Democracy (Greek "demokratia" - "rule of the people") is a very vague term. Today in schools the state propaganda machine defines it as a system in which majority rule is applied and which creates freedom and equality. This definition is false for too many reasons to count (for one, liberty is contrary to egalitarianism). Still, democracy based on this false definition has many followers. And many of these democratic demagogues take the time to research my opinions before or after they debate me on the issue of government(NB. I greatly respect people who are willing to actually go through the task of research and finding information rather than just blabbering and shouting). Such people often get back to me with snide remarks about two men who I consider to be some of my greatest philosophical mentors - Herbert Spencer and Ludwig von Mises - being in favor of democracy. This is a basic error. Indeed Spencer and Mises thought democracy preferable to monarchy, but that is only because they had a very different definition of democracy. For them it was not something vague and associated with freedom and equality and majority rule. Rather it was, as Mises put it
"the right of self-determination both of individuals and of nations". This means that "rule of the people" was interpreted differently by liberal philosophers. Rather than meaning "everybody rules" as is accepted today, democracy used to mean "everybody rules
themselves and themselves alone". This is what liberal democracy was really about. This is the principle on which the United States were founded. Herbert Spencer wrote about this most eloquently when establishing his Right to Ignore the State. Secession was the most important and deeply fundamental aspect of liberal democracy as defined by Mises, Spencer, or Jefferson. This principle, cited in the Declaration of Independence, was only quenched and eliminated from the definition of democracy after the War to Prevent Southern Secession in the 1850's. Unfortunately the greatest liberal democracy which ever existed, those Jeffersonian United States, killed itself soon after its foundation...
I think
Mises described his views best when writing about liberalism in Man, Economy, and State -
"It forces no one against his will into the structure of the state. Whoever wants to emigrate is not held back. When a part of the people of the state wants to drop out of the union, liberalism does not hinder it from doing so. Colonies that want to become independent need only do so. The nation as an organic entity can be neither increased nor reduced by changes in states; the world as a whole can neither win nor lose from them." This is what liberal democracy was really supposed to embody. The democracy we have today is mob rule, a dictatorial democracy. Sadly liberal democracy always degenerates thus, which is why we must oppose this doctrine at ever corner.
"Such people often get back to me with snide remarks about two men who I consider to be some of my greatest philosophical mentors - Herbert Spencer and Ludwig von Mises - being in favor of democracy."
ReplyDeleteWell, Von Mises was in favor of liberal democracy over monarchism, and while you see democracy as devolved into a constitutional dictatorial democracy going back to Lincoln, the fundamental premise of a liberal democracy being emphasized over monarchism still stands in Von Mises eyes. The noun "democracy" as a form of government is emphasized through Von Mises than the noun "monarchism."
Also, Von Mises on the state:
"Liberalism is therefore far from disputing the necessity of a machinery of state, a system of law, and a government. It is a grave misunderstanding to associate it in any way with the idea of anarchism. For the liberal, the state is an absolute necessity, since the most important tasks are incumbent upon it: the protection not only of private property, but also of peace, for in the absence of the latter the full benefits of private property cannot be reaped."--Mises, Liberalism
And:
"Liberalism is not anarchism, nor has it anything whatsoever to do with anarchism. The liberal understands quite clearly that without resort to compulsion, the existence of society would be endangered and that behind the rules of conduct whose observance is necessary to assure peaceful human cooperation must stand the threat of force if the whole edifice of society is not to be continually at the mercy of any one of its members. One must be in a position to compel the person who will not respect the lives, health, personal freedom, or private property of others to acquiesce in the rules of life in society. This is the function that the liberal doctrine assigns to the state: the protection of property, liberty, and peace. The anarchist is mistaken in assuming that everyone, without exception, will be willing to observe these rules voluntarily."
--Mises, Liberalism
It seems I'm beginning to become a bigger fan of Von Mises everyday!!! Thanks, actually I've learned a lot!!!
Also, I'm sorry you think this is snide. Hope you enjoyed your break! :)
That was not snide, but rather, like I said, well informed! It's common knowledge that Mises was not an anarchist, he was a classical liberal. However what we must understand about such liberals as Mises and Friedman is that their followers who further developed their philosophies quickly turned to anarchism. This is true both for Mises's greatest pupil Rothbard and for Friedman's son, David Friedman. Thus anarcho-capitalism is just a more consistent version of classical liberalism for which the errors of the latter have been removed.
