Hayek's death, 20 years on

“All political theories assume, of course, that most individuals are very ignorant. Those who plead for liberty differ from the rest in that they include among the ignorant themselves as well as the wisest."

“It is because freedom means the renunciation of direct control of individual efforts that a free society can make use of so much more knowledge than the mind of the wisest ruler could comprehend”

— FA Hayek, The Constitution of Liberty. 

Hayek died twenty years ago today. His profound insights into economics and social philosophy might be more important than ever.

David Friedman's machinery of freedom

The excellent new site Libertarianism.org has put together this discussion with David D. Friedman on his book The Machinery of Freedom. It's a fascinating discussion of a topic many refuse to consider — whether the institutions virtually everyone, including libertarians, consider the preserve of the state, could instead be carried out by private organizations as well or better than the state. Friedman discusses private courts and police, as well as, for me, the toughest question of national defence. Has private supply of these goods ever worked well in history, or are these what we need a state to provide?

Some find this kind of discussion esoteric or utopian. Indeed, the sort of anarcho-capitalist who insists that it is wrong for a state to exist because it necessitates some violence can be frustrating. But conflating arguments made by the likes of Friedman with this kind of puritanism is silly. It's quite reasonable to ask whether the things that make markets superior to the state in some areas, like organizing people's economic activity, might also make markets better than the state in other areas, like providing law. And it's intellectually valuable: just as an understanding of how a free market would work is a useful starting point in real-world economic analysis, an understanding of how a stateless society might work can help us understand the state-heavy world we live in.

Incidentally, a roughly-typeset (but still very readable) version of Friedman's book is available online. He's hoping to do a third edition of the book, if the peculiarities of copyright law don't stop him from doing so.

Freedom Forum 2012

It's that time of year again. After the roaring success of last year's inaugural conference, the Liberty League Freedom Forum 2012 is only a month away.

For just £30 per ticket, they've booked out the entire Albatross Hostel in Newcastle, so will be providing your accommodation, meals, drink and books, as well as giving you the chance to meet other young pro-liberty activists from all over the UK.

You'll have the chance to meet and debate some of the liberty movement's best speakers, and take part in seminars and lectures with topics such as whether the state should ever intervene in parenting, banking and currency reform, the Ancient Greek and Renaissance conceptions of freedom, the evolution of libertarian thoughts, whether humanitarian military intervention is ever justified, the morality of food, free market environmentalism, and a whole lot more too.

This will be alongside activism and training sessions exploring and improving skills in journalism, public relations, debating, and how to set up and run pro-liberty student societies on campus.

With even more speakers to be announced over the next few days, the list already includes Madsen Pirie, President of the Adam Smith Institute, along with Mark Littlewood, Claire Fox, Angus Kennedy, Max Wind-Cowie, Nick Pickles, Josie Appleton, Dan Hamilton, Kevin Dowd, Mark Pennington, Chris Snowdon, Patrick Hayes, Rob Lyons, Alex Singleton, and Jamie Whyte.

Date: 30th March - 1st April

Venue: Newcastle University, and Albatross Hostel, Newcastle.

Check out full details all of the sessions and speakers, and book your ticket right away by clicking here: http://uklibertyleague.org/2012/02/08/sessionssofar/

Government should butt out of marriage and churches

UK Equalities Minister Lynne Featherstone want to legalise gay marriage. Fine by me: I don't see why gay couples should not be able to sign up for the same obligations, rights and benefits that heterosexual couples observe and enjoy.

She also wants gay couples to be allowed to marry in church, like heterosexual ones. Again, I have no problem with that, if the church is willing to do it.

The Church of England, typically, is divided on the issue. As the Established Church, they do pretty well out of their cosy relationship with the state, not the least of which is that two dozen of their senior executives, the bishops, sit by right in the House of Lords. So when ministers tell them to do cartwheels the Church of England normally swallow their principles, hitch up their cassocks and cartwheel.

The trouble is that some time ago, the state muscled in on marriage. Churches had been doing their own thing for millennia, but when the state started taxing rich folks and paying benefits to poor ones, it had to find some way of defining families so that it could establish the tax base and the appropriate unit to which benefits should be paid (two can live as cheaply as one, and all that). So they nationalised the whole business, and shoehorned everyone into a single set of regulations, as governments do.

