Ayn Rand and Böhm-Bawerk on Value

I am currently reading Eugen von Böhm-Bawerk’s Basic Principles of Economic Value (first published in German in 1886), and I was struck by how close his thinking on “value” is to Ayn Rand’s thinking.

To recapitulate: Ayn Rand claimed that value is neither “intrinsic” nor “subjective”; a value does not reside in an object as apart from the valuing subject; neither does it reside only in the subject as apart from the object valued; it denotes a relationship between the valuing subject and the object that is valued. In her own words:

There are, in essence, three schools of thought on the nature of the good: the intrinsic, the subjective, and the objective. The intrinsic theory holds that the good is inherent in certain things or actions as such, regardless of their context and consequences, regardless of any benefit or injury they may cause to the actors and subjects involved. […] The subjective theory holds that the good bears no relation to the facts of reality, that it is the product of a man’s consciousness, created by his feelings, desires, “intuitions,” or whims, and that it is merely an “arbitrary postulate” or an “emotional commitment”. […] The objective theory holds that the good is neither an attribute of “things in themselves” nor of man’s emotional states, but an evaluation of the facts of reality by man’s consciousness according to a rational standard of value. […] The objective theory holds that the good is an aspect of reality in relation to man – and that is must be discovered, not invented, by man. Fundamental to an objective theory of values is the question: Of value to whom and for what? (Capitalism: The Unknown Ideal, p. 21f in the paperback edition.)

And here is what Böhm-Bawerk has to say on the same subject:

[E]conomic value is neither an objective quality inherent in goods, nor is it a purely subjective phenomenon that resides in the inner self of man. Instead, it is a particular relationship between an individual and an object. If I call this concept “subjective value”, I do not mean to deny the existence of objective factors. (P. 15.)

The only thing that might be misleading or confusing here is that Böhm-Bawerk talks about “an objective quality inherent in goods”, for something that Ayn Rand calls intrinsic. But this is merely a semantic difference, not a difference in substance.

I should mention that I had some quotes from this book, even from the same chapter, in my essay Objectivism versus “Austrian” Economics on Value; but I completely missed this paragraph. I guess I owe Böhm-Bawerk a belated apology for having missed this important and very true point.

Böhm-Bawerk died in 1914, when Ayn Rand was only 9 years old; had he read the quote from Ayn Rand above, I think he would have grasped the point and agreed with her.

Should Governments Be Replaced by Insurance Companies?

Or, to put the question more precisely: Should the legitimate functions of a government (police, military, courts) instead be provided by insurance companies? This is what Hans-Hermann Hoppe proposes in his Democracy: The God that Failed, where he devotes a whole chapter (chapter 12) to this idea and explains in some detail how such an arrangement would work in practice.

I am skeptical to this idea; but before I vent my skepticism, I want to say the following:

Historically, governments have been lousy as regards those legitimate functions. True, there are laws against such obviously rights-violating crimes as murder and manslaughter, theft, robbery, rape, arson… you name it. Governments do try to enforce such laws. Sometimes, they even succeed. But neither can it be denied that governments have done much more to violate our rights than they have done to protect them. They rob us of much of our income and call it taxation; they erode the value of the money they don’t steal outright by inflation; they conscript us and sacrifice our very lives in wars, most of which are senseless; and you can expand that litany, if you wish. So it is no wonder that people are looking for alternatives.

Even die-hard “minarchists” (adherents of a strictly limited government) recognize that government, if not severely restricted, are the worst and most dangerous rights-violators:

Instead of being a protector of man’s rights, the government is becoming their most dangerous violator; instead of guarding freedom, the government is establishing slavery; instead of protecting men from the initiators of physical force, the government is initiating physical force and coercion in any manner and issue it pleases […] so that we are fast approaching the stage of the ultimate inversion: the stage where government is free to do anything it pleases, while the citizens may act only on permission; which is the stage of the darkest periods of human history, the stage of rule by brute force. (Ayn Rand, “The Nature of Government” in The Virtue of Selfishness; also reprinted in Capitalism: The Unknown Ideal.)

