“In recent weeks, we made important progress toward improving Canada’s position as having the best deal in the world with the U.S.,” Carney said in his statement. “However, that progress has not been enough to meet our objectives for Canadians.” He added that the last-minute changes were “unfair, uneconomic, and called into question the reliability of any deal.”

Details about the negotiations and what led to this decision are only slowly leaking out, forcing analysts to speculate about what happened based on cryptic and incomplete information.

Carney gave a few more details in a press conference on Saturday. When asked what specifically prompted the breakdown in trade talks, he cited three things: changes to terms for the auto industry, American efforts to restrict Canada’s ability to have trade deals with other countries, and efforts to undermine some of Canada’s cultural protections.

“The U.S. introduced in the last hours efforts to restrict our ability to have other trade deals,” said Carney in his remarks on the second point. “You heard me say a moment ago, what we’ve accomplished in the last year, 20 new deals, economic and security partnerships, the prospect of doubling our market access because we believe in free trade—we’re the partner of choice in many respects for countries around the world and the Americans wanted to restrict that. They had language that they wanted to restrict that. Unacceptable.”

His remarks on the third point were also noteworthy. “Continual efforts, always resisted, as I said in my remarks, and always will be resisted, efforts to restrict our protections of our language, our culture, and in effect our sovereignty.”

Canadian YouTuber J.J. McCullough has indicated that this third issue seems to have been the biggest factor in the talks breaking down. He points to some of Carney’s press conference remarks that were made in French. For instance, Carney said, translating to English:

We were ready and close to having a comprehensive agreement that would be fair to both countries. We were close to that happening, and it seemed that we were close to reaching a comprehensive and fair agreement with the United States. But they made changes, including threats on the French language and Quebec culture and Canadian culture. That is not acceptable. That would never be acceptable, and for that reason, that marked the end of the stage of negotiations.

What’s crazy, J.J. notes, is that these things which seem to have been the Canadian government’s highest priority should really have been among its lowest priorities.

Despite the scanty details coming from the government, Canadians are largely standing behind Carney’s move. An Angus Reid poll showed 76% of Canadians supported Carney’s decision to end negotiations.

What do I think about this decision? First, I think that a proper approach to this story needs to take into account the relevant context. Take supply management. The context there is that Canada has had steep tariffs on American dairy for decades, and it refuses to budge on those to this day. That has been one of the chief irritants for the Americans. America has repeatedly indicated it would be willing to ease its tariffs if Canada would change or abolish supply management, but Canada has refused to even put that on the table.

Another important piece of context is the Online Streaming Act (a.k.a. Bill C-11), passed in 2023. Canadian radio and television broadcasters have long been required to feature a certain amount of “Canadian content” or “Cancon” in their broadcasts to protect Canadian creators from foreign competition. The Online Streaming Act paves the way for similar requirements to be imposed on streaming services, such as Netflix. This has also been a pain point for the Americans. “Mr. Greer and his predecessor Katherine Tai also repeatedly identified as a trade irritant the 2023 federal Online Streaming Act,” writes Marie Woolf in The Globe and Mail. “Once it is fully implemented by Canada’s broadcasting regulator, it will require foreign streaming companies to promote a certain proportion of Canadian content – including French-language and Indigenous content – on their platforms.”

Yet another relevant piece of context is Canadian laws requiring mandatory bilingual (French and English) packaging. “And Ottawa of course legally mandates French-English bilingual packaging for all goods sold across Canada, including goods imported from other countries,” J.J. writes. “…Bilingual packaging is likewise a burdensome obligation Canada imposes on American goods of which no comparable ask exists in the opposite direction.”

There is, of course, plenty of other context regarding the auto industry, energy, critical minerals, and so on. The Canadian trade policy landscape is complex, and I don’t pretend to be an expert on all of it. But I think the above three items—which are all clearly central to the present dispute—are sufficient to begin forming an opinion about Canada’s approach to these negotiations.

As is often the case, the free-market perspective on this issue requires us to break the typical framing. The way this is being framed is well summed up with Carney’s catchphrase “Elbows up,” a hockey reference to skating around with your elbows raised, ready to jab anyone who comes close to you. What that means in this context is that Canada will not allow itself to be bullied around. Canadians have enacted legislation that is important to us—supply management, the Online Streaming Act, bilingual packaging laws, and so on—and we will not be bullied into giving up the great benefits of that legislation.

The opposite view, in the traditional framing, is that the benefit isn’t worth the cost. True, this legislation is good and helpful, but the trade pressure is killing us, so, regrettably, we should cave and make concessions for the good of the broader economy.

But notice what both sides are taking for granted. They both assume that this legislation is good in the first place, and the question is only how good. Is it so good that we should endure tariffs to keep it, or is it good, but not so good as to outweigh other considerations?

The free-market perspective does not take a position on how good these legal regimes are because it views them as actually bad. Even if there was no trade pressure, we would argue that supply management, the Online Streaming Act (and all Cancon requirements, for that matter), and bilingual packaging laws should be abolished, for all the standard free-market reasons.

So, if it would be a good idea to get rid of these anyways, surely it would be an even better idea if getting rid of them would have the added benefit of easing trade tensions. We can kill two birds with one stone that way. The Americans will treat us better and Canadians will have better policy.

The funny thing is that, because the standard framing is so ingrained, when you suggest abandoning these laws people automatically assume you are advocating conceding to Trump, giving in to bully tactics rather than standing up to them. But that assumes these laws are good for us. They aren’t. My interest in abolishing them isn’t because of Trump’s trade pressure, it’s because these are bad laws in the first place. That trade pressures could also be eased by abandoning them is a nice side benefit, but not my main motivation for getting rid of these laws.

So, to the question of whether I support Carney’s move, the answer is a resounding no. Canada should be putting supply management and such on the table. But Carney would rather watch Canadians endure tremendous economic hardship than give that up. And just as it would be doubly good to get rid of these bad laws, because you would have better policy and more favorable trade with the U.S., it is doubly harmful to keep them, because you then have bad policy and a bad trading relationship with the U.S.

To be sure, this is not to say I’m a fan of how the Trump administration is handling this. I don’t agree with Trump’s trade pressures. But the Canadian government mostly has itself to blame for its current predicament. It is fully capable of walking back its protectionist policies and making much of the trade pressure go away, but it is choosing not to.

Curiously, Carney’s rhetoric has consistently been that we can’t control America, so let’s focus on what we can control. In fact, he used that rhetoric three times just in Saturday’s press conference. “We can’t control the storm that blows in from Washington,” he said in his prepared remarks. What he means by focusing on what we can control, as he often discusses, is pursuing trade agreements with countries other than the U.S., improving the regulatory environment in Canada, and so on.

But isn’t our own trade policy also one of the things that is within our control? And isn’t that the main sticking point for the U.S.? It is simply not true, as this rhetoric implies, that there is nothing we can do about the American threat, that we simply have to take whatever Trump throws at us and find ways to cope with it. Not putting supply management on the table is a choice. Not putting the Online Streaming Act on the table is a choice. Not putting packaging laws on the table is a choice. These are things that are within our control, and thus, indirectly, American policy toward us is within our control. Canada is not a helpless victim of Trump’s belligerence. It is a victim because it persistently chooses to be one.

In addition to portraying Canada as impotent to do anything about the threat, the storm metaphor also suggests that Trump’s actions were unprovoked, as if we were just sitting here minding our business and then he decided to start a trade war. That’s wrong. Canada has been maintaining immense trade restrictions all these years. True, America has too, and increasingly so in recent years. But when America says “we’ll lower our restrictions if you lower yours” Canada says no thanks. And the reasoning is that “it would have been a bad deal, and no deal is better than a bad deal.”

This framing is just absurd to a libertarian.

By a “bad deal” the Canadian government means one that reduces Canadian protectionism more than American protectionism. But this assumes Canadian protectionism is good for Canada while American protectionism is bad for Canada. The truth is that both kinds of protectionism are bad for Canada, so any deal that reduces protectionism is, in the libertarian framework, a good deal for Canada.

The score should be added, not subtracted. If America gives up four points of protection and Canada gives up five points, you don’t say it’s a bad deal for Canada because it gave up more than it gained (gave up five to gain four, for a net of minus one), you say it’s a good deal for Canada because it gained nine points of freedom (four plus five), and it’s a good deal for America because America also gained those nine points of freedom. Even if the Americans were only willing to reduce their protections by 1% in exchange for a 99% reduction from Canada, that would still be good for Canada. In fact, even unilateral free trade would be a win for the country practicing it, as Milton Friedman often pointed out. The only ones who would suffer are the special interest groups who seem to have an iron grip on our government and media.

It’s kind of crazy that, given all of this context, Carney has the audacity to say “we believe in free trade.” Orwell would be proud. Cobden and Bright, meanwhile, might rightfully question whether Canada’s “Liberal Party” is really deserving of the name.

As we all remember, the Great Los Angeles Fires were harrowing. Kirk and Birss note that roughly 150,000 residents were forced from their homes, and that 13,000 homes were among the 16,000 buildings which were destroyed. But while considerable attention was placed on keeping people safe and getting the fires put out, another key aspect of this story was the market’s rapid response to a sudden drop in housing supply.

“The day after the fires’ ignition, landlords, rental platforms, and insurers were already setting the terms under which tens of thousands of displaced residents could remain in the city,” Kirk and Birss write. “Rather than taking meaningful steps toward recovery by enabling rehousing and stabilization, the post-disaster landscape was reorganized through market mechanisms that privileged profit. The Great Los Angeles Fires, to put it another way, are a story of disaster capitalism.”

The authors chronicle the rapid increase in rents that took place as landlords took advantage of a sudden influx in demand from displaced residents:

In Santa Monica, five miles from the Palisades fire, a two-bedroom apartment on Montana Avenue listed for $3,595 on January 7 was relisted within twenty-four hours at $4,495. By January 9, the price reached $5,995. Similar increases appeared in neighborhoods far from the fires. In Westlake, one of the city’s more affordable areas, a unit previously listed for $2,400 was relisted at $3,300 within days.

In all, rents across the region rose by about 20% in three weeks, the authors note. The high prices left displaced residents with few options:

Over the following weeks and months, as rents continued to climb, displaced residents were unable to find housing at any price they could afford. Searches far outside their original neighborhoods yielded few viable options. In many cases landlords demanded rents that exceeded the mortgage payments people had been making on the homes that had just burned down. Many fire victims were forced to stay in hotels or short-term rentals, or else to leave the city altogether.

This outcome was inexcusable, the authors argue. They say policymakers should have “mobilized short-term rentals into the long-term market, meaningfully enforced price controls, leased vacant units to displaced residents, or secured hotel rooms at scale through master leasing for a long-term period.” Instead, officials mostly let the market do its thing. Thousands of landlords illegally increased their rents, the authors maintain, but enforcement of anti-price-gouging laws was practically nonexistent. Other kinds of aid that were possibilities simply never materialized.

In Defense of Price Gouging …Again

The price gouging discourse is such well-trod ground by now that relitigating this issue yet again feels like beating a dead horse. As such, I’ll just touch on some of the main ideas and then move on to what is hopefully a more original point.

Don Boudreaux’s 2005 FEE article “On Price Gouging” is a fairly representative piece in this vast literature. As Boudreaux writes, “the fact that is unfortunate is not the higher price; it’s the underlying reality reflected by the higher price. That a natural disaster destroyed supplies and supply lines is indeed unfortunate. But this is the reality. Because, as Thomas Sowell reminds us, reality is not optional, we ought to deal with it as best as we can.”

Boudreaux goes on to spell out the standard argument for letting prices rise:

If the market value of a bottle of water is $25, preventing merchants from charging a price higher than $5 shields consumers from the fact that potable water is now more precious than it was pre-disaster. The price cap also shields suppliers from this same truth. The inevitable consequences of this hoax only add to the problems caused by the natural disaster. …Long queues to buy water will emerge, as will empty shelves, black markets, and reports of neighbors hoarding bottled water in their basements.

…[W]hile a higher market price both prompts consumers voluntarily to economize more diligently on water’s use and increases the quantity of water supplied (by giving incentives to suppliers to bring more water to this market), the queues and empty shelves generated by the price cap force consumers to economize, but do nothing to inspire suppliers to bring more water to market.

The analysis is much the same for rental units. Even if rental prices were capped, rationing would still have to occur somehow, so a number of people would still be left without stable housing, and the kinds of rationing that would have to be resorted to, such as “first come, first served,” would likely be inferior to price rationing. What’s worse, there would be no incentive for new suppliers to enter the market, such as a homeowner with a spare room they might consider renting out if the price they could get for it was high enough.

Boudreaux also responds to the moral argument that merchants who reap windfall profits from the sudden change should be viewed with scorn:

If a grocer refuses to raise the price he charges for bottled water up to the market level, he will find his store besieged by consumers. Only consumers near the front of the line will be lucky enough to get the water; those closer to the rear will go home empty-handed. Is queuing a fair means of deciding who gets the water?

Also, by not raising the price, the grocer will mute the price signal sent to the global market that bottled water is especially needed in this locale. Muting this signal will reduce how much or the speed with which additional, much-needed supplies of bottled water are shipped from where they are valued less to the disaster area where they are desired more.

A better way for the merchant to extend a helping hand would be to charge market prices and, out of the profits he earns, to make cash contributions to cash-strapped victims of the disaster.

Like Boudreaux, I can totally understand the sense of injustice that arises when merchants (or landlords, in this case) profit from a surprising market shift that was as much a lucky break for them as it was an unlucky slap in the face for their customers. Something about that just feels wrong. But Boudreaux advises us to think critically before prescribing a solution, lest we do more harm than good. A producer charging as much as the market will bear serves an important role in helping to coordinate the recovery process. So if our sense of justice is offended by them gaining at the expense of those who are already suffering—which it has every right to be—a far better way to remedy this would be to encourage these beneficiaries to become benefactors, charitably giving a portion of their profits to their unlucky customers who got the short end of the stick.

Coerced Philanthropy

This will not be enough for the left, of course. Even if they concede that price controls are inadvisable and that charity on the part of merchants/landlords is preferable, they would probably want the government to mandate that charity. Sufficient funds would not be forthcoming, they would say, if we simply relied on the goodwill of lucky landlords. Coerced philanthropy is required.

Indeed, coerced philanthropy seems to be the main idea behind all the policy prescriptions Kirk and Birss present. As mentioned above, these include:

1. Mobilizing short-term rentals into the long-term market

2. Meaningfully enforcing price controls

3. Leasing vacant units to displaced residents

4. Securing hotel rooms at scale through master leasing for a long-term period

Essentially, taxpayers, or landlords, or some combination of those two, should be forced to take a hit so that displaced residents can be helped.

The question I want to ask is simply: why?

It’s one thing to say the government should step in to address a humanitarian crisis. If someone is on the brink of death for lack of food or shelter, a lot of people would probably sympathize with using policy and taxpayer dollars to help that person get back on their feet if private charity can’t take care of it.

But what about someone who is experiencing hardship but isn’t on the brink of death?

This is where things get tricky, because there is a massive gray area between inconvenience and crisis. The government probably shouldn’t rush in to rescue someone who has stubbed their toe. But should they help with a broken arm? With someone running low on funds? What about having to move out of town because you can no longer afford to live there?

