Ludwig von Mises on Anarchism

This is a Facebook note I published in February 2011.

Anarchists (”free market anarchists” or ”anarcho-capitalists)” are flocking in and around the Ludwig von Mises Institute, both in the US and here in Sweden. So what did Mises himself think about anarchism and anarchists? He covers the subject in a section in The Ultimate Foundation of Economic Science, p. 98f, so let me quote:

Government as such is not only not an evil, but the most necessary and beneficial institution, as without it no lasting social cooperation and no civilization would be possible.

And a bit later on:

A shallow-minded school of social philosophers, the anarchists, chose to ignore the matter by suggesting a stateless organization of mankind. They simply passed over the fact that men are not angels. They were too dull to realize that in the short run an individual or a group of individuals can certainly further their own interests at the expense of their own and all other peoples’ long-run interests. A society that is not prepared to thwart the attacks of such asocial and short-sighted aggressors is helpless and at the mercy of its least intelligent and most brutal members. While Plato founded his utopia on the hope that a small group of perfectly wise and morally impeccable philosophers will be available for the supreme conduct of affairs, anarchists implied that all men without any exception will be endowed with perfect wisdom and moral impeccability. They failed to conceive that no system of social cooperation can remove the dilemma between a man’s or a group’s interests in the short run and those in the long run.

Note the insultory language here: anarchists are “shallow-minded” and “dull”. If I said that of an anarchist, I would probably be accused of making an ad hominem argument.

But that was an aside. The substantive thing here is that we have a group of social philosophers – “free market anarchists” – who believe that a government or a state is evil by its very nature (and sometimes even the source of all evil) – and yet are willing to accept as their mentor, master and dean someone who claims the exact opposite: that government is “the most necessary and beneficial institution”.

The main flaw of “free market anarchism” is that it refuses to make a distinction between initiatory and retaliatory force. They oppose any government, even the most limited government, one that only engages in retaliatory force against initiators of force (such as criminals and foreign invaders), on the grounds that it uses force. (And they are of course blind to the fact that those “protection agencies” with which they propose to replace government, would also use force.)

Mises is aware of this distinction. When he says that “men are not angels”, he refers to the fact that some men are criminals, and that criminal acts will have to be thwarted. Thwarting criminality and foreign aggression is certainly both necessary and beneficial.

Mises had a psychological explanation for the fact that some fairly intelligent people become anarchists: it was “a reaction to the deification of the state”. (I got this from Hülsmann’s Mises: The Last Knight of Liberalism, p. 1025.) I have said virtually the same thing myself: people become anarchists because they are fed up with the way governments conduct their affairs today; and they cannot conceive of a limited government that does nothing but protect our rights against domestic and foreign aggressors. But that there is a psychological explanation for anarchism does not make anarchism right.

Also, compare my Mises quotes to what Ayn Rand writes in her essay “The Nature of Government”:

In unthinking protest against this trend [the trend toward more and more statism], some people are raising the question of whether government as such is evil and whether anarchy is the ideal social system. Anarchy, as a political concept, is a naïve floating abstraction: for all the reasons discussed above, a society without an organized government would be at the mercy of the first criminal who came along and would precipitate it into the chaos of gang warfare.

I see no difference between Rand and Mises on this issue. And I’m neither shallow-minded nor dull.

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The response to this note was largely positive, although (of course) a couple of anarchists admonished me to wade through all the anarchocapitalist literature before I open my mouth. There was also some lively and friendly discussion. I will quote one of my own comments, because I think I am on to something important here:

There is one thing I think needs to be emphasized:

We have plenty of historical experience with various forms of government, or various forms of organizing society. We have primitive tribes, Greek city states, the Roman empire, feudalism, absolute monarchy. representative government, modern dictatorships (to name those that readily come to mind). We can study the historical evidence and draw conclusions from it, e.g. that representative government is a great step forward, or that there is a strong correlation between the degree of freedom in a society and the degree of wealth.

But we have absolutely no experience with a situation where a proper limited government (or “night watchman state” as I usually call it) is vying with anarchocapitalist protection agencies. So there is no historical evidence to point to and draw conclusions from. All we can do is imagine scenarios.

