Ch.IV | The Economy

Contra Libertarians, A Post-Liberal Critique

Ch.I • Ch.II • Ch.III • Ch.IV

The following critique of Libertarian economics is also implicitly a further critique of Neoliberalismーof Economic Liberalism at large; its presuppositions, its conclusions, it’s after-the-fact justifications.

The Libertarian tells us; Capitalism is the most natural economic system because markets and the like are just the default mode of human economic interaction. Contradicting this nature produces inefficiencies hence why Capitalism is the most desirable system and has produced the most wealth.

Murray Rothbard writes; 

What we need is for government to get out of the way, remove its incubus of taxation and expenditures from the economy, and allow productive and technical resources once again to devote themselves fully to increasing the wellbeing of the mass of consumers. We need growth, higher living standards, and a technology and capital equipment that meet consumer wants and demands; but we can only achieve these by removing the incubus of statism and allowing the energies of all of the population to express themselves in the free-market economy.1

Capitalist markets are an emergent phenomenon and not spontaneous. The “state of nature” and likewise for Adam Smith’s “land of barter”, are both historical fictions and refuted by very cursory anthropological evidence ー the earliest records of the development of money is as a debt system for the accounting bureaucracy for the Sumerians. Money is a product of a given authority looking to centralise, and as we have already explored, the demand for a given object is a product of a given authority itself, in all senses beyond perhaps mimetic desire. Geoffrey Hodgson argues that a key factor in the development of Capitalism was a powerful and sophisticated state apparatus able to protect property and trade; 

John Kenneth Galbraith (1987, 299) wrote: “The separation of economics from politics and political motivation is a sterile thing. It is also a cover for the reality of economic power and motivation. And it is a prime source of misjudgement and error in economic policy”. Similarly, Douglass C. North, John J. Wallis, and Barry R. Weingast (2009, 269) argued: “The seeming independence of economic and political systems on the surface is apparent, not real. In fact, these systems are deeply intertwined.”  I also concur with Bruce R. Scott (2009, 4) in his claim that capitalism is both “a political phenomenon” and “an economic one” and that “specifically it requires the visible hands of political actors exercising power through political institutions.” Capitalism always involves legal and political institutions: pure “anarcho-capitalism” is an unrealisable fantasy.2

A key factor [in the emergence of capitalism] was the development  of a new and sophisticated state machine that was strong enough to protect property and trade, but adequately restrained by checks, balances [etc.,] to protect a relatively autonomous legal system and to allow the development of self-governing organisational forms that could engage in productive activity and reap the rewards of innovation.

Once a merchant class became well established in [European nations], it became a political lobby to defend its interests, reinforce countervailing power, and enable the development of a relatively autonomous system of law. In countries where merchants had greater power and autonomy (contrast England with Spain) the rewards of global trade made this class even more powerful and led to institutional changes that further checked the arbitrary power of the state. Access to emerging Atlantic trade routes enhanced this process of positive feedback between commerce and countervailing power.3

Note Hodgson’s illustration of ‘countervailing power’ leading to further checks of state power, which we should recognise immediately now as imperium in imperio. In other words, capitalism is an inherently deterritorialising process, it emerges and exists within prevailing positive-feedback loop systems of insecure power, selecting for more of itself and is contingent upon such processes. The state isn’t dependent on capital, and capitalism cannot exist within every type of statist order, but instead is contingent upon a very specific kind of statist order ー of divided power, one that historically self-selected, and continued to select for the levelling process ad nauseum. The conclusion that must be drawn then is that capitalism is a direct development of centralisation under insecure power, and could not otherwise exist with formal sovereignty. Furthermore, as David Graeber exploresーmoney itself is a product of bureaucratic centralisation;

Credit Theorists insisted that money is not a commodity but an accounting tool. In other words, it is not a “thing” at all. You can no more touch a dollar or a deutschmark than you can touch an hour or a cubic centimeter. Units of currency are merely abstract units of measurement, and as the credit theorists correctly noted, historically, such abstract systems of accounting emerged long before the use of any particular token of exchange.

