The Economics of LewRockwell.Com
by Gary North
Now that the new year has begun, and tax deductions for donations to this site are for this calendar year, and the donor's economic payoff is over a year away, and those who planned to give have already given, allow me to offer an emotion-free, value-free, self-interest-free economic analysis of the economics of LewRockwell.com.
First, let me say that those of you who have come to this site month after month, have read all this stuff, and who haven't sent in any money are basically a bunch of cheapskates. That is to say, you're economically rational.
You have made a careful cost-benefit analysis. You have asked yourself: "What is the likelihood that this site will be on-line for the next year if I do not send any money this year?" Your answer: "High." I suspect that it is the correct answer.
You have also asked yourself: "What is the site's position on my scale of values — ordinal, not cardinal (we're all Misesians here) — of the money that I can send?" Your answer: "Lower than at the top." In this world, the top is what matters, decision by decision.
LewRockwell.com is a representative case of the traditional economic problem known as the free-rider problem. Users get the benefit, but someone else pays. Total benefits received are higher than total costs expended. Benefits ought to equal costs in an unhampered free market, but they don't whenever there are free riders hanging onto the side of the enterprise. If the enterprise is altruistic, benefits can exceed costs considerably.
This theoretical problem not a life-and-death matter with Web sites. In fact, it is a way of life with Web sites.
The World Wide Web
The Web is a rapidly growing, international, historically unprecedented institution that is almost entirely based on a premise that economists find difficult to accept as an analytical category: altruism. The Web allows altruists to share ideas with other people. The cost of sharing ideas is lower on the Web than ever before: no paper, no ink, no postage. Instead of a professional printer, the site's owner hires a Webmaster. A Webmaster needs no web press to create a Web page.
Most Web pages can be accessed free of charge. Access is given away. Money rarely comes in from page-viewers.
Don't get me wrong. There are ways to make a lot of money on the Web. The main ones are these: (1) selling access to photos of naked young women; and (2) selling schemes that promise to show lots of ways to make money selling things on the Web.
The most powerful Web search engine is Google. According to the latest posting, it searches over two billion pages. Some of these pages are HTML pages that print out at 100 to 200 pages. I know this because I've posted some of them.
Why would anyone spend time and money to post things on the Web that are unlikely to make enough money to repay the investment? Because there are millions of true believers out there who are willing to make the investment in order to get out The Message.
Lew Rockwell is one of them. So are his unpaid authors.
Altruism and Self-Interest
Altruism is a powerful motivation. Most schools of modern economics officially deny this. They cannot account for it in their equations and charts, so they ignore it or deny its relevance. Modern economics is based almost exclusively on a methodological assumption: self-interest is the only economically relevant motivation for human beings. This methodology has a necessary corollary: either the denial of altruism or redefining it as concealed self-interest.
A good analysis of the limits of this methodology is Robert Nelson's Economics as Religion: From Samuelson to Chicago and Beyond (2001). He makes the point that Chicago School economists who promote the methodology of exclusive self-interest do so as true believers. They do it for the sake of the cause. They do it in the name of academia's pursuit of truth — generally, a non-profit endeavor. Admittedly, a dozen of them got rich doing this: they won Nobel prizes. But when they began their careers, there was no Nobel Prize in economic science. Nelson identifies Milton Friedman as an evangelist. So do I.
Chicago School economists have the same practical problem that Marxists do. Marx and Engels were theorists of an economically inevitable proletarian revolution. They were both bourgeois sons of bourgeois families. Marx's father was a lawyer. Marx's uncle, Lion Philips, was the founder of the Philips Corporation; Norelco is the American branch. Engels's father was the owner of cotton mills. Engels ran one in Manchester for decades. Yet their theory taught that one's class position determines one's philosophy of life. All philosophies are class-driven — ideology, they called it.
Marxism's theory of history was always refuted by Marxism's history. Marxism was initially adopted almost exclusively by educated members of the urban bourgeoisie, who then sought political power in order to impose it by force on millions of peasants: Russia, Asia, Cuba. The West's urban proletarians never did buy in.
Chicago School economists go out of their way to promote the free market. Yet, economically speaking, their free grant of time to promote the free market probably will not have the effect of changing the present social system into a Chicago School-certified world. The individual marginal cost of promoting the idea of the free market is a lot higher than the expected marginal return of living in a transformed world as a direct result of the professor's investment of time. So, why do they do it if the only relevant motivation is self-interest? This is Nelson's conundrum.
TANSTAAFL: "There ain't no such thing as a free lunch." In a world of scarce resources, somebody must pay.
I have no argument with this. Christianity teaches that there is free grace from God, but it also teaches of a representative who paid the price for sin: Jesus Christ. His righteousness is then imputed judicially by God to individuals. They don't pay for the privilege, but someone did. Somebody up there likes them.
