Monthly Archives: October 2013

Feser on Rothbard: Children and Rights

A few months back, I ventured onto a post by Edward Feser criticizing Rothbard as being a philosopher “incapable of giving a philosophically interesting argument for his claims.”

Feser states:

In the revised edition of For a New Liberty, the argument begins as follows:

“Since each individual must think, learn, value, and choose his or her ends and means in order to survive and flourish, the right to self-ownership gives man the right to perform these vital activities without being hampered and restricted by coercive molestation. Consider, too, the consequences of denying each man the right to own his own person. There are then only two alternatives: either (1) a certain class of people, A, have the right to own another class, B; or (2) everyone has the right to own his own equal quotal share of everyone else. The first alternative implies that while Class A deserves the rights of being human, Class B is in reality subhuman and therefore deserves no such rights. But since they are indeed human beings, the first alternative contradicts itself in denying natural human rights to one set of humans. Moreover, as we shall see, allowing Class A to own Class B means that the former is allowed to exploit, and therefore to live parasitically, at the expense of the latter. But this parasitism itself violates the basic economic requirement for life: production and exchange.” (pp. 28-29)

Here are the [problems] that occur to me:

1. Even if it were true that “each individual must think, learn, value, and choose his or her ends and means in order to survive and flourish” and that “the right to self-ownership gives man the right to perform these vital activities without being hampered and restricted by coercive molestation,” it just doesn’t follow that anyone has a right to self-ownership.

Furthermore, why should we grant in the first place that “each individual must think, learn, value, and choose his or her ends and means in order to survive and flourish”? Children survive and flourish very well without choosing most of their means and ends.

The following is in no sense a reply to Feser, but just some thoughts generated while thinking about the subject of children. I have not come to a conclusion myself nor read any of the libertarian literature on this topic, but hopefully at some point I will.

The essence of a human being is rationality: having intellect and will.

(Assuming an A-T metaphysics) The intellect’s final cause is to determine what is good for a man. The will’s final cause is to choose what is good for man.

The way I think about this is that an individual cannot use his will unless he is free. The final cause of the will – to choose what is good for oneself is hampered unless man is allowed to choose means he finds suitable for his chosen ends. This implies a right from the initiation of force of another.

Feser’s example of children brings up interesting thoughts though. The child in such a situation isn’t choosing the right choice; his parents are making it for him. If the parents are simply recommending a choice of action to him, then this is a different situation. In the first, he is not allowed to use his will (if he has it). In the second, he is allowed to exercise his will.

Maybe Feser would argue that barring children from making certain decisions – such as a 6 year old leaving the house at 10:00 at night is obviously morally good for it. It could be seen as an absurdity if Rothbard’s argument for rights does not allow a parent to make such a decision for his child.

Another issue though, is the question of consent. At what age or point is a child truly rational? One could argue a child of 6 years of age is incapable of rationally making choices for himself. As such, a parent deciding something for his child could be much like a individual acting upon a squirrel. While the action of the parent or individual might be moral, the actions a child or squirrel take are amoral, because one is not yet capable of using his will and the other does not have a will to exert.

One issue that troubles me in claiming children cannot consent is where we draw the line. At what age or time can they consent? I don’t think the absence of a fine line delegitimizes any talk of children not having consent, but it does make it harder to think about.

Again, just some thoughts. If anyone else has thoughts on any of what I’ve mentioned, feel free to share.

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The Truth About Central Banking and Business Cycles

The Foundation for Economic Education is out with a new short video. It’s simple and easy to understand and I recommend watching it if you’ve ever wondered why business cycles occur.

This is one of the major reasons I started this blog 2 years ago: to explain business cycle theory.