ReplyDelete"Anarcho-capitalism would inevitably transform into a minarchist state, even without violating any of its own non-aggression principles, through the eventual emergence of a single locally-dominant private defense and judicial agency that it is in everyone's interests to align with, because other agencies are unable to effectively compete against the advantages of the agency with majority coverage. Therefore even to the extent that the anarcho-capitalist theory is correct, it results in a single, private, protective agency which is itself a de facto 'state' that is not enforced through any coercive social contract. Thus anarchy may only exist for a limited period before a minimalist 'state' emerges."
ReplyDelete-from Anarchy, State and Utopia, Robert Nozick
Rothbard criticism:
"On Nozick's account the only minimal State that could possibly be justified is one that would emerge after a free-market anarchist world had been established. Therefore Nozick, on his own grounds, should become an anarchist and then wait for the Nozickian invisible hand to operate afterward."
AND
"No existing State has been 'immaculately conceived' in the way envisaged by Nozick."
I find it interesting that the basic premise of Nozick's argument would not necessarily contradict Rothbard's economic proposition because both are built on the concepts of anarcho-capitalism (Rothbbard's is genesis, Nozick's is the evolution), and I find it ironic that Rothbard would find such a creation of this state as "immaculate," considering this may be the most realistic evolutionary course of anarcho-capitalism, one not necessarily built on a social contract but de facto operates in ways similar to a statist entity. Even if perfect competition were to be taken into account, if the services provided were cheap enough where no one would else would want to compete, a natural monopoly would still exist.
Ayn Rand and Robert Nozick's argument for emergence of states out of natural order makes just as much sense as any other argument for natural monopoly. Namely - it makes no sense. In today's world we have many insurance companies, not one. Thus already experience has proven any such assertion false. Even according to Rand and Nozick - there is no such thing as a naturally forming monopoly! And there is no reason to believe that provision of security is an industry different than provision of health or provision of schooling.
ReplyDelete"In today's world we have many insurance companies, not one. Thus already experience has proven any such assertion false"
ReplyDeleteAccording to this logic, private individuals and companies would never voluntarily collude with one another in any one field to establish fixed prices, rates, production outputs, dumping, buy out smaller firms, and maintain other oligopoly traits because the market is too big. That is like arguing that because there are thousands of oil wells, no one monopoly or oligopoly can form because there are too many private owners. This is absurd even in perfect competition scenarios, because it assumes that all separate private owners have equal opportune access to production capacity for oil (thus why it is called "perfect" competition). And accordingly, since an anarcho capitalist would not have an issue with one company or a group of companies owning 99% of the wealth of oil if that wealth was not obtained through coercion (because enforced equality is wrong), then that anarcho-capitalist cannot object to all the companies agreeing to fix their prices higher and to raise their marginal revenues as to exceed their marginal cost so they profit on the backs of the consumers, which is what monopolies do. To assume that the state would enforce this is absurd, as it would sooner institute anti-trust laws or price caps or move to nationalize all the monopolies as their own. The very definition of monopolies does not necessarily entail the existence of a state, although it can be like in the banking sector.
From wikipedia:
"Monopolies can form naturally or through vertical or horizontal mergers. A monopoly is said to be coercive when the monopoly firm actively prohibits competitors from entering the field or punishes competitors who do. Monopolies can have characteristics that correlate with government intervention, but in no way should monopolies be confused as the direct result of government intervention unless they are not natural monopolies, but government sponsored ones."
"The idea of "free
contract" between the potentate and his starving subject is a sick joke perhaps."- Chomsky
The whole entire last comment is one gigantic economic fallacy. There is not such thing as a natural monopoly - period. There has been no example in history where companies form monopolies and collude in order to fix prices as long as there is free entry into the market. Such monopolies only exist in government mandated industries (such as the institution of government itself). For any companies to collude in such a fashion would be impractical and illogical. There are in fact multiple examples in history when some companies tried this and it caused them to go bankrupt while making their competition strong. To emphasize this again - monopolies do not exist, only governments do. And quoting socialists like Chomsky does not prove anything, Stalin would agree with him on 99% of issues (and having a Stalinist army is just as bad as having a Stalinist police or a Stalinist shoe producer).
