Rhetorical devices in The Myth of Ownership

This is the third article on the theories defended by Murphy and Nagel in their book The Myth of Ownership


It is a common complaint of philosophers that political debate is dominated by rhetoric. Murphy and Nagel agree with that view: they write that voters react to catchphrases and do not pay attention to more substantial arguments. Politics would improve by introducing into it higher standards for judging the reasons that are provided for different plans.

Certainly, philosophers might help in this respect, but then they should cease to write as if Bastiat, Bohm-Bawerk, Mises, Hayek, Friedman, and Hazlitt had never existed.[1] Moreover, we must not assume that philosophers would always be free from the same mistakes they want to correct in others.

There is a particular rhetorical device much in use through The Myth of Ownership. Again and again, when arguing for more distribution of goods by government's decision, the authors say that “the market generates economic inequalities”,[2] and discuss the allocation of the “entire social product”.[3] They tell us that “capitalism at its most successful will inevitably generate large upward inequalities”.[4] It seems only natural therefore, that they suggest ways to correct the problem. The market and capitalism are viewed like defective machines that must be fixed so that the result is the desired one.

The key word here is “generate”. Now, it is clear that the differences are caused by better products pushing bad ones out of the market, by good or bad decisions about the use of money, by the judicious or injudicious combination of raw materials, etc. People buying and selling goods take these differences into account. A new engine gives more power for less fuel, and it puts the makers of older models in deep trouble. Certainly, we may say that these are results generated by the market. But that is the same way in which we may say that exams generate differences among students. By using the expression we lose sight of the real causes. Certainly, Murphy and Nagel are not so unguarded as not to include, in passing, some words that indicate that differences “generated” by capitalism are in fact “generated” by other things.[5] But after erecting this protection for the rearguard, they go on ascribing the generation of differences to capitalism and the market, which puts the focus where it is rhetorically useful.

If we think that the changes refer to a mechanism, it is easier to accept plans to fix it. It does not seem to concern any person's liberty and rights. And we forget for a fatal moment that we are talking about people’s plans, efforts, mistakes, and achievements –not just about a mechanism or a system. That this is the truth is clear: otherwise it would be impossible to say why, out of nothing, the system generates differences.

Dismissing personal achievement and the money that result from personal effort, Murphy and Nagel write: “You may say, I am entitled to it because it was my effort and talent that produced it or because people whose money it was decide to give it to me. But what I or they earn from given expenditure of effort and talent or from any investment luck depends entirely (??) on the political settlement in force when we earned it, so it wholly begs the question to say that I am entitled to a particular political settlement to one that reduces my taxes, for instance because it better protects what I have earned or been given. If we changed the political settlement in some important way, I would earn or inherit less or more”.[6]

So, we have learned that the way to avoid begging the question is to say that governments can make taxes higher without taking money that belongs to us because governments could have made taxes higher and then that money would have not belonged to us.

Jeremy Waldron, a professor of law and philosophy at the universities of New York and Oxford, writes in a similar way that “There is no sense to the idea that talents can simply be exercised by those who own them apart from any social framework whatsoever. And there is no sense to the idea that there is a natural phenomenon called ‘reaping the benefits of one’s talents’ which is understood apart from the social arrangements and institutions that define one’s relationships to other people”.[7]

Ronald Dworkin’s attempt to sweep the real causes of wealth under the carpet is based on a different rhetorical device. He writes that “the usual arguments that supposedly demonstrate that pretax income is ‘my’ money are incoherent. The only coherent such argument supposes that the accident of first possession gives rise to a moral entitlement”.[8] So, I have my salary because –somehow– it first landed in my hands. I was the first to take it, that is all. The fact that someone freely decided to hire my services and pay for them is of no relevance. So is irrelevant the fact that I actually worked to earn it. In a similar way, Edison just put his hands on some light bulbs that were laying there. And without the philosophical insight we now enjoy, he might have thought that by grabbing them first he had some moral right to the fortune he made with them.

Dworkin attributes the delusion of ownership –which so many people suffer– to the fact that taxes appear in their pay slips as a deduction of their salaries.[9] Even more confusion is created in his opinion by the fact that the rich –by which he must mean those who do not receive salaries, e.g. grocers, barbers, and Bill Gates– are allowed a delay between the time they receive their income and pay their taxes. Dworkin tells us that  “these are mere accidents of efficient tax accounting”.