The obvious next question is: If money is just a yardstick, what then does it measure? The answer was simple: debt. A coin is, effectively, an IOU. Whereas conventional wisdom holds that a banknote is, or should be, a promise to pay a certain amount of “real money” (gold, silver, whatever that might be taken to mean), Credit Theorists argued that a banknote is simply the promise to pay something of the same value as an ounce of gold. But that’s all that money ever is. There’s no fundamental difference in this respect between a silver dollar, a Susan B. Anthony dollar coin made of a copper-nickel alloy designed to look vaguely like gold, a green piece of paper with a picture of George Washington on it, or a digital blip on some bank’s computer. Conceptually, the idea that a piece of gold is really just an IOU is always rather difficult to wrap one’s head around, but something like this must be true, because even when gold and silver coins were in use, they almost never circulated at their bullion value.4

For an example;

The Sumerian economy was dominated by vast temple and palace complexes. These were often staffed by thousands: priests and ocials, craftspeople who worked in their industrial workshops, farmers and shepherds who worked their considerable estates. Even though ancient Sumer was usually divided into a large number of independent city-states, by the time the curtain goes up on Mesopotamian civilization around 3500, temple administrators already appear to have developed a single, uniform system of accountancy—one that is in some ways still with us, actually, because it’s to the Sumerians that we owe such things as the dozen or the 24-hour day. The basic monetary unit was the silver shekel. One shekel’s weight in silver was established as the equivalent of one gur, or bushel of barley. A shekel was subdivided into 60 minas, corresponding to one portion of barley—on the principle that there were 30 days in a month, and Temple workers received two rations of barley every day. It’s easy to see that “money” in this sense is in no way the product of commercial transactions. It was actually created by bureaucrats in order to keep track of resources and move things back and forth between departments. Temple bureaucrats used the system to calculate debts (rents, fees, loans …) in silver. Silver was, effectively, money.5

The money is thus in no way as spontaneous or “natural” to human social life in the manner that Libertarians like to think it is, but a bureaucratic, one could say statist, creation whose legal enforcements are vital for its modern, Liberal existence. The Liberal social order, divided power, preceded the much later development of Liberal Capitalism. A specific political configuration was required for the generation of capitalism, not the other way around. On the development of money as a product of centralisation, Bond writes;

With the arrival of the Germanic kingdoms, we find that the Roman taxation system and the circulation of coinage inherited by these kingdoms seem to have all but disappeared. These non-monetary kingdoms operated on a system of land dispersal, where land was granted to vassals from whom they could provision their own forces. It appears that a similar process occurred in the Near East, where land reforms were instigated as a means to maintain an army following the collapse of the Byzantine coinage system. In the West, such an arrangement required a substantial devolution of power to the local lords, who were granted the land to maintain. The monarchs had to rely on the lords agreeing to supply men and resources under the lord’s immediate control, which presents a case of subsidiary power centres having a great deal of leverage vis-à-vis the primary Power centre.

This first stirrings of the centralisation of monarchy become apparent with attempts by monarchs to reintroduce coinage on a large scale. This may seem somewhat surprising given that the modern economic assumption that money is both natural and an extension of barter, but this is erroneous. To understand why monarchs would wish to implement a coinage system, we need to understand that a monetary system is not a natural and spontaneous affair, but, rather one that requires a demand which itself is not spontaneous.6

Well, this should all seem fairly familiar to you by now dear reader. Demand for a given social object of attention is a construct of some intentional agent ー in the case Bond is illustrating it is for the purposes of undermining local lords, whilst in Graeber’s case, it was for bureaucratic administrative purposes. Both are essentially two strains of centralisation. Bond continues;

All of these aspects of a monetary system have to be created with great effort, but despite this effort, the benefits are great for centralising power. We must consider that a coinage system bestows on the minting authority a source of profit in the form of reminitng and debasement, a form of monetary manipulation which also weakens subsidiaries by making their wealth depreciate in comparison to those who are miniting coins. The coinage system also allows the central Power to engage in disintermediated relationships with elements it would previously have been unable to engage. Money, for example, allows the purchase of mercenaries who can be used in lieu of the nobility, thereby offering the central Power access to a body of men directly loyal to itself. In addition, once this system is widespread, the possibility of transferring wealth over long distances becomes feasible. Discharging feudal dues in the form of produce is an inherently localised system; discharging it in coinage is not. The implementation of a wide spread taxation system premised on coin the makes it possible for a kings court to reside in one place indefinitely, and so we see the development of capital cities following the  establishment of coinage systems.7

