No Coercion

On a forum somewhere in the far reaches of cyberspace, someone commented to me that in a “purely capitalist society,” there would be greed, exploitation, and few in control of the many.

I have an irrepressible need to correct such disturbing misunderstandings. I know that the vast majority of people who hold such views are closed off to conflicting information, but I also know that occasionally someone is open to new ways of looking at things, and some of them might stumble upon my lowly blog.

So while I’m mostly preaching to the choir, here’s my response to that all-too-common assertion that capitalism results in greed, exploitation, and the few controlling the many:

Actually, there is greed in every possible system because that’s part of human nature. Furthermore, I would submit that greed is not bad–it’s the aspect of our nature that involves striving for ever greater happiness, and that can only be good. Can people do horrible things because of their greed? Certainly. And we see this most clearly in places like North Korea, Cuba, Venezuela, and the former Soviet Union–those greedless eutopias where an elite group has gained control of the means of production as communism demands. We see the greed of those in power, who kill and enslave any who dare challenge them. We see neighbor turning on neighbor in the hopes of gaining favor with the ruling class and getting an extra share of the artificially restricted production of the economy. Of course, all this happens in the United States but to a lesser degree (so far). In a free society greed leads to ever increasing economic production and ever higher standards of living–that is, it increases happiness.

As for exploitation, that is what the government and other coercive entities do. In a “purely capitalist society,” human interaction is based on voluntary choices, not government decrees. Oddly, in today’s world what many people think of as exploitation (i.e. children and poor people working for $2/day in facilities of questionable structural integrity) is actually an example of a willing buyer (employer) and willing seller (employee) coming together in a mutually beneficial transaction (after all, if it didn’t make both parties better off, it wouldn’t happen). And what most people see as the government “sticking up for the poor exploited worker” (i.e. minimum wage laws, workplace safety rules, etc) are actually examples of true exploitation, because a group of people are using violence to get a better deal for themselves than peaceful voluntary action would provide–just because they use the government to enact their violence doesn’t make it any less wrong. So from a moral standpoint, it’s employers who are being exploited by workers through the anonymous vehicle of government. Not to mention the fact that artificial restrictions on wages and labor conditions, while giving a small number of workers a better deal, result in a loss of wealth-creating opportunity for the employers and a great number of potential workers who now will not be employed, to the point that society as a whole is made worse off.

And the few in charge of the many? That’s what you have in socialist and communist countries–not capitalist ones. In a truly free, capitalist society, there’s no government to lock entire classes of people into poverty and submission like we have today (even in the US). As an example, governments in so-called ‘civilized’ societies employ a vast array of professional license requirements for everything from doctors, nurses, and lawyers to plumbers, cab drivers, and hairdressers. The government actually uses physical violence (police power) to prevent someone who’s only marketable skill may be ferrying people around by car or doing someone’s hair from opening up their own business working out of their garage. And by the same token, it prevents lower-income people from patronizing those potential businesses and thus saving money and working their way out of poverty. This is not civilized–it’s barbaric. Capitalism actually facilitates the rapid movement of people up (and down) the economic ladder according to how well they provide value to others. Power only really comes into play when a coercive entity (the government) is involved. Outside of the very uncapitalist concept of coercion, power has no meaning.

So those are my very brief thoughts on a subject I could go on about forever. Now let me hear yours.

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A reader has asked me about the libertarian answer to insider trading. This is indeed a tough one at first glance. How exactly can a society without a monopoly public government prevent the ‘dangers’ people associate with insider trading?

First, it’s necessary to point out that insider trading does not involve the initiation of force against someone, so it shouldn’t be illegal even under a minimal state. Insider trading laws are designed to prevent corporate insiders from profiting from non-public information obtained in the performance of their fiduciary duties to the corporation. At worst, this could result in a civil suit (if the insider violated an agreement with the corporation), but not a criminal charge levied by government prosecutors. If profiting from non-public information should be illegal in one instance, why not in all? Shouldn’t everyone who’s ever gotten a job because they knew the right person be prosecuted? Should someone be thrown in jail because they work in the kitchen of a less than sanitary restaurant and wisely avoid eating the food there?

And even if insider trading in some instance resulted in the loss of stock value for other shareholders, there’s nothing inherently wrong with that. There is no such thing as the right to the value of something. You don’t have the right to a particular value of your home, and you likewise don’t have the right to a particular value of stocks you own. Value is determined by the interaction of a multitude of individuals and their economic decisions. To claim a right to the value of something is to claim the right to control the decisions of all those other people. This simple reductio ad absurdum shows that there is no right to value, only to actual property.