The more a hardship falls into the category of inconvenience and not crisis, the less sympathetic most people probably are for government assistance. The fact is that all of us face varying degrees of hardship in our lives, and there comes a point where we simply need to draw a line and say anything beyond this isn’t severe enough to warrant government assistance.

It is probably the case that some people in the Great Los Angeles Fires experienced a genuine humanitarian crisis, and I can understand wanting the government to take care of those people. But those are not the people that Kirk and Birss seem to have in mind here. Instead, the authors are pointing to the people who had to “stay in hotels or short-term rentals, or else to leave the city altogether”—or pay a 20% higher rent. Clearly, that’s a tough situation to be in. But is that really something that justifies government intervention, that is, coerced philanthropy?

The underlying principle of the left seems to be that anyone who falls on hard times has a right to be maintained at the exact level of comfort and living standards they were experiencing before the disaster, or at least something close to it. And that’s a principle I just have a hard time buying into. Life sometimes throws us curveballs, and that sucks, but it’s also not fair to force other people to help us carry the burden, even if they have the means to do so.

I feel terrible for people who find themselves in rough situations through no fault of their own. But I don’t appreciate it when they act as though they are entitled to other people’s help.

…For each of these crumbling pillars of our public education system, Backer suggests ambitious policy fixes. As the book’s title suggests, the only way to make American schooling as equal as possible is to make it as public as possible. Pool the taxes, funding, administration, and risks—and keep schools, teachers, and students as far as possible from capture by private interests or the discipline of financial markets.

We like to think of public education as a system where every child has the same opportunities, no matter how affluent their parents are. That’s a nice idea in theory to many people, but as we all know, that’s not how it works in practice. In the real world, there are rich school districts and poor districts. Rich districts have better facilities, more expansive programming around things like arts and athletics, better teachers, and so on. Poorer districts have classrooms that are falling apart, limited budgets for fancy programs, and teachers who…probably shouldn’t be teachers.

Much of this discrepancy traces back to how schools are funded. In the U.S., roughly 8% of funding for K-12 education comes from the federal government. 47% comes from state taxes, and 45% comes from local taxes. The local tax component is key. Simply put, rich people live in rich neighbourhoods where they can fund rich schools, and vice versa. As Arun puts it, “neighborhoods with higher property values can buy themselves better schools than neighborhoods with lower property values.”

But what if it didn’t have to be that way?

To achieve more financial equality between school districts you would have to disrupt this funding pattern somehow, and that’s exactly what Backer has in mind. As Arun writes, summarizing Backer’s argument, “the only real solution” to achieve more equality in this area “is to pool property tax revenues at the state level (if not the national level) and redistribute them across districts to guarantee a minimum level of per-pupil spending.”

Later in the piece, Arun takes aim at the school choice movement:

The path to an egalitarian vision for public education runs headlong into a deliberate right-wing crusade to dismantle it altogether. The right is hell-bent on diverting tax dollars into school vouchers, to the benefit of private schools and religious schools (as endorsed in Project 2025).

In addition to the usual anti-school-choice arguments (such as how it’s “an unaccountable black hole for tax dollars”), Arun makes an interesting point connecting the “reactionary politics” of the school choice movement with Backer’s thesis, a point that Backer himself overlooks:

The connection between this reactionary politics and the state of our public schools today is the missing link in As Public as Possible. Parents would have far less justification for jumping districts or choosing charter schools for their children if there were not significant disparities between districts in the first place.

The call for choice is largely motivated by a desire to get out of “bad” schools and into “good” schools, Arun is saying. But what if there were no “good” and “bad” schools, because all schools were funded relatively equally? It’s an interesting alternative solution to the problem. I’d be curious to hear what school choice proponents think about it.

Of course, many people would likely expect yours truly to be a school choice proponent. But the truth is I feel like a spectator in the debate between progressives and school choicers, because neither side really represents my position. What I advocate is far more radical: a complete separation of school and state. I want to “privatize this whole business,” as John Taylor Gatto once wrote.

This, naturally, invites the ire of both mainstream camps.

It does have its upsides, however. For instance, I am immune to certain leftist criticisms of school choice, such as it being “an unaccountable black hole for tax dollars.” No taxpayer dollars were harmed in the making of my policy, thank you very much.

That being said, my position also has vulnerabilities that the school choice position doesn’t have. For instance, a leftist can never accuse a school choicer of being so heartless as to want no taxpayer dollars funding education.

Am I really a heartless bastard for taking such an extreme position? I don’t think so. But I can understand if you want an apologia.

As I see it, there are two main arguments for public schooling: the humanitarian argument and the egalitarian argument (cf. my piece “The Anatomy of the Statist”). The humanitarian argument, which is concerned about absolute poverty, argues that public schooling is necessary to make sure the children of the poor have access to a reasonable minimum quality and quantity of education. The egalitarian argument, which is concerned about relative poverty, argues that public schooling is necessary so that all children have a relatively equal opportunity to become educated and succeed in life no matter their background.

Arun’s piece made me think of an interesting point regarding the egalitarian argument. But first, let’s talk about the humanitarian issue.

The Humanitarian Argument for Public Education

It is completely understandable to be concerned about the educational opportunities of children from poor families, and it’s true that public schooling is one way to make sure no child gets left behind. But if our concern is solely about making sure every child can access a certain bare minimum quality and quantity of education, socializing the school system seems to be overkill. Why not just have a private system and then give poor parents vouchers or some other form of welfare?

Imagine if we said the government needs to run the entire food industry because some poor people can’t afford food. It seems clear that this would go far beyond what’s necessary to solve the problem—and may well cause more harm than good. If the government’s goal is simply to make sure the poor have enough food, it can easily accomplish that with programs that operate within the context of a privatized food industry, such as food stamps. The same goes for education. Of course, I would go further and argue that helping the poor afford food and education should be a matter of private charity and not government, because taxation is theft. But even if you think the government should help the poor, the point is that we need to draw a line between welfare policy and food policy, just as we need to draw a line between welfare policy and education policy. The fact that certain families need extra support is not a reason to socialize an entire industry. At most, it’s a reason to provide targeted aid.

The Egalitarian Argument for Public Education

A stronger argument for socializing the education industry is the one based on the ideal of equality. Wouldn’t a privatized school system mean that the children of rich parents have access to far better education than the children of poor parents? According to this argument, that kind of inequality is simply an intolerable state of affairs, and public schooling is the remedy.

This is a common argument, but Arun’s article foregrounds an important problem with it: public schooling as it currently exists is also highly unequal.

The true egalitarian vision is that every school in the country, or at least in each state, receives the exact same amount of funding per student. Wealthier children and poorer children alike would have access to roughly average facilities, roughly average programming, and roughly average teachers. There would not be a single school in the country that has a particularly well-funded arts program or athletics program or anything else. There would be no school that could be described as exceptional, because that would require exceptions to the normal pattern of things, and exceptions mean inequality.

To me, at least, that doesn’t sound like paradise. It sounds more like a Harrison Bergeron-style dystopia.

Even Backer, who seems farther left than most people, doesn’t advocate going this far. He merely wants to pool property taxes “to guarantee a minimum level of per-pupil spending.” Maybe he is a true egalitarian at heart and is moderating his policy recommendation towards what he feels is politically palatable. Or maybe even he balks at the idea of perfect equality. It’s hard to say.

Once one concedes that true egalitarianism in education isn’t desirable, the egalitarian argument against private schooling seems to lose a lot of its punch. True, one can still say that the status quo of public schooling is more equal than private schooling would be, and that the current level of inequality is tolerable while the higher level that one speculates would exist in a privatized system is not. But now we are debating a difference of degree, not kind. With the exception of the true egalitarians, of which there are very few, proponents of public schooling are not standing on the principle that educational opportunities should be equal. They are perfectly fine with a high degree of inequality in education, and thus they cannot object that private schooling is undesirable because it would violate this principle. To do so would be the pot calling the kettle black.

In a sense, Arun and I are making the same point. We are both highlighting that the way public schooling operates on the ground is far removed from the egalitarian ideal that is supposed to be one of the main arguments for having this institution. But we have different motivations in bringing attention to this gulf between theory and reality. Arun wants you to question the status quo in light of your egalitarian instincts. I want you to question your egalitarian instincts in light of the status quo.

If we’re already willing to put up with all this inequality in education, maybe we aren’t really the committed egalitarians we like to think ourselves to be. Maybe our choices are revealing our true convictions—that the benefit of equality often isn’t worth the cost.

I wrote a response to an excerpt from the book late in 2023, pushing back on some of the main talking points. As part of my research for that article, I watched a fair number of Oreskes’s podcast appearances promoting the book, of which there are quite a few. One of the points from the book that she would often raise in these appearances is about rural electrification. It struck me as a perfect point to respond to, but it didn’t make sense to address it in my earlier piece, so I’ve been meaning to pen an article specifically on this point ever since.

Better late than never, right?

The gist of the point is this: In the 1920s, rural America was still without electricity, while the cities were fully powered. This is not surprising, because it costs a lot more per customer to bring power to rural areas, and at that time it just wasn’t profitable. Given this situation, and drawing inspiration from other countries, some people suggested that the government should step in and provide funding for rural electrification. This funding would eventually come in the form of the Rural Electrification Act of 1936, part of FDR’s New Deal.

But the National Electric Light Association (NELA) was vehemently opposed to any government involvement. They launched an aggressive “propaganda campaign” in the 1920s to preach the virtues of the free market and the evils of government intervention, eventually prompting an investigation from the Federal Trade Commission (FTC). This, Oreskes and Conway argue, was the first of many such campaigns from the business community.

Whether the campaign was really as malevolent as it’s made out to be, and whether the FTC’s response was justified, I will leave to historians to debate. What I am much more interested in is the ideological question at the center of the campaign. Is it true that government intervention in the economy is a bad idea? If the private sector isn’t pursuing a clearly helpful initiative like rural electrification, should the government step in to fill the gap?

Oreskes, naturally, considers it common sense that the government was right to get involved. Only a “market fundamentalist” would say otherwise. I disagree, and I’d like to take this opportunity to explain why.

A Market Failure or a Failure of Markets?

As mentioned, Oreskes presented the rural electrification point on a number of different occasions. This is actually quite useful for our purposes, because her rhetoric is a bit misleading in one area, and it’s only by watching her state the same point in slightly different ways to different people that we can get clarity on the confusing terminology.

To begin, here’s how she put it on The Majority Report with Sam Seder:

The question here was really a question about the failure of capitalism. So the arguments about child labor and workman’s compensation are about the social costs of capitalism. People who get hurt during the operation of factories etc. But in this case, it was actually about a failure of capitalism itself, the failure of the electricity industry to supply electricity to rural customers. And so a group of reformers, led by the Pennsylvania governor Gifford Pinchot, argued that in light of the market failure, in light of the failure of the industry to provide electricity to people who needed it and wanted it in rural areas, the government needed to step in. The response of the electricity industry was to launch a massive propaganda campaign. They were subsequently investigated by the Federal Trade Commission in the 1930s, who called this the largest peacetime propaganda campaign in the history of the United States.

The misleading rhetoric that I have a problem with is her use of phrases like “a failure of capitalism,” and especially “market failure.” When an economist hears the phrase “market failure” they immediately think of the economic theory, that is, inefficiencies caused by prisoner’s dilemma problems, such as allegedly occurs in the case of externalities, public goods, natural monopolies, and so on.

But Oreskes doesn’t seem to have that in mind. When she uses the phrase “market failure,” she explains that what she means by that is “the failure of the industry to provide electricity to people who needed it and wanted it in rural areas.” Her point is not that the electricity industry succumbed to a game theory problem. It’s simply that the industry found it unprofitable to provide a certain service, and so “failed” to provide it.

Regrettably, this is a common problem on the left. The phrase “market failure” carries so much rhetorical punch—because of the widely held academic theory it refers to—that it seems leftists can’t help but whip it out anytime they want to denounce capitalism, even if their denunciation has nothing to do with the actual theory.

To confirm that Oreskes is using the phrase in a colloquial sense and not in its technical sense, let’s compare this comment to how she makes the same point in other interviews. Here, for example, is how she puts it in an interview with Politics and Prose bookstore:

…Except there was a big problem, and it was really a problem of market failure. Electricity in the United States was mostly developed as a private sector activity, as what sometimes people refer to as a natural monopoly, that is to say, it was understood that it didn’t really make sense to build multiple competing electrical lines, that would be wasteful. So it was understood that electricity was a natural monopoly, but it needed to be regulated. And so then the question became, what did that really mean, what did that really entail? And a group of reformers started to point out a major failure of the electricity industry, that the electricity industry, led by companies like Edison Electric and Westinghouse, had successfully electrified American cities, but had pretty much completely failed to electrify rural areas. And it wasn’t for lack of demand—rural people wanted electricity—but it was because the profits they could make weren’t sufficient. So a group of reformers, led by Gifford Pinchot, began to argue that the government should become involved in rural electrification. In response, NELA launched a massive propaganda campaign.

Having another version of the same point is certainly helpful, but as you can probably tell, this presentation of the point is actually more confusing than the previous one.

Oreskes begins by stating that there was “a problem of market failure.” She then points out that electricity was understood from the beginning to be a natural monopoly, which, as we mentioned, is a “market failure” in the technical sense. But in the next breath, she notes that electric companies “had pretty much failed to electrify rural areas,” implying that this too was a “market failure.”

A number of issues immediately come to mind. Does she mean to say that the lack of rural electrification was a “market failure” in the technical sense? Was it due to it being a natural monopoly? I’m not aware of any economist who has ever made that argument. Is she arguing that failing to provide electricity to rural America was an example of a monopolist reaping monopoly gains by restricting supply?

Alternatively, maybe she switches, mid-thought, from using “market failure” in the technical sense to a colloquial sense. That is the interpretation I personally find most plausible. But to do that, without noting that that’s what you’re doing, and having just discussed the natural monopoly character of electricity, is seriously, seriously misleading. In fact, I actually favor a third interpretation: Oreskes has no idea what she’s talking about, and so she isn’t even aware that her choice of terminology is problematic.

Perhaps her interview with the Institute for New Economic Thinking will help clear things up. Here’s what she says on this topic there:

We focus in the earlier part of the book on three major market failures. One is the problem of child labor. …A second place we see the argument taking place is in debates over workman’s compensation. …And then the third place we see this has to do with electricity, which in some ways is the most conspicuous market failure of all, because we like to believe that if people want something, if people need something, then the private sector will provide it to them. And electricity was something that people really liked. The rhetoric around electricity in the early twentieth century is just gushing about how fantastic, what an incredible advance it is to have electricity in people’s homes, to light up their lives, quite literally. But the private sector was not providing electricity to rural customers, because they claimed it was too expensive to run lines and they wouldn’t make sufficient profits.

The fact that child labor and workman’s compensation are also cited as examples of “market failure” seems to be good evidence that Oreskes is not generally using the term in its technical sense. Is child labor a natural monopoly problem? An externalities problem? What about workman’s compensation? It seems clear that when Oreskes says “market failure” she primarily means “the free market creates outcomes people don’t like,” and not “the free market operates inefficiently due to prisoner’s dilemma problems.”