I think this is one reason it is so difficult to get the point across to the anarchocapitalists. They paint a rosy scenario of protection agencies peacefully competing with one another; and we paint a bleak scenario of protection agencies fighting it out in the streets. When we are fighting the anarchocapitalists, we are fighting against floating abstractions and fantasies.

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Addendum 2016: An objection one commonly hears from anarcho-capitalists is that Mises is merely referring to left-wing anarchism and that his view does not apply to right-wing capitalism or anarcho-capitalism. This was a development he simply did not know about and thus could not criticize.

But this objection does not hold water. Murray Rothbard, the father of modern anarcho-capitalism, first developed this idea as early as the late 40’s. Mises certainly was aware of this. (See on this Jörg Guido Hülsmann’s Mises: The Last Knight of Liberalism, the section “Last Skirmishes with the Anarchists”, p. 1023–1030.)

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PS. On Facebook I was asked this question:

Why is it so important that Rand and Mises were in agreement?

Yes, why on earth? Obviously, this whole blog post is a gross ad verecundiam or “argument from authority”. I just feel so much better having two great authorities behind me than just one.

However, it so happens that they are both right.

Is ”Austrian” Economics ”Rampant Rationalism”?

Facebook note from July 2011 (slightly edited).

A while ago, in a Facebook note (later reproduced on my web site[1]), I quoted someone who said that the “Austrian” objections to fractional reserve banking is an example of “the rampant rationalism of the Austrian school” – to which I answered that this is an example of the rampant empiricism of some Objectivists.

I won’t address fractional reserve banking here[2] but focus on this accusation against the “Austrians”.

What is rationalism? Originally, it is the name of a school of philosophy (the big names being Descartes, Spinoza and Leibniz) that held that true knowledge is arrived at by reason alone, as apart from experience. – The opposite school, of course, is empiricism (exemplified by John Locke, George Berkeley and David Hume), that held that true knowledge comes from experience, as apart from reason. (There are many differences between those thinkers, but as a rough approximation those definitions hold true.) Those two schools represent two sides of a false dichotomy, but I hardly have to explain this to students/supporters of Objectivism.

But the word is also used by Objectivists in a slightly different sense (the difference being that it is not used about a philosophical school, but about a kind of psycho-epistemological malady): the habit of using abstractions not thoroughly grounded in experience (“floating abstractions”), of making deductions in a cognitive vacuum. – “Empiricism” is also used in a transferred sense: if someone merely gathers disconnected facts and fails to integrate and to abstract from them – if someone is “concrete-bound” – he is said to be an empiricist.

OK, this is a bad habit.

But what makes “Austrian” economics rationalistic in this sense? It is the insistence of Mises and many of his followers that economics is an “aprioristic” science, that its theorems are not derived from experience (they certainly apply to experience, but are not derived from it) The whole of economics, on this view, is derived from the “category of action”, sometimes also called the “axiom of action”. [3] This reflects a heavy Kantian influence on Mises and his followers, and, of course, a Kantian influence is always bad, isn’t it? A theory such as Kant’s can only lead to disasters, when put to practice.

But wait a minute now. Of all the schools of economics, “Austrianism” is the one closest to the truth. It is the only economic school that champions full, laissez-faire capitalism. (There are some “Austrians”, e.g. Hayek, who are not fully consistent on this point, but it is true as a general rule – “for the most part”, as Aristotle would say.) But how could this be, if rationalism and “apriorism” can only have disastrous consequences? Wouldn’t one instead expect the “Austrians” to be Marxists or Keynesians or environmentalists or even theocratic thugs?

