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The Intellectual Poverty of Modern Libertarianism

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Congressman and presidential candidate Ron Paul has assumed the mantle of modern crusader for the Libertarian cause.

His campaign website claims: “Dr. Paul is the leading spokesman in Washington for limited constitutional government, low taxes, free markets, and a return to sound monetary policies based on commodity-backed currency.”

The modern Libertarian position, however, has a number of striking shortcomings that become even more pronounced when situated within the historical context that gave rise to the political philosophy of Libertarianism.

Limited Constitutional Government

While it is true that the scope of the US government has expanded over time, this isn’t an inherently negative thing.  During George Washington’s Administration, 80% of the federal budget was dedicated to Indian eradication.  In this sense, national security is the oldest subsidy program in US history; at the same time, it’s encouraging to consider that the government has largely abandoned systematic genocide and, throughout the Progressive era, dedicated itself to ways of promoting “the general welfare” and creating “a more perfect union” by extending voting rights to women and blacks.

Moreover, there is little historical evidence to suppose that the US government was originally meant to be limited in scope.  This may be a Jeffersonian ideal, but is just that: idealism.  Insofar as it is believed as historical fact today, it represents a form of popular mythology.

In the Federalist #14, James Madison wrote:

“If Europe has the merit of discovering this great mechanical power in government, by the simple agency of which the will of the largest political body may be concentrated, and its force directed to any object which the public good requires, America can claim the merit of making the discovery the basis of unmixed and extensive republics. It is only to be lamented that any of her citizens should wish to deprive her of the additional merit of displaying its full efficacy in the establishment of the comprehensive system now under her consideration … Let it be remarked … that the intercourse throughout the Union will be facilitated by new improvements. Roads will everywhere be shortened, and kept in better order; accommodations for travelers will be multiplied and meliorated; an interior navigation on our eastern side will be opened throughout, or nearly throughout, the whole extent of the thirteen States. The communication between the Western and Atlantic districts, and between different parts of each, will be rendered more and more easy by those numerous canals with which the beneficence of nature has intersected our country, and which art finds it so little difficult to connect and complete.”

The framers planned on territorial, technological, and infrastructure expansionism from the outset.

In the Federalist #10, Madison concluded:

“The question resulting is, whether small or extensive republics are more favorable to the election of proper guardians of the public weal; and it is clearly decided in favor of the latter.”

Low Taxes

The vehement support of low taxes among modern Libertarians is predicated on the assumption that this is money taken away from citizens.  This is short-sighted in the extreme.  When the government takes in money in taxes, it spends it.  Corporations and wealthy CEO’s, on the other hand, do take money out of circulation.  They put their surplus profits in banks, so banks can turn around and create more money through the fractional reserve system, which leads to inflation, which harms typical workers who have seen wages stagnate even as worker productivity has steadily increased.  But corporations and wealthy individuals who invest their money aren’t spending it; they aren’t contributing to the “real economy” the way government does when it allocates revenues.

graph of worker compensation compared to growth in productivity

Citizens benefit from government spending.  The west was not won by strong individualists in combat with the wilderness; the west was won through government subsidies promoting the expansion of railroads, the telegraph, and through land grants.  The westward expansion was the government-subsidized expansion of new technology.

By GDP, one third of government spending is dedicated to the armed forces.  This is a continuation of our oldest subsidy program: national security.  Since World War II, the permanent war economy has required a certain type of economic growth; during the Cold War, this took the form of planned obsolescence, which served the function of battlefield attrition in the context of a war without fighting.  A large military provides important technological subsidies that the economics of growth capitalism require.

Free Markets

This is perhaps among the most pernicious of myths propagated by modern Libertarianism.    By GDP, business accounts for about 75% of US economic activity.  Yet entrepreneurialism accounts for only 1/7 of that.  That means most economic activity in the US is on the scale of industry.

Industrial scale commerce is characterized by organizational prowess, not entrepreneurial initiative. Most of what the industrial firm calls planning is precisely the elimination of market forces: Sony sells Playstations at a loss to undermine competition; Microsoft was fined $2 billion by European regulators for operating in open violation of EU trade laws over the course of a decade. If such tactics fail, an industrial firm will buy its competition outright. Buying firms is also a way for the industrial firm to enter a new market. From the perspective of the industrial firm, acquisitions assume the role of innovation, which is otherwise impossible where planning foresees outcomes. There is only competition where outcomes are uncertain: that is what a competition is. Entering a market a new by purchasing a successful firm is anti-competitive; but shareholders want a predictable return on their investment, so investors favor industrial planning over entrepreneurial initiative.