But should we be so shoehorned? Maybe one of the reasons why the one-size-fits-all state-produced marriage contract has declined so much is that people today are more individual, and want to fashion their own ways of living, rather than have a standard, off-the-peg package of obligations forced on them. And so they should. People should be able to draw up their own lifetime contracts, accepting some bits of the present marriage contract, rejecting others and adding different ones of their own if they choose. Certainly, the state might insist on some minimum elements if people want to be taxed, and draw benefits, as a family. But apart from that, it should keep its nose out.

Likewise, Ms Featherstone should keep her nose out of what the churches choose to do. They too may have their own minimum standards for marriage, which couples have to sign up to before they can expect to be married on the premises. Fine. Churches are private clubs, let them get on with it. Personally, I would be campaigning for them to accept gay couples, but I wouldn't force church officials to betray their consciences. These are deeply held ethical positions. Churches have been thinking about the morality of lifetime partnerships a good deal longer than Ms Featherstone has.

I do wish politicians would buzz off and leave us all to our private sphere, allowing us to wallow in our own eccentric diversity rather than forcing us into tidy moulds. At this, rate, they will be demanding that the churches should not discriminate on the grounds of religion, and should accept other faiths into membership. I don't know what Cardinal O'Brien is going to make of it when he has to hand out wine and wafers to his first Satanist.

Correction: An earlier version of this post claimed that the government planned to force churches to perform gay wedding ceremonies. This is untrue. The post has been corrected.

Just to pile in on this choice thing with Dr. Clarke

Perhaps I shouldn't pile in on Eoin Clarke's little rant against choice but it's just so tempting that I'm afraid I cannot help myself. Sam's covered it well here but there is a tad more we can add.

I do slightly sympathise (the emphasis there is on slightly) with the Rube from Belfast being astounded that they did things different in foreign. Even when past my rube years I've been to enough foreigns to be astounded at the way some things are done. I have, for example, faced down Soviet bureaucracy in my time which is an experience to astound anyone.

But past that (and I again emphasise the slightly) I end up in gasping slack jawed amazement. For here is a man quite seriously proposing that, because he got confused about coffee three minutes after arriving in a new country then choice is a bad thing. Note that he didn't dislike choice enough not to try a new country, nor move on to a third afterwards.

But think what this no choice mantra actually leads to. Logically, at least, there should only be one book. One film, one TV station at least if not only one TV programme. Even thought these are consumables we should certainly only be allowed to have only one of each at any one time. Umm, actually, why should we have a choice between a movie or a show? And isn't that decision about the musical, the comedy or the tragedy all too complicated?

And if you're to dim, confused or Rube enough to not be able to work out what sort of coffee you want then how can you be trusted with the vote? After all, one government that just gets on and provides everything would be just fine wouldn't it? Like one NHS that just does stuff. Who needs any input from the populace into what that government should do?

It is true that what the NHS does is complicated: so is what government does.

We have actually had a number of experiments around the world at doing just that and they've not really worked out all that well have they? That the NHS is such a Wonder of the World that no one has tried to copy its no choice agenda might also be a revealing piece of evidence.

But here's my real mindboggle. Dr. Clarke is a historian of feminism in Irish Republicanism. He studies those women who fought for choice within their own society, that women actually be allowed to make choices. Inside a movement whose entire existence was predicated on the desire to have a choice in forms and source of governance. This is his professional career. His conclusion is that choice is undesirable.

Ho hum.

Review: Knowledge and Coordination – A Liberal Interpretation

There’s a contradiction at the heart of much modern classical liberalism. Since Adam Smith, successive generations of classical liberals (particularly in economics) have tried to build a systematic science of man to demonstrate the value of liberty. In contrast to Smith’s vision of economics and moral philosophy as a messy, ad hoc pursuit, modern classical liberals and libertarians have generally proposed a vision of economics and the social sciences as foundational sciences. In different ways, this is apparent in both the deductive praxeology of Ludwig von Mises and Murray Rothbard, and the neoclassical economics of George Stigler, Milton Friedman and most modern classical liberal economists.