What we consequently see is that money, that the Libertarian takes for granted as spontaneous and natural, is not only an emergent product of central authority but also is precisely what makes the Libertarian’s nightmare, taxation, possible in a widespread manner. A strange irony. Conversely, is the abolishment of money possible? Maybe it is? Good question. Is it a desirable thing to abolish it? Perhaps, but this is definitely worth exploring, as is market consciousness itself, which I will endeavour to do at a later time. To continue, another of the economic liberal’s sacred cows to slaughter is free trade. Milton Friedman writes; 

In the economic jargon coined more than 150 years ago, that is the principle of comparative advantage. Even if we were more efficient than the Japanese at producing everything, it would not pay us to produce everything. We should concentrate on doing those things we do best, those things where our superiority is the greatest.8

However, Ricardo’s Principle of Comparative Advantage is rendered defective in exploring a few key underlying presuppositions;

(1) Domestic capital or factors of production like capital goods and skilled labour are not internationally mobile, and instead will be re-employed in the sector/sectors in which the country’s comparative advantage lies;

(2) Workers are fungible, and will be re-trained easily and moved to the new sectors where comparative advantage lies.

(3) It does not matter what you produce (e.g., you could produce pottery), as long as you do it in a way that gives you comparative advantage;

(4) Technology is essentially unchanging and uniform; and

(5) There are no returns to scale.

Assumption (1) doesn’t hold today and what happens is movement of capital under the principle of absolute advantage (Lavoie 2014: 508). This results in a type of race to the bottom for industrialised countries that do not protect their industries. (2) is of course highly questionable. (3), (4) and (5) are utter nonsense. Abstract pro-free trade arguments often seem to make the implicit assumption of full employment, or the effective tendency to full employment, in all nations as well, which is yet another mad and unrealistic assumption (Lavoie 2014: 508).9

Of course, as we can intuit, (2) relies on a very malleable, denuded individual, which a liberal like Ricardo takes as natural, but is actually as we know a product of centralisation. Moreover, protectionism is better for economic development, so much so that the industrial revolution would not have happened without Walpole’s protectionism (a strange irony). Despite its widening technological lead over other countries, Britain continued its policies of industrial promotion until the mid-nineteenth century. Britain had very high tariffs on manufacturing products even as late as the 1820s, some two generations after the start of its Industrial Revolution. Ha Joon Chang also points out, the industrial revolution might not have even happened in Britain as it did, in absence of the policies that were promoted by previous governments at the protection of infant sectors which perpetuated their industrialisation;

Symbolic as the repeal of the Corn Law may have been, it was only after 1860 that most tariffs were abolished. However, the era of free trade did not last very long. It ended when Britain finally acknowledged that it had lost its manufacturing eminence and re-introduced tariffs on a large scale in 1932 (Bairoch, 1993, pp. 27–8). Thus seen, contrary to the popular belief, Britain’s technological lead that enabled this shift to a free trade regime had been achieved “behind high and long-lasting tariff barriers” (Bairoch, 1993, p. 46). 10

Chang’s argument generally follows the idea that the initial explosion of industrialisation, the industrial revolution itself which predates this period and easily had a much larger scale and proportion of development than that of the 1860s to 1910s, was propelled by the likes of Walpole’s interventionist policy reforms of 1721 and its continuation through the first half of the 1800s. To be kind of reductionistic about it for clarity’s sake, the process for many European nations generally went: 

Adoption Protectionism  → Technological development  → Adoption of Economic Liberalism.

Chang, in addition to illustrating in detail the Walpolean parallels with Hamiltonian U.S. policy, interrupted by only a brief interlude, 1913-1929 until impinged by the  GATT in the 1950s;

[The Smoot-Hawley Tariff Act, portrayed by free-trade economists such as Jadish Bhagwadi] as a radical departure from a historic free-trade stance, only marginally (if at all) increased the degree of protectionism in the U.S. economy. As we can see from table 1, the average tariff rate for manufactured goods that resulted from this bill was 48%, and it still falls within the range of the average rates that had prevailed in the United States since the Civil War, albeit in the upper region of this range. It is only in relation to the brief “liberal” interlude of 1913–1929 that the 1930 tariff bill can be interpreted as increasing protectionism, although even then it was not by very much (from 37% in 1925 to 48% in 1931, see table 1). 11

(Table 1)12

Because it wasn’t until the 50s, after the 1947 establishment of the GATT that the US truly liberalised trade ー that is after it was able to establish itself as a political and economic superpower. Chang also cites that post-war economic development followed a model similar to Walpole’s protectionism and moderate regulatory intervention citing Japan, Korea, and Taiwan, however, their interventionism was more sophisticated than Walpole’s.

They used more substantial and better-designed export subsidies (both direct and indirect) and much less export taxes than in the earlier experiences (Luedde-Neurath, 1986; Amsden, 1989). Tariff rebates for imported raw materials and machinery for export industries were much more systematically used than in, for example, eighteenth-century Britain (Lueede-Neurath, 1986). Coordination of complementary investments, which had been previously done in a rather haphazard way (if at all), was systematized through indicative planning and government investment programs (Chang, 1993 and 1994). Regulations of firm entry, exit, investments, and pricing intended to “manage competition” were a lot more aware of the dangers of monopolistic abuses and more sensitive to its impact on export market performance, when compared to their historical counterparts, namely, the late nineteenth and early twentieth-century cartel policies (Amsden & Singh, 1994; Chang, forthcoming).  The East Asian states also integrated human capital and learning-related policies into their industrial policy framework more tightly than their predecessors had done, through “manpower planning” (You & Chang, 1993). Regulations on technology licensing and foreign direct investments were much more sophisticated and comprehensive than in the earlier experiences (Chang, 1998). Subsidies to (and public provision of) education, training, and R&D were also much more systematic and extensive than their historical counterparts (Lall & Teubal, 1998).13

At this point I anticipate that the Libertarian will be foaming at the mouth, ready to eject the words; “SINGAPORE, HONG KONG, DUBAI”. But on very cursory examination, it wasn’t the free market, rule of law or any such liberal platitude that made them as lucrative as they became, rather it was the fact that they were administered personally14, where Lee Kuan Yew, Sir John Cowperwaithe and Rashid bin Saeed Al Maktoum, respectively, had and exercised near-total executive authority, which allowed for the cultivation of their material prosperity. 

In summary, Libertarianism is either fatally incorrect or advocating for impossibilities regarding nearly everything it purportedly stands for. Where it is wrong, it is corrosive, perpetuating that which would frustrate your telos, would rob you, and does rob you, of your happiness and is merely apologetic for a predatory system it cannot change. It is inimical to that which is purely good, goodness itself, and your intimacy with such goodness ー ideologically setting itself against moral social ordering. It tries to justify itself with what might frankly be called spooks. It doesn’t even understand the enemies ー authority and coercion, that it sets up for itself, and even when it falls back on the most base economic justifications, it still fails as it starts out with historical absurdities as key presuppositions. It is then further refuted in regards to “economic prosperity” compared to other economic systems. This isn’t necessarily to praise the industrial revolution and its consequences however, as it is also in part to blame for our schizophrenitisation and for the acceleration of capitalism which compounds this process after all. Rather, it is to illustrate that the justifications Libertarianism presents for itself are equally as easy to shoot down. Nonetheless, the various strains of the Liberal tradition that Libertarianism largely participates in, that have successfully inculcated modern man, have proven to be destructive at the most fundamental levels in the perpetuation of social orders inimical to the cultivation of perfection and the execution of justice. Baseless and corrosive, this ideological malaise must be handled by a cooperation of anti-capitalists and social conservatives, a Post-Liberal unity that goes beyond the petty left and right, and should be dealt with extreme prejudice. 

~ • ~

 

[Notes]

[1] Rothbard, Murray Newton. The Ethics of Liberty. New York: New York Univ. Press, 2002, 252.

[2] Hodgson, Geoffrey Martin. Conceptualizing Capitalism: Institutions, Evolution, Future. University of Chicago Press, 2016, 11-12.

[3] ibid., 17.

[4] Graeber, David. Debt: The First 5,000 Years. Melville House, 2014, 46.

[5] ibid., 39.

[6] Bond, C. A. Nemesis: The Jouvenelian vs. the Liberal Model of Human Orders. Imperium Press, 2019, 11.

[7] ibid., 12.

[8] Friedman, Milton, and Rose D. Friedman. Free to Choose: a Personal Statement. Paw Prints, 2008, 43.

[9] Keynes, Lord. “The Cult of Free Trade in a Nutshell.” Heterodox Economics Blogs, July 4, 2016. https://heterodox.economicblogs.org/socialdemocracy21stcentury/2016/keynes-cult-trade-nutshell.

[10] Chang, Ha Joon. Kicking Away the Ladder. Cambridge: FPIF, 2003, 5.

[11] ibid., 6.

[12] ibid., 2.

[13] ibid., 11.

[14] In response to this Foundation for Economic Education piece Bond writes;

Whoah, whoah, whoah… hang on a second. 

Hong Kong had a competent government, pursuing market economics under the rule of law. 

But;

Cowperthwaite had almost complete control of Hong Kong government finances and used it to implement his policy of “positive nonintervention.”

Eh? So which is it? Rule of law made this possible, or someone with” almost complete control of Hong Kong government finances” am I missing something here? Is this making any sense?

Bond, Chris A. “Hong Kong, Singapore, and Dubai: Classical Liberal Paradises” reactionaryfuture (blog), June 14, 2016, https://reactionaryfuture.wordpress.com/2016/06/14/hong-kong-singapore-and-dubai-classical-liberal-paradises/.

6 thoughts on “Ch.IV | The Economy

  1. Excellent article, but I must ask about the origins of money: if money can only arise as a result of centralizing state authorities, then how can we explain phenomenon like cigarettes being used in prisons as currency? Or currency in black markets when states collapse? Or in cryptocurrencies like Bitcoin? Or the in-game currency of World of Warcraft, which was used in Venezuela because it was worth seven times more than the Bolivar?

    It makes more sense that there ought to be a synthesis of your theory and the libertarians’: money comes from authorities attempting to impose order onto society. Authority figures create the demand for money for their own purposes. This would best explain the emergence of currencies even when there is no state authorities, and it would fit into your overall theory that authority figures create demand. You could even see why this would occur: in these anarchistic situations where the central state collapses, there’s a need for order. An authority establishes itself by instituting a new money system.

    I’m also interested your and C. A. Bond’s accounts of moneyless Germanic Kingdoms. Do you have any other sources beyond Bond’s book on this?

    1. Much appreciated man!
      Cigarettes being used in prisons, black market currencies, in-game currencies and their use in other unorthodox contexts are all examples within an existing field of market-consciousness.
      That is to say, the economic actors that are using cigarettes as pseudo-currency etc., are recycling lost sociality that they would otherwise have outside the prison or otherwise modes of economic function they have inherited from some prior authority that employed moeny. It’s much like the man who, on a deserted island, still operates under modes of thought imparted upon him by various authorities continues in such manners even in the physical absence of said authorities.

      Other than that, I see no reason to majorly contest what you have otherwise said, yet this seems more like pushing what I said previously further in its analysis than actually engaging in some kind of synthesis with the libertarian position.

      >You could even see why this would occur: in these anarchistic situations where the central state collapses, there’s a need for order. An authority establishes itself by instituting a new money system.

      This is what happened after the collapse of the Roman Empire, which isn’t to say that the Centre vanished but yes that an effective way to fill this vacuum is to centralise by means of coinage.

      On the note of the Germanic Kingdoms after the Roman taxation and coinage collapse operating land dispersal systems, Bond cites Peter Spufford’s ‘Money and Its Use in Medieval Europe‘ (p.15-16) which would definitely be worth checking out. Otherwise, Graeber does talk about this phenomenon, specifically the reintroduction of coinage in the Medieval period by the likes of Charlemagne I believe it was so David Graeber’s ‘Debt‘ would be a really good resource too.

      The seeming exception here Bitcoin.
      Bond’s old blog site reactionaryFuture has a brief article on the topic; https://reactionaryfuture.wordpress.com/2016/01/17/lessons-in-democracy-from-bitcoin/, in response to this article; https://blog.plan99.net/the-resolution-of-the-bitcoin-experiment-dabb30201f7#.kmkkeu8ne.

      There’s also what the Wiki says regarding Bitcoins “trend towards centralisation”;

      “Researchers have pointed out at a “trend towards centralization”. Although bitcoin can be sent directly from user to user, in practice intermediaries are widely used. Bitcoin miners join large mining pools to minimize the variance of their income. Because transactions on the network are confirmed by miners, decentralization of the network requires that no single miner or mining pool obtains 51% of the hashing power, which would allow them to double-spend coins, prevent certain transactions from being verified and prevent other miners from earning income. As of 2013 just six mining pools controlled 75% of overall bitcoin hashing power. In 2014 mining pool Ghash.io obtained 51% hashing power which raised significant controversies about the safety of the network. The pool has voluntarily capped their hashing power at 39.99% and requested other pools to act responsibly for the benefit of the whole network. c. 2017 over 70% of the hashing power and 90% of transactions were operating from China.

      According to researchers, other parts of the ecosystem are also “controlled by a small set of entities”, notably the maintenance of the client software, online wallets and simplified payment verification (SPV) clients.

      1. >Other than that, I see no reason to majorly contest what you have otherwise said, yet this seems more like pushing what I said previously further in its analysis than actually engaging in some kind of synthesis with the libertarian position.

        I should clarify that, even though I largely agree with your blog, I consider myself agnostic on the question of whether capitalism ought to be abolished or not, mainly because I don’t think everything about it is bad. What I meant by a synthesis is the idea of explaining emergent order by way of emergent authorities: there can never not be a center, and even if its influence isn’t apparent to people like Hayek, it’s still there. Reading the Austrians with a sort of reactionary mindset, I came away with the idea that entrepreneurs are the authorities that help make free market function in the way it does, a sort of “natural aristocracy.”

        What I was getting at with money is that the libertarian position that money is a commodity that emerges freely and your position that money is a product of political authority is not, in my mind at least, incompatible. If one accepts as I do that 1) authority is natural, such that there’s no such thing as true anarchy and 2) money is a product of some authority looking to centralize, then the libertarian view of money isn’t so much wrong as incomplete (probably due to their erroneous anthropology, as you’ve shown in the first few chapters).

        By the way, I’d love to talk to you through email sometime. I plan on citing your posts in an upcoming video response I’m making towards an ancap arguing that “taxation is theft,” and I’d like to ask for your opinion on what I’ve written so far.

  2. I’ve currently made a critique on the Neo Cameralist strand of NRx. https://austromutualist.wordpress.com/2020/08/22/nrx-formula-of-madness-neo-cameralism/

    I might do more if there is the demand for it. I do sympathize with “social conservatives” I am also personally a theist. But I disagree with NRx fundamentally. You do however seem like someone willing to have a civilized discussion and I do agree with the notion of modernism centralizing not decentralizing power. James Scott describes exactly that trend of “high modernism”, the need to dismantle existing institutions and create artificial ones to construct society according to a social plan. But me and Scott come from a spontaneous order perspective. That need not however conflict with the idea of a leader or a “centre”. You can still have spontaneous order and conserve a “centre” which is why in the critique I look at two possible interpretations for the “First Principle of Reaction”

    1. While, especially in light of the argument from language in Ch.III I can’t really see how there would be any real argument for the existence of meaningful political spontaneity, I’ll give you a proper answer to this in the follow-up post.

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