This supreme representative payment on behalf of others is Christianity's theological explanation for altruism. Men are made in God's image. They act in terms of grace. "And forgive us our debts, as we forgive our debtors" (Matthew 6:12). The historical sacrifice of Christ is judicially and morally representative. Mankind, even in sin, follows this standard to some degree. It is basic to human existence. If it were not, parents would kill their children . . . and then eat them. Altruism is taught by every supernatural religion and even some non-supernatural religions (e.g., Buddhism). It is a universal motivation. The methodology of economics must acknowledge the existence of altruism if it is to be a real-world methodology.
A corollary of TANSTAAFL is this: "Every man has his price." This is another corollary of the methodology of pure self-interest. If taking an action always has a cost — giving up something — in a world of scarcity, then if the benefit is high enough to offset this cost, he will take the action.
Is this corollary true? I am the owner of a life insurance policy on my wife. Does it cost me the face value of the policy to refrain from murdering her, if I can figure out a way not to get caught? Is all that forfeited income a true cost, i.e., an opportunity cost? Yes. But why won't I commit the act if the price is high enough? Because some actions cannot be purchased. Some men do not have a price for some acts. If this were not true, a war could be won by rich nations simply by paying off poverty-stricken enemy soldiers. This is not how expires expand. There are many acts that men will not commit for any price. The fact that such internal restraints exist make society possible.
The Chicago School economist might argue: "You have a doctrine of hell. For you, the subjective cost of committing a murder for insurance money is high. It is higher than the gains available for killing your wife. But you are acting in your own self-interest. Our methodology can explain your action, or rather lack of action."
This argument is technically correct. But there is an unstated implication here: by promoting the methodology of atheism-agnosticism, Chicago School economists are promoters of murder. To the extent that public accepts their methodology, Chicago School economists are lowering the subjective costs of committing murder. How? By promoting a view of human motivation that explicitly ignores God as an objective factor in history and eternity.
Ideas have consequences, said the title of a book by a University of Chicago English professor, Richard Weaver. So do methodologies.
Rockwell, the Altruist
Lew Rockwell is as much a true believer in the free market as Milton Friedman is. Furthermore, he knows that he is not going to win the Nobel Prize in economics. What I wrote about Rothbard in 1988 surely applies to Rockwell. ("Why Rothbard Will Never Win the Nobel Prize!" in Man, Economy, and Liberty, edited by Rockwell and Walter Block.) Nevertheless, he runs this Web site. Why?
The reason is his devotion to an idea: the idea of liberty. His subjective cost of not running this Web site is high. His subjective gain of doing something else with his time is low. So, he runs the site.
He runs it for the sake of an incorporeal idea: the idea of liberty. He runs it also for the sake of self-interested readers who come to it and feast on his digital smorgasbord table every day. Every day except Sunday, there is a table full of new choices.
I shall now let you in on a secret. Rockwell has copied the television industry's strategy. He offers all this for free, but it is free only on one assumption: free time. But, you say, there is no such thing as free time. Bingo!
He is luring tens of thousands of people every day into making a donation of their time — not to him, but to his idea of liberty. An incorporeal idea is being subsidized by people just like you. You donate your only irreplaceable resource to learning more about his idea. He is acting as the economic agent of the idea.
He has adopted a promotion strategy rather like the one used by entrepreneurs at your community's local public high school. "The first one's free, kid. Try it. You'll like it." Unlike the entrepreneurs at the high school, he is trying to addict you to an idea: the idea of liberty.
You keep mainlining on his idea. You just can't get enough. Maybe you want to quit. Maybe you'll quit tomorrow. But not today.
One of these days, you may even send in a donation. Why? Because you will have become an altruist.
Until Then, Send Links
If you're not yet ready to send in money, send out links. Whenever you see an article on LewRockwell.com that you think deserves a wider audience, send a link to at least one person who might appreciate it or learn from it. Don't send a link just to the stand-alone article. Send a link to the front page of the LewRockwell site. Include a brief note recommending the article. This way, the recipient finds out about the site and the article.
If you receive the site as a daily e-mail from Lew, use your e-mail program's Forward button to re-send it. If you access the site directly from the Web, use your browser's File/Send Link mailing sequence. To do this, you will have to click your browser's Back button: out of the article, back to the front page of the site. Then send this link.
Building readership for this site is a major factor in getting out the message. You can become part of this recruiting process with nothing more than a brief note and a click of your mouse.
The Internet makes it almost free of charge to share valuable information: no extra money, not much extra time. Think of LewRockwell.com as a digital shoe to toss into the messianic State's meat grinder. Make link forwarding a systematic part of your daily LewRockwell.com experience.
What about free riders, free readers, and free markets? What about free lunches, free time, and free societies? Are they all linked? Yes. They are all linked by altruism. In Christian theology, this is called grace.
When self-interest is balanced by altruism, people make donations. Lew Rockwell is making the case for the free market by means of an appeal to evidence, funded by altruism. It's kind of like churches that send out missionaries. The true believers back home pay for the cost of delivering the message. Some of the hearers are savages. Others are former savages who have become non-donating pew-sitters. A few will become tithers. Then the message will go out to the next group of savages.
January 2, 2002
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