land only while he is actually using it are not consistent with the unhampered market.1

In Power and Market, Rothbard explains that the concept of the public domain is not compatible with the unhampered market:

Under a purely free-enterprise system, there would be no such thing as a governmentally owned public domain. Land would simply remain unowned until it first came into use, after which it would be owned by the first user and his heirs or assigns.2
In a free society, immigrants would be free to enter the country and live on any previously unowned land. Any attempt to forcibly deny them this opportunity would be an act of invasion. As long as there is unowned land, there would be open immigration.

What exchanges are consistent with the unhampered market?

The unhampered market comprises only voluntary, non-invasive exchanges.
The major form of voluntary interaction is voluntary interpersonal exchange. A gives up a good to B in exchange for a good that B gives up to A. The essence of the exchange is that both people make it because they expect that it will benefit them; otherwise they would not have agreed to the exchange. A necessary condition for an exchange to take place is that the two goods have reverse valuations on the respective value scales of the two parties to the exchange.3
Thus, the conditions for an exchange to take place are that the goods are valued in reverse order by the two parties and that each of the parties knows of the existence of the other and the goods that he possesses. Without knowledge of the other person's assets, no exchange of these assets could take place.

"... the objects of an exchange must be scarce means to human ends, since, if they were available in abundance for all, they would be general conditions of human welfare and not objects of human action. If something were a general condition of human welfare, there would be no need to give something up to acquire it, and it would not become the object of exchange.4

The agreements by individuals to make exchanges are contracts. The network of voluntary interpersonal exchanges constitutes a contractual society. The pattern of interrelations in this society is the free market. In the contractual society:
Each individual is an actor free to make his own decisions at every step of the way. ...there is equality in the sense that each person has equal power to make his own exchange decisions.5
Thus, the distinguishing features of the contractual society, of the unhampered market, are self-responsibility, freedom from violence, full power to make one's own decisions (except the decision to institute violence against another), and benefits for all participating individuals.6
Next, Rothbard explains how "the possibilities of exchange open up for producers the avenue of producing for a 'market' rather them for themselves."7 Later on he describes the unhampered market from the producer's point of view:
The free market in the world of production may be termed "free competition" or "free entry," meaning that in a free society anyone is free to compete and produce in any field he chooses. "Free competition" is the application of liberty to the sphere of production: the freedom to buy, sell, and transform one's property without violent interference by an external power.8
Rothbard goes on to explain why the contractual society is a co-operative society in which each serves his fellow men in order to serve himself in exchange.9

Rothbard lists the obviously non-invasive acts such as voluntary exchange, bestowal of gifts, forgiveness by the victim of an invasive act, forgiveness of a debt by the creditor, and defensive use of force against invaders. Rothbard also brings to our attention many non-invasive acts that readers might not have thought of as being non-invasive. He argues that the following types of actions are consistent with the unhampered market: defensive bribes; lying; failure to keep a promise to perform a personal service; libel, slander, and blackmail; refusal to hire or re-hire someone and trying to blacklist him; organizing or participating in a boycott; making cartel agreements to set production quotas; incorporating a firm with limited liability; and lowering the market value of someone's property by moving undesirable people or businesses into their neighborhood.10

Unfortunately, in my opinion, Rothbard misclassifies some invasive actions. He claims (MES p. 155) that it is not invasive to confiscate from a thief or debtor property equivalent to the stolen or borrowed property and to deliver it to the victim or creditor—unless the victim or creditor forgave the theft or debt. He claims (MES p. 155 and PM p. 206) it is not invasive to force a thief or debtor to work in prison and to attach his earnings to make up the amount of the theft or debt plus compensation for the delay—unless the theft or debt was forgiven. And he claims that coercive punishment of criminals is not invasive.11

If Rothbard is correct in his classification of what is an invasion and what is not an invasion, then he is correct about what is consistent with an unhampered market, and his unhampered market conforms with justice. If my classification of what is an invasion and what is not an invasion is correct, then I am correct about what is consistent with an unhampered market, and my unhampered market conforms with justice. Either way, an unhampered market conforms with justice because an unhampered market and justice are both defined by the same thing—absence of invasion.

What exchanges are not consistent with the unhampered market?

An unhampered market is, by definition, a market that is free of invasion or intervention by the state or by other criminal organizations or by individual criminals. Rothbard classifies interventions into three categories: autistic, binary, and triangular.12

Autistic Interventions

An autistic intervention is one in which the intervener coercively damages, destroys, or restricts the subject's use of the subject's own property, where exchange with someone else is not involved. When the government commits autistic intervention, even though it may do it to whole classes of people at once, the lines of force radiate from the state (invader) to each individual.

Autistic interventions include: homicide, assault, vandalism, polluting the air to the extent that it damages other people or their property, making noise so loud that it bothers others, compulsory enforcement or prohibition of a salute, speech, or religious observance, compulsory safety codes, immigration restrictions, and compulsory birth control. In my opinion, but not in Rothbard's, corporal punishment of a criminal without his consent is an autistic intervention.

Binary Interventions

A binary intervention is one in which the intervener compels an exchange between the individual subject and the intervener—a coercive "gift" from the subject to the intervener. Binary interventions include all forms of slavery, theft, and fraud.