Her remarks in other interviews seem to confirm this conclusion. Here is her comment to the Stanford Graduate School of Business, for example:

This is a really important early example of market failure. People recognize that the model of electricity that has developed in the United States, which is mostly based on the notion of a regulated natural monopoly, but with private sector operation, is failing rural Americans. The private sector model has done a good job brining electricity to urban residents, but not to rural Americans because, and GE said this explicitly, the rural customer doesn’t have enough money to be a profitable customer.

One other interview is worth highlighting, partly to provide additional context for the “market failure” rhetoric, but also to set the stage for the ideological dispute about economic efficiency:

Speaker 1: Now why would they [electric utility companies] want to be against rural electrification? Because it wasn’t as profitable, because you were serving fewer and fewer customers, but you had to stretch these lines out miles…?

Speaker 2: That’s right. It’s a high capital cost investment to string wires all over the countryside for very little return, so they simply didn’t want to do it. And there was evidence from Canada, for example, from Western Europe, both of which—most countries in Western Europe electrified faster than the United States did even though most of the technologies were invented here, because the states got involved and said, “Look, this is good for people overall.” And that’s just not the message that American utilities wanted said.

Oreskes: Yeah and I think that’s a really telling point, because the advocates of the free market will always tell us how free markets are more efficient, but actually if you look at the history of electricity, what you see is that the countries in which the government got involved in electricity, where they saw electricity as a public good and not just a commercial commodity, those countries electrified more quickly, more extensively, and often at lower cost than in the United States.

Oreskes here invokes the rhetoric of a “public good,” which, like “market failure,” has both a technical meaning and a range of colloquial meanings. Does she mean electricity has the properties of non-excludability and non-rivalrousness, as the technical meaning refers to? That seems doubtful. Again, show me an economist who has made that argument.

What she more likely means by “public good” is perhaps “something that should be provided by the public sector.” Hence, these countries “saw electricity as [something that should be provided by the public sector] and not just [something that should be] a commercial commodity.”

Setting the conversation about rhetoric aside, Oreskes makes an especially explicit dig at free market advocates in this comment. The history of electricity, she argues, demonstrates the vacuity of the argument that free markets always maximize efficiency.

The truth is it demonstrates precisely the opposite.

The General Rule of Economizing

The crucial thing to understand is that the electricity industry’s failure to electrify rural America in the 1920s is not evidence of the free market failing, but evidence of the free market working. This is counterintuitive at first glance, but it makes perfect sense once you understand the economic reasoning.

This reasoning begins with the recognition that society faces a fundamental scarcity problem. We have virtually unlimited wants, but only a limited amount of land, labor, and capital that can produce the goods and services that fulfill those wants. This means we face unavoidable trade-offs. Devoting factors of production to one output means those factors can’t be devoted to other outputs. Resources used to create electrical services are resources that can’t be used to create theatres, schools, hospitals, cars, and so on.

The scarcity problem forces us to economize our resources, that is, to come up with a rank-ordering of our most important wants and devote our resources to the ones at the top of the list, leaving the rest unfulfilled.

The process of economizing is straightforward for an individual. Say you have $5 to spend in a candy shop, where each candy costs $1, and there are dozens of different types of candies to choose from. You would love to have lots of every kind, but you can only pick out five candies. You decide that your preference scale is as follows:

1. A first lollipop

2. A first chocolate bar

3. A first jujube

4. A second lollipop

5. A first freezie

6. A second chocolate bar

7. A third lollipop

8. Etc.

With $5 to spend and this preference scale, you would get yourself two lollipops, a chocolate bar, a jujube, and a freezie. If you had $6, you would use the sixth dollar on a second chocolate bar. If you had $4, you would forego the first freezie.

Now let’s say you’re not very good at economizing. With the same preference scale above and $5, you decide to buy two chocolate bars, a single lollipop, a jujube, and a freezie (let’s assume for pedagogical purposes that such an error is possible). But before making the purchase, a friend comes in to show you the issue. “You value a second lollipop more than a second chocolate bar, don’t you?” they might ask. “Shouldn’t you have gotten two lollipops instead of two chocolate bars?” Of course, you realize, and you correct your mistake. Your initial allocation of dollars was uneconomical given your value scale. You weren’t getting as much bang for your buck as you could have gotten.

From this example we can derive what might be called the general rule of economizing: never take an item lower on the value scale at the expense of an item higher on the value scale. Economy means starting at the top of the value scale and using additional resources to fulfill successively less urgent needs, without skipping any in the priority list.

The concept of opportunity cost is a key component of this framework. Opportunity cost is the value associated with the most desirable opportunity that must be foregone to gain a certain benefit. In the value scales above, for example, the opportunity cost of a first freezie is the value of a second chocolate bar. Out of all the opportunities that must be sacrificed to obtain the first freezie, the second chocolate bar is the one that’s worth the most to you. It’s worth “paying” this cost, however, because we value a first freezie more than a second chocolate bar, even though we also value the second chocolate bar very highly.

Now consider the situation where we get a second chocolate bar by foregoing a second lollipop. In this case, the benefit is not worth the cost. The most valuable of the opportunities we lost—getting a second lollipop—is more valuable than what we gained—a second chocolate bar.

As we can see, the general rule of economizing can also be phrased as: never pursue a choice where the opportunity cost is greater than the benefit.

Society’s Central Economic Problem

Now that we’ve covered economizing for an individual, let’s go back to thinking about society. Much like an individual has a certain scale of values and a certain number of resources to spend on fulfilling as many of the highest-ranked values as possible, we could say that “society” has a certain scale of values and certain resources it can use to satisfy them. The values are things like healthcare, housing, food, education, entertainment, and so on. The scarce resources that can be used to satisfy them are the factors of production, that is, various kinds of land, labor, and capital.

But, unlike for an individual, we face a bit of a problem. Every consumer has their own personal preferences about what is more important. Some people value housing very highly. Others value healthcare highly, and so on. What’s more, there are thousands of production pathways to choose from. The question is, how should we allocate scarce factors of production among the vast array of possible production pathways to best satisfy the “aggregate value scale” of consumers?

This is the central economic problem society faces.

One solution would be to have the government decide where factors are allocated. Maybe they will decide that 10% of the economy would be devoted to healthcare, 15% to housing, 10% to food, 2% to entertainment, and so on. But this seems like a poor way to solve the problem. How does the government know which production processes best coordinate factors of production to meet the most urgent needs of consumers? It seems like they can at best come up with a very crude allocation.

Another option is to allow a free market to operate and let the chips fall where they may. What would happen then?

It’s clear that the free market would at least move in the right direction. If only a few factors of production were available, businesses would put them to work meeting our most basic needs, like food and shelter. As more factors become available, businesses would devote them to progressively less important ends. No free market is going to produce the first units of entertainment at the expense of the first units of food.

But one of the key insights from economics is that a market that has developed a common medium of exchange—money—can do a lot better than a crude estimate. Once we have money, we can express the prices of consumer goods in terms of money. Just as important, we can express the prices of factors of production—land, labor, and capital—in terms of money as well. As we will see shortly, this opens up the possibility of comparing the value “to society” that is created in a given production process with the value that could have been created in other production processes with the same resources. In other words, it allows us to calculate both the expected benefit of a given production process and the expected opportunity cost. And where we can calculate both the benefit and the opportunity cost in the same units (namely dollars, euros etc.), we can apply our general rule of economizing—never pursue a choice where the opportunity cost is greater than the benefit. This is what Austrian economists are referring to when they talk about economic calculation.

Say a business owner is considering renting a factor of production that’s priced at $80/month. An important question is, why does it cost $80/month? Where does that price come from?

Well, like all prices, it comes from supply and demand. But the demand in this case comes, not directly from consumers, but from other businesses bidding to use that factor in their own production processes. Those bids are in turn determined by how much those businesses expect to increase their revenue by using one more unit of that factor (called the “discounted marginal value product” in economics jargon). Hence, the price has settled around $80 because the other businesses competing for that factor expect to increase their revenue by about that much by using an additional unit of that factor.

Drawing on this understanding, we can think of the $80 as representing the value that can be generated for consumers with a unit of that factor somewhere else in the economy. As Rothbard writes in Man, Economy, and State, “To the individual firm, the price of a factor established on the market is the signal of its discounted marginal value product elsewhere. This is the opportunity cost of the firm’s using the product, since it equals the value product that is forgone through failure to use the factor unit elsewhere.”

Now let’s say I’m a capitalist contemplating a project that will cost $1 million. That $1 million will be spent on land, labor, and capital, that is, factors of production which could be doing other useful things in the economy—useful to the tune of $1 million—but will instead be withdrawn from those lines if I choose to hire them. Now, say I expect to generate $1.2 million in revenue from my project (we’ll ignore discounting for simplicity). This project is enticing for me, because I expect it to be profitable.

But it’s also enticing for consumers. By “offering” me $1.2 million in revenue, consumers are indicating that the products I plan to deliver are worth that much to them. Meanwhile, the products they will have to sacrifice to make this project happen are worth $1 million to them. The opportunity cost is less than the benefit. If the project was expected to take a loss, of course, the reverse would be the case.

The rest of the argument is probably self-evident from here. Just as it would be uneconomical for an individual to purchase an item lower on their scale of values at the cost of a higher item, so it is “uneconomical” from the perspective of consumers for businesses to pursue projects that make losses, because a loss indicates that the products which had to be foregone because of this initiative were more valuable than the products which were created. This is why the electric industry “failing” to electrify rural America in the 1920s is an example of the market working. The market’s job is not to pursue every initiative that would be valuable, but to put resources into those projects that are expected to be the most valuable and avoid putting them toward projects where the opportunity cost to consumers outweighs the benefit. The market “failing” to electrify rural America on account of anticipated losses is thus a beautiful example of the market succeeding at its actual job, which is conserving resources. It successfully resisted the temptation to pursue less-valuable projects at the expense of more-valuable projects—a temptation that Oreskes would have it yield to.

The critical thing to understand is that by pursuing profits, businesses naturally allocate resources in the direction of the best outcome for consumers. By trying their hardest to make as much money as possible, entrepreneurs, as if guided by an invisible hand, are ipso actu trying their hardest to satisfy the most urgent demands of consumers as “economically” as possible.

Mises put it this way in his 1949 treatise Human Action:

The amount of money to be expended in every branch of profit-seeking business is determined by the behavior of the consumers. If the automobile industry were to treble the capital employed, it would certainly improve the services it renders to the public. There would be more cars available. But this expansion of the industry would withhold capital from other branches of production in which it could fill more urgent wants of the consumers. This fact would render the expansion of the automobile industry unprofitable and increase profits in other branches of business. In their endeavors to strive after the highest profit obtainable, entrepreneurs are forced to allocate to each branch of business only as much capital as can be employed in it without impairing the satisfaction of more urgent wants of the consumers. Thus the entrepreneurial activities are automatically, as it were, directed by the consumers’ wishes as they are reflected in the price structure of consumers’ goods.

Mises makes a similar point in his 1922 book Socialism:

Secondly, calculations of this sort provide a control upon the appropriate use of the means of production. They enable those who desire to calculate the cost of complicated processes of production to see at once whether they are working as economically as others. If, under prevailing market prices, they cannot carry through the process at a profit, it is a clear proof that others are better able to turn to good account the instrumental goods in question.

… In the capitalistic system profits can only be obtained if production meets a comparatively urgent demand.

Mises echoes this idea in his 1951 paper Profit and Loss:

The task of the entrepreneur is to select from the multitude of technologically feasible projects those which will satisfy the most urgent of the not yet satisfied needs of the public. Those projects for the execution of which the capital supply does not suffice must not be carried out. The market is always crammed with visionaries who want to float such impracticable and unworkable schemes. It is these dreamers who always complain about the blindness of the capitalists who are too stupid to look after their own interests. Of course, the investors often err in the choice of their investments. But these faults consist precisely in the fact that they preferred an unsuitable project to another that would have satisfied more urgent needs of the buying public.

To apply Mises’s comments to the present question, we can say that rural electrification, if it is expected to make losses and thus cannot raise the necessary capital in a free market, must not be carried out. Why? Because it would satisfy less urgent needs than the alternative projects which could have been pursued with the same resources. That is what losses mean.

The Austrian economist Joseph Salerno explicitly made the comparison between the market process and an economizing individual in his 1992 paper Mises and Hayek Dehomogenized:

Thus, from the ex ante standpoint, the market economy is perfectly efficient, because entrepreneurial decisions based upon monetary calculation always result in the appraisement and allocation of resources in strict accordance with anticipated consumer preferences, in the same manner in which the choices of an individual actor produce a pattern of resource use reflecting his value ranking of expected satisfactions.

With this economic understanding in mind, the error in Oreskes’s thinking becomes clear. Let’s recall her dig at free market proponents, which she clearly views as a slam dunk:

Yeah and I think that’s a really telling point, because the advocates of the free market will always tell us how free markets are more efficient, but actually if you look at the history of electricity, what you see is that the countries in which the government got involved in electricity, where they saw electricity as a public good and not just a commercial commodity, those countries electrified more quickly, more extensively, and often at lower cost than in the United States.

Do you see the issue? Oreskes, focusing exclusively on that which is seen, notes that the free market is pursuing rural electrification at a more sluggish pace than interventionist markets (the “lower cost” point is not really a fair comparison. Different contexts will always have different prices). She concludes from this that the free market clearly lacks the efficiency its proponents claim for it. But she is defining efficiency purely by the pace of development in this one sector. When we consider the market as a whole, it becomes clear that slow rural electrification is a sign of resource conservation and economy, and that the governments which pursued otherwise loss-generating electrification projects did so at the expense of more urgent initiatives elsewhere. The very mechanism that Oreskes highlights as a bug of the free market system, namely, its refusal to pursue projects at a loss, is in fact the central feature that makes it optimally efficient. But when you lack any concept of scarcity, trade-offs, opportunity cost, and the need to economize factors of production—then I suppose it looks quite bad that the market is refusing to provide what is clearly a very valuable service.

Over-legislation

While the Austrian school has done well to express the preceding argument in the language of modern economics, one of the best presentations of this point that I am aware of was delivered two decades before the marginal revolution, in Herbert Spencer’s penetrating 1853 essay Over-legislation. Having argued with copious examples that private enterprise is, as a rule, organized and efficient, while government is bumbling and wasteful, Spencer anticipates an objection:

“Much of this argument is beside the question,” will rejoin our opponents. “The true point at issue is, not whether individuals and companies outdo the State when they come in competition with it, but whether there are not certain social wants which the State alone can satisfy. Admitting that private enterprise does much, and does it well, it is nevertheless true that we have daily thrust upon our notice many desiderata which it has not achieved and is not achieving. In these cases its incompetency is obvious; and in these cases, therefore, it behooves the State to make up for its deficiencies: doing this, if not well, yet as well as it can.”

Spencer begins his response by noting that these things have a way of resolving themselves given enough time. The market may not be providing something today, but for all we know it is already preparing to provide it tomorrow. “But there is yet a deeper reply to the appeals of impatient philanthropists,” he adds.

It is not simply that social vitality [the free market] may be trusted by-and-by to fulfil each much-exaggerated requirement in some quiet spontaneous way—it is not simply that when thus naturally fulfilled it will be fulfilled efficiently, instead of being botched as when attempted artificially [i.e. by government]; but it is that until thus naturally fulfilled it ought not to be fulfilled at all. A startling paradox, this, to many; but one quite justifiable, as we hope shortly to show.

Spencer goes on to highlight the economizing nature of the free market—how it allocates resources to the most important needs first and then successively less important needs, just like an individual:

As the private man first ensures himself food; then clothing and shelter; these being secured, takes a wife; and, if he can afford it, presently supplies himself with carpeted rooms, and a piano, and wines, hires servants and gives dinner-parties; so, in the evolution of society, we see first a combination for defence against enemies, and for the better pursuit of game; by-and-by come such political arrangements as are needed to maintain this combination; afterwards, under a demand for more food, more clothes, more houses, arises division of labor; and when satisfaction of the animal wants has been provided for, there slowly grow up literature, science, and the arts. Is it not obvious that these successive evolutions occur in the order of their importance?

Spencer gives the example of a new town being created from scratch, and how businesses arise to fulfill, first the most important needs such as food and shelter, and then successively less important needs:

Every phase of this evolution takes place in the order of its necessity; or, as we say, in the order of the intensity of the desires subserved. Each man does that which he finds pays best; that which pays best is that for which other men will give most; that for which they will give most is that which, under the circumstances, they most desire. Hence the succession must be throughout from the most important to the less important. A requirement which at any period remains unfulfilled, must be one for the fulfilment of which men will not pay so much as to make it worth any one’s while to fulfil it—must be a less requirement than all the others for the fulfilment of which they will pay more; and must wait until other more needful things are done.

The same principle holds true for society as a whole:

Well, is it not clear that the same law holds good in every community? Is it not true of the latter phases of social evolution, as of the earlier, that when things are let alone the smaller desiderata will be postponed to the greater? Hence, then, the justification of the seeming paradox, that until spontaneously fulfilled, a public want should not be fulfilled at all. It must, on the average, result in our complex state, as in simpler ones, that the thing left undone is a thing by doing which citizens cannot gain so much as by doing other things; is therefore a thing which society does not want done so much as it wants these other things done; and the corollary is, that to effect a neglected thing by artificially employing citizens to do it, is to leave undone some more important thing which they would have been doing; is to sacrifice the greater requisite to the smaller. [emphasis added]

Though Spencer made this point in 1853, the formal economic reasoning about marginal productivity would not be formulated for another few decades, and Mises’s famous calculation argument didn’t come until 1920. Thus, those in the 1920s who favored government intervention could at least say that, at the time of their dispute, marginalist economic science was still in its infancy, and the modern argument for free markets had only recently been expounded for the first time and had not yet stood up to decades of scrutiny.

An opponent of the free market in the twenty-first century has no such excuse.

“You cannot tell the story of New York without our small businesses, and yet our city has often made it too hard for them to open their doors and keep them open,” said Mamdani. “The owners tell us the same thing again and again. What wears them down is not simply the cost of any one fee, it is the paperwork and the inconsistency they face when dealing with their own government.”

Mamdani highlighted some of the more notable reforms in his announcement of the initiative. “In a win for every ice-cream lover across New York City, we will work with the state to do away with the frozen desert permit that requires restaurants to seek out a superfluous second permit for what they’re already doing, serving food,” he said. “No more treat-xploitation, as we say.” Har har.

He also drew attention to changes for barbershops. “Right now, barbershops need three licenses to cut hair: one to be a barber, one to own the shop, and one from the city on top of both. This state is frankly anti-fade, and we will not stand for it, which is why we will work with the state to streamline these licenses as well.”

For a third example, he highlighted reforms for the bingo industry. “And to the bingo enthusiasts out there,” he said, “for too long the potential earnings of a hot streak at bingo have been capped by arcane rules that no longer reflect how the game is actually being played. With OPEN, DCWP will remove unnecessary regulations including prize limits.”

Looking at the complete list of proposed reforms provides some more context for the kinds of changes being discussed. One reform in the restaurant industry, for example, reads as follows:

Every restaurant must have a supervisor on site trained in food protection whenever the business is operating. Earning that Food Protection Certificate means taking a City course and passing a City exam, and today that means traveling to a single City-run location to do it. The Department of Health and Mental Hygiene (NYC Health Department) will enable the mandated course with the exam to be available at multiple locations citywide by authorizing third-party providers to offer it.

Another three reforms in the restaurant industry are summarized as follows: “The Health Department will reduce the maximum penalty from $600 to $500 for three violations related to preventing cross-contamination across foods.”

Turning to industrial and commercial businesses, another proposed reform targets scrap metal processing:

State law requires that all scrap metal processors obtain a license from their local municipality. Since DCWP does not see a consumer protection need to maintain this license, DCWP will seek to carve out New York City from this requirement to remove the burdens of licensure from the businesses that currently hold the City-level license.

Another reform (technically two reforms) reads as follows:

Scale dealer repairers, the businesses that sell and service the commercial scales used to weigh goods for sale, currently renew their license every year. DCWP will extend that renewal cycle from 1 year to 2 years, and storage warehouse licenses from 2 years to 4 years.

Giving Credit Where It’s Due

A number of reactions came to my mind—all within about 5 seconds—when I first heard this announcement.

My first reaction was a mix of surprise and gratitude that the left is actually moving in the right direction for once. Even though this is Against the Left, I will always give credit where it’s due. Red tape is a real problem, and freeing up the market will always be a welcome step to me, no matter who is doing it. Even a broken clock is right twice a day.

That reaction was quickly replaced by another. As I posted on X, “…libertarians have been calling attention to these kinds of problems for decades. We’re glad the left is finally conceding we’ve been right about this all along, but why did it take them so long?”

It’s important to be clear about the history of the “red tape” discourse, lest anyone give the left too much credit for this move. It is not the case that Mamdani and his supporters, in a moment of unprecedented political brilliance, discovered for the first time in 2026 that red tape is a problem, and that reducing it might help the economy work a little better. Libertarians, and to a lesser extent conservatives, have been belaboring this point since forever—making arguments which, as a matter of course, have fallen on deaf leftist ears.

Is Mamdani going to call out his fellow leftists for being stubbornly opposed to even an inch of deregulation for all these years? Is he going to acknowledge that, unlike the left, libertarians have been good on this issue since it first became a problem, and that everyone else should have listened to us way earlier?

I’m not holding my breath.

A third reaction was prompted by the specific content of the proposed reforms, which was refreshingly concrete. It occurred to me that most people’s first thought upon hearing about these reforms would probably be something along the lines of: “Wow, I had no idea all these regulations even existed in the first place.” By highlighting their deregulation efforts, the Mamdani government inadvertently shone a big spotlight on the regulatory status quo, and the revelation of that status quo was probably the most noteworthy part of this announcement for a lot of people.

Indeed, there seems to be a general naiveté about the amount of red tape that businesses have to navigate. This adds to the libertarian fury over this issue—we’re convinced that if people were simply more informed about the amount of red tape that’s out there, like we are, then they would agree with us that it’s way too much. So really, Mamdani has done us libertarians a huge favor with this announcement. By simply drawing attention to the layers of regulations that exist—which you can’t avoid doing if you want to talk about how those regulations will be changing—Mamdani has probably won more converts to the anti-red-tape cause than the entire liberty movement has in the last 5 years combined.

To sum up what we’ve covered so far, my first reaction was “let’s give credit where it’s due, even a broken clock is right twice a day.” My second was “the left is quite late to the anti-red-tape party and is still on net part of the problem. They ought to acknowledge that libertarians have been right about this all along and that the left has been the pro-regulation side for the most part.” My third reaction was “this could do wonders for the anti-red-tape movement, because what most people are going to take away from this is a much clearer picture of just how much red tape is out there.”

But all of these were quickly dwarfed by my fourth and final reaction, which is that these reforms are pathetically minor and inconsequential.

Mamdani the Moderate

One of the things that has always bugged me about politics (since becoming a libertarian, anyways) is the rhetoric of “reform.” To me, that word reeks of cowardice, timidity, and incrementalism. It is the word for people who do not want to rock the boat, for people who simply want to make a few adjustments to policy on the margin, nothing big or meaningful or consequential.

It’s far too anodyne for this radical.

Where politicians say reform, I say abolish. Don’t tell me you’re going to “slash red tape” and then—checks notes—reduce fines from $600 to $500 for food safety violations. That’s not slashing red tape. That’s a joke.

Mamdani says the city will cut the permit specifically for serving frozen desserts. First of all, to echo Reaction 3 above, can we all take a second to appreciate how insane it is that this ever existed in the first place? Anyways, to Mamdani’s proposal I say, “why not make a more meaningful change and eliminate the first permit as well?” I have never understood why we have to beseech the government for permission to sell food (note that obtaining a “permit” means the government is “permitting” us to operate). I get that they are worried about food safety, but as far as I’m concerned, it’s the customer’s responsibility to decide for themselves what risks they want to take in that regard. Let the buyer beware. That may sound ridiculous, and like it would lead to all sorts of terrible outcomes, but as with most pro-freedom proposals, it only sounds that way because most people aren’t familiar with what that would actually look like in practice. People need to be far more open-minded about these things.

The barbershop reform Mamdani mentioned reads as follows:

A barber shop [sic] owner currently needs three separate permits to operate: a New York State barber occupational license to cut hair, a New York State Barber Shop Owner/Renter License to run the shop, and a New York City Barber Shop Permit on top of both. The City and State will work together to streamline these requirements.

Streamline? How about eliminate all three of them? I understand two of these are state-level and so are beyond the control of the municipal government, but I don’t see Mamdani calling on Albany to abolish these licenses. Why not?

As for the Food Protection Certificate, a meaningful change would be to get rid of the requirement altogether, not just making the course and exam available in more locations.

We could go through all the rest of the reforms with a similar line of criticism. It’s funny because Mamdani is in many ways considered a radical politician. His reputation is for pushing outside the Overton Window and doing things other politicians are too afraid to do. But, at least on this issue, the verdict has to be that Mamdani is as moderate as they come. There is nothing in this announcement that is bold, groundbreaking, or original. None of these changes will meaningfully impact the ability of New York City businesses to be successful. It is frankly a missed opportunity.

All of this forces me to revisit my first reaction, that we should give credit where it’s due and applaud these reforms. It’s true that these reforms move in the right direction from a libertarian perspective. But at what point do the reforms become so marginal, so meaningless, that we are entitled to throw up our hands and say directionality being correct doesn’t really matter when the pace is almost indistinguishable from no movement at all?

I’m fed up with “small wins” that seem to get smaller every year. I’m fed up with being expected to cheer every time some politician throws us libertarians a bone. These reforms make a mockery of slashing red tape. And I’m starting to wonder if that’s something us libertarians should simply refuse to applaud.

“Taxation for social services hints at an equitable trade,” Chodorov writes.

…It suggests a quid pro quo, a relationship of justice. But, the essential condition of trade, that it be carried on willingly, is absent from taxation; its very use of compulsion removes taxation from the field of commerce and puts it squarely into the field of politics. Taxes cannot be compared to dues paid to a voluntary organization for such services as one expects from membership, because the choice of withdrawal does not exist. In refusing to trade one may deny oneself a profit, but the only alternative to paying taxes is jail. The suggestion of equity in taxation is spurious. If we get anything for the taxes we pay it is not because we want it; it is forced on us.

One can’t help but see a parallel here with the much more famous quote from Joseph Schumpeter, in his 1942 book Capitalism, Socialism, and Democracy. “The theory which construes taxes on the analogy of club dues,” Schumpeter writes, “or of the purchase of the services of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of mind.”

In his 1967 obituary for Chodorov, Murray Rothbard indicates that “Taxation is Robbery” was his first real encounter with radical libertarianism, and specifically with the argument that taxation is theft:

I shall never forget the profound thrill—a thrill of intellectual liberation—that ran through me when I first encountered the name of Frank Chodorov, months before we were to meet in person. As a young graduate student in economics, I had always believed in the free market, and had become increasingly libertarian over the years, but this sentiment was as nothing to the headline that burst forth in the title of a pamphlet that I chanced upon at the university bookstore: Taxation is Robbery, by Frank Chodorov. There it was; simple perhaps, but how many of us, let alone how many professors of the economics of taxation, have ever given utterance to this shattering and demolishing truth? Frank was always like that; while the pusillanimous rightists pleaded with our rulers to cut the income tax by a few percent, Frank had the perception and the profound honesty to “tell it like it is.”

Since taxation is a core part of almost all the political philosophies that are fashionable in the modern era, many arguments have been offered to defend the practice from this charge. Some people insist that taxation is not theft, and there are a few different arguments for why that is. Others concede that it is theft, but for one reason or another think that the theft is morally justified in this case.

In a recent article, I took up the argument that taxation isn’t theft because we benefit from government services, and so we owe them compensation for those benefits, as well as the argument that it’s not theft because we made a “collective decision” to have taxes. As part of that discussion, I mentioned in passing a different argument that is often made: that taxation is not theft because “you can always leave,” so by staying in the country you implicitly agree to the “social contract.” Since I wasn’t about to jump into that discussion in that piece, I simply added a link to one of my favorite videos rebutting that argument.

However, since the “you can always leave” argument is such a common talking point, I realized it deserves much more than a passing comment with a link. It deserves an article of its own. The present article is intended to fulfill that role.

The Tale of the Slave

A good example of this argument coming from the left can be found in Nathan Robinson’s 2019 piece for his publication Current Affairs, “Why Taxation Is Neither Theft Nor Slavery.” In fact, this is one of the most thoughtful pieces on the “taxation is theft” question that I have ever come across from the left.

We’ll get to the “you can always leave” section in short order, but first I want to address some of the other points Robinson makes.

Robinson begins by taking up the question of whether taxation is slavery:

It’s hard to think anyone who says this really believes it. In this country, slavery was a condition under which people could be beaten to death if they refused to work, under which women could be raped, their children sold away from them. A slave could be told to do a task and punished for not doing it, a slave could be prohibited from marrying or forced to marry.

Robinson is responding to a tweet from Grover Norquist:

Robinson finds the comparison ludicrous:

To compare these two situations seems to me to involve such a detachment from reality that I hardly even know where to begin. It trivializes the harms of slavery, by comparing the condition of the slave to the condition of the present-day American super-wealthy—the freest, most privileged people in human history. If you think high marginal tax rates are slavery, then I’m sure you wouldn’t mind changing places with an actual slave. After all, it’s the same. They wouldn’t be losing anything, right? And if they think they would be losing something, well, that something is precisely the difference between having to pay your taxes and being a slave.

Robinson is really missing the point here. Clearly, there are important differences between American chattel slavery and taxing the rich. No one is saying they are the same degree of moral wrong. What we’re arguing is that they fall into the same category.

In the same way, there is a big difference between embezzling millions of dollars and embezzling $5, but both acts are rightly called embezzlement.

What is the argument that taxation is a kind of slavery? Norquist hints at it in his tweet. Essentially, libertarians begin by stipulating a situation that everyone would agree is clearly slavery. Then, we make small modifications to the thought experiment that make the situation a little less heinous, at each step asking, “Is this still slavery?” The common-sense answer at every stage is “yes.” Eventually, we are describing the status quo of taxation, which appears to have no meaningful difference from all the earlier situations which were acknowledged to be slavery.

The standard presentation of this argument is Robert Nozick’s “The Tale of the Slave,” which comes from his 1974 book Anarchy, State, and Utopia. I would be curious to hear Robinson’s answer to Nozick’s question: at which step is this no longer the tale of a slave? And, of course, what is it about that step that changes the analysis?

The Standard Lockean Argument

Speaking of Nozick, Robinson goes on to attribute to Nozick “the argument that taxing someone means forcing them to work.” But before quoting Nozick on this, Robinson quotes “a libertarian paraphrasing the argument, explaining why it follows logically from the principle that people ‘own themselves.’” Some Googling reveals our mystery libertarian to be Mark Stoval, and our mystery source to be an article from his blog. Here is the section of Stoval’s piece that Robinson quotes:

If you do believe in self-ownership you must agree that this means that people own their time, talents and labor. Nozick argued the standard Lockean argument for private property that we produce goods by mixing our labor and talents with resources and goods in the natural world. This mixing generates the ownership of the items we have modified and made valuable. Now, if the government taxes our income it is taking away our time, talents, and goods produced by our labor. Taxation is the taking of our labor and talents by force which means that the taking means effectively that the government owns our talents and labor and so owns us. According to Nozick (and so very many others), taxation means that the government takes away our self-ownership which is called slavery.

Robinson first takes issue with the “standard Lockean argument.” Pointing to a “charming Socratic dialogue” from Matt Bruenig (a pithy piece that’s well worth the read), Robinson basically scoffs at the idea that you can acquire a property right in something by “mixing your labor” with it:

If I go into a public forest, and I carve a tree into a totem pole, do I now own the tree? After all, the totem pole is a fruit of my labor. What if I carve my name into it? If I open a can of soup into the ocean, spreading the soup far and wide, do I own the ocean? Who decides when I have put in adequate labor for a thing to become mine? This idea that you can claim pieces of the commons and call them “yours” is what led P.J. Proudhon to declare that “property is theft”: By fencing off a park and calling it mine, I am stealing it from other people. They used to have access to it, and now they don’t.

Robinson’s argument here reminds me of another argument I recently responded to. In that case, Relearning Economics asserted that property rights were not inherent in nature but were mere social conventions. As I put it, his position was that there are no ethical property rights, only legal property rights. Chodorov reminds us that this discussion is closely tied to the highly useful concepts of malum in se and malum prohibitum.

That Robinson is making essentially the same argument is confirmed by a later section in his piece:

More importantly, though: I do not believe that billionaires have any property right in their wealth in the first place. They have a legal right, but that doesn’t mean very much. Legal rights are created by laws, and so if you change the laws you change the rights. The question is whether there is some kind of “natural” entitlement to wealthy people having their vast wealth, and there isn’t.

The left is smart to take aim at this Lockean doctrine, because it really is the foundation of the whole libertarian philosophy. But their attacks are not without responses.

The libertarian philosopher Michael Huemer addressed a version of this argument in his 2017 article “Is Taxation Theft?,” one of the best articles on the subject I have come across. Huemer lays out three common counter arguments to the idea that taxation is theft and provides responses for each of them. The first is the social contract argument, including the “you can always leave” point—which we’re getting to, I promise. The second is the argument we are dealing with presently, namely, that property rights are merely a legal category. The third is a version of the free-rider-fairness argument.

Regarding the idea that “there are no property rights independent of government laws,” Huemer responds as follows:

Imagine that you travel to a remote region outside any government’s jurisdiction, where you find a hermit living off the land. The hermit hunts with a spear of his own making, which you find interesting. You decide (without the hermit’s consent) to take the spear with you when you leave. It would seem correct to say that you “stole” the spear. This shows the implausibility of [the idea that there are no property rights independent of government laws].

Much like Bruenig’s Socratic dialogue, Huemer takes us back to the state of nature with a Robinson Crusoe-style thought experiment. But his moral intuition is vastly different. Whereas Bruenig sees a would-be homesteader as a violent thug, Huemer sees the homesteader as perfectly moral, and in fact sees the homesteader’s antagonist as the violent thug. Both think their view is self-evident.

I’m afraid this is the point where we hit an impasse, because neither of us seem to have a way to convince the other that our personal moral intuition is correct. So my ultimate response to Robinson scoffing at homesteading theory is to simply scoff back. “Are you seriously contending,” he is saying, “that mixing your labor with nature in a certain way creates a property right?” To which my response is, “Are you seriously contending that it doesn’t?”

Robinson goes on to quote Nozick in Anarchy, State, and Utopia:

Seizing the results from someone’s labor is equivalent to seizing hours from him and directing him to carry on various activities. If people force you to do certain work, or unrewarded work, for a certain period of time, they decide what you are to do and what purposes your work is to serve apart from your decisions. This process whereby they take this decision from you makes them a part-owner of you; it gives them a property right in you.

Robinson doesn’t see the equivalence, and I’m inclined to agree with him on this point. Theft and forced labor are different things. And, with some important exceptions such as conscription, filing your taxes, jury duty, and prison camps, forced labor isn’t a thing governments typically do a lot of.

But I don’t think the argument for taxation being slavery rests on it being “equivalent” to forced labor. Suppose a master tells his slaves “You may choose to work or not to work, but if you do work, I get a cut of the earnings, the size of which I determine.” There is no forced labor here, but that doesn’t mean there is no slavery.

Supposing Taxation Is Theft, Does That Mean It’s Necessarily Wrong?

Having covered the question of whether taxation is slavery, Robinson turns to the matter of whether taxation is theft. But before diving in, he issues a pre-emptive caveat: even if it turns out that taxation is theft, that doesn’t mean it’s necessarily wrong:

The word theft is used to imply that taxation is illegitimate, but it could be that taxation is both a kind of theft and is completely acceptable. How? Because Jean Valjean was correct to steal that loaf of bread. It wasn’t “not stealing.” But it was fine. Unless you believe property rights are absolutes, that there is no other moral consideration that can override them, then we have to weigh the “sanctity of ownership” against other factors like “people’s lives.” Even the staunchest libertarians do not think property rights are absolutes—and if you press them on where to draw the line, they squirm, as you can see in this fascinating exchange between libertarian Bryan Caplan and socialist Elizabeth Bruenig [wife to the aforementioned Matt Bruenig]. Caplan says that obviously, if something he owned were necessary to save the universe, his property rights wouldn’t trump everything else. But when she asks him “Why?” he flounders and sputters until the moderators [sic] steps in to save him. (Read the Current Affairs review of Caplan’s book here.) He struggles because once he announces a principle for why certain outcomes are bad enough that they justify overriding property rights, it won’t take much to make the case that today’s socialists are justified in seeing widespread material deprivation as bad enough to trump property rights.

A few points are worth making in response. First, Robinson is incorrect that “even the staunchest libertarians do not think property rights are absolutes.” My friend LiquidZulu, for instance, is a property rights absolutist. He wouldn’t violate property rights even to save the universe. I personally don’t go that far, but I think it’s important to recognize that there are libertarians out there who do.

As for the Caplan debate, you can watch it for yourself and draw your own conclusions, but my impression is that Bruenig interrupted Caplan’s train of thought with an awkwardly phrased question, so it took him a second to parse it and then formulate a response. He flounders because live public speaking is difficult, not because he doesn’t have a good answer.

When he does get around to a response it’s quite well-reasoned. His ultimate answer is that “to come up with a general algorithm is neither possible nor necessary, because moral intuition is more than enough.” He goes on to give a shoutout to Michael Huemer’s 2013 book The Problem of Political Authority, describing it as the “one libertarian philosophy book that I swear by.”

Speaking of Huemer, he concludes his 2017 article by anticipating and responding to the exact point Robinson is making here:

If taxation is theft, does it follow that we must abolish all taxation? Not necessarily. Some thefts might be justified. If you have to steal a loaf of bread to survive, then you are justified in doing so. Similarly, the government might be justified in taxing, if this is necessary to prevent some terrible outcome, such as a breakdown of social order.

Why, then, does it matter whether taxation is theft? Because although theft can be justified, it is usually unjustified. It is wrong to steal without having a very good reason. What count as good enough reasons is beyond the scope of this short article. But as an example, you are not justified in stealing money, say, so that you can buy a nice painting for your wall. Similarly, if taxation is theft, then it would probably be wrong to tax people, say, to pay for an art museum.

In other words, the “taxation is theft” thesis has the effect of raising the standards for justified use of taxes. When the government plans to spend money on something (support for the arts, a space program, a national retirement program, and so on), one should ask: would it be permissible to steal from people in order to run this sort of program? If not, then it is not permissible to tax people in order to run the program, since taxation is theft.

If Robinson concedes that taxation is theft, he cannot merely say “well theft is justified for all the things I want the government to do anyways.” It’s clearly not.

Why ‘You Can Always Leave’ Doesn’t Work

After a few other comments, Robinson finally gets around to the argument we are most interested in:

There is a dimension of the “taxation is theft” argument that I think is worth mentioning: the interesting conception of “force” involved. The argument is quite simple: Taxation is a threat—give the Leviathan your money or go to jail, and if a private citizen did that they would be a mugger. But there’s another important aspect to this: Not only are you not forced to earn an income or be rich, but you could always go and live somewhere else. Perhaps a floating artificial city, perhaps Bermuda, perhaps the moon. There is an important argument that if you choose to continue living in the United States, you accept its social contract.

There it is, the famous argument that you accept the “social contract” because “you can always leave.” Since you are allowed to leave, and you choose not to, you clearly consent to be taxed, we are told, and thus it is really a voluntary payment.

The bitbutter video I linked to in my other piece—which was one of the first videos I came across as a budding libertarian and remains one of my favorite libertarian videos to this day—gives the decisive rebuttal:

Person A: Yes, yes, okay, so maybe taxation does depend on threats of violence. But that doesn’t mean that taxation is theft. Every citizen is bound by the social contract. You live in a country knowing what’s expected of you, and what the punishments are if you don’t follow the rules. If you really don’t like the terms, most states do allow you to leave. And I know what you’re going to say: “I never signed a social contract.” But that doesn’t matter. When the bill arrives in a restaurant, you have an obligation to pay even though you didn’t sign anything. It’s the same kind of the thing with the social contract. By staying in a country, at least after you’re old enough to leave, you’re agreeing to abide by the rules, and you’re granting permission to have certain kinds of force used against you if you don’t stick to those rules.

Person B: Hang on a second. The restaurant boss gets to set the rules because he owns the restaurant. It’s being the owner of a thing that gives you the right to say who gets to use it and how. Some people say that a social contract exists between the state and the citizen. Okay. But how did the state come to be the owner of the land it imposes its laws on? It’s important to know, because if it’s not the owner, then the state has no authority to set the terms of us of that land, and it’s actually aggressing against the people it taxes.

Person B goes on to spell out the Lockean homesteading logic for how one can become an owner of land, showing that the state didn’t follow Lockean rules and so is not the legitimate owner of the territory it claims. Hence, the “you can always leave” argument is invalid, and taxation is in fact theft.

Bully Logic

Michael Huemer puts it this way in his 2017 article:

Remaining present in “the government’s territory” also does not indicate agreement to the putative social contract. This is because the government does not in fact own all the land that it claims as “its territory”; this land is, rather, mainly owned by private individuals. If I own some land that other people are using, I can demand that the other people either pay me money or vacate my land. But if I see some people on their land, I cannot demand that they either pay me money or vacate their own land. If I do that, I am a thief.

Imagine if I went to a friend’s house and declared “Anyone who continues to live in this house after the next 24 hours consents to pay me $10 per day. If they don’t want to pay the daily tax, they are welcome to leave at any time and stop paying me.” This is ridiculous, because I’m acting as if I own the place. (Huemer presents a more detailed version of this argument here.)

Now say the friend pushes back. He refuses to pay the tax despite remaining in his house and being made aware of my terms. At that point I might issue warnings. “Don’t make me do this to you,” I say, brandishing a gun. The friend still doesn’t hand over the money, so I say, “You leave me with no choice,” and take the money from him by force, and maybe put him on house arrest.

He will protest, of course, but he gets no sympathy from me. After all, he was the one who chose to be difficult. “You need to learn that choices have consequences,” I tell him. “Losing your movement privileges is the consequence of disobedience.”

This is what I call bully logic, and it happens all the time with governments. Picture a schoolyard bully. He threatens to punch a kid if the kid doesn’t hand over a toy. And the phrase is “don’t make me do this to you.” What a curious form of logic. The bully is framing the situation as if he is reluctantly “being made” to punch the kid in response to the kid’s “disobedience.” The bully is acting as if he and the kid are both bound by a set of ironclad rules. The kid was given a choice, so it’s really his own fault if he gets punched. In this logic, the victim is putting the bully into a difficult situation by disobeying, like a child disobeying their parent. The parent doesn’t want to inflict punishment, but the child broke “the rules,” so the parent “has no choice” but to enforce them.

The absurdity of this framing, of course, is that the bully is acting like they have authority to set “the rules” on this playground. And yet that’s exactly how governments act, and they get really annoyed when their subjects are “being difficult” by refusing to “cooperate” or insisting that they have no moral obligation to obey the government. It’s telling that “Don’t make me hurt you” is not only the go-to line of schoolyard bullies, but also of cops.

A Leftist Argument for Taxation Being Theft?

Sensing that there is something off about the “you can always leave” argument, Robinson, right after making it, proceeds to offer a rebuttal to his own point, though not quite along the same lines as the libertarian response. What results is a fascinating line of thinking, an honest wrestling with ideas from a sincere leftist.

Robinson essentially raises a point that I have long wanted to make to the left but have never gotten around to. And the point is this: if leftists consider it coercion for an employer to say “accept these terms or leave your job,” isn’t it even more coercive for a government to say “pay these taxes or leave the country?” If even a worker is not consenting because leaving the job isn’t a meaningful alternative, surely leaving the country is an even less meaningful alternative, and so a taxpayer, on the left’s own terms, is not consenting. Just as an employment contract does not necessarily imply consent to the terms of employment, so the social contract does not imply consent to the terms of citizenship.

Robinson puts it as follows:

You could immediately object by saying that this is not a meaningful “choice”: A dictator could say “I haven’t restricted free speech by banning newspapers, because they could always go and publish in some other country.” Not everyone has the ability to go and live on the moon. Funnily enough, this is kind of a “leftist” argument: “Choice” is not just a matter of whether you consent, but about the pressures that cause you to feel like you have to consent.

After expanding on this point, he shows us where it leads:

Let’s accept, then, that the left theory of coercion is correct: Just because people enter an institution “voluntarily,” doesn’t mean they lack rights vis-a-vis the institution, even if the “contract” says so. Wouldn’t that mean taxation is theft? Now, part of me wants to strike a bargain: If conservatives will say that employers steal surplus value from employees, I will say that taxation is theft, albeit perfectly justified and democratically voted-for theft that is returned to you in the form of countless important services.

Robinson appears to concede the argument. Forget what conservatives are willing to say, the point is that Robinson says employers “steal” from their employees, and he recognizes that the same logic used to defend that argument also points to taxation being theft, so if he’s going to make the former point, he has to accept the latter. So suddenly the argument shifts from “taxation is not theft because…” to “taxation is theft, but it’s justified because…”

But having raised this idea, he quickly backs away from it on the argument that there are no “natural” property rights anyways. A wealthy person has no basic entitlement to their wealth, so taxing them isn’t really stealing. A worker, on the other hand, presumably does have a basic entitlement to what the left considers to be a fair employment contract.

A Timeless Debate

To sum up, we are told that taxation isn’t theft because you can always leave the country, and by choosing to stay you are implicitly agreeing to the social contract. Libertarians object that this logic only works if the government is the rightful owner of all the territory it governs, and according to Lockean homesteading principles it’s not. The left responds that Lockean homesteading principles are silly. There are no “natural” property rights, so taking Lockean-based property without consent isn’t inherently theft. Libertarians simply scoff back. Lockean homesteading principles seem like common sense to us.

Anyone who has thought about this question in any depth is eventually tempted to take the conclusion Robinson ends up going with: “Whether he [the taxman] is a thief or not, philosophers can argue about endlessly, I’m sure.” Once you get deep enough in this discussion, you realize it hinges on fundamental debates about metaphysics, categories, definitions, state-of-nature thought experiments, and so on.

But one thing Robinson and I seem to agree on is that if you accept Lockean property rights, the conclusion that taxation is theft logically follows. And I would simply submit that Lockean property rights are self-evident, as Huemer’s hermit-with-a-spear thought experiment is intended to demonstrate.

Bruenig’s Socratic dialogue mocking Lockean homesteading theory is indeed charming. But I raise Robinson Michael Huemer’s Socratic dialogue “The TV Contract,” mocking the concept of a social contract, including the “you can always leave” talking point.

Perhaps, in a battle of moral intuitions, the most persuasive philosophical arguments come in the form of wit and satire.

Though many may not be familiar with Brock’s work, he’s an important player in the libertarian discourse. In Matt Zwolinski’s much-discussed March 2025 article “Libertarianism’s Democracy Problem,” Zwolinski refers to one of Brock’s articles as a “damning critique,” a reference which Brock highlights in this piece.

So, let’s see what Brock has to say in this obituary for libertarianism, and whether it stands up to scrutiny.

Libertarianism and Feudalism

Brock opens as follows:

I was once young, stupid, and libertarian because the idea that people should be free to pursue their own ends is just a beautiful idea to me. But a funny thing happened along the way: I started finding problems with the political theories in the libertarian world. They had a tendency to be really focused on property rights, and those arguments, taken to extremes, could lead to perverse incentives. In fact, it seemed to me, upon fully thinking it through years into my libertarian journey, that if property rights are inviolable, then there is no room for public goods in the end. You regress to fiefdoms. To feudalism. Then the question at the end is: what liberty is left after all that?

As with many on the political left (I don’t know if Brock would adopt that label, but he’s taking what I consider to be a leftist angle), Brock is, to put it nicely, using words in ways I find bizarre. This will basically be the main theme of my response, and it starts right here in the opening paragraph with the use of the word feudalism.

Merriam-Webster dictionary defines feudalism as follows: the system of political organization prevailing in Europe from the 9th to about the 15th centuries having as its basis the relation of lord to vassal with all land held in fee and as chief characteristics homage, the service of tenants under arms and in court, wardship, and forfeiture.

Murray Rothbard uses a broader definition in his 1982 book The Ethics of Liberty. As he writes in a footnote:

The term “feudalism,” as used here, is not intended to apply to any specific landed or other relation during the Middle Ages; it is used here to cover a single kind of action: the seizure of land by conquest and the continuing assertion and enforcement of ownership over that land and the extraction of rent from the peasants continuing to till the soil.

In support of this definition Rothbard cites a 1973 lecture by the sociologist Robert Nisbet.

Regardless of which of these definitions we use, it seems clear that an essential feature of feudalism is a violation of the Lockean property ethic. Land is conquered, that is, taken by force, and thus, in the Lockean perspective, an injustice has been committed. The feudal lord is not the rightful owner of the land. He is a usurping thief.

With this understanding in place, the issue with Brock’s point becomes clear. If an essential element of feudalism is a violation of property rights, how can a system that is all about upholding property rights possibly be described as feudalistic?

The answer seems to be that Brock has a different definition of feudalism in mind. To him, it seems, feudalism occurs any time someone can exercise absolute sovereignty over a piece of land and the people on it. The medieval lords had complete dominion over their land. Likewise, libertarians would give property owners complete dominion over their land. Libertarians would even allow a property owner to regulate speech on their land—which is true. Surely, Brock argues, there is no difference between that and the feudal systems of the past.

But there is a difference. Feudalism violates legitimate property rights. Libertarianism upholds them. Absolute sovereignty doesn’t necessarily make a situation feudalistic, so it does not follow from the fact that libertarians endorse a form of absolute sovereignty that libertarianism is equivalent to feudalism.

The Rhetoric of Liberty

After some other comments, Brock continues his argument:

This sounds principled until you realize what it means in practice. If property rights trump every other consideration, then those with property set the terms. Those without property accept them. And because property compounds—wealth generates more wealth, ownership enables more ownership—you get systematic concentration of power in private hands.

The libertarian response is always: “But that’s not coercion! These are voluntary exchanges!” But this only works if you define coercion so narrowly that it excludes most of how power actually operates. If you own the land, the resources, the means of production—and I own nothing but my labor—then the “choice” I face between working on your terms or starving isn’t meaningfully voluntary. It’s domination that doesn’t require a state to enforce it.

Here Brock makes one of the most common leftist talking points, complete with all the usual rhetoric: power, coercion, voluntary, choice, domination. The issue, as he rightly points out, is that these words have multiple definitions. Libertarians tend to interpret these words exclusively through the lens of property rights, whereas others don’t. For instance, voluntary to a libertarian means no property rights were threatened or violated. In that sense, “work or starve” is totally voluntary.

I could try to argue why we should adopt the libertarian understanding of all these words, but I’m not sure that would be a valuable use of time. For one, I kind of agree with Brock that these words often have wider meanings than merely referring to property rights being violated or respected (there’s a sense in which a boycott is “coercive,” for example). More importantly, I’m not interested in arguing semantics.

So, instead of saying that “coercion” is wrong, or that things should be “voluntary,” or that we should respect “free choice” and limit “power” and “domination,” I’d rather just say that, as a general rule, it is moral to respect property rights as libertarians understand them, and it is immoral to violate property rights as libertarians understand them. When we put our position that starkly, there is no opportunity for word games, for leftists to say something like “you aren’t really against coercion/power/domination because private actors sometimes do coercion/power/domination and you’re totally fine with that.” Fine. You’re right. Maybe we shouldn’t have used that rhetoric. Instead, maybe we should just say: We’re against property rights violations. Private actors don’t typically do property rights violations, which is why, at least with respect to this principle, we don’t typically have a problem with them.

Call it what you want.

‘Freedom Requires Constraint’

Brock continues:

And here’s where it gets interesting: thinkers like Hoppe don’t deny this. They embrace it. In Democracy: The God That Failed, Hoppe explicitly describes a society of “covenant communities” built around private property and contract rights, where businesses would be free to exclude homosexuals and others—and argues this would be a good thing. The right to exclude becomes absolute. The fascist tendency reveals itself at the bottom of a libertarianism that has no conception of the common good.

Yes, we absolutely embrace the right to exclude being absolute—keeping in mind, of course, that defending someone’s right to do a thing is very different from defending the thing itself. And now the epithet fascist is used along the exact same mistaken lines as feudalism was used earlier. Fascism is a statist doctrine. As Mussolini and Gentile wrote in their 1932 essay The Doctrine of Fascism, “If [classical] liberalism spells individualism, Fascism spells government.” The fact that both libertarianism and fascism believe someone should have absolutely sovereignty over a certain piece of land hardly implies the existence of a “fascist tendency” in the former. If you define fascism merely as the existence of absolute sovereignty, of course, then libertarianism and fascism have no meaningful distinction. I submit that this is a poor definition.

Jumping down a bit—it’s a long piece so we’ll need to skip a lot, but it’s honestly quite repetitive so much of the skipped content is redundant—Brock makes the following comment:

Classical liberalism understood what libertarianism forgot: freedom requires constraint. Not freedom from government but freedom through government—through rule of law, constitutional limits, democratic accountability. Government isn’t necessary evil. It’s the moral good that makes liberty possible for ordinary people, not just those who own property.

Is Brock trying to do an Orwell impression? Because he’s doing a very good job of it.

Jumping further down:

Classical liberalism understands that freedom requires democratic institutions, not their absence. That rule of law protects liberty precisely by constraining what the powerful can do. That property rights serve human flourishing when embedded in frameworks of mutual obligation and the common good. That government isn’t the enemy of freedom but its foundation—the means by which we collectively secure the conditions that make individual liberty possible.

This isn’t compromise. It isn’t settling for less freedom. It’s recognizing what freedom actually is and what it actually requires.

When you say you value liberty, ask yourself: liberty for whom? Just for those with enough property to live independently? Or liberty for everyone, including those without inherited wealth, those without perfect health, those without the advantages that compound over generations?

If your answer is “liberty and justice for all”—not as empty slogan but as genuine moral commitment—then there’s only one tradition that delivers it. Not libertarianism, which treats property as ultimate and accepts whatever hierarchy emerges from that. But classical liberalism, which treats human dignity as ultimate and builds institutions designed to secure it for everyone.

We can now add freedom, liberty, and hierarchy to our list of words that have both a libertarian and a non-libertarian meaning (Isaiah Berlin’s distinction between positive and negative freedom comes to mind). Which means we can add them to the list of words that need to be discarded if we want to be clear about anything. Brock ensures us that laws which violate property rights do not entail “settling for less freedom” because “it’s recognizing what freedom actually is.” In other words, when you define freedom like I do, then freedom means what I mean by it. Of course, and libertarians could say the same thing. And we’re all talking past each other because no one in the conversation is willing to name what’s going on, that we’re all using different definitions of the same words, and trying to make our point by insisting that ours is the “real” or “proper” or “correct” definition.

You want to say that government actually promotes “freedom?” Great, then I am against what you call “freedom.” And I am for what I call “freedom,” which is respecting property rights.

Likewise for the word “hierarchy.” I am against coercive, sorry, “property rights violating” hierarchies, and I am fine with voluntary, sorry, “property rights respecting” hierarchies. It does not bother me in the slightest that a corporation has managers and subordinates. Does it bother you?

This might actually explain the seemingly Orwellian language. When Brock says “freedom requires constraint” maybe what he means is “freedom in the way I understand it requires a lack of freedom in the way you understand it.” Which is perfectly true.

Libertarianism or Classical Liberalism?

Brock later starts wrapping up:

The question for those who still identify as libertarian is simple: Do you want to be part of this? Do you want your philosophy to provide cover for people explicitly working to end democratic self-governance? Do you want your arguments about freedom to be weaponized by those building a new aristocracy?

Or do you want to return to a tradition that actually delivers on the promise of liberty—the classical liberal tradition that understands freedom requires democratic institutions, that property rights serve rather than supersede human dignity, that we govern ourselves collectively or find ourselves governed by those with no obligation to serve our interests?

This isn’t a call to abandon your values. It’s a call to embrace a framework that actually embodies them.

That last line is interesting. Brock seems to think most libertarians genuinely share his democratic, egalitarian values, and have just accidentally adopted a framework that goes against those values. I don’t think that’s right. We went into this with our eyes wide open. We chose libertarianism over classical liberalism because we knew and liked the fact that it is “working to end democratic self-governance” and so on (we would of course contest the “new aristocracy” rhetoric along similar lines as feudalism and fascism). So he is absolutely calling on us to abandon our values, specifically property rights. And my response is “No thanks.”

Toward the end of his piece, Brock makes his final appeal:

Classical liberalism offers what libertarianism promised: a world where people are free to pursue their own ends, where power is dispersed and constrained, where no one has to accept subordinate status. But it achieves this through democratic institutions rather than their absence. Through collective self-governance rather than market fundamentalism. Through recognizing that liberty and justice for all requires all of us working together to maintain the conditions that make freedom possible.

Do you see how silly these discussions get when we can’t agree on the meaning of words? Being in favor of having the government regulate corporations is being pro-freedom, we are told, because it stops the big powerful corporations from dominating people. Submitting to the government is our best way to avoid anyone having subordinate status, because you see, by subordinate status I mean something totally different from the property rights view.

Around and around we go.

So where does this leave us? For one thing, libertarians are tired of these word games. We’re tired of all the equivocation. We’re tired of being told that, if you think about it, libertarianism is no different from tyranny—as long as you define tyranny the “right” way.

We’re also tired of people talking as if us libertarians don’t understand our own doctrine. Maybe you didn’t understand it during your “libertarian phase.” But most of us are well aware of where property rights lead when you take them seriously. We’ve read our Rothbard, and we became libertarians because we saw where this philosophy goes when you take it all the way and we loved the idea.

Libertarians are not misguided classical liberals. We are people who wholeheartedly believe in the radical property rights vision, including all the parts where it violates democratic, classical liberal sensibilities.

And as long as we’re around, libertarianism will remain far from dead.

Since Raghuveer’s video is a fairly good primer on tenant unions, it seems intuitive that a response piece would be the perfect opportunity to write a primer on the problems with tenant unions, so that’s the goal.

Raghuveer opens by explaining the basic premise:

In the workplace unions exercise power to secure a better and more affordable life for workers. So why can’t we do that to secure better and more affordable housing? Well, we can, by forming tenant unions. The basic premise of a tenant union is that there are more of us, tenants, than there are of them, our landlords. But that only matters if we’re organized. And it’s never been more important to get organized.

The tenant union movement is self-consciously borrowing from the much more established concept of labor unions. In the same way that workers can “get organized” and go on strike to win concessions from their oppressive employers, the idea is that tenants can go on “rent strikes”—collectively refusing to pay their rent—and engage in collective bargaining to pressure their oppressive landlords into treating them better.

“The idea that tenants’ associations could help with housing affordability is both intuitive and complex,” writes Nick Romeo in a 2024 article for The Guardian.

…For workers, collective bargaining is an effective tool to improve pay, benefits and working conditions. In principle, extending the same model to the private housing market could help renters win vital concessions. But the analogy to labor unions is partial: there’s no federal agency like the National Labor Relations Board to enforce laws governing their activities and negotiations. In fact, many states have no laws protecting tenants’ associations, or organizing.

Romeo is right to highlight the complexity of the concept. There is already considerable debate regarding the economic impacts of labor unions, as well as on how they should be treated by the law. But at least on those questions there is decades of literature we can draw on to inform our respective stances. Tenant unions have been analyzed far less, and it would be imprudent to assume too hastily that the arguments concerning the former all translate smoothly to the latter.

Raghuveer proceeds to talk about how housing has become increasingly unaffordable, an observation which will get no pushback here. I especially appreciate that she draws attention to the average household, which puts a considerable portion of its budget toward housing. While most political debates tend to be abstract and far away from the ordinary person, the housing crisis is something that visibly impacts many of us in our day-to-day lives.

The Difference Between a ‘Rent Strike’ and a Labor Strike

Raghuveer’s proposed solution is tenant unions, and to illustrate how this strategy can work she points to the story of an apartment complex called Independence Towers:

Just outside of Kansas City, Independence Towers was a dump. Leaks, asbestos, broken appliances, you name it. The tenants were paying higher rents than they’d ever paid for the worst conditions they’d ever endured.

…The Tower’s residents formed a tenant union. They issued demands to their landlord. No response. They escalated through rallies and press. No response. They pressured Fannie Mae, the building’s federal lender, they organized tours for their congressman, still nothing. So on October 1, 2024, they launched a rent strike, with over 50% of the building withholding rent together. The strike lasted eight months, the longest and largest in regional history. The tenants withheld nearly $300,000 in rent. In the end, the strike got them to the bargaining table with the building’s new owner. The union negotiated new leases, rent freezes, and a schedule for major repairs. And best of all, the tenants kept all the rent they had withheld during the strike.

It seems clear that Independence Towers was poorly maintained, and that residents were right to be angry. But it seems equally clear that a so-called “rent strike” is a flagrantly unjust way for tenants to advocate for their interests.

Just as tenant unions are meant to be an analogy to labor unions, the concept of a “rent strike” is intended to be understood as a parallel to a labor strike. Society has decided it’s just for workers to withhold their labor in protest, we are told, so this is “just the same thing” but with rent.

The problem is that it’s not the same thing, because striking workers don’t get paid.

An employment contract is an agreement to trade something of value for something else of value. The worker gives their labor time. The employer gives their money. When a strike occurs, the worker stops working and the employer stops paying them for the duration of the strike. It’s as if the trading agreement is paused. Both sides stop giving value to the other until the agreement resumes.

But a “rent strike” is different—and I’m keeping it in scare quotes because I don’t want to cede this rhetoric. In a landlord-tenant contract, the tenant provides money and the landlord provides housing. For a “rent strike” to be a true parallel of a labor strike, both sides would have to temporarily stop providing value to the other, that is, the tenant temporarily stops paying rent and the landlord temporarily stops providing housing. In other words, the tenant would have to be evicted for the duration of the “strike.”

When a tenant stops paying rent but also refuses to leave, it does not come to pass, as in a labor strike, that the trading relationship is temporarily paused. Instead, it comes to pass that the tenant gets something for nothing. It would be the equivalent of striking workers insisting that they be allowed to strike with pay, which is not so much a strike as it is blatant theft.

Consider the concept of wage theft, which occurs when an employer withholds wages which are rightfully owed to an employee. The left correctly protests when this occurs, because it is a clear injustice. But if those same leftists turn around and withhold rent that is rightfully owed to a landlord, they prove themselves to be complete hypocrites. Their real principle is not that theft is wrong, it’s that theft is fine as long as the person doing it is part of a favored group, one of the “oppressed” rather than one of the “oppressors.”

There’s a broader pattern here where sympathetic special interest groups—tenants, labor unions, the poor, etc.—are given de facto permission to occasionally violate clear principles of justice that are otherwise universally recognized. It is remarkable to me that such a double standard is tolerated and even celebrated. Shouldn’t justice be blind? To paraphrase a classic Lysander Spooner quote, no one has yet ever dared advocate, in direct terms, so monstrous a principle as that partiality in justice is good and laudable so long as it is in favor of a sympathetic case.

The Economics of the Housing Market

Raghuveer continues:

Tenant unions like the one at Independence Towers aren’t just critical for improving material conditions for the tenants on the property. They’re also the best chance we have to rebalance the scales of power in a market that’s now increasingly dominated by massive corporations. For the last decade or so the market has been under siege by institutional investors who have been buying up single and multifamily housing. Big-time investors in private equity companies now own one out of every ten apartments nationwide.

This is a classic talking point from the left that I really struggle to take seriously. We are told that the housing market is “under siege” as if there is some massive monopolization going on. But the numbers just don’t support that kind of rhetoric. Raghuveer presents the “one in ten” number as if it’s supposed to be indicative of rampant concentration. To me, that very statistic is indicative of just the opposite—that this industry is highly competitive.

After some other comments, Raghuveer makes another classic leftist talking point:

The bottom line is that the housing market is a catastrophic failure. This is the result of a relentless prioritization of profits over people and our basic needs. Rent isn’t a measure of the quality or condition of our homes. It’s whatever those who control the market will allow.

Raghuveer’s claims here are difficult to square. On the one hand, she insists that landlords have pursued a “relentless prioritization of profits.” And yet, she also says that rent levels are determined by “whatever those who control the market [i.e. landlords] will allow.” The question naturally arises, if landlords are both greedy and control rental prices, why aren’t they charging double, triple, or even ten times as much as they actually do? The fact that rents are not in the stratosphere indicates that one of her two propositions must be false.

It’s like the classic problem of evil. If God is all powerful and all good, why does evil happen? In this case, if landlords are all powerful regarding rent levels and supremely greedy, why do less-than-extreme rent levels exist? I will leave the problem of evil to the theologians. As for the economic argument, it seems clear that either landlords are not supremely greedy, and that is why rents are not higher, or they are but they don’t have as much control over rental prices as Raghuveer implies. The latter, of course, strikes me as the correct answer. Price is determined by supply and demand, not by “whatever those who control the market will allow.”

Reverse Musical Chairs

Raghuveer continues:

And when we look for solutions to this crisis, we’re often told it’s simple: just build more housing. Now, we do have a housing shortage, but it’s important to be specific. We have a shortage of truly affordable housing. Recently we actually saw the largest boom in multifamily housing production in the last fifty years. But according to Harvard’s Joint Center for Housing Studies, the units built were mostly in the high end of the market. When it comes to affordable options, we’re losing housing faster than we can build because landlords are hiking the rent.

What Raghuveer overlooks here is that people who move into new high-end housing simultaneously move out of their old houses, which then become available. As the economist Bryan Caplan explains, this triggers a cascading effect:

People who move into new construction are moving away from older construction. When they move, those older units become available for others. While those others probably won’t be drastically poorer than those they replace, they tend to be slightly poorer. Think: “one rung down.” When these slightly poorer people move, their prior dwellings will tend to be taken over by those who are a further rung down. And so on, in a great chain reaction. Allowing new construction really does help the whole income distribution.

Caplan likens this process to a game of musical chairs, but in reverse:

Since this is hard to visualize, picture a game of musical chairs. With one key difference. A normal game of musical chairs starts out with one chair per person, then subtracts a chair every turn. The result: Faster, aggressive kids push out everyone else, until the fastest, most aggressive kid wins. In my variant game, we start out with fewer chairs than people, then add a chair every turn. The result: Slower and more pacific kids start getting places to sit, until there are enough chairs for everyone.

When we understand this logic, we can see that, counterintuitively, you don’t need to build more affordable housing to have more affordable housing. You just need to build more housing, period.

And the best way to build more housing is deregulation. That is the real answer to the housing crisis, as Caplan persuasively argues in his 2024 book Build, Baby, Build. Even many prominent leftists have come around to this view.

To sum up, I am totally on board with doing something to make housing more affordable. The libertarian message to tenants is not “your suffering doesn’t matter.” Quite the opposite. Our message is, “Your suffering matters, it’s not your fault, and you are right to be angry—and that’s precisely why it’s important that our response be guided by sound economic reasoning and a high degree of integrity.”

Landlords are easy to blame because they are the most visible parts of this problem. They are the person you pay every month. But the real culprits are actually the neighbours who show up to planning meetings and resist new developments, that is, the NIMBYs. If we want more affordable housing, we need to organize movements that push back against them.

RE opens with the following comment:

The idea that property rights emerge naturally when an individual “mixes labor” with unowned resources sounds intuitive until you ask a simple question: who decides what counts as ownership in the first place?

A farmer can clear a field, but the claim that the field is now exclusively theirs is not a fact of nature. It is a social claim that only exists if others recognize and enforce it. Without courts, governments, customs, or collective agreement, property is merely possession backed by force.

The point of disagreement here seems to be metaphysics. Libertarians assert that, even in the absence of social institutions, a property right, that is, a certain moral “ought,” comes into existence the moment that the “mixing the labor” condition is met. There are certain rules of justice in the universe that exist, and that apply to specific scenarios, regardless of whether we acknowledge them, and regardless of whether they are enforced. It is in this sense that we say property rights “exist” even in the absence of social institutions. The “wrongness” of trespassing is real even if there is no social institution around to recognize it and act on it.

RE seems to take a different view. A claim to a property right does not refer to a universal property ethic, he posits, because such an ethic does not exist. As such, the claim is mere words, proposed rules of engagement, which others can agree to or not.

RE is free to take this stance, but it makes me wonder whether he would take this view for all moral rules, and not simply moral rules regarding property. Is it a violation of a universal moral law to fail to be kind to your neighbour? Or is kindness, like property, neither good nor bad, but simply a proposed rule of engagement to be negotiated with others?

The Lockean Proviso

RE continues:

John Locke’s theory assumes a world of abundant unused land waiting for industrious individuals. That may have been a convenient story for colonial expansion, but it was never an accurate description of reality. Much of the land claimed by European settlers was already occupied, used, or governed by Indigenous peoples whose own property systems were simply ignored.

Locke’s theory assumes no such thing. In fact, Locke was so keenly aware of the “running out of land” problem that he qualified his doctrine by saying that mixing one’s labor only appropriates land “where there is enough, and as good, left in common for others.” (The relevant passage is found in his Second Treatise on Government (1690), Chapter V, Section 27.) The libertarian scholar Robert Nozick would later call this qualifier the “Lockean proviso” in his 1974 book Anarchy, State, and Utopia.

There has been much debate about Locke’s proviso among libertarians, and some find it to be too much of a compromise. Rothbard, for instance, writes the following in his 1982 book The Ethics of Liberty:

A tangential but important point on compensation: adopting Locke’s unfortunate “proviso,” on homesteading property rights in unused land, Nozick declares that no one may appropriate unused land if the remaining population who desire access to land are “worse off.” But again, how do we know if they are worse off or not? In fact, Locke’s proviso may lead to the outlawry of all private ownership of land, since one can always say that the reduction of available land leaves everyone else, who could have appropriated the land, worse off. In fact, there is no way of measuring or knowing when they are worse off or not. And even if they are, I submit that this, too, is their proper assumption of risk. Everyone should have the right to appropriate as his property previously unowned land or other resources. If latecomers are worse off, well then that is their proper assumption of risk in this free and uncertain world. There is no longer a vast frontier in the United States, and there is no point in crying over the fact. In fact, we can generally achieve as much “access” as we want to these resources by paying a market price for them; but even if the owners refused to sell or rent, that should be their right in a free society. Even Locke could nod once in a while.

RE also points out that some Indigenous property systems were ignored, but this is a good thing, because they were incompatible with Lockean homesteading and were thus, in the libertarian perspective, immoral systems. Surely RE would have no problem trampling over my personal property system if my system stated that I own all of North America. Likewise, a system that says “we own this entire territory because our ancestors once hunted here” is wrongheaded, so there is nothing wrong with violating it. If Indigenous people built houses or cultivated fields, of course, it would be wrong for settlers to take that land, because that would violate the Lockean property ethic.

Difficulties with Lockean Homesteading Theory

RE continues:

Labor alone cannot determine ownership. If two people improve the same river, who owns it? If a company extracts minerals that create pollution downstream, whose rights take precedence? If a landlord inherits property and performs no labor at all, does ownership disappear? The Lockean framework provides no clear answers because property rights are not discovered in nature. They are negotiated social institutions.

RE is right to point out that the Lockean framework doesn’t always provide clear answers. His first question highlights this well, though I would be curious what it would look like “improve” a river. An aquaculture setup seems easy enough to deal with, because it is geographically stationary. But what if someone purifies the water somehow? Do they own the purified water regardless of where it flows, or do they own the geographical area where they performed the purification?

His second question is easier to address. Pollution coming into someone’s property counts as aggression, so the owners of the downstream parts of the river can sue.

As for his third question, the simple answer is that ownership, once acquired, persists in perpetuity, with no further labor needed to maintain it, even if the ownership is transferred to someone else. But some libertarians have posited a theory of “abandoned land” which is then free to be homesteaded. How long must land be unused before it falls into this category? The Lockean framework gives us no definitive principle.

Some other issues with Lockean homesteading were raised by Nozick in Anarchy, State, and Utopia. Here, for instance, is one issue he identifies:

What are the boundaries of what labor is mixed with? If a private astronaut clears a place on Mars, has he mixed his labor with (so that he comes to own) the whole planet, the whole uninhabited universe, or just a particular plot? Which plot does an act bring under ownership? The minimal (possibly disconnected) area such that an act decreases entropy in that area, and not elsewhere? Can virgin land (for the purposes of ecological investigation by high-flying airplane) come under ownership by a Lockean process? Building a fence around a territory presumably would make one the owner of only the fence (and the land immediately underneath it).

Rothbard provides an intuitive rule for the question of scale in his 1982 paper Law, Property Rights, and Air Pollution:

In our discussion of homesteading, we did not stress the problem of the size of the area to be homesteaded. If A uses a certain amount of a resource, how much of that resource is to accrue to his ownership? Our answer is that he owns the technological unit of the resource. The size of that unit depends on the type of good or resource in question, and must be determined by judges, juries, or arbitrators who are expert in the particular resource or industry in question.

Pointing to these and other difficulties, RE argues that “The Lockean framework provides no clear answers because property rights are not discovered in nature. They are negotiated social institutions.” To state his argument more formally, if property rights were discovered in nature, they would have clearly defined, universally recognizable boundaries. They don’t, so therefore they aren’t (a standard modus tollens argument).

My issue with this argument is that the first proposition strikes me as an example of the fallacy of the beard, also known as the continuum fallacy. The fallacy has been described as follows:

The [continuum] fallacy is the argument that two states or conditions cannot be considered distinct (or do not exist at all) because between them there exists a continuum of states.

Shall we say that there is no such thing as “having a beard” because it is unclear at exactly which point a beard becomes a beard? Is it true that, because certain edge cases exist where it is difficult to tell whether there is or is not a beard, that therefore the category of “beard” is nonsense, or does not occur in nature? That seems unreasonable.

In the same way, the existence of edge cases where there are “no clear answers” does not mean that there is no such thing as a genuine property right in nature. It just means that the boundaries of the category are fuzzy.

Legal Rights and Ethical Rights

After a few more comments, RE gives his conclusion:

The real question is not whether government should shape property rights. It always does. The question is whose interests those rights serve.

History shows that unrestricted property claims often lead to land concentration, monopoly power, resource depletion, and exclusion rather than broad prosperity. Zoning, environmental protections, and resource regulations are not necessarily assaults on property. They are attempts, sometimes successful and sometimes not, to balance private claims against wider social costs.

Property rights are among humanity’s most important institutions. That is precisely why they should be subject to democratic debate rather than treated as sacred laws of nature.

RE states that the government always shapes property rights, so there is no question of whether it should or not. This is a bit misleading. Clearly the government shapes the laws we must follow. But, as we all learned at Nuremberg, it cannot change universal moral principles, which are immutable. All it can do is either align its laws with those principles or make its laws violate those principles.

There are legal property rights and ethical property rights, and it’s important that we keep those categories separate. The government always shapes legal rights. It never shapes ethical rights. RE’s statement only makes sense if you buy his position that there is no such thing as ethical property rights, in which case legal property rights are the only ones that exist, and so the word “legal” becomes unnecessary.

For his claim that “history shows” such and such, I will appeal to Hitchens’s razor: What can be asserted without evidence can also be dismissed without evidence. As for his zoning comment, I suppose it’s the logical conclusion of his worldview that denies the existence of any universal property ethic. Though I’m not sure he appreciates just how radical that worldview is. A thief stealing your money is not violating any inherent “right” of yours, RE would have to maintain. He is simply violating the laws that happen to be on the books. There is nothing in this world, RE’s view implies, not even your body, that is rightfully “yours” and that would be “wrong” to take from you in the sense of violating a universal law of justice.

For his final comment, RE encourages us to put legal property rights in the hands of a democratic government, as opposed to aligning them with the Lockean conception of ethical property rights. But I fail to see why majority rule is preferable. If a majority votes to enslave a minority, or enact Jim Crow laws, or genocide, what is RE’s principled objection? Shall the sacred laws of the demos trump even the most basic freedoms? Lysander Spooner comes to mind:

To say that majorities, as such, have a right to rule minorities, is equivalent to saying that minorities have, and ought to have, no rights, except such as majorities please to allow them.

That is where RE’s logic inevitably leads.

I often have a difficult time answering this objection, because, in my experience, “the free-rider problem” can refer to at least two distinct arguments, and I’m never sure which of these arguments the person has in mind.

The first “free-rider problem” I’m familiar with is about fairness. If people aren’t forced to pay taxes, the concern is that some people will benefit from non-excludable communal services without paying their “fair share” for them, letting others foot the bill instead. A rich person could make millions with the help of these services without ever contributing a penny to the institution that made his wealth possible, instead free riding off of the beneficence of others.

The second “free-rider problem” I’m aware of, and probably the more well-known one, is about economic efficiency. The concern here is that public goods will not be supplied—or at least will not be supplied sufficiently—in the absence of government intervention. There is thus a market failure created by the existence of positive externalities. National defense is the classic example. In the absence of universal taxation, many people would be free riding off of national defense, deriving benefits without paying for them, which allegedly causes economic inefficiency.

As we can see, both of these versions of the free-rider problem are concerned about someone getting a benefit without paying for it. But the first one objects on the basis of fairness, the second, on the basis of efficiency.

A two-part series feels like a natural way to address these two objections. For Part 1, let’s take a look at the fairness objection.

The Right to Ignore the State

To understand the fairness objection, we first need to understand the libertarian position that it is objecting to. For reasons which will become clear by the end of this discussion, it will be best to begin our presentation of the libertarian position by referring to one of the most important and underrated essays in the entire libertarian canon: Herbert Spencer’s “The Right to Ignore the State.”

“The Right to Ignore the State” forms Chapter 19 of Spencer’s 1851 book Social Statics, a book which Murray Rothbard once described as “the greatest single work of libertarian political philosophy ever written.” In his 1939 introduction to Spencer’s The Man Versus the State, Albert Jay Nock said Social Statics “is to the philosophy of individualism what the work of the German idealist philosophers is to the doctrine of Statism, what Das Kapital is to Statist economic theory, or what the Pauline Epistles are to the theology of Protestantism.”

Aside from these big-name endorsements, the book’s other claim to fame is that it was referenced sneeringly by Supreme Court Justice Oliver Wendell Holmes Jr. when he dissented in the infamous 1905 case Lochner v. New York. Arguing against the very libertarian interpretation of the Fourteenth Amendment that was being put forward, Holmes Jr. wrote that “The Fourteenth Amendment does not enact Mr. Herbert Spencer’s Social Statics.” This was perhaps the most explicit shoutout that libertarianism has ever received from the Supreme Court. The response that comes to mind is: “if only it did.”

I said that “The Right to Ignore the State” forms Chapter 19 of Social Statics. Actually, it formed Chapter 19 originally. Spencer removed the chapter from later editions with little explanation, a fact which will become central to our story. But we’re getting ahead of ourselves.

Spencer’s big idea in Social Statics is the law of equal liberty: everyone may do anything they please, so long as they do not violate the equal liberty of others. He begins “The Right to Ignore the State” by teasing out one of the most radical implications of this principle, namely, a right to adopt a condition of “voluntary outlawry”:

If every man has freedom to do all that he wills, provided he infringes not the equal freedom of any other man, then he is free to drop connection with the state—to relinquish its protection, and to refuse paying towards its support.

It is self-evident that in so behaving he in no way trenches upon the liberty of others; for his position is a passive one; and whilst passive he cannot become an aggressor. It is equally self-evident that he cannot be compelled to continue one of a political corporation, without a breach of the moral law, seeing that citizenship involves payment of taxes; and the taking away of a man’s property against his will is an infringement of his rights.

Government being simply an agent employed in common by a number of individuals to secure to them certain advantages, the very nature of the connection implies that it is for each to say whether he will employ such an agent or not. If any one of them determines to ignore this mutual-safety confederation, nothing can be said except that he loses all claim to its good offices, and exposes himself to the danger of maltreatment—a thing he is quite at liberty to do if he likes. He cannot be coerced into political combination without a breach of the law of equal freedom; he can withdraw from it without committing any such breach; and he has therefore a right so to withdraw.

Spencer goes on to point out that the right to ignore the state follows, not only from his own doctrine—the law of equal liberty—but from the doctrines espoused by the legal authorities of his day:

That a man is free to abandon the benefits and throw off the burdens of citizenship, may indeed be inferred from the admissions of existing authorities and of current opinion. Unprepared as they probably are for so extreme a doctrine as the one here maintained, the radicals of our day yet unwittingly profess their belief in a maxim which obviously embodies this doctrine.

Do we not continually hear them quote Blackstone’s assertion that “no subject of England can be constrained to pay any aids or taxes even for the defense of the realm or the support of government, but such as are imposed by his own consent, or that of his representative in parliament?” And what does this mean? It means, say they, that every man should have a vote. True: but it means much more.

If there is any sense in words it is a distinct enunciation of the very right now contended for. In affirming that a man may not be taxed unless he has directly or indirectly given his consent, it affirms that he may refuse to be so taxed; and to refuse to be taxed is to cut all connection with the state.

To Blackstone’s quote we can add Thomas Jefferson in the Declaration of Independence:

…That to secure these Rights, Governments are instituted among Men, deriving their just Powers from the Consent of the Governed…

Spencer then anticipates an objection, and in addressing it provides the English counterpart to an argument that the American anarchist Lysander Spooner would give nearly two decades later, in his justly famous 1870 essay No Treason No. VI: The Constitution of No Authority. Writes Spencer:

Perhaps it will be said that this consent is not a specific, but a general one, and that the citizen is understood to have assented to everything his representative may do, when he voted for him. But suppose he did not vote for him, and on the contrary did all in his power to get elected someone holding opposite views. What then?

The reply will probably be that, by taking part in such an election, he tacitly agreed to abide by the decision of the majority. And how if he did not vote at all? Why then he cannot justly complain of any tax, seeing that he made no protest against its imposition.

So, curiously enough, it seems that he gave his consent in whatever way he acted—whether he said yes, whether he said no, or whether he remained neuter! A rather awkward doctrine this. Here stands an unfortunate citizen who is asked if he will pay money for a certain proffered advantage; and whether he employs the only means of expressing his refusal or does not employ it, we are told that he practically agrees, if only the number of others who agree is greater than the number of those who dissent.

And thus we are introduced to the novel principle that A’s consent to a thing is not determined by what A says, but by what B may happen to say!

It is for those who quote Blackstone to choose between this absurdity and the doctrine above set forth. Either his maxim implies the right to ignore the state, or it is sheer nonsense.

Consent, to be meaningful, must be able to be withheld. When I go shopping at my local grocery store, I am consenting to pay for their food, because I have the option not to shop there. No one is forcing me to shop there. But if the store owner threatened me with violence if I didn’t shop at his store, then I am no longer shopping there voluntarily. I am not free to choose against that store without my person or property being violated. In the same way, says Spencer, the “consent of the governed” only truly exists if the governed are free to withdraw their consent, to disassociate from the institution called government.

Some may say that the “social contract” obliges us to pay taxes. But contracts made under duress are invalid. A contract is only legitimate if the contracting parties were not coerced into participating. I am only obligated to pay taxes if I had the option not to participate in the government—which would of course include forfeiting any entitlement to their services—without having my person or property molested. Since that option clearly does not exist (the classic “You can always leave” doesn’t work), then my paying taxes is ipso facto non-consensual, and thus, on the very theory of legitimacy held up by Blackston and Jefferson, and classical liberals more generally, governments which do not recognize the right to ignore the state—which is all of them—are all illegitimate and tyrannical.

Hence the great libertarian declaration: Taxation is theft.

The Pons Asinorum of Political Philosophy

Murray Rothbard picks up this theme in his 1973 book For a New Liberty, another work which, to use the author’s own words, could well be considered “the greatest single work of libertarian political philosophy ever written.”

Rothbard writes:

At first, of course, it is startling for someone to consider taxation as robbery, and therefore government as a band of robbers. But anyone who persists in thinking of taxation as in some sense a “voluntary” payment can see what happens if he chooses not to pay. The great economist Joseph Schumpeter, himself by no means a libertarian, wrote that “the state has been living on a revenue which was being produced in the private sphere for private purposes and had to be deflected from these purposes by political force. The theory which construes taxes on the analogy of club dues or of the purchase of the services of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of mind.” The eminent Viennese “legal positivist” Hans Kelsen attempted, in his treatise, The General Theory of Law and the State, to establish a political theory and justification of the State, on a strictly “scientific” and value-free basis. What happened is that early in the book, he came to the crucial sticking point, the pons asinorum of political philosophy: What distinguishes the edicts of the State from the commands of a bandit gang? Kelsen’s answer was simply to say that the decrees of the State are “valid,” and to proceed happily from there, without bothering to define or explain this concept of “validity.” Indeed, it would be a useful exercise for nonlibertarians to ponder this question: How can you define taxation in a way which makes it different from robbery?

He goes on to quote Spooner’s aforementioned No Treason. According to Rothbard, Spooner’s “analysis of the State as robber group is perhaps the most devastating ever written.” The key section of the Spooner quote is this:

It is true that the theory of our Constitution is, that all taxes are paid voluntarily; that our government is a mutual insurance company, voluntarily entered into by the people with each other.

…But this theory of our government is wholly different from the practical fact. The fact is that the government, like a highwayman, says to a man: “Your money, or your life.” And many, if not most, taxes are paid under the compulsion of that threat.

Rothbard’s use of the phrase pons asinorum is worth explaining. Pons asinorum is the traditional name for the isosceles triangle theorem in geometry, which states that the angles opposite the equal sides of an isosceles triangle are themselves equal. The theorem famously appears in Euclid’s Elements and is an important building block in the study of mathematics.

The Latin phrase pons asinorum means “bridge of asses” in English. The popular explanation for this title is that this theorem acts as a test of critical thinking. Those who can follow its logic are ready to move on to more complicated subjects. They can cross the bridge. But many never make it across. They have followed the proofs up to this point, but their inability to grasp this theorem reveals them to be asses, that is, dunces and idiots.

Drawing on this meaning, the term is often used metaphorically to refer to a concept that, when encountered, separates capable and incapable reasoners in a given field.

With this in mind, we can now appreciate what Rothbard is saying. The pons asinorum of political philosophy is the idea that a State is no different from a bandit gang. Those who can follow the logic and agree with the conclusion have proven that they are capable reasoners. But many fail to grasp this point. By their inability to perceive its logic, they demonstrate to the world their lack of critical thinking skills.

We conclude by reiterating that since there is no option to withhold consent without being physically molested, the state is not a voluntary institution providing services for a fee, but a gang of thieves. That it also happens to provide certain services to its victims does not change its essence.

How, in light of this truth, could taxation possibly be defended?

No Man Is an Island

One of the most common defenses of taxation, as mentioned, is the fairness version of the free-rider argument. The leftist pundit Richard Murphy presented his conception of this argument in a popular December 2025 video titled “Tax is not theft: why the ‘it’s my money’ argument is wrong.” He puts it as follows:

Tax is not theft. It cannot be because it is legally collected by a government that has established the law, and we have given it the power to do so.

[A slide on the screen while he says this reads: “Taxation cannot be theft because it is legally collected by a government we have consented to.”]

But anyway, there’s a core mistake that runs throughout the whole of the logic that I’ve just talked about [that says taxation is theft], and that key error is chronological. Income is not created privately, as the first operation in a sequence that the person who makes that claim talks about. The state does not arrive later, after the person has created their income and paid their tax. Instead, the state created the system in which a person’s employment exists. In other words, the state has to come first. Your job and your income come afterwards.

He goes on to describe certain “preconditions to your job and your income existing,” such as the existence of universally accepted money, contract law, property rights, and courts to adjudicate disputes about these things, all of which are provided by the government. “These conditions,” he says, “are part of the invisible foundations that let you be paid.”

Murphy then lists other invisible foundations, such as transportation infrastructure, education, healthcare, policing, and regulations that create trust. “These things underpin the whole foundation of your pay and your employment,” he says. Thus,

Tax is not theft, it’s not confiscation, it’s not punishment. Actually, it’s a reclaim of the money the government spent into the economy to enable you to work. And it’s a reclaim of the value in society that made, again, your work possible. You could not have made your income without the government having facilitated all the opportunity for you to profit… So of course it needs its share back.

Murphy goes on to discuss some other issues and then circles back to his main theme later in the video:

So we need to reframe the “It’s my money” argument that is used as the precursor for the argument that “I don’t want to pay tax out of it.” It is your income, for sure. It was earned by your effort, for sure. But it was enabled by society, definitely, and it was underpinned by the state, and it was underpinned collectively. Everybody got the benefit. This is a system which we can describe as a public good, provided for the benefit of everyone, from which you benefit particularly. So sure it’s your money, in the first instance, if you like, but your obligation to pay tax is chosen and imposed by the state because of a collective decision to do so, and never pretend otherwise.

The first thing to point out is that Murphy falls into the very fallacy that Spencer calls out regarding consent. Murphy insists that taxation is not theft because “we have consented to” the government, because there was a “collective decision” to have taxes. But as Spencer notes, this is “a rather awkward doctrine.” The example of gang rape, though graphic, illustrates well the absurdity of the “collective decision” paradigm. Shall a woman be considered consenting, regardless of what she says or does, because a majority of the group voted for all of them to have sex? Murphy’s tortured definition of “consent” requires him to say yes.

Since the “collective decision” argument has already been rebutted by Spencer, Murphy must make his case based on the only other argument he makes, the free-rider problem. