Who needs a replacement for Marxism?

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

At the end of The Myth of Ownership, Murphy and Nagel put their own ideas in historical context: “In the aftermath of the century during which the Marxist conception of equality played itself out, at enormous cost, the question is whether a different kind of egalitarian social ideal, one no intrinsically incompatible with capitalist economic institutions, can take hold in the Western democracies”.[1] Certainly Marxism has lost a considerable part of the luster it enjoyed for too long. But there is hardly a need for a replacement.

Actually, Marxism played itself out as a theory long before it was tried on people. Its many mistakes had been clearly demonstrated by the Austrian economist Eugene Böhm-Bawerk before the XIX century had come to an end (link to his article on the Marxist system). It was not necessary to try the poison on people. But it was tried. Then again, once it had produced the famines, the massacres, the show trials, the Gulag system of forced labor, it was not necessary to wait for decades till it finally crumbled in a pile of shame, to reach the conclusion that it was dead wrong. It was so from the start to those who suffered under it.

To many of those educated in the universities of the West, at long last, Marxism starts to look slightly less convincing; a bit less obviously true –though a poll conducted in Britain by BBC 4 in 2005, on its audience, gave Marx as the most important philosopher in history, well ahead of the rest. In other countries, large numbers of people adhere to Marx’s theories about exploitation and class struggle, but without caring about the origins of their ideas. In the US, however, the results of a poll similar to the one conducted by the BBC would have been different.

Marx thought that he had found a fundamental economic objection against capitalism. Against a system that was creating wealth and increasing population as never before in history, Marx did not use altruism and moral arguments (as, for instance, John Ruskin did). Marx thought that socialist production would be more efficient and avoid the contradictions he thought he had discovered in capitalism. Since Bohm-Bawerk’s article on the Marxian system, every informed economist knows that Marx had deluded himself –and misguided millions of people. Nevertheless, many economists and philosophers try to succeed where Marx failed: they try to show that capitalism is inefficient and must be corrected by the exercise of political power. They write theses that would prove that they have unearthed inefficiencies in the form of services wanted but not provided, public goods, free riders, natural monopolies, and a host of justifications for increasing intervention. It has become the surest path to a Nobel Prize in economics.

Murphy and Nagel think that their proposals could be accepted even in the US. They say that their theory is compatible with capitalism, or at least with some sort of capitalism. After all, they write “there is no natural or ideal market. There are many different kinds of market system, all equally free, and the choice among them will turn on a range of independent policy judgments”. Here, “independent” means: the decision should be taken independently of the value one may see in having a market system.

But what are the different free markets they have in mind? We must remember that highly praised thinkers would allow considerable latitude in the choice of the different kinds of market system: as said, John Rawls thought it natural to assume that free markets may or may not have private ownership of the means of production.[2] We do not know whether Murphy and Nagel would share Rawls’s view: their words about what must be left in private hands for the system to qualify as free market are vaguer than that of the master. But vagueness about “hindrances” and “conditions” is not a way to reconcile their theory with capitalism. At the very least, we must remember that Murphy and Nagel admit the morality of private property only in the form of a Hegelian minimum.

When we consider compatibilities and contradictions, we must understand that we are not assessing whether capitalism would survive a single day after theories like those of Murphy and Nagel are adopted, or would fall immediately. Of course, if all means of production are taken by the government, the market is killed –and Rawls’s assertion to the contrary will not keep it alive a single second. But there is also a slow death caused by “conditions” and “hindrances” incompatible with freedom. When we say, for instance, that heavy drinking is incompatible with a career in sports, we do not say that a successful sportsman will fail the day after he starts drinking too much. A very gifted individual may overcome some of the worst consequences for some time. But there is nevertheless a contradiction, something that drags him down, and it would be better for the drinker to recognize it as such. To be sure, a mangled market would work, some capital would be accumulated under the worst conditions, and inventiveness would fight bureaucracies for a long time. But, as with the sportsman, things would never be what they could have been.

It is worth noticing that Hegel himself did not suggest that property should be divided between a minimum that deserves full legal protection as a right, and another larger portion that lacks it. There is nothing in Hegel’s justification of property rights that restricts it to some portion of goods. Anyway, it would be of historical interest to discuss whether it is fair to attribute to him that distinction but, of course, it would not settle the question whether it makes sense.

For their part, Murphy and Nagel assume that the distinction is quite obvious, and tell us that the right to do whatever we want with a minimum of personal belongings does not cover “the freedom to engage with minimal hindrance or conditions in significant economic activity of the sort that drives a market economy”.[3] Now, what is capitalism if we take from it the freedom related to the significant activity that drives it? Steve Jobs would have been allowed to drive his car, but not Apple; Cornelius Vanderbilt would have been allowed to do what he wanted with a small boat, but not with his ship company.

Murphy and Nagel trace a line: any encroachment upon the Hegelian minimum would need exceptionally strong justification from the government, but not if it applies to property that is larger than that: “Some forms of personal discretion –including the basic Hegelian right to hold personal property– are at the core of the self, but unimpeded economic freedom is not one of them”.[4] They repeat it: “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”.[5] That is to say, they are not part of human freedom.

Again we recognize that lack of perspective that we encountered in the discussion about incentives for work. It may be true that personal property like a comfortable house, a good salary paid by a prestigious university, a car, a personal library, and a few other things may be enough to allow a philosopher to pursue happiness. But Henry Bessemer –the inventor of mild steel– needed smelters; and Henry Ford needed production lines; and Robert Noyce –of INTEL– needed semiconductors. A Hegelian minimum would have not been enough for them, and the rest of us is no worse for that.

Certainly, what the debunkers of ownership have in store for capitalism is described in very general words: what is the kind of “hindrance” in the economic decisions of entrepreneurs that the government can impose without need of any strong justification (which would be needed if it affected an undefined Hegelian minimum)? We would not know until it has been imposed. In fact, we cannot expect anything more precise because the decisions that may be necessary to adopt cannot be known in advance, as proper legal rules are and must be. Friedrich Hayek explained long ago that a government that sets about deliberately distributing wealth, taking from some and giving to others, cannot tie itself to rules known in advance.[6] A government that directs its action mostly to the enforcement of general rules leaves to individuals the responsibility of deciding what is best for them according to present and future conditions, as they judge them.  But a government that tries to redistribute wealth must treat people differently, and in order to be effective it must take into account their changing needs. It must decide questions “on the merits”, that is, taking into consideration individual circumstances. It must watch the evolution of the economy, decide who is to get what now, and decide it again next year.

Nothing of that can be asserted in advance. Unless, of course, it is framed in vague words like “fair allocation”, and “reasonable payment” (and “hindrance”), with the usual provisions that “exceptional circumstances” (as judged when they present themselves) may justify distinctions. So, in a way it is not always true that collectivistic politicians and thinkers hide their plans from us in order to avoid resistance. Even if they wanted to be precise about what they will do to us (which is seldom the case) they could not do it.

Capitalism –even of the kind we have, which includes considerable government intervention– will be seriously affected if the theory that guides its course states, like Murphy and Nagel do, that “Evaluation must decide how 'mine' and 'yours' ought to be determined; it cannot start with a set of assumptions about what is mine and what is yours. The right answer will depend on what system best serves the legitimate aims of society with legitimate means an without imposing illegitimate costs”.[7] That evaluation, inevitably, will be left to the government –the legitimate means will be determined in the same way. What is crucial is that to justify or reject the decision –the authors declare– we “cannot appeal, at the fundamental level, to property rights.”[8]

However, we must realize that property rights that are secured against the changes in the “evaluation of what is mine and yours” are a fundamental requisite for capitalism. Murphy and Nagel’s theory is not really compatible with it. Indeed, if such redefinitions of mine and yours were possible, the rule that protects private property in the 5th Amendment of the US Constitution would mean nothing. Nevertheless, professor Waldron writes “The slogan that property is a human right can be deployed only disingenuously to legitimize the massive inequality that we find in modern capitalist countries”.[9]

Murphy and Nagel call the basic tenets of capitalism, “extreme libertarian”,[10] and sometimes, “everyday libertarianism”.[11] This is highly inaccurate. Libertarian-anarchism has never been implemented in the US, and it is not against the remote chance that it would ever be adopted that Murphy and Nagel argue. They reject the usual and general notion of ownership, they call for redistribution of wealth through cash transfers, and they claim that governmental “hindrances” on entrepreneurship do not need strong justification. Their objections apply really to capitalism.