ReplyDeleteFrom wikipedia, an explanation:
ReplyDelete"All industries have costs associated with entering them. Often, a large portion of these costs is required for investment. Larger industries, like utilities, require enormous initial investment. This barrier to entry reduces the number of possible entrants into the industry regardless of the earning of the corporations within. Natural monopolies arise where the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual or potential competitors; this tends to be the case in industries where fixed costs predominate, creating economies of scale that are large in relation to the size of the market - examples include water services and electricity. It is very expensive to build transmission networks (water/gas pipelines, electricity and telephone lines), therefore it is unlikely that a potential competitor would be willing to make the capital investment needed to even enter the monopolist's market.
Companies that grow to take advantage of economies of scale often run into problems of internal bureaucracy; these factors interact to produce an "ideal" size for a company, at which the company's average cost of production is minimized. If that ideal size is large enough to supply the whole market, then that market is a natural monopoly.
A further discussion and understanding requires more microeconomics:
Two different types of cost are important in microeconomics: marginal cost, and fixed cost. The marginal cost is the cost to the company of serving one more customer. In an industry where a natural monopoly does not exist, the vast majority of industries, the marginal cost decreases with economies of scale, then increases as the company has growing pains (overworking its employees, bureaucracy, inefficiencies, etc.). Along with this, the average cost of its products decreases and increases. A natural monopoly has a very different cost structure. A natural monopoly has a high fixed cost for a product that does not depend on output, but its marginal cost of producing one more good is roughly constant, and small.
A firm with high fixed costs requires a large number of customers in order to have a meaningful return on investment. This is where economies of scale become important. Since each firm has large initial costs, as the firm gains market share and increases its output the fixed cost (what they initially invested) is divided among a larger number of customers. Therefore, in industries with large initial investment requirements, average total cost declines as output increases over a much larger range of output levels.
Once a natural monopoly has been established because of the large initial cost and that, according to the rule of economies of scale, the larger corporation (to a point) has lower average cost and therefore a huge advantage. With this knowledge, no firms attempt to enter the industry and an oligopoly or monopoly develops."
So, yes, natural monopolies do exist outside of the government.
Also, you have cited Orwell on issues of freedom(War is Peace, Freedom is Slavery, issues of propaganda, etc.). He also said this:
"Every line of serious work that I have written since 1936 has been written, directly or indirectly, against totalitarianism and for democratic socialism, as I understand it."- Why I Write
And
". And the only regime which, in the long run, will dare to permit freedom of speech is a Socialist regime."-Why I Joined the Independent Labour Party
I guess Stalin would agree with the man you cited too. Just because you cite a man that does not mean you agree with him on some other fundamental issues.
It is difficult to have a debate about this in a comment form, so I think soon I will write a post about the Nozick/Rand natural state monopoly theory and its fallacy. I will also say that the explanation in your comment above is once again incorrect. For one, high initial entry costs do not form monopolies. If that was true, we would never have built any factories in this world - the first factory would have have prevented that! For two, you make the critical error of thinking that a good is only in competition with other goods which are identical to it. You assume that economy tends toward perfect competition or that it functions like a perfect competition. Nothing could be further from the truth. Perfect competition is a wrong model which is completely unrealistic and cannot be used in real world analysis. You might not understand this, but all things are in competition with other things. For example, oil is in competition with solar power. Breakfast cereal is in competition with pancakes. And yet we have never had a company which was able to monopolize cereal and pancakes and eggs, etc. As I said before, there has never been a natural monopoly in the history of the world and there never will be. All economic models of this extent are false. Of course you could disprove me by making one example of such monopoly... Even in industries where entry costs are colossal monopoly has never arisen. In comparison it has appeared where government enforces it by force, such as with many modes of transportation, security, or health care. And we all know that in a monopoly costs tend to rise and standards of products tend to fall (the customer has no way to prevent this unlike in a free market in competition). This is why our governments (British Health Service is the best example I know!) are the worst government that have ever existed and will only continue to deteriorate in this regard.
ReplyDelete"Perfect competition is a wrong model which is completely unrealistic and cannot be used in real world analysis."
ReplyDeleteWhen you write your next blog, please explain to me what economic model you would use other than the ideals of perfect competition, because I find it just as realistic as anarcho-capitalism. Every economic chart that exists that I have looked at suggests the existence of a natural monopoly at least in the short term, least of all in perfect competition.
From wikipedia:"Some free-market-oriented economists argue that natural monopolies exist only in theory, and not in practice, or that they exist only as transient states."