…the government’s capacity for violating freedom is incomparably greater than that of any private individual or gang whose aggression it fights. One has only to compare the Gestapo or the KGB with the Mafia to realize how much greater is the potential danger that comes from government than from private individuals. […] Thus, freedom must be defined not merely as the absence of the initiation of physical force, but, in addition, in order to highlight its most crucial aspect, the absence of the initiation of physical force by, or with the sanction of, the government. (George Reisman, Capitalism: A Treatise on Economics, p. 22.)

But if governments do not live up to the ideal of only protecting our rights and never violating them, it is no wonder that people are looking for an alternative way of organizing society.

Now to my objections to the idea of letting insurance companies take over those legitimate functions.

First of all: would insurance companies even be interested in taking over those functions?

It would mean that they would have to take over the police, the military and the courts. Each and every insurance company would have their own police force, their own armed services and their own court system. Would they want to do this? Well, I haven’t asked them, but my best guess is that they would not. (I don’t think Hans-Hermann Hoppe has asked them either; if he had, he would have mentioned it in his book.)

Secondly, to some extent insurance companies already insure us against crime. To take a drastic example, if you take out a life insurance and then get murdered, the insurance policy would fall out. This doesn’t bring you back to life, but your family and heirs are indemnified against any financial disaster your death could bring on them. – To take less drastic examples, we can insure against thefts, burglaries, robberies and the like.[1]

But this is insurance against the effects of crime, not against the crimes themselves.

It is the function of a proper police and court system to apprehend the perpetrator of crime, bring him to justice and mete out the appropriate punishment. This is not the function of insurance companies, and I doubt that they would want to make it their function.

Does Hoppe himself have an answer to those objections? I have looked in vain in his book for such an answer, and I haven’t found one. I don’t think he is aware that those objections could be raised.

But if this idea is not the way to get out of our present predicament of rights-violating governments, then what is? I won’t pretend to have a full answer to this; but I would like to quote Craig Biddle:

In addressing this question [government funding in a free society], it is important to emphasize that the elimination of taxation is not the first but the last step on the road to a fully rights-respecting society. The first steps are to educate people about the moral propriety of freedom, to cut government spending on illegitimate programs, and to begin the process of limiting government to the protection of rights.

But this is a slow process. Even the first step – educating the public and swaying the public opinion – would take a couple of generations. And the other steps, too, seem to meet with insurmountable difficulties – politicians have power and privileges, and how easy is it to make them give these up? (I would like to be more optimistic, but I cannot.)

Nevertheless, there are no short-cuts. We have to fight the uphill battle.

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[1]) Quite often, such small crimes are reported to the police only because insurance companies demand that they be reported. At least here in Sweden, the police doesn’t even bother to investigate them; it is not much better in the other Scandinavian countries; I don’t know about other countries. But this mainly serves to show how bad present day governments are at their legitimate function of protecting our rights.

Some recommended reading

There are two articles in  the Summer 2012 issue of The Objective Standard that I can recommend:

The first one is Why Marxism? Evil Laid Bare by C. Bradley Thompson. –  You have certainly heard such notions as “Communism is good on paper, but it doesn’t work in real life” – or “A classless society, such as Marxism envisions, is a noble ideal, but unfortunately this ideal can never be achieved” – or “Communism shouldn’t be judged by the atrocities perpetrated by Stalin, Mao, Pol Pot, etcetera, etcetera; those are deviations, not true Communism or Marxism”. Or some variations on those themes.

You may also have heard that Socialism is dead anyway; it died with fall of the Berlin Wall and the collapse of the Soviet Empire; and so, Socialism is no longer a real threat. That might be true in the former Soviet empire, but Marxism is still very much alive in academia. (And, of course, there are still some pockets of Socialism in the world. They probably will collapse under their own weight, but that will take some time.)

None of this is true. Thompson explains how Marxism is evil already on paper.

I won’t attempt to summarize his reasoning; a short summary wouldn’t do it justice. So go read the whole article!