But there is a more fundamental delay that is not accidental: the delay between the creation of wealth and the payment of taxes with a portion of it. There is a delay between the harvest has been collected and the government receives a portion of it in the form of taxes. There is a necessary delay involved when the doctor treats his client, receives his pay, and pays his tax. If we dismiss that as accidental, if try to bury it under a mass of truly conventional details (Dworkin mentions the fact that payment of some taxes is done in quarterly installments, or that the final payment is on April 15), we would not have helped to reduce the number of rhetorical traps from which philosophers complain. We would have contributed with another one.

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[1] Of course, the enumeration is imperfect and does not suggest that these authors share a single view. Nevertheless there is one thing in common among them: their arguments are seldom or never answered by those who argue for bigger government.

[2] P. 67.

[3] P. 79.

[4] P. 186. Similar words on page 181.

[5] P. 17 and 67.

[6] Ps. 124-125.

[7] The Right to Private Property, Clarendon Press, Oxford 1988, p. 404.

[8] Is Democracy Possible Here? p. 125.

[9] Same page.

Murphy, Nagel, and Lenin on ownership

This is the second article on the theories defended by Murphy and Nagel in their book The Myth of Ownership

Division of labor without ownership: a country run like a factory

You may think that property is just a myth invented by the individualistic morality of the bourgeoisie. That wealth is a social product, not an individual's creation. Therefore, the State (or rather, the man who runs it) must define who owns what. So did Lenin.

Or you may think that property is a myth because an individual's creation of wealth cannot be isolated from the the legal framework that supports it and from the many services provided by the State. Therefore, laws (or rather, those who write them) must define who owns what. So teach Murphy and Nagel.

In their book they repeat again and again –“ad nauseam” as they themselves admit-[1] that pre-tax income is entirely imaginary and morally irrelevant, [2] a myth, a mere bookkeeping convention[3].

Certainly, they cannot mean that wealth did not exist before the government puts its hands on it, which would suggest that it is created at that very moment by some magical process. Nor can they really mean that wealth is a mere bookkeeping convention, as it would be odd that all governments want so eagerly to grab imaginary things. Evidently, what the two philosophers mean is that pre-tax income is a very real and valuable thing, and the illusion they try to dispel is that it had belonged at any moment to those who give it to government in the form of taxes.

Nevertheless, there is a long stretch from the premise that we have to pay taxes, to the conclusion that we only own what governments allows us to own –that is, apart from a “Hegelian minimum” (see previous article on this blog). According to Murphy and Nagel “…since there are no property rights independent from the tax system, taxes cannot violate those rights”.[4]

Their arguments and their conclusion are alien to the conceptual framework that guides modern economic action –not just prevalent notions about taxes. Most of us do not say or think that if we make a table using a saw and a hammer then the table does not belong to us. Of course, we say that we have to pay for the saw and for the hammer. But we do not think that the maker of the saw and the maker of the hammer have a right to impose “conditions” and “hindrances” on us –they can collect the price due to them for the goods they provided, nothing more. In short, we do not think that division of labor is an argument against ownership –even when part of the labor is done by courts, the police, etc. Quite the contrary, we think that full and free ownership is a requirement for any division of labor and for the peaceful collaboration among men. Otherwise, if when making my table I were forced to comply with directives and hindrances imposed on me by the provider of the hammer, I would not be able to use my own judgment as a carpenter. Genuine division of labor would be replaced –in part or in full– by a chain of commands.

It is true that the services of the police and of the army are not sold and bought as other services are; governments force everyone to support these services. However, Murphy and Nagel’s argument for more “hindrances” does not rest (and could not rest) on a government’s powers of coercion. It is the reverse: they think that they have found a justification for more coercion and hindrances on the economic activities of individuals when they point out at the services provided by governments. But then, taken as services, those provided by the police and the army (not to mention subsidies) are not different from the services of the providers of water, of food, of handsaws, and of hammers. We can always prove –as Murphy and Nagel do– that all that individuals produce would have been impossible or very difficult without the services provided by others. This is hardly a new discovery: it is known as division of labor.