Insider trading prohibitions have to do with information and its use. Information is not inherently owed to anyone. Information has value. It takes effort to acquire information. Some people and firms specialize in acquiring information. They can charge others for access to that information, either on a case by case basis, or by monthly subscription, or some other arrangement. Some information requires more effort to acquire and would thus command a higher price in an open market. In a completely free society, it’s likely that businesses and organizations would emerge to collect and disseminate information about insider trading. Today we already have things like Consumer Reports–people pay money to get the scoop on various goods and services. The Wall Street Journal already publishes insider trading information on a weekly basis.

More to the point, as Milton Friedman and other economists have argued, insider trading is actually a good thing. Corporate executives unloading the stock of their own company sends a signal to anyone paying attention that all is not well with that company, and it does so much faster and more completely than any process resulting from government mandates and restrictions.

There is no rational basis for the prohibition of insider trading. It stems, as many have observed, from envy–from a deep socialistic impulse in many people to prevent others from being wealthier than themselves. I give great strategic credit to the socialists that they’ve succeeded over the past century in their propaganda efforts to convince so many Americans that there’s actually something bad and ‘un-American’ about insider trading. If only the defenders of freedom and prosperity were so strategically adept in this ‘battle for the hearts and minds’ of America!

As always, I welcome any reader comments or suggestions for future blog posts. I want to write about the issues you’re interested in–so send me your thoughts!

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Raise your hand if you’re sick of these politicians and their juvenile tirades against “business.” I know it’s the campaign season and all, but come on! And while I especially cringe when I hear the parasitic rants that the Democrats are so fond of, the formerly pro-economic-freedom Republicans are (with the exception of Ron Paul and sometimes Giuliani) getting in on the action, too. Of course, all these officials are constantly egged on and encouraged in this nonsense by a disturbingly large fraction of the American people, who whine incessantly about all the terrible profits being made by the evil corporations and how there should be minimum and maximum wages, and trade restrictions, and consumer “safety” rules, and progressive taxation, and all manner of other measures that should be taken by the “noble” politicians in an effort to curb the “excesses” of businesses and stand up for the “common good.”

I think what the American people need is a healthy reminder of the actual nature of both business and politics. Following are a couple of appropriate quotes that can help put things in perspective.

From Ayn Rand’s Capitalism: The Unknown Ideal:

What is economic power? It is the power to produce and to trade what one has produced. In a free economy, where no man or group of men can use physical coercion against anyone, economic power can be achieved only by voluntary means: by the voluntary choice and agreement of all those who participate in the process of production and trade. In a free market, all prices, wages, and profits are determined—not by the arbitrary whim of the rich or of the poor, not by anyone’s “greed” or by anyone’s need—but by the law of supply and demand. The mechanism of a free market reflects and sums up all the economic choices and decisions made by all the participants. Men trade their goods or services by mutual consent to mutual advantage, according to their own independent, uncoerced judgment. A man can grow rich only if he is able to offer better values—better products or services, at a lower price—than others are able to offer.

Wealth, in a free market, is achieved by a free, general, “democratic” vote—by the sales and the purchases of every individual who takes part in the economic life of the country. Whenever you buy one product rather than another, you are voting for the success of some manufacturer. And, in this type of voting, every man votes only on those matters which he is qualified to judge: on his own preferences, interests, and needs. No one has the power to decide for others or to substitute his judgment for theirs; no one has the power to appoint himself “the voice of the public” and to leave the public voiceless and disfranchised.

Now let me define the difference between economic power and political power: economic power is exercised by means of a positive, by offering men a reward, an incentive, a payment, a value; political power is exercised by means of a negative, by the threat of punishment, injury, imprisonment, destruction. The businessman’s tool is values; the bureaucrat’s tool is fear.

And here’s a great letter that Don Boudreaux at Cafe Hayek sent to USA Today back during the Christmas season:

Even more predictable than the post-Thanksgiving appearance of shopping-mall Santas is the inability of pundits at this time of year to say or to write “commercialism” without prefixing to it the word “crass” - as we encounter in your pages today in Tom Krattenmaker’s “The real meaning of Christmas.”

I challenge this notion.  Commerce is peaceful. It involves sellers working hard and taking risks to bring to market goods and services that consumers want to buy.  No one forces anyone to do anything; all is voluntary.

What truly is crass is politics - that sorry spectacle of power-seeking ego-maniacs who, when not pronouncing platitudes, are promising to help group A by picking the pockets of group B.  While commerce is honest, politics is duplicitous.  While commerce is peaceful, politics inevitably pits citizen against citizen.  Far more enlightened and ethical behavior is on display during any one day in a shopping mall than the most intrepid observer will find in a century on Pennsylvania Avenue.

And yes, I do realize there are businesses out there doing some really sketchy things that violate the voluntary and value-based nature of commerce. But every single one of those instances is a result of the government getting involved and lending some of its power to those offending businesses. Isn’t it ironic that the people complaining about abuses by businesses are always calling for giving the government more power over business, thus resulting in ever-increasing instances of businesses choosing what seems the most rational course of action and using that government power to their advantage?

What say you, fair readers?

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