Daniel B. Klein’s new book, Knowledge and Coordination: A Liberal Interpretation (you can read parts of it here), tells us to throw out this worldview and embrace a concept of spontaneous order rooted in the work of Adam Smith and FA Hayek. Klein is a professor of economics at George Mason University who, like Smith, has a background in philosophy. In Knowledge and Coordination, he argues that we should try to understand society not by building a series of upward steps derived from axiomatic principles, but by viewing society as a complex web of spontaneous interactions.

Knowledge and Coordination is divided into several parts, which initially seem disparate, including a detailed discussion of entrepreneurship, surprises, and coordination, detailed discussions of the political economy of urban transit and safety regulations, and a philosophical discussion of the value of the “impartial spectator” perspective in moral philosophy and economic analysis.

Klein’s discussion coordination is, by itself, a valuable contribution to the study of spontaneous order. He delineates mutual coordination (conscious “mutually intermeshing behaviour” between two or more parties) and concatenate coordination, a broader “invisible hand”-like coordination that that comes from system-wide harmonious coordination.

Think of Leonard E. Read’s story of the complexities of making a pencil: most of the people are cooperating mutually with their buyers and sellers, but on a whole they are creating a complex mesh of coordination which ultimately leads to the creation of the pencil. The result of human action, but not (necessarily) of human design – this concatenate coordination is usually what classical liberals mean when they talk about the coordinative benefits of a free market system.

One of Klein’s most interesting points is that this concatenate coordination only makes sense from the point of view of an impartial spectator. In this he draws on Adam Smith’s Theory of Moral Sentiments, in which Smith argued that moral philosophy was best interpreted through the eyes of a spectoral viewer – as Klein says, not your conscience, but your “conscience’s conscience’s conscience’s ... conscience”.

But Klein takes Smith’s allegory further. The whole realm of human action (Klein focuses on economics), he says, is best understood by taking this allegorical spectator’s view, to appreciate the aesthetics and efficiencies of system-wide coordinations that would otherwise be ignored from a rigidly individualistic point of view.

On discovery and knowledge, Klein makes a convincing case against “flattening” knowledge into “information” in order to fit it into the confines of economic modelling. He uses an example of a man recently put out of work who feels like a cigarette but can’t find a tobacconist. Sensing an opportunity, he sets up his own tobacconist and rises to own a successful chain of shops. This surprise discovery is central to entrepreneurship and innovation, but is almost completely discounted by economic modelling. Klein argues that “freedom causes prosperity principally because freedom generates discovery”, but this point depends on Klein’s “thick” view of knowledge and discovery.

Three chapters on different areas of public policy – urban transport, safety regulations and technologically-enhanced central planning – apply his web perspective with success. Though he discusses these areas in considerable detail, he does not attempt to recommend specific recommendations. His aim is to show that the web of coordination is no less complex when we drill down into specific areas than when we look at society and the economy as a whole. The Smith-Hayek perspective allows us to grasp around certain areas of human interaction, only really appreciating the limits of our ability to improve them. These parts are an analytical complement to historical case against government schemes to improve the human condition like James C. Scott's Seeing Like a State and Jane Jacobs's The Death and Life of Great American Cities.

Klein hopes to develop a Smith-Hayek argument for liberty, favouring a “by and large” liberty maxim over an absolute liberty axiom. The liberty maxim is much more robust than the absolutist axiom in providing a defence of liberty. Instead of having to prove itself in every single make-or-break hypothetical example, the liberty maxim is more modest and realistic, and embeds the case for liberty in the Smith-Hayek view of spontaneous orders.

This mirrors Smith’s moral philosophy. When presented with the choice between the utilitarian maximization of happiness or the categorical imperative of natural rights, Smith and Klein shrug. Don’t try to build morality up from first principles, they say, but treat it as an “aesthetics of human agency”. Whatever works, works. Don’t try to reduce morality to a rule, model or mathematical formula.

Klein’s vision is radically humble. Throw out your models and accept life’s complicated messiness. Early on, Klein says his aim is to provide a new “by and large” presumption of liberty rooted in the Scottish Enlightenment. He does far more than this. Knowledge and Coordination is a profound, brilliant book that returns Adam Smith to the centre of the classical liberal worldview. It should provoke a paradigm shift among classical liberals and libertarians. Embrace the illegible world we live in. The virtues of liberty are clearest when we take the view of the impartial spectator, and most robust when we realize just how disjointed and spontaneous the orders that we exist in really are.

