"The Founding Fathers of this great land had no difficulty whatsoever understanding the agenda of bankers, and they frequently referred to them and their kind as, quote, 'friends of paper money.' They hated the Bank of England, in particular, and felt that even were we successful in winning our independence from England and King George, we could never truly be a nation of freemen, unless we had an honest money system. Through ignorance, but moreover, because of apathy, a small, but wealthy, clique of power brokers have robbed us of our Rights and Liberties, and we are being raped of our wealth. We are paying the price for the near-comatose levels of complacency by our parents, and only God knows what might become of our children, should we not work diligently to shake this country from its slumber! Many a nation has lost its freedom at the end of a gun barrel, but here in America, we just decided to hand it over voluntarily. Worse yet, we paid for the tyranny and usurpation out of our own pockets with "voluntary" tax contributions and the use of a debt-laden fiat currency!" ~ Peter Kershaw
Decentralism vs. Rational Markets
Exclusive to STR
August 28, 2006
Our own Bob Murphy has a recent article attacking, in his hyperbole, 'The dumbest article ever.' The target article by Amanda Taylor is questioning the efficiency of existing food markets. To sum up her article: It should be more efficient to grow food locally than to ship it halfway around the world. Summarizing Murphy's reply: In a free market of identical goods, prices will determine the true sum of efficiencies.
Not a single word of Taylor 's article violates Rothbardian ethics. It did not contain any recommendation of getting the government to interfere. Fortunately, Murphy does not claim that she is implying such.
One fundamental issue is whether or not state interference in the food, transportation, and fuel markets is a factor in the shape of the end product food markets. I recommend those who have not studied the actual nature of existing US food markets read Joel Salatin's "Everything I Want To Do Is Illegal."
However, the empirical freedom of existing markets is not my primary concern in this article. In Murphy's conclusion, he makes his attack on Taylor representative of, 'critics of the spontaneous outcomes of the market economy.'
Contra Hayek, at least superficially, a free market advocate should not just put faith in the free market and just float unthinkingly down the river of the spontaneously ordered market. Entrepreneurs do not 'just put faith in the market.' They actively seek out real imperfections in the current market. Notice that it is a bit contradictory to praise the entrepreneur and then attack someone just for claiming to see a market failure. To quote Warren Buffett, 'I'd be a bum on the street with a tin cup if the markets were always efficient.' If those who succeed the most on the market don't accept rational markets, why should we?
Libertarian judicial theory is mainly concerned with the voluntaryness of an exchange, but it is not the end of human action. Individuals can make foolish market decisions. When millions of people all make foolish decisions on the market, it doesn't make the total less foolish. Austrian economics is not dependent on mythical perfect competition or perfect markets, but that doesn't stop some Austrian economists from occasionally making arguments that apply only to such perfect and omniscient markets.
I realize that the term 'rational market' is sometimes used just to mean seeking particular goals at minimal cost, without implying that the goal itself is rational. However, this has become an 'anti-concept' to many libertarians. Taylor 's article is intra-market activism trying to persuade people to have different valuations, and Murphy is attacking this while actually doing the same.
What is promoting libertarianism if not intra-market activism to persuade people to have different valuations? We believe that people undervalue the free market (voluntary exchange) as a good on the broad free market itself. Further, almost everyone is an evangelist in some respect in believing people have undervalued something, or overvalued something else. Taylor 's article argued that decentralism was undervalued, while Murphy argued that the existing spontaneous order was undervalued.
Lenin wrote that capitalists would sell him the rope to hang them with, and he was too often right. Anarchist medieval Iceland declined in significant part to the involvement of the state of Norway to its affairs. Norway didn't have to invade with armies. Its sheer relative size allowed it to subvert Iceland 's free society through market actions.
Market advocates have failed to account for the long term disvalue of treating friendly customers equally to customers who are hostile to the market. Libertarians should seek to protect libertarianism on the open market, especially when libertarians have a small minority of market power. This is one of the major problems of the political Libertarian Party. It has no meaningful barriers to prevent infiltration by pseudo-libertarians. Then worse, supposing it succeeded and gained some political influence, it increases the profitability of pseudo-libertarian infiltration and take over.
Those who oppose political activism commonly note this fatal flaw of the Libertarian Party, and every political party. It is equally a problem of the unlimited support for the spontaneously ordered market. One imperfection is when the market sells the Leninists the rope. Generally, libertarian articles boil down to the root problem of any market problem is the state. The state can't take full blame this time. It takes voluntary stupidity within the market to make this dumb decision.
To avoid selling out the market through the market, a degree of libertarian isolationism or separatism is necessary. This is where decentralism is protection against the destabilizing market power of opponents. Libertarians praise the free market, but the market will take advantage of whatever state currently exists. States have acted to subsidize mass distribution and centralization, not because they are more efficient, but because they allow and promote centralization of power and wealth. Centralized markets are artificially efficient today because of state subsidization of transportation, infrastructure, and technology to make it efficient. It is not necessary to oppose the use of such existing structures. However, it should be actively noted that such is internally inefficient and risky. Instead, market advocates should seek decentralized methods of production, less capital intense alternatives, local and community exchanges and market places, etc.
Governments, wars, and catastrophes have the ability to significantly alter supply and unexpectedly increase scarcity. The more any society is centralized, the more it is vulnerable to unforeseen price shocks. Status quo advocates may say that current systems and methods have always been profitable and see no reason to expect a change. But past performance does not preclude a Misean crack-up boom. Not only is it a problem of fiat money, but any situation where exponential growth in one resource is needed for sub-exponential growth of some profit.
A free market is always free to calculate and include the risk of such threats. However, it is vulnerable to risk exploitation (for lack of a more precise term, insider trading is also close) since a government is an entity that can alter market value through altering the risk component of market value. For example: One government threatens war against an oil producing country. The market price of oil goes up to adjust for the risk to supply. However, the government knows when and if it will begin such a war. The government and its allies can use their precise knowledge of the actual risks to reap profits on the oil market. For the period that the risk does not materialize, the profits from the market's risk premium are windfall profits to those who knew the risk would not materialize. If they knew when the war would begin, they could take additional profits from the foreknowledge of the timing. (I had written this before the recent disclosure of Israeli politicians selling stock just before declaring war on Lebanon.)
An open-ended free market cannot escape this problem. This is an internal problem of the spontaneously free market. Even an anarchist free market society would face such problems from outside governments. One state declaring war on another state alters the market price for goods within the anarchist society to the degree that goods are imported from either state, have supply lines through either state, or have competitive goods through either state. Then add the same problem for exports.
States and their agents know the degree and actuality of risks unknown to the anarchist society and create risks to any anarchist society that becomes dependant on trade with such states. Given this, we can make a conclusion as to how the market can minimize the risk of governments' asymmetrical knowledge for the risk component of market prices.
All else equal, a free market society should seek to minimize extended supply chains, especially to those dependent on markets controlled by hostile entities. If one system of production is more centralized or extended, it is more vulnerable to risk exploitation. Decentralism enhances security and decreases risk. Risk is a component that governments have massive power to manipulate both from inside (through buying and selling agents) and outside the market. When we become used to cheap goods, we have likely not prepared for any risk that the government may decide to pass a massive tax on the sale of water to libertarians. Is this anarchist separatism? It is partly so. If an anarchist society gets a high use value out of commerce with a hostile state society such as if it was the primary source for water, the state society might realize it would get more non-monetary profit by restricting trade to an anarchist society in hurting its competitor than it gets from the monetary profit from the sale of goods.
Hoppe's controversial anti-immigration position takes on a more legitimate application to the voluntary society than when applied to artificial borders of nation-states. An individual free society (as opposed to free society in general) should value and retain the ability to remain independent to minimize secretive corruption from without.
Fredrick Bastiat is famous for the quote, "Where goods do not cross borders, soldiers will." There is truth in this, but there is equal truth in an opposite extreme. When one society becomes dependent and complacent on goods crossing many borders and long distances at a certain exchange value, soldiers may cross borders to ensure stasis.
Note the difference between the broader free market, which no one controls, and individual voluntarily formed markets. Individual markets are controlled by some entity whether a person, partnership, a community, or a federation of these. These have the ability to refuse to trade with those who would buy products to destroy the market from which they are bought. Libertarians should take care to refuse such trades. Think ahead and don't sell someone the rope if you know they intend to hang you with it. Remember that any free society retains the right to refuse suspicious customers.
When considering trade, consider the individual counterparty more than the nationality. One may support trade with a pro-market person who happens to reside in an anti-market state, and likewise consider avoiding trade with an anti-market person who resides in a pro-market society. Do you depend on goods from anti-market people? Try to alter your situation to minimize this as much as possible. They may stop trade with you for your beliefs long before you even consider stopping trade with him. To the degree that you realize this dependence and are unwilling to change, it is a temptation to avoid libertarian activism or rate it as a lesser value than the material happiness received, oddly enough, from exchanges with anti-market entities.
Murphy may question those who would pay more to support a small farm or CSA Cooperative. (Yes, I know the real question is "how much more?" and is relative.) The alternative is supporting state capitalist/socialist big businesses like ADM who admit "The customer is the enemy." These will invest their profits in further regulation and statism. The problem is viewing all profit to others as neutral to us. In fact, profit to our friends should have positive value for us, and profit to pro-state forces should have negative value to us. Therefore, it does make economic sense to pay a little more for products from our friends than from our enemies (except for purchasing "loss leaders" from our enemies).
CSA groups are the most natural allies of anarchists. The dumb act is attacking people who try to change things on the market in a way that would reduce state capitalism, when there was not a single call or implication for government interference in Taylor 's article.
Murphy's article effectively makes pro-market decentralists the enemy, and those who influence the state to remove our freedoms as the ally. I see why some of the attacks on anarcho-capitalists are valid. Such writing does not match our theory . . . while others assume that such writings are our theory. Murphy's article unintentionally takes the existence of current state regulations as something to work around more than to work against.
I toast with my decentralist homebrew to those who work against the state. I gladly pay a little extra for raw milk straight from a dairy farmer, and for produce from family farmers who struggle against state regulations every day instead of from big businesses that at best, are skilled at maneuvering around the state regulations from which they profit.
A free market is not self-sustaining unless people specifically act to sustain it. The market does not value its perpetuation apart from individuals who value perpetuating it. Ostracism from markets is a primary method necessary to perpetuate markets. It is not even a good measure of value apart from those who seek to accurately measure value. Time preference is a choice, and both unethical actions and poor market decisions can equally be viewed as poor time preference choices. It is not enough to actively oppose crimes but ignore vices expecting them to be best resolved through spontaneous order. We as complete humans, who are more than libertarians only, should be concerned not only with the science of justice, but also to the science of civility, and to seek market choices that we will think good decisions long after the original exchanges.
Spontaneously ordered markets? I'm working to keep the free market alive and so is everyone who writes at this website and others like it, including Murphy, who's usually quite good. If you thought that the free market will value itself properly and spontaneously, then why are you spending your time at this website? And why is it here?