If the services provided justify governments to impose hindrances and conditions on our property rights, then the same justification applies to every provider of services and of goods. Then division of labor would be turned into an argument against ownership. However, as having thousands of people imposing conditions and “hindrances” on the productive uses of property would make production impossible, we would be glad to have only one master giving orders. Then division of labor would justify a chain of commands.

Everyone’s productive achievements depend on the services of others. True, but it does not make others the owners of our products. Division of labor cannot be turned into an argument against ownership because it is ownership that makes division of labor possible and efficient in a free market. That includes ownership of the means of production. Otherwise we have Lenin’s nightmarish ideal: a country run like a big factory.

Certainly, John Rawls said more than once that State's ownership of the means of production is compatible with a free market (see references in a previous article). Rawls did not provide any earthly example to justify his assertion.

We made you what you are: governments as domineering parents

Now, if the logical and the moral differences between paying limited taxes and surrendering all but a Hegelian minimum is so immense, what are the reasons that are presented to justify the claim that ownership is a myth? With small variations, Murphy, Nagel, Dworkin, and Sunstein write that industry and commerce would have great difficulties, and indeed would not have developed beyond very primitive levels, without the services of courts, the police, of defense against foreign invasion, etc. To that, Nagel and Murphy add public education, support for the arts, preservation of the environment, and –later in the book, as we will see– minimum wages. Citizens must pay for all that. That is true (at least for some of the things that the authors enumerate), but it has always been admitted. While there are objections about a good number of these services, about the degree and the moment when they cease to be beneficial and start to be roadblocks to progress, most defenders of capitalism do admit that a government provides essential services (or, to be precise, some governments do it, and then only among other activities unrelated to those essential services).

Of course, there are among the defenders of capitalism some who have suggested that governments should not exist, and that even coercion and defense should be provided by private companies. But free competition in the use of violence has never been the prevalent view among defenders of capitalism. Anyway, for all defenders of capitalism, even those who, like Murray Rothbard, would like to blend it with anarchy, the immediate concern is the encroachment that Murphy and Nagel are trying to justify and increase. Of course, most Americans have no objections against taxes as such. They object high taxes.

By ignoring their main contenders in the debate, by assuming that in arguing for more taxes they should deal only with those who oppose all taxes, Murphy and Nagel make their task easier, but at the same time less enlightening. I will not enquiry here whether anarcho-capitalism makes sense. It is enough to mention the obvious fact that it is not the only, not even the mainstream, defense of capitalism. Let’s have a quick review of some prominent thinkers that Murphy and Nagel have chosen to ignore, all of whom readily admit the important functions of governments. First, we have Eugene Böhm-Bawerk, one of the founding fathers of the Austrian school of economics. Already in 1881 he wrote an essay about the concept of economic goods, in which he fully recognized the value of the services provided by governments. He said that more than from direct services paid to anyone of us, we all benefit indirectly from the action of the state. For instance, he wrote, “those who never see a court of law, share in these benefits too (and perhaps in even more beneficial manner) because of the respect for law which prevails throughout the land by reason of the activities of those same judges”.[5] As most of the benefits are indirect, Böhm-Bawerk explained, and we do not know the names of the judges, policemen and road builders, we tend to lump all the services that contribute to the result and gather them under a single concept: the state, or the government. But it does not mean, he warns us, that the state is an economic good, apart and different from all the services it provides.

The warning was no mere quibbling about distinctions because it is always prudent to bear in mind that the value –from the economic point of view– rests and falls with the services actually provided. To use Böhm-Bawerk’s example, if a judge sets about reforming the law under the name of interpretation, and so undermines the respect for the law, there is no service rendered. Or rather, there is harm that is financially supported by our taxes. Moreover, as it was the case with the benefits, the indirect harm is far more extended than the harm to the litigants –though perhaps more difficult to trace.