Dan Klein will be speaking on his paper Mere Libertarianism: Blending Hayek and Rothbard at the Adam Smith Institute on the 20th of March.

Ayn Rand's birthday

Ayn Rand, author of the novels The Fountainhead, Atlas Shrugged and books on the philosophy of capitalism like The Virtue of Selfishness and Capitalism: The Unknown Ideal, was born in Russia 107 years ago today. Rand is a divisive figure, often misunderstood, but her writings have served as the "gateway drug" into libertarianism for many people. (There's even a book called It Usually Begins With Ayn Rand!) Most recently, her magnum opus Atlas Shrugged, which tells the story of a crumbling dystopian world in which creative people have gone on strike, has been enjoying a resurgence in popularity in these troubled times.

What's special about Ayn Rand is how, unlike economists like Mises, Hayek and Friedman, she gave a moral foundation to the capitalist system. Not only does a capitalist system enrich the lives of its inhabitants by making efficient use of resources, Rand said, it allows them to flourish by living productive, independent lives. There's something very appealing about that view of humanity — that, absent the slaver's whip and the taxman's calculator, men and women can better themselves by thinking, creating and producing new things, by remaking the world as they want to.

Many of Rand's critics focus on her personal failings, ignoring her deeply humanistic philosophy, which cherished ideas and creative people. On her birthday, it's worth reflecting on what makes Ayn Rand so important to so many people, and what her writings have to offer us at a time when bold creators and new ideas are sorely needed.

President Obama's definition of fairness is precisely the opposite

In his State of the Union address, President Barack Obama called for higher taxes on the wealthy (defined as anyone who earns more than he thinks they ought to). He argued that "Now, you can call this class warfare all you want... But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense." We all know that ‘common sense’ is an oxymoron. Let’s consider Obama’s logic with a purely hypothetical example:

Evil Billionaire Warren has an income in various forms of $200,000,000. He pays tax at an overall rate of 10% which on that sum gives his tax contribution via income tax as $20,000,000.

His Lovely Secretary Debbie has a taxable income of $40,000. She pays tax at a rate of 20%. Shocking! How can she pay a higher tax rate than Evil Bill? Her tax contribution is $8,000.

But wait. Isn’t there a problem here? President Obama clearly stated that a billionaire ought to pay as much in taxes as his secretary. But his secretary is paying far, far less in taxes than he does. If we asked Warren to pay as much in taxes as his secretary I think he would be pretty pleased to do so as this would represent 0.004% of his income.

Of course, I’m being somewhat facetious. Clearly President Obama was suggesting that billionaires and secretaries should pay similar rates of tax. However, I find it extremely disingenuous to use the word ‘fair’ when referring to such a situation. The billionaire is, after all, contributing vastly more as an absolute sum than the secretary. ‘Fairness’ means an equal share is paid by all – thus fairness would mean, in the strictest sense, that the billionaire and the secretary paid exactly the same absolute amount of tax.

We might portray Obama’s argument as meaning that fairness means an equal proportion is paid by all so that Warren and Debbie pay like proportions on their income and he might well have a case. However, the billionaires he criticises are merely obeying the laws which governments have created as a result of attempting to manipulate and control economic activity. Unless they are guilty of tax evasion, in which case they are subject to legal recourse, billionaires can hardly be criticised for obeying the law. If governments wish to construct absurdly complex tax regimes filled with loopholes and opportunities for tax planning and arbitrage, it is hardly the fault of billionaires if they then do exactly what government is incentivising them to do. One might argue that the wealthy are able to lobby for favourable tax regimes, but this is an argument to simplify and remove the arbitrary conditions from all tax regimes in order to prevent them doing so and not to introduce further discrimination and complexity.

His use of the word fairness ultimately begs the question of why Obama is advocating progressive taxation which, by its very nature, is unfair. By increasing the proportion of tax paid on incomes over certain arbitrary thresholds those deemed to be too rich or too wealthy are simply being discriminated against. To Obama, earning more than $1million clearly means one is a proper target for discrimination. Why should such individuals be discriminated against any more than any others, especially as they are already – like Billionaire Warren – contributing a greater absolute amount of taxation?

If all taxes were simple and flat there would be no tax planning, no avoidance and everyone would simply pay a genuinely fair share. There would also be a lot of unemployed bureaucrats, accountants and lawyers who could go and get productive jobs instead of constituting a government-induced burden on the economy. Such a tax regime would be genuinely fair. Of course, we could then point out that most of what the taxes are paying for should not be the function of government and unfairly favours special interests but this is a different question. Flat, proportional taxes are the only means of creating fair taxes but they are not what Obama is arguing for - when he says fair he actually means unfair. 

Fluffy capitalism

Last week, as has happened many times before, the Prime Minister gave a speech.

He began by telling us things we already know -- unemployment is up, confidence is down, Labour is to blame and the Tories are here to save the day -- and said to us, with all of the stern and confident authority of an Etonian schoolmaster, that "we won't build a better economy by turning our back on the free market. We'll do it by making sure that the market is fair as well as free." Adding for the sake of prudence that "of course there is a role for government, for regulation and intervention," he took great pains to explain that "the real solution is more enterprise, competition and innovation" -- platitudinal Occidental nothingspeak with which it is virtually impossible to disagree. In order to give effect to these sweet nothings he whispered in our collective national ear, the Prime Minister proposed that the UK adopt a kind of "Popular/Moral Capitalism", a system of economic organisation without any consistent philosophical grounding which, broadly speaking, holds that we should make "markets work for all of us, to spread wealth, freedom and opportunity." (As if they don't do that already.)

I should begin by thanking the Prime Minister: mere seconds of exposure to his outrageous oeuvre of political tripe instantaneously shattered the writer's block from which I've suffered since Christmas. Eamonn beat me to the punch by publishing the post that I wanted to write. As we have come to expect from Eamonn, his reply was both succinct and persuasive; "Capitalism," he wrote, "is perfectly moral and responsible, if only politicians let it be." I would have a difficult time stating the libertarian position any better. However, I fear that Eamonn -- by discussing economics at all -- conferred upon the day's political dialogue a degree of coherence and dignity that it did not deserve. For, despite the media headlines and the earnest debate in which the two (three?) major parties have struggled to engage, what is perfectly clear is that none of them are talking about capitalism, at least not capitalism in a form that a libertarian would recognise.

Cameron's speech -- which I have, unfortunately, read in full -- revolved around three pillars. The first, "social responsibility," espoused a belief that "companies have obligations, too"; ignored was the fact that corporate salaries house, feed, clothe, and generally cater for all of the needs of the vast majority of British families, either directly in salary, or indirectly through redistributive taxation, better than almost anywhere on Earth. The second was "responsible capitalism," in short, that "everyone should share in the success of the market"; the Prime Minister failed, however, to mention that it was the market which provides all goods and services -- the X Factor, Hermes ties, cut-price Addidas trainers, toothbrushes, and CD recordings of Prokofiev's Fifth Piano Concerto -- to every living person in Britain today at a reasonable price. His third plank was the proper allocation of "risk and reward" -- which was not, as might be sensible, a critique of Beveridge's bankrupt post-war Welfare State which has, for decades, laid the cost of lassitude and sloth firmly at the feet of the taxpayer, but rather a crass and pedestrian snipe at bankers' bonuses and executive remuneration, backed neither by evidence nor anything resembling sound economic argument. And after all of this, the Prime Minister had the unmitigated gall to suggest that his non-philosophy was compatible with a world where the UK supports "the new, the innovative and the bold;" and that, when this country is "fizzing with business potential," the consolidation of "seventeen... out-dated pieces of legislation" into a single new Parliamentary Act regarding co-operative businesses was an acceptable panacea for the economic ills we face.

If this was, as billed by the Conservative Party, meant to be a major statement of economic policy, it failed, and utterly. The New Statesman called the speech "hollow", "desperately short on specifics", "abstract and often contradictory"; the Guardian, a "cop-out". Michael Deacon, writing for the Telegraph, was even more damning: "so familiar have these words and phrases become, and so elementary are the messages they’re employed to convey, that the speakers need hardly bother filling in the gaps between them to create whole sentences: they might as well just recite the buzzwords, one after another, for 20 minutes." Even the hapless Ed Miliband managed to get the proverbial jump on the Prime Minister when he proposed populist, but nonetheless practical and concrete, policy proposals for a "fairer" market, arguing for the abolition of bank charges and fare rises on trains, to name a few.