Or take the connection to real-life events in today’s world. Who best predicted the current financial crisis? The bursting of such bubbles as the IT bubble and the real-estate bubble? Well, most of them are economists of the “Austrian” school.[4]

Other schools of economics may be accused of “rampant empiricism”. A case in point is the German Historical School. Members of this school merely gathered historical and statistical data, and even rejected the very idea that there can be such things as “economic law” (such as the law of supply and demand). They ended up as socialists (“Kathedersozialisten” or “socialists of the chair”).[5]

There is also a British (or English) Historical School, but it does not seem to be much better. For example, according to Wikipedia:

They rejected the hypothesis of “the profit maximizing individual” or the “calculus of pleasure and pain” as the only basis for economic analysis and policy. They believed that it was more reasonable to base analysis on the collective whole of altruistic individuals. (Italics mine.)

But the paradox remains: If rationalism is such a bad thing, and if Immanuel Kant is the worst of all philosophers (and even “the most evil man in mankind’s history”), then why do we get the best economic theories from someone who was a rampant rationalist, even a Kantian?

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Addendum: A particularly obnoxious example of calling “Austrian” economics rationalist I found in a blog post from 2006 by Diana Hsieh, Fractional Reserve Banking: Fraud or Not?. After quoting the relevant part from Reisman’s Capitalism on why a 100% gold standard is morally superior to any “fractional” system (p. 957f), she dismisses it without giving any real counter-argument, and then writes:

Over the past few years, I’ve heard various Objectivist scholars complain of the heavy rationalism of George Reisman’s work.

Although Diana Hsieh has a PhD in philosophy, she obviously has not learned what is wrong with giving an ad verecundiam argument. But then, “various Objectivist scholars” have good reason to find rationalizations for how they have treated George Reisman. Accusing him of having this psycho-epistemological malady is as good a rationalization as any (or as bad, rather).

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[1] It is also included in my essay Is Fractional Reserve Compatible with Objectivism?.

[2] If you are interested, you may read my collected blog posts on the subject.

[3] See on this my blog post Is Action an A Priory Category?.

[4] A case in point is George Reisman’s article When Will the Bubble Burst?. But there are other examples.

[5] If you want to know more about this, read Carl Menger’s Investigations into the Method of the Social Sciences.

Fictional taxes

I have written about this in Swedish before, but I think it may be of interest to non-Swedes as well. – For the sake of simplicity (or out of laziness), I keep the examples in Swedish currency. The exchange rate between Swedish kronor (SEK) and US dollars is currently 8.5 SEK per dollar.

Suppose you are a young child and your parents give you pocket money in the form of a weekly allowance of 200 kronor. However, every week your father hands you 300 kronor and immediately takes 100 kronor back. When you ask: “Dad, why on earth do you do this?”, he answers: “Those 100 kronor will go to paying your next weekly allowance”.

This could be described as you, the child, getting an allowance of 300 kronor, of which you pay a third back in “income tax”. But of course, no child would be fooled by this reasoning. Only adults can be that foolish.

Now, back to real life:

For the last 25 years I have worked for the Swedish government, as a librarian (“second assistant”) in the Swedish Royal Library.[1] (Before that, I worked for some years as a school teacher, which is also a job in the public sector.) For this work I receive a monthly salary, on which I allegedly pay approximately a third in income tax. So, every month, I get a slip of paper in my mail, saying that I have received (approximately) 21 000 kronor, from which 7 000 kronor are deducted as tax, so that I actually get 14 000 kronor into my bank account.

But where are those 7 000 kronor? They exist only in the form of a figure on a slip of paper!

By contrast, if I earned the same amount of money from a job in the private sector, then a third of my income would actually go to the government in the form of income tax. In terms of time, it would mean that I work a third of the year for the government and two thirds for myself and/or my family.

This income tax money goes to defraying government expenses, part of which is of course paying the salaries of government servants (such as second assistant librarians at the Royal Library). But when I, a government servant, pay a third of my income as income tax, this money also goes to paying the salaries of government servants – which means, in effect, that I supposedly pay the government 7 000 kronor a month, which then goes to paying my salary for the next month! Exactly as in the fictional example I started out with.

Obviously, this “income tax” I am paying is entirely fictional. The government could just as well pay me 14 000 kronor and take no tax at all; it would make no difference.