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The second article is How Would Government be Funded in a Free Society? by Craig Biddle. – This is an elaboration on Ayn Rand’s “Government Financing in a Free Society” in The Virtue of Selfishness. Biddle systematically goes through the case for a limited government and its basic functions (police, military, courts); and to Ayn Rand’s own suggestion – voluntary taxation through contract insurance – he has an interesting addition as to how this would be implemented in practice. Again, I won’t attempt to summarize: read the article!

Just one reflection of my own: In today’s world the rich are made to contribute more than the poor to the government by such measures as progressive taxation. The rationale behind this, of course, is that the rich can afford it and the poor cannot. Ayn Rand’s suggestion would mean that this problem would be solved without any coercion: Big companies have a greater stake in having their contracts insured than small companies; so they will automatically pay more for it; and the rest of us poor wouldn’t have to pay taxes at all. (Biddle writes about this, too.)

If you are not a subscriber to The Objective Standard, the articles may be downloaded as pdf-files for $3.95 each. It is worth the money.

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While I’m at it, and while I am writing about the evil of Marxism/Communism, I would also recommend an article on the Ludwig von Mises Institute’s web site: What Soviet Medicine Teaches Us by Yuri N. Maltsev. Here you can read what “universal health care” has lead to in socialist countries and where it will lead us if implemented in the US. Just one horror quote (I could give many more):

In order to receive minimal attention by doctors and nursing personnel, patients had to pay bribes. I even witnessed a case of a “nonpaying” patient who died trying to reach a lavatory at the end of the long corridor after brain surgery. Anesthesia was usually “not available” for abortions or minor ear, nose, throat, and skin surgeries. This was used as a means of extortion by unscrupulous medical bureaucrats.

To improve the statistics concerning the numbers of people dying within the system, patients were routinely shoved out the door before taking their last breath.

More monstrosities

In yesterday’s blog post I quoted Gary North calling Joseph Schumpeter a “moral monster”. Not that it makes Schumpeter any better, but I have found out that North himself is a moral monster, too.

You may have read a blog post by George Reisman, If Abortion Really Were Murder, where he reduces this idea to absurdity by showing that if abortion is murder, it has to be premeditated murder and thus has to carry the death penalty in states that have the death penalty and imprisonment for life in states that don’t have it. One might think that nobody would actually advocate the death penalty for abortion – but Gary North does. This is from  an article in the libertarian magazine Reason, An Invitation to a Stoning by Walter Olson[1]:

Almost any anti-abortion stance seems nuanced when compared with Gary North’s advocacy of public execution not just for women who undergo abortions but for those who advised them to do so.

Not only abortion should carry the death penalty; so should cursing one’s parents; and so should blasphemy against the Lord:

So when Exodus 21:15-17 prescribes that cursing or striking a parent is to be punished by execution, that’s fine with Gary North. “When people curse their parents, it unquestionably is a capital crime,” he writes. “The integrity of the family must be maintained by the threat of death.” Likewise with blasphemy, dealt with summarily in Leviticus 24:16: “And he that blasphemeth the name of the Lord, he shall surely be put to death, and all the congregation shall certainly stone him.”

And:

“Why stoning?” asks North. “There are many reasons. First, the implements of execution are available to everyone at virtually no cost.” Thrift and ubiquity aside, “executions are community projects–not with spectators who watch a professional executioner do ‘his’ duty, but rather with actual participants.” […] “That modern Christians never consider the possibility of the reintroduction of stoning for capital crimes,” North continues, “indicates how thoroughly humanistic concepts of punishment have influenced the thinking of Christians.”

And finally:

“So let us be blunt about it,” says Gary North. “We must use the doctrine of religious liberty to gain independence for Christian schools until we train up a generation of people who know that there is no religious neutrality, no neutral law, no neutral education, and no neutral civil government. Then they will get busy in constructing a Bible-based social, political and religious order which finally denies the religious liberty of the enemies of God.”

So we should have religious liberty for a while – until we are back to the dark ages, where everybody shares the Christian faith and dissenters will be severely punished.

