In this first decade of the 21st century, liberal thought, in both its theoretical and political aspects, has reached a historic crossroads. Although the fall of the Berlin Wall and of real socialism beginning in 1989 appeared to herald "the end of history" (to use Francis Fukuyama’s unfortunate and overblown phrase), today, and in many respects more than ever, statism prevails throughout the world, accompanied by the demoralization of freedom lovers.
Therefore, an "aggiornamento" of liberalism is imperative. It is time to thoroughly revise liberal doctrine and bring it up to date in light of the latest advances in economic science, and the experience the latest historical events have provided.
This revision must begin with an acknowledgement that classical liberals have failed in their attempt to limit the power of the state and that today economic science is in a position to explain why this failure was inevitable. The next step is to focus on the dynamic theory of the entrepreneurship-driven processes of social cooperation that give rise to the spontaneous order of the market. This theory can be expanded and transformed into a full-fledged analysis of the anarchocapitalist system of social cooperation, which reveals itself as the only system that is truly viable and compatible with human nature.
In this article, we will analyze these issues in detail, along with a series of additional, practical considerations regarding scientific and political strategy. Moreover, we will make use of this analysis to correct certain common misunderstandings and errors of interpretation.
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The Fatal Error of Classical Liberalism
The fatal error of classical liberals lies in their failure to realize that their ideal is theoretically impossible, as it contains the seed of its own destruction, precisely to the extent that it includes the necessary existence of a state (even a minimal one), understood as the sole agent of institutional coercion.
Therefore, classical liberals commit their great error in their approach: they view liberalism as a plan of political action and a set of economic principles, the goal of which is to limit the power of the state while accepting its existence and even deeming it necessary. However, today (in the first decade of the 21st century) economic science has already shown:
- that the state is unnecessary;
- that statism (even if minimal) is theoretically impossible; and
- that, given human nature, once the state exists, it is impossible to limit its power.
We will comment on each of these matters separately.
The State as an Unnecessary Body
From a scientific perspective, only the mistaken paradigm of equilibrium could encourage belief in a category of "public goods" in which satisfaction of the criteria of joint supply and nonrivalry in consumption would justify, prima facie, the existence of a body with a monopoly on institutional coercion (the state) that would oblige everyone to finance those goods.
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Nevertheless, the dynamic, Austrian conception of the spontaneous order that entrepreneurship drives has demolished this entire theory put forward to justify the state: the emergence of any case (real or apparent) of a "public good," i.e., joint supply and nonrivalry in consumption, is accompanied by the incentives necessary for the impetus of entrepreneurial creativity to find a better solution via technological and legal innovations and entrepreneurial discoveries which make it possible to overcome any problem that may arise (as long as the resource is not declared "public" and the free exercise of entrepreneurship is permitted, along with the accompanying private appropriation of the fruits of each creative, entrepreneurial act).
For instance, in the United Kingdom, the lighthouse system was for many years privately owned and financed, and private procedures (sailors’ associations, port fees, spontaneous social monitoring, etc.) offered an effective solution to the "problem" of what "statist" economics textbooks depict as the most typical example of a "public good." Likewise, in the American Far West, the problem arose of defining and defending property rights concerning, for instance, head of cattle in vast expanses of land. Various entrepreneurial innovations which resolved the problems as they arose were gradually introduced (cattle branding, constant supervision by armed cowboys on horseback, and finally, the discovery and introduction of barbed wire, which, for the first time, permitted the effective separation of great stretches of land at a very affordable price).
This creative flow of entrepreneurial innovation would have been completely blocked if the resources had been declared "public," excluded from private ownership, and bureaucratically managed by a state agency. (Today, for instance, most streets and highways are closed to the adoption of innumerable entrepreneurial innovations the collection of a toll per vehicle and hour, the private management of security and noise pollution, etc. despite the fact that most such innovations no longer pose any technological problem. Nevertheless, the goods in question have been declared "public," which precludes their privatization and creative, entrepreneurial management.)
Furthermore, most people believe the state is necessary because they confuse its existence (unnecessary) with the essential nature of many of the services and resources it currently (and poorly) provides, and over the provision of which it exercises a monopoly (almost always under the pretext of their public nature). People observe that today highways, hospitals, schools, public order, etc. are largely supplied by the state, and since these are highly necessary, people conclude without further analysis that the state is as well.
They fail to realize that the above-mentioned resources can be produced to a much higher standard of quality as well as more efficiently, economically, and in tune with the varied and changing needs of each individual, through the spontaneous market order, entrepreneurial creativity, and private property. Moreover, people make the mistake of believing the state is also necessary to protect the defenseless, poor, and destitute ("small" stockholders, ordinary consumers, workers, etc.), yet people do not understand that supposedly protective measures have the systematic result, as economic theory demonstrates, of harming in each case precisely those they are claimed to protect, and thus one of the clumsiest and stalest justifications for the existence of the state disappears.
Rothbard maintained that the set of goods and services the state currently supplies can be divided into two subsets: those goods and services which should be eliminated, and those which should be privatized. Clearly, the goods mentioned in the above paragraph belong to the second group, and the disappearance of the state, far from meaning the disappearance of highways, hospitals, schools, public order, etc., would mean their provision in greater abundance, at higher standards, and at a more reasonable price (always with respect to the actual cost citizens currently pay via taxes).
In addition, we must point out that the historical episodes of institutional chaos and public disorder we could cite (for example, many instances during the years prior to and during the Spanish Civil War and Second Republic, or today in broad areas of Colombia or in Iraq) stem from a vacuum in the provision of these goods, a situation created by the states themselves, which neither do with a minimum of efficiency what in theory they should do, according to their own supporters, nor let the private, entrepreneurial sector do, since the state prefers disorder (which also appears to more strongly legitimize its coercive presence) to its dismantling and privatization at all levels.
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It is particularly important to understand that the definition, acquisition, transmission, exchange, and defense of the property rights which coordinate and drive the social process do not require a body with a monopoly on violence (the state). On the contrary, the state invariably acts by trampling on numerous legitimate property titles, defending them very poorly, and corrupting the (moral and legal) behavior of individuals with respect to the private property rights of others.
The legal system is the evolutionary manifestation of the general legal principles (especially regarding ownership) compatible with human nature. Therefore, the state does not determine the law (democratically or otherwise). Instead, the law is contained in human nature, though it is discovered and consolidated in an evolutionary manner, in terms of precedent and, mainly, doctrine.
(We view the Roman, continental legal tradition, with its more abstract and doctrinal nature, as far superior to the Anglo-Saxon system of common law, which originates from disproportionate state support for legal rulings or judgments. These judgments, through binding case law, introduce into the legal system all sorts of dysfunctions that spring from the specific and prevailing circumstances and interests in each case.) Law is evolutionary and rests on custom, and hence, it precedes and is independent of the state, and it does not require, for its definition and discovery, any agency with a monopoly on coercion.
Not only is the state unnecessary to define the law; it is also unnecessary to enforce and defend it. This should be especially obvious these days, when the use even, paradoxically, by many government agencies of private security companies has become quite common.
This is not the place to present a detailed account of how the private provision of what today are considered "public goods" would work (though the lack of a priori knowledge of how the market would solve countless specific problems is the naïve, facile objection of those who favor the current status quo under the pretext, "better the devil you know than the devil you don’t"). In fact, we cannot know today what entrepreneurial solutions an army of enterprising individuals would find for particular problems if they were allowed to do so. Nevertheless, even the most skeptical person must admit that "we now know" that the market, driven by creative entrepreneurship, works, and it works precisely to the extent that the state does not coercively intervene in this social process.
It is also essential to recognize that difficulties and conflicts invariably arise precisely in areas where the free, spontaneous order of the market is hindered. Thus, regardless of the efforts made from the time of Gustav de Molinari to the present to imagine how an anarchocapitalist network of private security and defense agencies, each in support of more or less marginally alternative legal systems, would work, freedom theorists must never forget that what prevents us from knowing what a stateless future would be like the creative nature of entrepreneurship is precisely what offers us the peace of knowing that any problem will tend to be overcome, as the people involved will devote all of their effort and creativity to solving it.
Economic science has taught us not only that the market works, but also that statism is theoretically impossible.
Why Statism Is Theoretically Impossible
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The Austrian economic theory of the impossibility of socialism can be expanded and transformed into a complete theory on the impossibility of statism, understood as the attempt to organize any sphere of life in society via coercive commands which involve intervention, regulation, and control and emanate from the body with a monopoly on institutional aggression (the state). The state cannot possibly achieve its coordination goals in any part of the social-cooperation process in which it attempts to intervene, especially the spheres of money and banking, the discovery of law, the dispensing of justice, and public order (understood as the prevention, suppression, and punishment of criminal acts), for the following four reasons:
- The state would need a huge volume of information, and this information is only found in a dispersed or diffuse form in the minds of the millions of people who participate each day in the social process.
- The information the intervening body would need for its commands to exert a coordinating effect is predominantly tacit and inarticulable in nature, and thus it cannot be transmitted with absolute clarity.
- The information society uses is not "given"; it changes constantly as a result of human creativity. Hence, there is obviously no possibility of transmitting today information which will only be created tomorrow and which is precisely the information the agent of state intervention needs to achieve its objectives tomorrow.
- Finally and above all, to the extent state commands are obeyed and exert the desired effect on society, their coercive nature blocks the entrepreneurial creation of the very information the intervening state body most desperately needs to make its own commands coordinating (rather than maladjusting).
Not only is statism theoretically impossible, but it also produces a whole series of distorting and highly damaging peripheral effects: the encouragement of irresponsibility (as the authorities do not know the true cost of their intervention, they act irresponsibly); the destruction of the environment when it is declared a public good and its privatization is prevented; the corruption of the traditional concepts of law and justice, which are replaced by commands and "social" justice; and the imitative corruption of individuals’ behavior, which becomes more and more aggressive and less and less respectful of morality and law.
October 29, 2009
Jess Huerta de Soto, professor of economics at Rey Juan Carlos University in Madrid, is Spain’s leading Austrian economist. As an author, translator, publisher, and teacher, he also ranks among the world’s most active ambassadors for classical liberalism. He is the author of Money, Bank Credit, and Economic Cycles.