Friday, November 4, 2011

Nagel and Hayek on government and wealth

This is the sixth article on the theories defended by Murphy and Nagel in the book The Myth of Ownership
Government as the creator of wealth
As we have seen with the examples of prominent defenders of capitalism, they have always admitted the importance of institutions and of the rule of law. To be precise, theirs has never been a reluctant admission: it has been one of the main theses of, among others, Friedrich Hayek. However, we must understand that it is one thing to say, as Hayek did, that failure to uphold the rule of law is a serious obstacle for the creation of wealth, and quite another to say that it is governments that create wealth. It is one thing to say that protection against violence and fraud allow individuals to dedicate their efforts to the creation of wealth, and quite another to say that it is that protection that explains why some individuals are richer than others: they must have received more protection than the poor. Murphy and Nagel’s do not try to prove this second thesis. Instead, they suggest that we may take it as roughly true.
Before we go to their argument it is useful mention that their position is different from that of traditional socialism. If you prove, as Marx tried to do, that value comes only from the collective and indistinct labor of workers, leaving nothing to the ownership of machines and enterprises, of inventions and formulas, and individual skills, then it may sound logical for a while to argue that the soviets of workers are entitled to define “who owns what”. This is because they –the workers collectively– produced it. If that is true, ownership is a myth created to rob them of what is theirs collectively.
However, Murphy and Nagel’s focus is not on the worker’s creative power, but on that of the government. They argue as if the prevention of crime and the enforcement of contracts were the cause of the wealth not destroyed by crime, and the creator of the commercial abundance not prevented by fraud. Then they apply the same justification to redistribution, and try to prove that it is needed for efficiency reasons.
They draw momentous conclusions from the fact that governments (sometimes) protect rights. They assert that without government people would return to a state of nature, which Hobbes, they write, “aptly described as a war of all against all. And in such state of affairs, there is little doubt that everyone's level of welfare would be very low and –importantly– roughly equal. We cannot pretend that the differences in ability, personality, and inherited wealth that lead to great inequalities of welfare in an orderly market economy would have the same effect if there were no government to create and protect legal property rights and their value and to facilitate mutually beneficial exchanges”.[1] Already there are many objections to these assertions, but let’s follow the authors’ argument: “If the relevant baseline for the assessment of benefit is the very low level of welfare, roughly the same for everyone, that people would have in the absence of government, then we can use people’s actual levels of welfare, with government in place, as a rough measure of the benefit conveyed to them by government”. 
Rather than a rough measure, that is a false measure. It would mean that Thomas Alva Edison received more benefits from the government than his neighbor, who never invented anything and lived within a modest income. Applying the theory, we would say that, roughly speaking, the government benefited Edison in proportion to his wealth. His neighbor received far less benefits. The proof is as simple as it is false: Edison’s skills and inventiveness would have been wasted if his skull had been crushed in a tribal war in a lawless country. His neighbor, in contrast, would have lost much less in such a situation. What could have he lost of value to him? Maybe just his only house, or merely his life, but nothing more.
Throughout the book, Murphy and Nagel assume that government services benefit the rich more than the poor. Their only attempt at an argument for that fundamental premise of their theses is the one transcribed in the previous paragraph: if a man is richer, he must have received –roughly speaking– more benefits from the government. The argument is an indirect rejection of personal skill, abilities and creativeness. However, we all know by personal experience that skilled and unskilled people produce different results under the same situation, and that includes people who receive the same benefits. If we reject that, we reject the very notion of ability.
The truth is that Edison and his neighbor received more or less the same help from the government –if there was a difference, it was surely accidental and of no importance. After all, they lived in a country that provided equal justice under the law, where no group was entitled to receive special help from the government. That changed only after Edison’s age. Murphy and Nagel’s explanation obscures the difference between the production of wealth and its redistribution: they say, if one man ended up with more than the other, he must have received more from the government.
Following the same line of argument, Cass Sunstein thinks it prudent to remind those who protest against high taxes about the perils of the state of nature[2] –as if the tea parties of the XVIII or of the XXI centuries had ever suggested disbanding the police.
By the way, we must see that it is not true that we would be equal in some sort of “state of nature”. The war of all against all is an unnatural situation, possible only in very special circumstances, as in a city under siege, just before the final onslaught –and even in sieges, the war of all against all is surely a rarity. Even in the most primitive of circumstances there is a tribal chief, and ceremonies, and rules –some of which become obstacles to the creation of wealth. Primitive government must not be confused with less government. Tribal hierarchies are much more oppressive than most modern governments. People are not roughly equal in them, as Murphy and Nagel tell us. It is true that all tribe members are miserable and are the victims of diseases that pose no threat to us. A simple infection in the chief’s mouth may kill him, or pain him for years without relief. But there are big differences, even in poverty. The chief and his family would eat a little more, and this probably would keep them alive just another year. A man that possesses a cow is immensely rich when compared with a man with not a single one. The difference may mean that the poorer man’s only child will not survive the next winter. And there is no bigger difference than that.



[1] P. 17.
[2] The second bill of rights, p. 206.

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