I’ve made a few attempts at making this as simple as possible:

Business Cycles for Dummies

The Dangers of Inflation (No, Not Just Price Increases)

The Lean Startup Will Not Fix the Economy

If you want a slightly more elaborated version of the video, feel free to check out Business Cycles for Dummies. The other two links don’t give as full an explanation of it, but they will help see how the process occurs more clearly. If you have any questions, feel free to ask them as well, I’d be glad to help in any way if I can.

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Can a Tax Be Shifted Backward?

Check out this post if you are unfamiliar with tax shifting. It will help in understanding the following.

I was reading a section about tax shifting in Rothbard’s Power and Market last week when I was going over the same section for Liberty Classroom‘s Austrian Economics class.

Rothbard states “Shifting occurs if the immediate taxpayer is able to raise his selling price to cover the tax, thus “shifting” the tax to the buyer, or if he is able to lower the buying price of something he buys, thus “shifting” the tax to some other seller.” (p. 1156)

As he goes on to point out in the case of the general sales tax, however, both a producer’s selling prices go up and buying prices go down. So I thought these clearly could not be the key criteria.

He states “It is true that a tax can be shifted forward, in a sense, if the tax causes the supply of the good to decrease, and therefore the price to rise on the market. This can hardly be called shifting per se, however, for shifting implies that the tax is passed on with little or no trouble to the producer. If some producers must go out of business in order for the tax to be “shifted,” it is hardly shifting in the proper sense but should be placed in the category of other effects of taxation.” (p. 1156-1157)

My issue with Rothbard was, however, that I felt this argument could be flipped on him; Rothbard believed that a sales tax could be shifted backward.

I could say “It is true that a tax can be shifted backward, in a sense, if the tax causes the demand for the factors of the production of the good to decrease, and therefore the price of the factors to fall on the market. Production in this way is hampered, causing supply to decrease and marginal firms to go out of business. This can hardly be called shifting per se, however, for shifting implies that the tax is passed on with little or no trouble to the producer. If some producers must go out of business in order for the tax to be “shifted,” it is hardly shifting in the proper sense but should be placed in the category of other effects of taxation.”

This is because, even in Rothbard’s proposed correct version of events where a tax is shifted backward, supply decreases, meaning marginal firms go out of business.

If the above seems a little confusing to you, try this one instead:

In Murphy’s Study Guide to Man, Economy, and State with Power and Market, he states:

“Tax incidence refers to the actual long-run burden of taxation, which may differ from the immediate target. No tax can be shifted forward. (If retailers had this power, why wait for the tax?)”

I could reply “No tax can be shifted backward. (If retailers had this power, why wait for the tax?)”

That’s basically what I was trying to do, although my response to Rothbard’s is more detailed.

After discussing this with Dr. Herbener, he pointed out that the two cases are not symmetric in the relevant sense. What matters is not whether firms eventually go out of business, but whether firms immediately go out of business as a result of shifting the tax. It’s true that firms eventually go out of business in both scenarios, but in the forward shifting scenario, firms go out of business immediately (as supply decreases – this is the proposed mechanism for tax shifting for this scenario, firms immediately go out of business) while in the backward shifting scenario, firms go out of business eventually (the tax shift occurs earlier, the proposed mechanism being firms paying lower incomes to their facts, which they do not directly go out of business from, but eventually go out of business from because of the “other effects”).

Why is this important? Because the immediate effect is what matters for whether we call it tax shifting or not. If firms go out of business as an immediate effect of shifting the tax, this cannot be properly seen as shifting a tax. However, in every scenario where taxes are added to a free market, there will be “other effects”, or as I have been saying, eventual effects, where people are harmed, including firms. So firms being eventually hurt does not invalidate backward shifting as an example of tax shifting.

In conclusion, yes: a tax can be shifted backward and this is perfectly consistent with Rothbard’s argument against forward shifting.

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The Larger the Network Effect

The larger the incentive to surpass the network?

If there is a strong presence of a network effect in an industry along with economies of scale, this industry will tend to only have one or a few providers of a service. If neoclassical monopoly/oligopoly theory is correct, then this company or these companies will earn higher profits than normal. What is not discussed, however, is that these higher profits will serve as an extra incentive for competitors to improve on the existing system and achieve those abnormally high profits themselves. (Note: I think this is a large “if”; there are certainly problems with neoclassical monopoly/oligopoly theory but I am not prepared to defend or attack it on its position that there tend to be higher than normal returns in industries with only a few competitors)

In other words, network externalities (and likely all types of externalities) are self-regulated by the market. If such externalities lead to higher profits, they also lead to a higher incentive for a competitor to attempt to improve beyond the incumbent and make those profits himself.

Any argument advocating government intervention to “fix” the inefficiency that is present with abnormally high profits must acknowledge this market self-regulation and take it into account.

This element of self-regulation might be so great as to reduce the monopoly profits down to normal profits or reduce it by some extent.

Finally: another way of stating the conclusion of this post is that potential competition (that is, competition that is not physically competing, but a force which still exerts some pressure) is stronger in those very sectors where it is often ignored by government apologists.

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Knowing vs. Thinking

Often, after someone hears of anarchocapitalism, all sorts of objections on practical grounds are raised. How would the roads be built? How would private defense function? Wouldn’t warlords just take over?

The ironic feature of all these questions is that they are purely speculative. Meanwhile, more fundamental knowledge is on the side of the anarchist libertarian, who points out, e.g. in response to the second question, that not only is there nothing logically incoherent about private defense (you could just defend yourself or hire others, after all), but practically speaking, we have reason to expect private defense to be much more efficient.

Ex ante, two individuals that engage in a voluntary transaction both gain from the trade. Otherwise, they would not have engaged in the trade. So we know that private defense would satisfy the desires of consumers far more effectively than government, an institution completely separated from the satisfaction of preferences.

I find this analogous to the knowing vs. thinking (or believing) distinction. The more fundamental knowledge i.e. knowing, is what we can deduce from human action about voluntary transactions, e.g. that a private defense agency must satisfy the preferences of consumers or it would go out of business, and a more efficient competitor would take its place. The less fundamental knowledge, thinking, is the speculative objection, e.g. that an incentive exists known as the “free rider” incentive and such an incentive could possibly lead to worse defense service production on a free market (for a quick rebuttal, note that the free rider incentive is one of many competing incentives involved in human action. Another, for example, is the desire for social acceptance, and those who paid for a private defense agency could socially reject free riders). Of course, this distinction can be applied to a number of examples.

This is why so many libertarians who read Mises and Rothbard (especially the latter) on economics have no problem imagining a stateless society. If the state can’t manufacture and sell shoes as well as the market, why should we expect it to do better anywhere else? Praxeology, after all, makes no distinction between the content of means or ends, but only discusses the fact that man does have means and ends (and so a consistent application of the praxeological analysis to economics should lead one to taking the libertarian position on every issue when it comes to economic efficiency).

In fact, as I heard Tom Woods say recently, to him it’s so clear a stateless society could work (he did not say this last phrase, but I believe it was a hidden part of his argument; if he ever sees this and doesn’t think this is accurate, then I would take his word over mine), we should accept that as our initial premise and fully accept the non-aggression principle, and those in favor of a State must make their case why a stateless society cannot work. In other words, it should not be up to the libertarian to prove a stateless society could work.

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Occam’s Razor in Economics

If we ever chose to apply Occam’s Razor to economic theory, it’s clear that Austrian business cycle theory would win over all other cycle theories.

A response to ABCT from the typical person is a “well duh, of course if banks create money out of thin air, creating more claims on their supplies then they actually have, people will realize their insolvency and there’ll eventually be a bank run.”

Or “of course interest rates are a price just like any other price and coordinate market activity, and if you essentially place a price control on interest rates there’ll be unintended consequences.”

ABCT is common sense applied to economics. The reason that business cycles occur is not that complicated.

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