(By the way, he also advocates the death penalty for pre-marital sex. This means that I and my lady-friend should be executed, since we have not bothered to marry.)

How those views are compatible with “Austrian” economics is an enigma to me. (Ron Paul – with whom I agree on economic matters – is also an anti-abortionist; but I don’t think he goes so far as to advocating the death penalty. But then, of course – as George Reisman argues in the blog post I referred to above – this is the logical consequence of regarding abortion as murder.) And however this may be, this is truly monstrous.

(Thanks to Henrik Sundholm for alerting me to this article.)

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Late update, September 12, 2014: As if this were not enough, Gary North is also a Holocaust denier.

In February 1976 the Libertarian magazine Reason published a “Special Revisionism Issue”, dealing with all kinds of “revisionist” history, including revisionist ideas about World War Two. Journalist Mark Ames has written an article about this (and the issue itself is available on the web as a pdf file). I quote from Ames:

Perhaps the most shocking article in Reason’s “special issue” was penned by Gary North, who was also Ron Paul’s congressional aide that same year, and has been one of the most influential figures in the Christian radical-right since the 1970s. North’s article in Reason mocked the Holocaust as “the Establishment’s favorite horror story” and questioned “the supposed execution of 6 million Jews by Hitler.” North also painted other rabidly anti-Semitic Holocaust deniers in a positive, “contrarian-cool” light, praising the works of David Hoggan, author of “The Myth of the Six Million,” French neo-fascist Paul Rassinier, and American historian Harry Elmer Barnes, considered the godfather of American Holocaust denial literature.[2]

And here is an extract from North’s article:

Probably the most far-out materials on World War II revisionism have been the seemingly endless scholarly studies of the supposed execution of 6 million Jews by Hitler. The anonymous author [Hoggan] of ”The Myth of the Six Million” has presented a solid case against the Establishment’s favorite horror story—the supposed moral justification for our entry into the war.

And, in a rebuttal to a critic:

The second point, that about 6 million Jews really did die in the concentration camps, is one that will be open until the records of the period become fully available. I am not convinced yet, one way or the other.

I shall continue to recommend that those interested in revisionist questions read ”The Myth of the Six Million” and ”Did Six Million Really Die?” as reasonable (though not necessarily irrefutable) pieces of historical revisionism.

The “logic” of this reasoning is quite staggering. Anti-Semitism is integral to Nazism; and from the Machtübernahme in 1933, the Nazis had a policy of making life hell for the Jews; but the program to actually exterminate them did not take its beginning until 1941. So how could the Holocaust be an excuse for waging war against Nazi Germany already in 1939?

Or is North merely referring to the US entry into the war? But the “excuse” for this entry was not the Holocaust (few details about it were known at that time) but the attack on Pearl Harbor. (Well – there is a “revisionist” theory of that, too: that the attack was somehow manufactured by FDR to get public opinion for entering the war on his side.)

So what is North actually trying to say here? That the Holocaust never happened? That we cannot be sure whether it happened or not? Or that we cannot be sure about the figure 6 million? That it might as well have been just 5,9 million or (as some Holocaust deniers claim) merely a few hundred thousand? Or does he go whole hog trying to say that the whole story of the Holocaust is a mere invention, invented at the end of the war just to give a justification or “excuse” for having gone to war against Nazi Germany in the first place? Your guess is as good as mine here.

There is something very disheartening about this story (and similar stories). Those “Rothbardian” Libertarians seldom, if ever, go wrong when it comes to economics. They understand Mises; they understand the “Austrian” Business Cycle Theory and the virtues of a 100% gold standard. But their views on politics and history are not merely wrong: they verge on madness.[3]

And a movement of “madmen for freedom” is hardly conducive to the cause of liberty.

(A “hat tip” to Tim Starr, who linked to Ames’ article on Facebook.)

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[1]) Walter Olson, too, is a new name to me; but here is a short presentation.

[2]) Those names are new to me, but here are some Wikipedia links: David Hoggan, Paul Rassinier, Harry Elmer Barnes.

[3]) See my earlier blog posts The Perverse Logic of Anarcho-Capitalism, Murray Rothbard on Organized Crime and Murray Rothbard on the Soviet Union.

Horror Quote from Joseph Schumpeter

Joseph A. Schumpeter was one of Eugen von Böhm-Bawerk’s star pupils; another one was Ludwig von Mises. A couple of years ago I wrote a piece called Stray Observations on Joseph A. Schumpeter, where I tried to sort the wheat from the chaff in his book Capitalism, Socialism and Democracy. I also read his The Great Economists (in a Swedish translation), a series of monographs on some economists, from Marx to Keynes. One thing that struck me was that he lavishes as much praise on Marx and Keynes as he does on Menger and Böhm-Bawerk. This should be enough to establish that I regard Schumpeter as a “mixed bag”.

But there is some real poison in the mixture. From a Mises.org article by Gary North[1]:

Felix Somary records in his autobiography a discussion he had with the economist Joseph Schumpeter and the sociologist Max Weber in 1918. Schumpeter was an Austrian economist who was not an Austrian School economist. He later wrote the most influential monograph on the history of economic thought. Weber was the most prestigious academic social scientist in the world until he died in 1920.

Schumpeter expressed happiness regarding the Russian Revolution. The USSR would be a test case for socialism. Weber warned that this would cause untold misery. Schumpeter replied, “That may well be, but it would be a good laboratory.” Weber responded, “A laboratory heaped with human corpses!” Schumpeter retorted, “Every anatomy classroom is the same thing.” [Felix Somary, The Raven of Zurich (New York: St. Martin’s, 1986), p. 121.]

Schumpeter was a moral monster. Let us not mince words. He was a highly sophisticated man, but he was at bottom a moral monster. Anyone who could dismiss the deaths of millions like this is a moral monster. Weber stormed out of the room. I don’t blame him.

I don’t blame him either.

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[1]) Gary North is a new acquaintance to me, but Wikipedia informs that he tries to combine “Austrian” economics with Christian beliefs.

George Reisman Has to Repeat Himself

Back in 1990 George Reisman wrote an excellent piece called The Toxicity of Environmentalism, published in The Intellectual Activist and later reproduced and expanded in Capitalism: A Treatise on Economics, p. 76ff. Reisman identifies the basic premise behind the environmentalist movement: the idea that nature has “intrinsic value”, quite apart from its value or usefulness to man; and he lays bare the fundamentally anti-human nature of this movement. The article is also replete with documentation, with quotes that show that the hard-core environmentalists do want to purge the earth from humans, and that they do recommend dishonest scare tactics in the process.

Nevertheless, he has recently been criticized on the grounds that his “claims are rarely substantiated with textual evidence”. Reisman answers this criticism (which is obviously based on not reading what he writes in the first place) in this blog post. The answer consists in quoting himself at some length. That he even has to do this is really an outrage.

For those not familiar with his original article or his book this at least offers an opportunity to find out what he has to say.

I will just quote one paragraph that was not in the original article but was added in the book:

The environmental movement’s blindness to the value of industrial civilization is matched only by the blindness of the general public toward the nature of the environ­mental movement’s own actual values. Those values explain the movement’s hostility to industrial civiliza­tion, including its perversion of the concept of efficiency. They are not known to most people, because the environ­mental movement has succeeded in focusing the public’s attention on absolutely trivial, indeed, nonexistent dan­gers, and away from the enormous actual danger it itself represents.

Reisman further elaborates on this actual danger in a blog post titled The Arithmetic of Environmentalist Devastation (and in several other blog posts).

And, for Scandinavian speaking readers, there is also a Swedish translation of the original article.

Unlcle Scrooge on FRB

I found this educational cartoon on Facebook the other day:

Obviously, this is exactly what happens when there are more bank notes in circulation than are covered by gold/silver. It does not matter whether they are issued by the government (or central bank) or by private banks in an otherwise unregulated economy. Now, “fractional banks” might not double the note issue; they may add $100 extra dollars in notes, or $10, or even just $1; but that does not change the basic fact that the notes will fall proportionately in value. And it does not change the fact that those who first receive the additional notes are in a position to spend the money before prices have risen, while others will receive this additional money after the prices have risen.