Slavery comes in such forms as conscription, compulsory jury service, subpoena power, child labor laws, and compulsory school-attendance laws, as well as chattel slavery. In my opinion, but not in Rothbard's, forcing a thief or a debtor to work in prison is also a form of slavery.

Theft includes highway robbery; taxes, including general sales taxes and partial sales taxes, income taxes (including taxes on wages, corporate income taxes, excess profit taxes, capital gains taxes, and consumption taxes), and wealth taxes (including gift, bequest, and inheritance taxes, property taxes, taxes on individual wealth, progressive taxes, and taxes on ground rent); eminent-domain laws; refusal to return stolen property on the grounds that you are not the original thief and the property is a "negotiable instrument," and copyright violation. In my opinion, but not in Rothbard's, confiscation of property from a thief or debtor without his consent by thief's victim or the creditor is theft, unless the property that is confiscated is the same property that was originally stolen or loaned.

Fraud includes inflation; fractional-reserve banking;13 adulterated food; renting unused land, air waves, or other resources "purchased" from the government; government spending of any kind including transfer payments or subsidies such as relief programs for the poor and unemployment relief; resource-using expenditures by the government on "command posts" that help the state to maintain its power, such as police and military forces, education, streets and highways, the postal system, canals, coastal waters, courts, and mints; and other resource-using expenditures by the state such as space programs and monuments. Any contract that involves selling you future will such as a voluntary slavery contract or a marriage contract is fraudulent, because no one can alienate their will. In my opinion, but not in Rothbard's, any contract to sell something that does not yet exist is also fraudulent.

So-called "voluntary slavery," cannot exist in the unhampered market, because its enforcement entails the initiation of violence, which is ruled out by hypothesis. Here again, the purely economic description of the unhampered market leads to the same conclusion as the principles of justice.

While a person is alive and not in a comatose state, and barring a science-fiction scenario involving some as yet unknown technology, his deliberate acts are controlled (owned) by his will, and it is physically impossible for his actions to be controlled or owned by anyone else. Therefore, voluntary slavery contracts are inherently fraudulent, and they would not be enforced in the free market.

Animals cannot alienate their will either. If animals could participate in voluntary exchange, the violence that humans do to animals when we kill or buy or sell them would be in violation of the unhampered market. But we humans, so far, are not able to communicate with other species well enough to include them as contracting parties in the market. So the violence we do to animals does not hamper the actual market. This also fits in with my theory of justice in that animals are not moral agents, so they have no rights and the violence we do to them does not violate the principles of justice.

Triangular Interventions

A triangular intervention is one in which the intervener either compels or prohibits an exchange between a pair of subjects. Triangular interventions include price controls, product controls, and grants of monopolistic privilege.

Price controls include prohibition of sale above or below a certain price such as minimum wage laws, minimum exchange rates, legal tender laws, usury laws (price controls on interest rates), and laws against base-point pricing.

Product controls include the absolute prohibition of all sales of liquor, partial prohibition such as a rationing law that forbids using more than a certain amount of a product, laws that close businesses at certain hours, compulsory priorities and allocations, conservation laws, discriminatory laws such as a law prohibiting Muslims from buying or selling liquor, maximum-hour laws, compulsory unionism, mandatory quality standards, compulsory safety codes, security and exchange regulations, laws against nonreserve insurance companies, and antitrust laws. One product control that is not an invasion would be a prohibition on weapons of mass destruction that have no legitimate (non-invasive) function. Such a prohibition would be a legitimate act of self-defense against an immanent threat.

Grants of monopolistic privilege include a law granting monopoly privileges to a particular firm, compulsory cartels such as milk cartels (which set minimum prices, restrict output, and impose embargoes on out-of-state milk), compulsory production quotas, licenses, invasive bribes of government officials (which are economically equivalent to licenses to commit crimes), certificates of convenience and necessity, patents, special taxes on chain stores, corporate income taxes, requirements for reports, ordinances outlawing pushcart peddlers, protective tariffs, and import quotas. In my opinion, but not in Rothbard's, confiscating property from a thief or debtor without his consent and giving it to thief's victim or the creditor is theft, unless the property that is confiscated is the same property that was originally stolen or loaned.

Justice requires an unhampered economy.

Economics, as a value-free science, cannot say whether the unhampered economy is good or bad. It can only tell us what it is and how it works. Profit and loss in an unhampered market are indications of success or failure at satisfying the demonstrated preferences of others. Success and failure in political affairs are indications of increased or decreased power over others. Profit in a mixed economy may indicate success at producing what satisfies the buying public, or it may indicate success at getting the state to commit crimes against the public for your benefit.

In the long run, the economic means of acquiring wealth may actually benefit everyone in society, but the political means of acquiring wealth only benefits some at the expense of others and slows overall prosperity. The economic means of acquiring wealth is a positive-sum game, which increases the overall wealth among the players. The political means is a negative-sum game that benefits some players at the expense of others and reduces the overall wealth among the players by discouraging wealth creation.

When we look at the unhampered market economic system from an ethical point of view, we can judge whether it is good or bad. We see that the exchanges that are consistent with the unhampered economy are also consistent with justice, and the exchanges that are inconsistent with the unhampered market are the same actions that are inconsistent with justice.

The unhampered market system it is not only a good and just system, it is the system that is required by justice. No other economic system is even compatible with justice.

Go to Chapter 8. Can voluntary cooperation work?

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