Ludwig von Mises is assertive on the point: “Whoever denies the basic idea of Anarchism, whoever denies that it is or ever will be possible to unite men without coercion under a binding legal order for peaceful co-operation, will, whether liberal o socialist, repudiate anarchistic ideals. All liberal and socialist theories based on a strict logical connection of ideas have constructed their systems with due regard to coercion, utterly rejecting Anarchism. Both recognize the necessity of the legal order, thought for neither is it the same in content and extent. Liberalism does not contest the need of a legal order when it restricts the field of State activity, and certainly does not regard the State as an evil, or as a necessary evil”.[6]

Frederick Hayek, wrote extensively about the institutional conditions of capitalism. Indeed, Hayek gave such a prominent place to the rule of law as a condition for a flourishing capitalist economy, that the British law scholar Joseph Raz felt it necessary to confront him, and favor instead some departures from the rule of law when it is considered necessary to promote social goals.[7]

A fourth example is Ayn Rand, a novelist and philosopher very well known for her passionate defense of capitalism. She harshly criticized libertarians for their disregard of the essential services that governments provide.[8]

Most defenders of capitalism do not support the suggestion that capitalism might dispense with governments altogether. Free competition in the use of coercion and in defense against foreign attacks is not representative of the arguments advanced by both economists and ordinary people. Of course, that anarcho-capitalists are few in number –even unknown to most people– does not mean that they are wrong. I will not discuss that issue here. I only say that it is very odd that when Murphy and Nagel argue against what they believe is the position of the defenders of capitalism, they assume that anyone who rejects their views must also reject that governments provide (sometimes) essential services. Similarly, Sunstein seems to think that the arguments against high taxes and redistribution can be met effectively by pointing out that property rights could not be guaranteed by laissez-faire, as if laissez-faire had ever meant anarchism.[9]

But we must leave aside the odd selection of defenders of capitalism, and return to the authors’ argument for the suggestion that ownership might be a myth. They tell us that there is no wealth created outside the protection and the benefits provided by governments. That is true –if we exclude Robinson Crusoe’s island, and a number of similar cases. But from that, Murphy and Nagel deduce that there is no right to wealth apart from what the government decides to leave to each one. The collective body that provides these services also decides –to use Murphy and Nagel’s expression– “who owns what”[10], based on its view about distributive justice, social goals, etc.

That is a non sequitur, a conclusion that does not follow from its premises. I may have gone to a State school, I may cross a public-owned bridge, I may sue someone in a court of law, but this does not make my property a mere convention, and it provides no ground for authorities and judges to indulge in experiments of social remodeling at my expense.

Even the haughtiest Medieval King would have thought that such deduction is unwarranted. The King may have charged merchants large sums for just crossing a bridge, forced them to pay for services they did not want, and take for the protection against robbers only slightly less than the robbers. But the King would not have said that the exaction was not really an exaction.

Besides, the argument proves too much, for it applies not only to property but also to life itself. It is true that without a government’s action, our property would have very little defense against gangs of looters –but looters could also kill us. It is true that without public roads, commerce would be confined to a small area –but our lives would be confined in a similar manner. Does it make our lives conventional? Our right to walk and travel mere myths? Is this a reason to make all these individual liberties a conventional thing, to be defined collectively in view of some public goal?

Against common views about ownership, Murphy and Nagel write that “to appeal to the consequences of a convention or social institution as a fact of nature which provides the justification for that convention or institution is always to argue in circle”. They add that those who think that they have a natural right to their property do not realize that “these ‘natural’ rights are merely misperceptions of the legal consequences of the system itself”. And they conclude: “One can neither justify nor criticize an economic regime by taking as an independent norm something [the rights] that is, in fact, one of its consequences”.[11]

It may be unfortunate, but it is a fact of nature that governments cannot create goods by enacting laws –at most, they can take the goods from those who have created them. Something else is needed, namely: work, capital, ingenuity, perseverance, and a host of other things. Many a South American leader is still puzzled by the fact that goods do not grow out of the constitutions they enact from time to time.

Murphy and Nagel do not unravel all the consequences that hide in their theory. One wonders why do they find that the standard of rights violates logic only when it is a property right and leave alone the other rights. It is easy to show that life (not just ownership) would be very different –and very precarious– without police, armies and judges. Why not say, in the same way: one can neither justify nor criticize a regime according to the respect it pays to rights (all rights, not just ownership) as if rights could be used as independent standards?[12]

This is all wrong. Let’s put it in a few words: to describe conditions for the full development of individuals and their creativity does not justify the claim that they are merely conventional, or that they must be shaped and ruled at pleasure. If it were a matter of conditions for something, we could also say that modern government would not exist, and would have remained in a primitive and precarious condition, if it were not for all the services and goods created by industrialists and entrepreneurs. For instance, we could say that modern government could not be carried on without computers, and proceed to deduce that the bosses of the computer industry are entitled to define what government is and what is not. Government would be a mere convention, which incidentally would be a bit closer to the truth.

It is true that the computer industry could not exist without the protection provided by the police and the courts. But when a police force has prevented a gang of looters from attacking, say Hewlett-Packard offices, they do not become entitled to dictate what the company should do.

After all, the computer industry could not exist without power supply and a host of other services. In terms of their usefulness and the causal relation they have with the end product, government services and private services are equal. What would we do without water supply? Can we imagine life in a modern megalopolis without a constant provision of water? Does it make the providers of water the main owners of everything? No, they are usually humble providers of services, that is all. Why should governments be different, and think that their services (not always of the best quality) entitle them to domineer us? Unless we introduce some mystical theory that makes the State prior to individuals (a theory which Murphy and Nagel do not provide)  our governments (in small letters) cannot define who owns what.

At any rate, it would be wicked for anyone to remove the obstacles for production and creation in order to claim total control over it –as if a music teacher claimed the right to define the careers of his students. We may even compare the argument that Murphy and Nagel make for the government with a similar one that could be made for parents. With parents, after all, the relation is closer than that of master and pupil –not to mention government and citizen. There is no doubt that, if it were not for our parents, we would not exist. We receive food, shelter, education, sometimes even money for our studies, or a capital. Our lives and our achievements are to a large extent determined by their efforts. None of that makes our achievements theirs, or our lives a matter to be defined by them. Parents who claim that they can define what their children would be are a menace. But that is nothing when compared to governments that see themselves as domineering parents.

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[1] P. 99.

[2] P. 99.

[3] P. 75.

[4] P. 58.

[5] Böhm-Bawerk, Eugene: Whether legal rights and relationships are economic goods, p. 132. Included in Böhm-Bawerk: Shorter Classics. Libertarian Press 1962.

[6] Socialism, p. 57.

[7] The Rule of Law and its Virtue. Included in his book: The Authority of Law. Essays on Law and Morality. Oxford University Press 1979.

[8] Ayn Rand Answers, pages 72-76. New American Library 2005.

[9] The Second Bill of Rights, p. 198.

[10] P. 189.

[11] P. 9.

[12] Others would follow the argument to its consequences. Indeed, in Argentina, a professor at Buenos Aires University teaches that the very notion of a human being is conventional and it does not exist before a “discourse” refers to it. The notion of a “person” is illusory. Cárcova, Carlos María: La teoría jurídica desde las perspectivas críticas, pages 66 and 69. In the book Filosofía del Derecho Argentina. Temis 2008.

Murphy, Nagel, Sunstein, and Dworkin on property rights

This is the first in a series of articles that I will post about the attacks, mostly made by American philosophers and law professors, against the notion of ownership, which now they dismiss as if it were a myth

Two celebrated philosophers, Liam Murphy and Thomas Nagel, have dedicated a book to debunking The myth of ownership.[1] Their view is shared by Cass Sunstein, a law scholar and regulation Tsar under the Obama administration, who writes in his book The Second Bill of Rights that “it is comically implausible to find so many people complaining that taxes take some portion of ‘their’ money”.[2] As they see it, taxes do not take anything from people, and to claim the contrary is not simply wrong, but nonsensical. Ronald Dworkin, an influential law scholar, is of the same opinion: he writes, “the usual arguments that supposedly demonstrate that pretax income is ‘my’ money are incoherent”.[3]

It is surprising that these thinkers assume that their verdict about the myth is obvious, and that people’s convictions about private property and taxation can be so easily debunked. More surprisingly still, these American philosophers do not find it necessary to confront their ideas with those that sparked the American revolution. In contrast, at the time of the revolution, even their enemies –the British– made the connection with their own historical struggles for liberty. Speaking in Parliament, Lord Camden declared that in Britain “there is not a blade of grass, which when taxed, was not taxed by the consent of the proprietor”.[4]

Today Americans are taught that the noble Lord was talking nonsense. Not a distant King but their own philosophers and law scholars tell Americans that the link between taxes and ownership is wrong, a crass delusion. Murphy and Nagel write that taxes, even high taxes, do not take anything from our property. Ownership is merely a convention to be defined by law, and it comes into being only by means of laws. Why is that? Answer: because without the protection of the laws, property would soon disappear, or remain precarious. We must be clear: the claim is not simply that governments contribute to the production of goods by building roads and bridges, or keeping courts of justice, police and armed forces. The novelty of the view does not consist merely in the omission of the usual caveat that governments often make the production of goods more difficult, and sometimes impossible (after all, when we discuss government’s contributions to production, are we talking about F.D. Roosevelt, Margaret Thatcher, or Idi Amin?). Leaving the caveat aside, we must understand that the main goal of the theory is to convince us that ownership, what we know as “private property”, is merely a legal convention. We only have a right to what taxes leave to us. How glad would have been the King of England if he could have defeated the American revolutionaries with such simple argument!

