The Free Price (excerpt)

Let’s talk about what the free market is, and isn’t. For some, the phrase conjures up an image of borderline anarchy, of everyone doing what is right in his own eyes, and unrestrained abuses flying in all directions under the guise of freedom. For others, it is contrasted against the image of the breadline or the welfare office, a place of relief from helpless regimentation. If we start at the most basic level of human exchange, the free market merely means that if you and I both have things that the other one wants, no third person comes between us and prevents us from exchanging on whatever terms we both agree to. Neither is it a free market transaction if one of us violently forces the terms on the other against his will; we may agree with distaste, but we voluntarily agree. This simple formula of voluntary agreement is the spring of virtue in all free market systems, and from this humble brick all the monuments of Capitalism are built.

How is it possible that such an obvious little act as voluntarily exchanging the goods you have for those you want become a seed of the truly vast achievements we trace back to it? Continue reading

Conceptual Brief: Cost Displacement

Cost displacement is the general term I’m using for when cost-benefit analysis is confused because a portion of costs are borne by someone other than the person doing the analysis, who may not even be aware of them. We are familiar with this in the form of a negative externality, as when your machine drains its sludge onto your neighbor’s land instead of yours. That is, the familiar part is how you are wronging your neighbor; what we forget is that your cost benefit analysis is going to be totally wrong if you do not account for this cost as a cost. You will incorrectly identify optimal efficiencies because your scale of returns will be using the wrong denominator.

Say you have to choose between using two machines, one which costs $8.00 per unit of production, and another which costs $7.00 per unit of production but imposes a cost on your neighbor which we can estimate at $4.00 per unit. You can see where I’m going with this: Quite apart from having wronged your neighbor, if you produce a thousand units and sell them for $10.00 each, you will be comparing net profits of $2000.00 from the $8.00 machine with $3000.00 from the $7.00 machine. Your return on investment for the run of production on the $8.00 machine will be 25%, for the $7.00 machine it will be over 43%! However, a full reckoning of the costs reveals that the $7.00 machine has a net negative utility: That your run of production has done more harm in the form of externalities combined with normal costs, than it has done good in the form of production and satisfaction of desires. You have actually (if these values are correct) done a run of negative production, as if you were merely out vandalizing things. But because the nominal, partially calculated profits are high, your cost-benefit analysis is quite likely to mislead you into considering the $7.00 machine the optimal, productive method!

Critically, externalities like pollution or accidental consumption of nearby resources are not the only means by which Cost Displacement can occur, leading to incorrect behavior. Subsidies are the other great, unrecognized offender, and I intend to elaborate on both categories in the coming months.

A little excercise…

“Reason is always a sort of brute force,” Chesterton might have said. And like literal force, it is surprisingly helpless in the matter of changing people’s minds. But I’m going to indulge myself a little and seek to prove that the “Equality” we talk about today cannot exist without the Liberty we refuse to talk about.

When I was young and inspired chiefly by the Heroic ideal, I used to say in my heart, “The world always goes wrong until a good man with a sword or rifle sets it right.” It was a vision born of fiction, of countless minor characters mired in error and evil or dominated by others who were, but with all their entanglements ultimately sliced through and undone by virtue wielding force. It is not an entirely unhealthy vision, but its defining sentence is untrue. The reason we ever do see virtue wielding force and setting things right is because sin first wielded force to set it wrong. Even when we see the hero ripping up the gilded luxury of an oppressor’s palace as the first outbreak of violence saving us from an atmosphere of silent conformity, he is only a hero if he is answering force with force. Of course I’m working from an entirely different definition of violence than the one a Liberal uses; I say violence is the use of power to violate rights, not merely the actual physical injuries involved when this approach is least successful. A Liberal may say that the government showed up at your house, pointed guns at you, demanded you turn over your property, and was thankfully able to accomplish this confiscation without violence. I say the confiscation is violence. I say violence begins when one begins to use power to transgress against another person’s life, liberty, or property, regardless of whether your power is so extreme that its mere threat reduces the victim to passivity. When you strike a man with a club, you transgress against his person by violence. When you threaten him with a club and demand his wallet, you transgress against his property by violence; one of these is worse than the other, but neither is nonviolent. So indeed in the confrontation between the hero and his sword and the silent oppression of some bloodless tyrant that rules by fear, violence has begun long before the Liberal would reckon. Odysseus is the first bringer of bloodshed to his house, but the second bringer of violence.