The modern industrial system is characterized not by competition, but by oligopoly. In a given market, you have one choice of cable provider. Intel makes 85% of the CPUs sold in computers today. 90% of the soy grown in the US is Monsanto Roundup Ready.  ADM processes 50% of domestic corn ethanol.  These are not isolated examples.  General electric makes NBC sitcoms and nuclear weapons: the intuitions of the entrepreneur have about as much validity with respect to industry as observations about a piggy bank have with respect to the fractional reserve system.

Despite the rhetoric of free markets, most economic activity in the US is the result of industrial-scale economic planning.

There is no free market where there is no competition; in industry, there is little meaningful competition.  The price system only works if producers have no control over pricing; under oligopoly, it is precisely producers rather than consumers that determine prices.

The era of entrepreneurial capitalism vanished in the 19th Century, eclipsed by monopoly capitalism and again by the permanent war economy.  There’s no going back, unless you’re willing to do without industry.  Even the entrepreneur is a tool of industry: a purchaser of computers, media, manufactured furniture; independent retailers sell industrial goods.

The very notion of a free market is antiquated idealism.

Sound Monetary Policies

While there is plenty to criticize about fractional reserve banking, a return to a commodity based currency like the gold standard is not a viable solution.  The value of a currency tied to the price of gold can easily be manipulated by wealthy individuals or organizations hoarding the available supply, leveraging scarcity to their advantage.

Where fractional reserve banking creates opportunities for abuse, the solution is increased government regulation which puts limits on how much money banks are able to create, and under what circumstances.

Practical Issues

In their efforts to dismantle the public sector, modern Libertarians overlook several important key points.

First off, the effort to privatize government services on the assumption that markets are more efficient neglects to consider that markets are more importantly characterized by competition. Do we really want competition for what rights we are guaranteed? Isn’t this at odds with the very concept of the Bill of Rights as representing “inalienable” rights? If a competition is fair, its outcome is unpredictable: market mechanisms are therefore a poor way to guarantee rights.

Second, in an industrial economy, a large public sector is essential to ensuring aggregate demand. An important feature of the public sector is that employees are neither rewarded in good times nor penalized in hard times; this allows industry to plan effectively.

Third, modern libertarians are in agreement with Demcorats, Republicans, and industrialists generally in assuming that a certain type of growth capitalism is good. This, however, requires enormous subsidies and a large source of aggregate demand.  The demands of growth capitalism also overlook the fact that we live on a planet with finite resources, and we cannot grow indefinitely.

Fourth, modern libertarians obsess about government intervention as a source of market distortion, but never mention oligopoly.  Firms like Microsoft routinely engage in anti-competitive business practices in the US and abroad. They treated this as just another business expense on the road to market domination.  Oligopoly does far more to distort markets than typical government regulatory activity.
Philosophical Issues

Modern Libertarians might be right that our current government is a problem, but they have the wrong diagnosis and consequently the wrong prescription. They would never cite rising divorce rates as evidence that the institution of marriage should be abolished, but this is just the approach they take to government. They inadequately identify the specific dynamics that have lead our government to become so grossly dysfunctional.

Debates about too much to too little regulation miss the historical context in which our government was instituted: the Lockean tradition, which was largely concerned with property, held property as subject to regulation by the state.  “Life, Liberty, and the pursuit of Happiness” is a repurposing of Locke’s “life, liberty, and property.” In his Second Treatise on Civil Government, Locke wrote:

(se. 120) “it would be a direct contradiction, for any one to enter into society with others for the securing and regulating of property; and yet to suppose his land, whose property is to be regulated by the laws of the society, should be exempt from the jurisdiction of that government, to which he himself, the proprietor of the land, is a subject.”

Furthermore, Friedrich Hayek‘s “free market” program, spelled out in The Road to Serfdom (in which he also voiced opposition to laissez-faire capitalism), is quite compatible with a public health care system. After noting that “The functioning of a competition not only requires adequate organization of certain institutions like money, markets, and channels of information — some of which can never be adequately provided by private enterprise” (38) he asserts that “there can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody” (120).

He continues:

“Nor is there any reason why the state should not assist the individuals in providing for the common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance — where, in short, we deal with genuinely insurable risks — the case for the state’s helping to organize a comprehensive system of social insurance is very strong” (121).

The Intellectual Poverty of Modern Libertarianism

The rhetoric that modern Libertarian thought borrows from classical anarchism neatly ignores the economic equality imperative that anarchists considered to be inseparable from absolute individualism.  Modern Libertarianism also glosses over the bitter disputes between Marxists and anarchists: there is a tendency to view Communism as monolithic and as opposed to pure Capitalism; yet anarchism represents a third position, opposed to both Capitalism and Communism.  Under the anarchist critique, for example, Communist China can be seen exactly for what it is: not a Communist enterprise in any substantive sense, but rather, as a variety of state capitalism.

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Written by Indigo Jones

January 15, 2012 at 5:39 pm

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