As Murphy and Nagel’s book is entirely devoted to debunking the myth of ownership, I will deal mostly with the arguments they present. I will add some reflections about the contributions made by other followers of the same ideas. They are speedily gaining popularity among scholars, and many treat the issue as already settled.

 From the start, we must take notice that Murphy and Nagel often pass freely from the assertion that pre-tax ownership is a myth, to the more direct one that ownership –not just a portion of it– is a myth. And there is much logic in doing so: if governments are free to define and redefine our property rights and tell us that we never really had what they take from us in the form of taxes, then ownership as a whole becomes a myth. The philosophers’ aim is not merely to justify higher taxes but to suggest a new design for property rights.[5]

Of course, with the exception of anarchists, nobody denies that we have to take some dollars from what we have earned in order to pay taxes, as we have to take some dollars to pay for services provided to us, or bread sold to us. But this is not the point. What Murphy, Nagel, and others argue is that we simply have not earned that money. It is in our pockets by mere chance.

Murphy and Nagel have very strong words for the views about taxes and property that prevail in the US. What they decry is not merely (or mainly) the stand of politicians concerning taxes, but the common views among Americans. They write that “When it comes to taxes, at least in the United States, there seems to be a premium on appeals to the selfishness and greed of the voter”.[6] In the same paragraph they tell us that the appeal to the “better angels of our nature –the ones motivated by fairness and impartiality” is risky in the US. They do not mince words when examining the tax policies of Bush’s administration: they do not know whether the arguments against double taxation came from “demagoguery or actual confusion”.[7] A plea for tax-cuts is “disingenuous”.[8]

On the other hand, as we see reading the book’s back cover, The Myth of Ownership has been hailed by law scholars and book reviewers as a fundamental philosophical contribution to the debate about taxes that has been going on for some time in the United States.

According to Murphy and Nagel, ownership is an old illusion, and they want to free their fellow Americans from it. Certainly, they would be ready to grant, but without entering into details, that there is a minimum of personal belongings that individuals have a right to retain. They call it “a Hegelian minimum”, agreeing with the German philosopher that some form of personal property is indeed linked with individual freedom.[9] They acknowledge that “a minimal form of economic freedom is essential to a liberal system: the freedom to do what one wants with it”. However, in their opinion this does not cover “a much larger freedom...to engage with minimal hindrance or conditions in significant economic activity of the sort that drives a market economy”.[10]

Before going further into the authors’ arguments we must remember that the legal limits of property rights are independent of the size and value of the goods involved. We do not have rules for a minimum –Hegelian or any other– , and different rules for bigger possessions. In spite of minor and irrelevant exceptions to the principle, I am as free to spend my modest income as I would be to spend a fortune. Traffic rules are the same for cheap cars and for luxury cars. The owner of a big factory must not dump garbage on his neighbor’s property, and the same applies to the owner of a small apartment. This is the meaning of “equal justice under the law”.

In contrast, it is one of the main tenets of Marxism that those goods that are considered means of production should be treated differently. Though Murphy and Nagel tell us that “significant economic activity of the sort that drives a market economy” is not part of the freedom they would grant to people, they do not seem to suggest that governments should take actual possession of the means of production. They just mention “hindrances” and “conditions” and indicate that they might be more than minimal without any special justification. Even then, in their opinion there would be no conflict with freedom. We must remember that John Rawls –who taught philosophy to Nagel, as well as to a good number of modern philosophers– wrote that government’s ownership of the means of production was compatible with a free market. He never cared to justify that assertion.[11]

Beyond the portion of their goods that the philosophers would leave to people as essential for their freedom, everything else is conventional –“conventional” being a refined way of saying that legal institutions “define who owns what”[12]. That is why Murphy and Nagel find it absurd that so many people think that laws must respect property. Laws define what property is, and who owns it. A figure in plaster cannot contradict its maker, and wish another shape. Then there can be no conflict, only submission. Murphy and Nagel write: “Our own view, as will emerge, is that property rights are conventional, but that there is room in their design and justification for the consideration of other rights and deontological values. While the protection of some form of private property is an essential part of human freedom, the overall structure of the system of property rights should be determined largely on other grounds”.[13]

Incentives for work, not for business

Apart from a Hegelian minimum –left undefined–, Murphy and Nagel would keep some incentives for work. But for that purpose there is no need to let rich people pocket large amounts of money. In fact –they argue– higher taxes for the rich would have two effects, and not just one. Of course, some people would work less if the return is small; but others would try to make up for the loss by working more.[14] Murphy and Nagel cite the opinion of experts who tell us that “nearly all research concludes that male participation and hours worked respond hardly at all to changes in after-tax wages and therefore to marginal tax rates”.[15]

We must realize that the whole question about incentives is misleading. It is a common error –or rather lack of perspective– to think that capitalism is just about material incentives for workers and CEOs. The error underlies a good part of the discussions about capitalism. Nevertheless, we must not forget that taxes often reduce capital itself. Moreover, high and low profits direct capital (not only work) to different pursuits.

The key error is this: capitalism is not a system of carrots and sticks used to encourage work, marginally different from the system of socialism, of sticks and more sticks. Not surprisingly, capitalism is about capital. It means that individuals take decisions about what to produce, where, using what materials, in association with what partners, at what time. It is often pointed out that CEOs would keep working even if their salaries were substantially reduced and if they had no other alternative in the market. Probably they would work harder to compensate, as Murphy and Nagel suggest. That is true: a CEO can be reduced to something very similar to a functionary in a collectivist country –in fact, they have been reduced to that in a number of mixed economies, in the past and in the present. Some of them may feel comfortable in such situation.

However, as Ludwig von Mises has explained, capitalism is not a managerial system, it is an entrepreneurial system.[16] The argument about the effects of higher taxes on work (even as managers) forgets this basic truth. It leaves aside the decisions people (and especially entrepreneurs) make about the goods they own –not merely about the goods they manage for others. Capitalism is about capital and its return, not about bonuses .

CEOs, managers –even workers– can receive bonuses. But unless they also share the losses, pay themselves the expenses, decide what to sell, and when to invest their own capital, they cannot replace entrepreneurs. Of course, if those conditions are met, they would not replace entrepreneurs; they would be entrepreneurs. But bonuses alone do not turn managers into businessmen. On the contrary, they can make managers foolhardy and ready to take unreasonable risks.

 Incentives for work are not the distinguishing mark of capitalism. Actually, mere incentives for work exist even in places where the control of the means of production by the government has been taken to its highest stage. We read that in the prison camps of North Korea, people are kept in semi-starvation conditions, and that the main incentive for work –apart from sticks and other means– is food (the carrot).[17] That is enough for such higher stages of collectivism, but not for capitalism.

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[1] Oxford University Press, 2002. Unless otherwise stated, citations will refer to that book.

[2] The Second Bill of Rights. Basic Books 2004, 201. The subtitle of the book is “FDR’s unfinished revolution and why we need it more than ever”.

[3] Is Democracy Possible Here? Princeton University, Press 2006; p. 125.

[4] Campbell, John: Lives of the Lord Chancellors and Keepers of the Great Seal of England. Vol. 6:  http://www.constitution.org/bcp/camden143.htm

[5] As proof that the goal is larger, see the text cited at the end of the present section.

[6] P. 72.

[7] P. 143.

[8] P. 178.

[9] P. 145.

[10] P. 64.

[11] A Theory of Justice, pages 57 and 137. Harvard University Press. Revised Edition 1999. Also in Distributive Justice: Some Addenda, in Collected Papers, page 159. Harvard University Press. Paperback edition 2001.

[12] P. 189.

[13] P. 45.

[14] P. 69.

[15] P. 137.

[16] Human Action, Vol. 3, pages 303 and 708. Liberty Fund 2007.

[17] David Hawk, The Hidden Gulag. US Committee for Human Rights in North Korea, 2003.