In One Flew Over the Cuckoo’s Nest, who first breaks the peace, McMurphy or Ratched?

But even if we reject this understanding of the nature of violence and persist in drawing a fundamental distinction (as opposed to a distinction of degree) between the robber’s nearby gun and the government’s far-off prison, we can still recognize the notion of coercion, that of one person overriding the choices of another. We recognize it both in the positive and negative; the hero in my younger vision was only using his sword or rifle as a means to coerce away the bad choices that produced the bad situation. In the clearer-headed version of the same thing, he is attempting to actually break coercive power relationships. The truly virtuous hero comes with a sword to set the captives free, not to make them his captives. But of course, such heroes are in far shorter supply than are rulers…If there were fewer positions of power, perhaps we could hope to fill them all with Cincinnatus or George Washington (of course it would be a heroic achievement in itself to avoid filling these same seats with Nero or Lyndon Johnson) but the more numerous are the positions of power in the world, the more impossible it becomes for the institution of power itself to be directed virtuously. Even with a perfect selection process, all the world’s incorruptibles could be given crowns, and yet the remaining seats filled with normal men susceptible to power would make the vast institution of authority absolutely dominated by corruption. It is nigh impossible to give the reins of the world to a single man worthy of them, one capable of using rightly such power, but every expansion of the institutions of power only makes virtuous rule more impossible. Mathematically, the heroes who can wield power wisely are so scarce as to constitute a tiny minority of all our presidents, judges, legislators, monetary authorities, and other rulers. We have said that it was impossible to find the perfect angel of a man who could rule safely as a despot; we have answered this riddle by building a machine so vast that it would not matter if we did find this one perfect angel, for alongside him would rule ten thousand normal men given strong incentives to be anything but angels.

This may sound like a rejection of Equality in itself, but once again this is an error. It is as exceptional to be capable of ruling justly over other men just as it is exceptional to be capable of seeing through walls, inventing calculus, or swimming the channel. The exceptional gifts are part of humanity and must be acknowledged under any theory; certainly the most audacious part of embracing Jefferson’s and Lincoln’s theory that all men are created equal is believing it in light of the existence of Jefferson and Lincoln who so exceed us. Our own inferiority is the challenge to equality which enjoys some traction in the rational mind, not any pretense of superiority. But of course this may be answered in any number of ways, most directly by saying that human worth is not determined by gifts or even the great feats, but by a fundamental quality of human beings, such as being made in the image of God, and given the power to practice virtue in any circumstance. We know that some are given the vast toolsets of intellects like those of Newton and Keynes or physical ones like those of Samson or Tiger Woods. We also know that the world record for the quarter mile on foot is an entirely different record from the world record for the same distance on internal combustion. And we know that the quarter mile in a top-fuel class is entirely different from the quarter mile with the humbler means of a stock vehicle. We know that there is a scaling of challenges and accomplishments that follows from the difficulty of the circumstances under which they are achieved. We know that there is worth in all right things chosen and achieved in the face of hardship. We know that the greatest work of the smallest child is cousin to the greatest work of the greatest genius. We know there is treasure in the widow’s offering. And thus we know that there is a purpose in our efforts and choices, though they look trivial besideĀ King Alfred’s work.