Indeed, on closer examination, nowhere in the Prime Minister's proposals was there to be found any idea to enhance "enterprise, competition and innovation" -- no reduction of the tax burden, no loosening of employment law to enable greater private-sector hiring, no paring back of the Welfare State (which is, in effect, a subsidy for labour for which everyone pays) -- in other words, nothing which would actually improve the British economy or the lot of the British population. Furthermore, his proposals for the improvement of the market were not proposals, but rather, descriptions of the market's essential characteristics; markets necessarily reward their participants as they, per Hayek, teach consumers "who will serve us well: which grocer or travel agency, which department store or hotel, which doctor or solicitor," which shop floor assistant, which tube driver, which banker -- and teach suppliers how "to provide the most satisfactory solution for whatever particular personal problem we have to face." There is no room for morality here: either a man provides a service well, or he does not, and in a free society, should he fail, it is fair and right that his client -- not some indeterminate and fluffy Big Society ethics -- be the ultimate arbiter of his success.

In short, the mainstream debate which we read about in last week's papers has nothing to do with morality and capitalism: what the Prime Minister proposes is not moral and is not capitalism. And it is incumbent upon us to remind him of that.

The best things in life are free

Here's the argument. The recent financial boom and bust is the death knell of the idea that markets are efficient and that people behave rationally. Plainly, markets underpriced risky business, people took too many and too-large risks, and eventually everyone came a cropper. Capitalism is great, but it needs to be restrained against its own excesses and made to serve the broader interests of society.

Hmm. As a logical proposition, the efficient markets idea was always a nonsense. It's summed up by the story of two stockbrokers walking down the street: one says 'Look, there's a £10 note on the ground,' but they other says 'It can't be, or someone would already have picked it up.' The fact is that markets are never perfectly efficient because markets are just human beings doing things, and human beings are never perfect. They have an amazing amount of common sense, but they overlook things. They get distracted. They follow fashions. They sometimes just can't be bothered. And even more crucially, the information they have to act on is not a heap of brute facts, like a pile of bricks. It is partial, incomplete, often distorted and inaccurate, and equally human and imperfect. The crucial information to an entrepreneur is not the cost of making a new widget, but whether customers will like it enough to buy it. And that information, unfortunately, exists only in those customers' minds.

It all means that markets are not some Busby Berkeley musical in which all the actors' limbs move in perfect synchrony – though you might get that idea from the economics textbooks. They are more like a crowded railway station at rush hour, where people are trying to make their way to different exits or different trains across a seething mass of other people aiming for exits and trains of their own. Most people make their destination, but it takes time, and in trying to dodge others, they may not get there by the shortest route. Some people may be lucky that gaps open in front of them, some people may anticipate the movement of those in the crowd better than others. There will be log-jams, jostling and, yes, the occasional tumble.

What doesn't help, of course, is the authorities trying to channel the flow of the crowd by erecting barriers all over the place. Their aim might be to steer the crowd, but by limiting everyone's room for manoeuvre, they actually increase the log-jams and the accidents.

It may sound all very well to suggest that markets must be regulated to serve the public interest. But we have to remember that markets are not a thing, they are a process. Yes, you need basic rules to make them work – rules like property, contract and honesty – just as you need a fire-basket to contain a fire. But they need to be left free to do their job.

But there are too many politicians, many of them alas in the Conservative Party, who are too ready to cite Edmund Burke and say that while capitalism is wonderful, it has to be curbed in order to serve the public interest. They should remember that there is a multiplicity of views about what constitutes the 'public interest'. What makes the judgement of one person, even an elected Member of Parliament, any better than yours or mine? And of course their judgement is tempered by self-interest and ambition of their own. They have the political authority of our democratic system – which itself has been traduced into an elected dictatorship. But they have no moral authority to tell other people how to run their own lives. If anything needs to be curbed, it is the self-righteousness of the governing class.