 The tenets of collectivism

As Marxists and Socialists before them, Murphy and Nagel do not see any relevant difference between general rules under which individuals follow different roads (some successfully, some not), and a system that treats individuals differently in order to reduce a gap between their incomes or to achieve some other social goal.

At the end of the day, we are told, both systems are no more than different ways of allocating resources. One of them generates differences of wealth among individuals, the other generates more equality. The main difference lies in the effects. That these effects are the result of free competition or of government’s coercion is an irrelevant detail of no moral significance. After all, if it is true that taxes are imposed on individuals and that they cannot resist them, it is also true that success is imposed on them by luck, social factors, and even genetics. All of that is, in one way or another, external to people.[12]

Moreover, is it not true that coercion is used to prevent and punish robbery? Certainly, welfare payments put money in the pockets of some people after taking it from others –by force if necessary. But policing the streets and punishing criminals makes it possible for money to remain in the pockets of people, who would have been robbed otherwise. It is argued that these are just two ways of using the force of the state. We cannot say that one is substantially different from the other in any respect, apart from the different distribution of wealth that results from them.

Using this strategy, Cass Sunstein rejects the distinction between negative and positive rights. Just to remind the reader: classic rights like ownership and freedom of trade are often called “negative rights” because people exercise them by themselves; laws may protect them against violence and fraud but no law is necessary to exercise them. In contrast, positive rights consist in help that people are entitled to get from the government. Why are they called “positive”? Because their exercise requires, not merely the absence of harm, but a positive transfer of goods and services.

Now we return to Sunstein. There is no essential difference, says he: welfare payments cost money, but so does the justice system. In both cases the government has to spend money.[13] Someone receives help from the government in the form a cash transfer, and another by being defended against robbers and murderers. Of course, the comparison obscures the fact that those who receive cash transfers are also protected against criminals. But if one forgets it, one may be led to think that we just have two different ways of helping different people.

These arguments are seriously presented as a proof that our common understanding of the issues involved rests on mere prejudice. However, even a child recognizes that there is a big difference between begging his mother to carry him in her arms, and walking on his own legs. You may try to convince the child that there is no essential difference, and point out that when he struggled with uncertain steps trying to reach the other side of the room for the first time, mommy was there ready to stop an unruly brother from tripping his legs. You see, there is no real difference, there was help in both cases –there was a condition anyway. If you abandon your childish myths you would realize that being carried or walking yourself are just two different means of locomotion.

A child would not be convinced of that, but an adult might think that he cannot rationally reject the suggestion that ownership is a myth, as it is claimed in books hailed by experts as masterpieces; books brimming with references and lengthy examinations of what people would decide if they were not themselves. The reader of these books might have the vague feeling that there was something wrong somewhere in the arguments, that big and important things have disappeared from his eyes without him knowing how. I have tried to show by what means they disappear.

What Murphy and Nagel dismiss as mere myth, as entirely imaginary, as “morally irrelevant”[14] are some of the basic principles of capitalism. In the past, collectivism used to be forced upon us with the claim that it was historically inevitable. If you wanted to avoid being looked as a hick, you had to acknowledge that property rights and such were myths, part of a superstructure made for the defense of capitalism –which was a contradictory system. Only thick-headed people could delude themselves into thinking that they could answer these arguments.

Today you are told that your attachment to your property is merely a foggy notion that would not resist a thorough philosophical examination. Your resistance is proof of your lack of understanding. Your must avoid to be caught being –in Cass Sunstein words– “comically implausible”. However, again and again, we find that the theories that are hailed as fundamental contributions to our knowledge are really based on reasoning that is shockingly weak. And we find that the “myths” that are to be destroyed are the most fundamental principles that define the modern world. They are those that explain the difference between the age of the Pharaohs and our age.