But suppose the income tax is raised to, say, 50%. (The public sector is expanding; the government needs more servants and more money to pay their salaries.) For those of you who work in the private sector, this would mean you now work half of your time for the government instead of just one third; but I am a government servant and already work 100% of my time for the government. The change for me would be that I now only receive 10 500 kronor in take-home pay. If the fiction of me paying an income tax is removed, it would simply mean that I now have a lower monthly salary, which is of course exactly what I have. And the situation would be the same, if the tax were raised to, say, 90%. The actual outcome is that I will now receive 2 100 kronor in take-home pay, which, of course, I could not live on.

But the government certainly does not want to treat its servants that unkindly. So in order to compensate me (us) they have to raise our pay. In the 50% case above, this would mean that my “before tax” income would have to be raised to 28 000 kronor. In the 90% case, it would have to be raised to 140 000. But this tax is as fictional as before. I won’t suffer from the raised tax, but everyone who works in the private sector will.

But say there is a genuine tax reform and income tax is lowered to 10%. Now, my take home pay will be almost 19 000! But who is paying for my raised income? Not me: the 2 100 I allegedly pay is still only a figure on a slip of paper. No, the pay raise is paid by the taxpayers in the private sector. But wait a moment – their taxes have just been lowered to 10%! The government after this tax reform will not have enough money to pay its servants’ salaries! Government servants (including second assistant librarians) will have to be fired! Or else, my “before tax” pay will have to be lowered so my take-home pay still stays at 14 000. But even so, the government now has much less money to pay in salaries. It won’t be able to pay me my 14 000 either.

This is of course the reason why such drastic tax cuts are never made. They are simply not affordable, from the government’s point of view. (Such tax cuts of course would have to be made in conjunction with a radical slimming of the public sector – libraries and schools, along with many other things, would have to be privatized.)

Why, then, is this fiction being maintained? Well, I think it is sheer hypocrisy. People with statist inclinations simply want us to believe that we are all taxpayers, although some of us clearly aren’t.

To illustrate the hypocrisy: one Swedish politician (Mona Sahlin, who was from 2007 to 2011 the leader of our Social Democratic party) a few years ago made a statement to the effect that she, personally, loved to pay taxes! Paying taxes was the best thing in life! And so, everybody else should love it, too.

But there is no slightest difference between me and Mona Sahlin, except this one: her income is exorbitant, compared to mine. Her “taxes” are as fictional as mine. She loves paying taxes that in actual, sober fact don’t exist.

But what would happen if this plain fact were simply acknowledged and we public servants actually did not have to pay those taxes we do not really pay anyway? Well, there might be a public outrage, as people now would see clearly what the fiction is intended to hide: that some of us don’t pay taxes. The whole public sector would be seen as parasitical (which, to a great extent, it certainly is). The result might be a tax revolt.

Now, I certainly don’t regard myself as a parasite because of my work. Libraries are an important part of civilization, and so are schools (although I say the last with some hesitation, considering the sorry state of our educational system). In an ideal laissez-faire society, such institutions would be privately owned and maintained. But unfortunately, I live in this century, not in some future utopia – so this is not something I should accept unearned guilt for.

In feudal times members of the nobility were tax exempt. But they were so, because they performed another service to the country (or “society at large”, to use the common collectivist catch-phrase) – they were supposed to take part in warfare, whenever there was a war.

Today, many public servants (librarians and school-teachers are examples) do perform a valuable service and of course should be paid for it. It would be unfair to call them “parasitical”, just because they work in the public sector and are paid with tax money. Teachers can of course try to find work in private schools. But I don’t think this is a possibility for librarians – at least not here in Sweden.

So there is no reason for feeling bad about working in the public sector – at least not for us who are also fighting for a future of limited government. But we should not pretend that we are taxpayers – neither me nor Mona Sahlin.

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There is another, “macro-economic” point: although this tax money is entirely fictional, I believe it is still counted when national income or GDP is calculated. Obviously, the figures have to be overstated if fictional money is included.

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[1] This was originally written shortly after I retired in 2009 (Swedish law does not allow me to work past the age of 67). My reasoning also applies to the alms I receive as a pensioner, although the amount is smaller.