The scarcity of the good rulers and the plenty of bad rule that we see in the world is the basis of the clearest of arguments against Democracy, which for many, automatically constitutes an argument against equality, though of course it is not necessarily so. An argument that most men are not capable of virtuously exercising rule over others most certainly does imply that a simple replacement of a king’s whim with a populace’s vote is not a positive change. It closes out the possibility of an exceptional Nero, but at the same time excludes Cincinattus. Critically, what it leaves is the will of a group we know to be incapable of virtuously ruling over others: Most men are incapable of exercising power benevolently, and a vote puts the power in the hands of most men. But it should be clear that this is emphatically not an argument against equality, it only superficially resembles the pro-monarchy arguments we have all forgotten. Fundamentally the argument is not against equality, or even against popular rule, but against hierarchy.

A normal man is incapable of safely using coercive power over his fellow men because such a relationship between men is unnatural. It is a sociologically problematic situation for anyone to have his boot on anyone else’s neck. We take it for granted that the relation that existed between French monarchs and their subject must exist between somebody, and so we set up our democracy in such a way that the voters may put their collective boot on all their individual necks. Is it any wonder that such contortion is painful? We have introduced new institutions capable of acting and working on a principle of equality, but we have demanded that they work according to the principles of the asinine hierarchies of the aristocracy. Liberal Democracy is an attempt to make an electorate behave as its own despot. It is an attempt for the group to know better than all its members, so that we may by voting obtain knowledge that we can only need because it does not exist among the voters. We at once assert that the general populace is incapable of choosing individually what kind of food they will eat or what their work will produce or where their money will go, and for this very reason we approach this very same general populace and demand that they determine by voting what they could not be trusted to determine at all a moment before. I have formed a confusing chain of sentences, but I am trying to express an impossibly confused chain of thought. I am trying to explain the wishes of an intellectual class which at once loves and hates self-rule, that really believes in elitism and rule from above, yet seeks to conceal its wish to be the ruling elite.

I said I would try to prove that Equality was inseperable from Liberty, and I have not gotten very far. “The world always goes wrong until a good man with a sword or rifle sets it right.” But what is the world? If the world were one vast thing, the domain of one man, then a good man with power over his domain would be exactly what we need. But the world is the domain of billions. If “putting the world right” means (as it does to the Liberals) putting right things that are within the domain of others, correcting their way of life and directing them towards purposes which we see fit, the question of equality really does enter in. If we believe that the good man with the sword or rifle is setting right a matter which is wrong in the life of another because of the free choices of that other, we are tacitly taking a side in between two people we believe to be equals. We are saying that Man A, whom we have called good, sees wrongness within the private domain of Man B; we assert that Man A’s opinion has greater validity than Man B’s because of a qualitative difference between the men. We violate the principle of equality. This is inevitable though, for we have treated the two differently from the very outset. Man A has been given power and authority to correct Man B’s errors, but not the reverse. We have, on some basis, set up one man as superior to the other. If I am to set you right within your own domain (not in your treatment of me) I am set above you. I am making choices that are easily within your capabilities, for you.

When the Founders of America simultaneously proposed a revival of the ancient notion of a Republic, and the entirely new notion of unilateral restraints on the power of government itself (don’t let the Magna Carta et al. confuse you; Kings vs. Barons is merely a struggle over the reigns) we might be tempted to think they were being doubly ambitious to tackle both of these radical projects at once. But my intuitive sense is the opposite; I suspect that it was perceived or anticipated that a new (or revived) method of government would not be suitable to the same projects pursued by the monarchies. It is all involved in that tangle of irrationality where a man votes on the coercions that shall be imposed upon him. A method of self-government is used to determine the specifics of depriving citizens of their self-determination. For the monarch to coerce all the citizens is tyranny; for all the citizens to coerce all the citizens is mere idiocy. It is one thing to say that the importance of one man (the King) is so great that all other wills must submit to his, but only a madman would propose that every man is so important (in the noble vision of citizenship one may still vaguely recall…) that his will must be identically overridden by an aggregate formed of all the individuals it will disregard. Monarchy is a massacre of free wills, Social Democracy is their hysterical mass suicide.

If you don’t see it now, I think you need a better guide than me.