Debating Fractional Reserve Banking

Since I have already written quite a lot about fractional reserve banking (or FRB for short), it is not likely that I will write more about it; I would just repeat myself. But the other day I got involved in a debate on the subject, so if you are interested, check it out. Just one general comment:

Objectivists in general (or at least those Objectivists that take an interest in the subject) are quite adamant in their defense of FRB, and my counter-arguments don’t seem to get through to them. Their argument hinges on the fact that FRB, if the bank is open and honest about it, is a voluntary transaction and a natural part of a free market. They are blind to the consequences for the third party – those who do not receive fractional loans and have to bear the brunt of the unavoidable consequence that prices will have to rise. So let me formulate my argument in the starkest possible form:

Suppose a counterfeiter offers you a truckload of money (in the expectation that you will later pay it back with interest in non-counterfeit money), and you accept this deal and then proceed to spend this money on consumption or investment – would anyone say that this was OK, merely because it was a voluntary, non-coerced, transaction between you and the counterfeiter? Or would you say that you are an accomplice to the crime of counterfeiting? Well, even those pro-FRB Objectivists would agree that the latter is the case.

But the difference between this and fractional reserve banking is merely a difference in degree, not a difference in kind. Fractional banking is partial counterfeiting. A fractional bank note is partly covered by real money (gold/silver) and partly not. The part not covered is counterfeit!

And then they call us “zealots” and say our arguments are “benighted”[1]. This is simply an argument from intimidation: “Only benighted zealots can still believe in a 100%, non-fractional, gold standard”.

Earlier on this subject:

A Belated Open Letter to Ayn Rand on Fractional Reserve Banking
More on Fractional Reserve Banking
Fractional Reserve Banking Yesterday and Today
Should Pick-Pocketing Be Legalized?
Is “Fractional Reserve Banking” Compatible with Objectivism?

And, in Swedish:
Varför “fractional reserve banking” bör förbjudas
“Fraktionella reserver” än en gång

Post scriptum July 1: In an earlier debate on FRB, Harry Binswanger writes:

The answer to all the objections [to FRB] is the same: free trade means free trade.

If Harry Binswanger can invoke the law of identity, then so can I: Free trade in counterfeit money is free trade in counterfeit money. This does not make the money any the less counterfeit.

And if one is to engage in this kind of shysterism, one might as well talk about “free trade in stolen goods”. Once the stolen goods come into the hands of a fence and he sells them on to people who are not aware that the goods are stolen, it is “free trade”; that does not change the fact that the goods are stolen.

Dr Binswanger continues:

What [the opponents of FRB] ignore is the free consent of the person accepting a check.

“Free consent” does not change the fact that FRB is a form of counterfeiting, either.

The moral issue here is whether the person accepting the check understands that is is partly counterfeit or not. If he isn’t aware of it it, he is morally in the clear. Compare this with the issue of buying stolen goods from a fence: If you are unaware that the goods are stolen, you are morally blameless. But if you know, or even suspect, that the dealer is a fence and the goods stolen, then you are an accomplice to the theft. Likewise, anyone who is aware of the fraudulent nature of FRB and still accepts a check with only fractional backing and then passes the check on, is an accomplice to this fraud. (And so, by the way, are people like Harry Binswanger who defend the practice.)

To quote George Reisman: “Shysterism is a slippery thing.”

Update January 2016: The link to the debate is now broken.

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[1]) benighted: 1. Overtaken by darkness or night. 2. In moral or intellectual darkness; unenlightened; ignorant. – The American Heritage Dictionary.

Reisman in Kindle Format

George Reisman’s Capitalism: A Treatise on Economics is now available in Kindle format. You may also also see it at Amazon.

Update June 27: The price has been lowered to $9.99.