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[1] Pages 188-189.

[2] 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.

[3] P. 64.

[4] P. 66.

[5] P. 45.

[6] The Road to Serfdom, Chapter 6.

[7] P. 75.

[8] Same page.

[9] The Right to Private Property, p. 5.

[10] P. 65.

[11] P. 36.

[12] At the base of many justifications of redistribution lies the odd idea –assumed but never discussed– that individuals must not be considered as individuals (defined as such by their qualities and defects and judged according to them), but as ghosts that later on will receive their own personal characteristics. These are not essential or defining of anything, but accidents that ghosts –the true object of political theory– suffer in their transit to this world. Ghosts must be protected from the morally irrelevant accident that makes them individuals.

[13] The Second Bill of Rights, p. 197. In Argentina, Roberto Gargarella, a law scholar who blends Marxism with constitutional law, repeats Sunstein’s arguments to reject the distinction between negative and positive rights: Carta Abierta sobre la Intolerancia, 51 Siglo XXI Editores 2006.

[14] P. 99.

Murphy, Nagel, and Marx on surplus value

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


A new theory of the “surplus value”

So far, we have examined three arguments presented to sustain the claim that ownership is a myth: 1) that (most) governments create conditions that make industry and commerce possible –or at least safer; 2) that it is the market that generates differences in wealth; and 3) Ronald Dworkin’s attempt to portray the creation of wealth as accidental possession or accidental delay. The first one results in a non-sequitur; the second is –at best–  an inaccurate way of speaking. The third one…it is difficult to say anything about the third one.

Murphy and Nagel present another way to justify the main thesis of their book. They use for this purpose the notion of a “surplus value”[1], which sounds similar to Marx’s theory, but is quite different. However, there is a link between the two: both are part of efforts to prove that, in some odd way, the rich do not pay fully for what they get. According to Marx, they get work without paying the full value they get from it. According to Murphy and Nagel, the rich buy goods without paying the full value they get from them. Both theories share another characteristic: they are wrong.

The theory of surplus value was the cornerstone of Marx’s description of the relation between capitalists and workers. It provided also the motive for Marx’s prediction of capitalism’s doom. Marx believed that value is only determined by work, not by capital; therefore, what capitalists gain is actually taken from the workers, who receive enough to survive and reproduce, leaving the rest, the “surplus value”, to the capitalist. There, said Marx, lies the inner weakness of capitalism: competition leads capitalists to use more and more capital (machines and such) and less labor. But then their profit will diminish, because labor –and not capital– is the source from which they take their surplus. More machines and fewer workers mean a smaller surplus value for the capitalist. Certainly, Marx himself was aware that his theses were against the facts everyone knows to be true, and spent most of his life trying to fill this enormous hole below the waterline of his theory. Anyway, the whole explanation was proved wrong by Eugene Böhm-Bawerk, already in 1886.[2]

Murphy and Nagel do not attempt to revive Marx's “surplus value” theory, but they come up with something that would also (if true) show that the rich do not really pay (in some way) for what they get. They call this pernicious characteristic of capitalism, a “surplus” collected by the rich, and they conclude that it is only fair that the government pares it off. They explain that the market “automatically creates a large surplus –the difference between actual price and reserve price– for people who have lots of money. Poor people benefit from this surplus only with very cheap private goods like salt an digital watches. To them, most things do not feel cheap or costless, because most purchases are close to their reserve price”.[3]

In this explanation, our philosophers compare two prices: the actual market price people pay for a good –say a computer– which is the same for rich and for poor; the other is the highest price each individual buyer would be disposed to pay for that good: this is the reserve price. Of course, that highest price is different for each person. It varies according to his means, his views about the utility he expects from the good, his opinion about future prices, etc. There is also a minimum price for each seller, below which he will not sell: that is the reserve price of the seller, and it also varies according from person to person. And, for the same person, it may change several times following his changing views and needs.

Murphy and Nagel’s assumption that the reserve price is always higher for those with higher income is absolutely unwarranted. In auctions, the highest bidder is not always the richest person in the room. People who are always disposed to pay the highest price are not likely to remain rich –or become rich. Of course, if we leave the realm of real life and build instead imaginary situations (a favorite method in modern philosophy known in older times as “Jesuitism”), we may puzzle the reader for a while, and even convince him that what he knows to be false might be true –at least true in untrue situations. Let's tailor a very odd situation (maybe even impossible) to prove our thesis on it, and pretend that we may extend our conclusions to the real world.

Say we are in a lifeboat, and there is a shortage of water. Never mind that in such a case there would be rationing. We can always imagine things if it helps to prove our theses, and we can postulate that there is no rationing. Water is sold to the highest bidder. In such situation, a billionaire would be willing to pay billions for a single glass of water. Nevertheless, in every modern city we may see that the same rich man pays only cents for the same glass. Is that fair? If we take the price he would have been disposed to pay in an extreme situation as his reserve price, we might say that his gain is enormous. Now let’s compare that with the situation of a poor man in a lifeboat. At most he could offer some hundreds of dollars for the glass of water, but not millions. Therefore his reserve price is lower, and his gain is lower when he buys water for a few cents.

See, rich people get a surplus all the time. The richest of them get billions of surplus every single minute of their lives. Governments can dig in that immense heap of utility and give part of it to those whose surplus is smaller.

As common sense would lead us to suspect, there is a fundamental mistake in the above reasoning. If there is one fallacy in economics that is worse than all the others, it is that in which the utility of goods is assigned in the abstract to a genera ("water", "gold", "corn") and not to a concrete piece of it, for a concrete individual, in concrete circumstances. If we think in terms of the value of nourishment as compared to that of ornament, then we would conclude that people should pay more for bread and water than for gold and for the most beautiful pieces of art. But that is only true if we are starving, and it would be unsound to exchange a Rembrandt for a bar of chocolate –except in very unusual circumstances. 

For sure, practical men rarely disregard the circumstances in which they make their choices; nevertheless, theoreticians have been often deluded by paying attention only to the abstract utility of a good, the utility of the whole genera. Böhm-Bawerk called it a wrong turn in economic theory.[4] It misled economists for a long time, but it has been corrected more than a century ago. Today we know that it is nonsensical to ask whether iron is more useful than gold and water more useful than iron, all taken as genera. Of course we can live –though miserably– without iron tools but not without water. It does not prove that I do right in paying more for a glass of water than for any tool made of iron. And, unless we live in starving conditions, or labor without tools, I may do right in buying a gold ring for the woman I love. These are basic notions that should be explained and learned in the first lesson of economics.

Now we can return to Murphy and Nagel and their claim that, for the same price and article, rich people collect a larger surplus than the poor. To prove that, they must assume that the price a man would pay in an extreme situation is his reserve price in any other situation, which is wrong. If instead what they claim is that in normal circumstances the more money a man has the higher would be the price he is willing to pay for the same good, that is plainly false. On the other hand, if their claim is that a rich man would pay millions for the last glass of water on a lifeboat, then the only thing that they are saying is that a rich man is able to spend more money than others in those goods he considers more important in each circumstance. But they are not saying (let alone proving) that all rich men –in all circumstances– consider a glass of water of immense value. That is true only on the lifeboat. It is hardly a proof that the rich man gets a larger utility –more for the same money– than the poor one when both buy a glass of water in a restaurant.

Murphy and Nagel write that “With a public good [from roads and defense to subsidies to the arts] individuals can’t obtain different amounts of it and there is no need to charge everyone the same, so there is no automatic radically unequal allocation of surplus. The question for the state then becomes what single amount of the good to provide to everybody, and to what separate price for each?” They think that governments acting in this way can be compared to monopolies: “The government must operate more like a price-discriminating monopoly. It needs to figure out how much the public good is worth to each individual and charge each of them accordingly”[5] (I have added the bold italics for reasons that will be clear in the next paragraph).

All this is wrong: merely a page before these words, the authors had acknowledged that public goods (say defense against foreign attacks) are worth the same for the rich and for the poor. They admit that “The main reason for this difference in value is not that some people care more about the dangers of military invasion than others, but that some people have more money than others, so that a dollar more taken from them to be spent on defense, does not mean a dollar less for basic necessities, but only for something less important”.[6] If we think about the consequences of this caveat, we must realize that what the authors call “reserve price” does not show or say that a good is always more valuable to the rich buyer; it only says that he can afford it. Unfortunately, Murphy and Nagel create the impression that the good is worth more for those who could afford it. The authors themselves seem to be convinced of that in one page –but also of the opposite in another page. Public goods are worth more for the rich and they are not worth more for the rich.

As in the automatic “generation” of differences among individuals by the market, in the theory of the surplus we find again what we may call the fallacy of the “forgotten caveat”. Of course, caveats are legitimate defensive weapons in theoretical warfare, but only if what is acknowledged in them has a real role in the theory. If not, they are better called “contradictions”.

Shifting between cardinal and ordinal numbers

The notion of a “reserve price” is very apt to lead to confusion, and that can be seen in Murphy and Nagel’s use of it. Of course, a reserve price is not a price. It is not paid or offered by anyone. It is just a way of saying that we –or a bureaucrat– think that someone would have been disposed to pay a higher price –either in real life or in a lifeboat. It is a loose way of referring to someone’s valuation of a good, his expectations of future prices, and a host of other things, but not to a price. Unfortunately, the notion makes the shift between cardinal numbers and ordinal numbers seem natural and unobjectionable.

Here it may be useful to make a short comment about the difference between ordinal and cardinal numbers as they are used in economics. Individuals may put their priorities in a list and assign numbers to them, but these are ordinal numbers. They express priorities: this first, that second, etc. It makes no sense to add, multiply, or do any arithmetic with them, other than saying: first of all I must have the roof repaired, and then buy a new pair of shoes, etc. If a new pair of shoes is in the second place in my list of priorities, then two new pairs do not equal the utility I expect from the roof that is first in my list. Furthermore, ordinal numbers have meaning only within the choices of an individual: I cannot say that the item that is topmost in my buying list is for that reason more important than the item that is second in yours –more important to whom?

Prices are cardinal numbers. It makes sense to add prices, to multiply them, etc. And I can compare prices offered and paid by different people. When I say that this computer’s price is twice as much as that other one, I am using cardinal numbers. I know that ten hammers will cost me ten times the price of a single hammer. But when I say that a computer is of more value to me than to you I am engaging in comparisons between choices of different people. I am using (or rather misusing) ordinal numbers.

Apart from wrongly assuming that a reserve price must be “automatically” higher for rich people, Murphy and Nagel misuse the notion of the “reserve price” to implicitly engage in comparisons between scales of utility for different people, which is wrong and radically different from comparing real prices. As we have seen, they suggest that governments have to establish how much a good is worth for different people –i.e. according to the “reserve prices” they would pay, as established or guessed by some government’s bureaucrat. However, it is one thing to compare the price of computers offered in two stores, and quite another to compare the utility that a computer has in your scale of priorities as against the priority it has in the scale of your rich neighbor. To say that the eleventh element in my scale should be considered more valuable than the twentieth in yours is nonsense. To acknowledge that truth we do not need to endorse relativism: it is enough to realize that value is always value for an individual. Most readers of this article do not plan to buy a pneumatic hammer, and that does not mean that they deny that it may be useful to those who buy it.

 We often hear that one dollar more is of less marginal value for a rich taxpayer than to a poor one. That assertion is at the base of many arguments in The Myth of Ownership. It is a confusing way of saying that, if that dollar is taken from him, the rich taxpayer would have to give up the satisfaction of an item that is many steps down on his present scale of utility. It would be the last one, say one more drill bit to be used in one of the hundreds of bench drills in his mill. If a dollar is taken from a poor taxpayer –say a plumber– he too will be forced to give up his last item, which actually might be a similar drill bit. Our plumber would have used it with his only hand drill. We must understand that nothing of that means that we are justified in saying that one more bit is more valuable for the plumber than for the industrialist (more valuable to whom?). We cannot build an “impersonal” scale from all the others and assume that there is any meaning in it. Relative positions have meaning within an individual’s scale.[7] If we forget it, we would be led to think that it is wise to say that the good at the 21st place in Smith's scale of utility (a new subscription to a science magazine) is of less value than the good at the 20th place in Johnson's scale (a new subscription to a porn magazine).

In short: it does not seem that the notion of a “surplus” value collected automatically by all the rich is anything more than another rhetoric device of the kind Murphy and Nagel so justly condemn. And the notion of a “reserve price” does not improve their justification of higher taxes, unless we take the price of goods in lifeboat situations to be the reserve price in normal times. Furthermore, we should not be led to forget for a minute that conflating individual scales of utility is meaningless.

As an aside, it is useful to remember that at the first steps of the production of new goods, they are usually sold to the rich and that they often pay exorbitant sums for that privilege. The first books, cars, and computers were very expensive, and only the rich –sometimes with a love for novelty and experiments could pay for them. In a way, and contrary to the suggestion that the rich get a surplus that is denied to the poor, the rich finance the development of products that initially could not be made for the mass market. Of course, no rich person would think it sensible to say that the poor owe him anything for it. And that is fair. We do not have to pay for all the consequences that have been made possible by rich people –or by governments.

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[1] Pages 82-83.

[2] Böhm-Bawerk, E: Marx and the close of his system. The essay can be downloaded freely from www.mises.org/books/karlmarx.pdf. Concerning Marxism, as with many other issues, the Internet removes the excuse of ignorance.

[3] P. 83.

[4] Positive Theory of Capital. Libertarian Press, p. 138

[5] P. 83.

[6] P. 82.

[7] And we must also bear in mind that individual preferences and choices are not fixed for life but change daily, not necessarily because of whim, but because we have to face different conditions.

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.

---

[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.

George Orwell and the Rule of Law: you don't shoot at a man who is running with his trousers down

Almost all countries claim to be democracies; some back up that claim with free elections, others with public parades in praise of the beloved leader of the nation. The rule of law, by contrast, is an advantage that only a few countries can even claim to enjoy. It is definitely a good in short supply. 

In a former article, I have tried to show that George Orwell is still the best in explaining why it is so. Any country can hire a number of law scholars and ask them to produce a good copy of the most advanced laws and constitutions they find in the world. In Argentina, we have tried American constitutional clauses, articles from the French civil code, Italian forms of trial, and German penal theories, but all this relates more to intellectual fashions than to people’s lives. The rule of law has nothing to do with those changing fashions; instead it requires a certain frame of mind in the whole population.

In his book 1984, Orwell described how hell on Earth might look like; unfortunately people forget that he also described the attitudes that would prevent it from becoming true. He did that in the articles he wrote about the people he knew best: the English people. One of the things English people lack is a world-view, Orwell said. Instead, they have (or had: being a foreigner, I am not sure) a code of behaviour. Respect for that code forms the only possible ground where the rule of law may survive and prosper.

As we read in 1984, there are no well-defined crimes against world-views, only actions that advance or hinder the final victory of the party and its leader; and that is why intentions do not count. This is no fiction: we can see that taking place today, for a natural result of this twisted way of reasoning is that a child may be objectively guilty, and so it may be right to plant a bomb in a school. All actions are seen as objectively good and objectively bad –‘objectivity’ meaning here: useful in order to win. 

For the same reason, there is no objective decency, no pride in generosity and uprightness, and you may well sneer at them. Comfortingly, this is called ‘realism’. ‘Its growth’ –wrote Orwell in Raffles and Miss Blandish– ‘has been the great feature of the intellectual history of our own age’. Against realism, most English people remained attached to their outmoded codes of behaviour. The crucial words, said Orwell, were ‘not done’: there are a number of things one will not do, some limits one will respect. And I may add that this was not based on any socio-economic-psychological-semiotic theory. One simply adhered to the rules because that was the right thing to do.

Orwell said that English people followed a moral code as if they were sleep-walking, and more by instinct than anything else. In The English People, he wrote, ‘The masses still more or less assume that “against the law” is a synonym for “wrong”. It is known that the criminal law is harsh and full of anomalies and that litigation is so expensive as always to favour the rich against the poor: but there is a general feeling that the law, such as it is, will be scrupulously administered...An Englishman does not believe in his bones, as a Spanish or Italian peasant does, that the law is simply a racket’. I am not sure what Spanish and Italian peasants would say today, but I know that most Argentines would think that an unfair legal system should not be scrupulously administered. Disloyalty to the existing law may mean loyalty to a new and better one that is yet to come. Certainly, the trouble with this lofty approach is that the better law is not actually a law, or a code of behaviour, but a world-view. Circumvention of existing laws is then justified, even made commendable, on the grounds of vague and contradictory wishes, which could never really become a new and better law.

In Raffles and Miss Blandish, Orwell contrasted Raffles, the old-fashioned thief, with the gangsters in J.H. Chase’s novel No Orchids for Miss Blandish. We see that Orwell prefers Raffles for his attachment to his country and his respect for a code of honour. Instead, the characters in J.H. Chase’s novel are all equally brutal, even sadistic. Both the gangsters and the police are there just for the money; no nonsense about patriotism and inviolable codes. Orwell remarks: ‘The Raffles stories, written from the angle of the criminal, are much less anti-social than many modern stories written from the angle of the detective’. I must add that, with a few exceptions, this has remained a characteristic of the genre ever since. Nevertheless, Orwell admits that the line Raffles draws ‘between good and evil is as senseless as a Polynesian taboo, but at least, like the taboo, it has the advantage that everyone accepts it.’ I would not go as far as Orwell, and would rather say that most of Raffles’s code makes sense. Not abusing hospitality, a rule that Orwell describes as part of Raffles’s code, does indeed make sense in Polynesia as well as in England.

Orwell’s remark, however, points to something important. It is always easy to spot incongruities in any existing code of behaviour. Every existing legal system owes much to history and even to chance. Moreover, anyone can easily imagine a situation -however unlikely- in which the most sensible of rules would seem unfair. Modern philosophers are very fond of doing it, and so they discuss –as professor Ronald Dworkin does- what sort of insurance one would try to get before one is born if insurance were available against the possibility of being born a reckless person, or clumsy, or stupid. When one gets used to those intellectual exercises, it is easy to feel that one can pass swift judgement on existing rules, as a saint would do while looking from the summit of Mount Everest to the world beneath. 

Many people in Argentina adopt that view and say: all codes of behaviour are equally wrong, all have flaws –the rest is vanity. Certainly, one loses a considerable part of that varnish of sainthood if one descends from high regions of hot air and goes into details, acknowledging that some codes are worse than others, and that most codes are better than none. 

Orwell provides us with an anecdote that shows how a code that is followed by instinct may seem absurd. In Looking back on the Spanish war he writes that one day he and another Republican soldier went to snipe at their enemies, who had their trenches at some distance from them. When they were close enough to fire, they saw that the enemy was being attacked by Republican planes. The enemy was in confusion, and suddenly Orwell saw a soldier running along the top of the parapet, half dressed and holding up his trousers with both hands. Orwell refrained from shooting at him. 

Both before and after describing the incident, he says that he thought that there was not much meaning in his scruples against shooting the man. Perhaps –I would add– he though that the rules he was instinctively following did not make more sense than a taboo. You will be ready to kill the man in the next battle, so why not shoot at him while he is running with his hands on his trousers? This sounds logical, but awful, and it is a line of argument that can be used against every moral scruple. This boy will be a soldier in a few years, and then you will be trying to kill him; so, why not kill him now? Scruples are always open to attack, and one often tends to deny that they make any difference –that is, till scruples are lost because then one sees the difference.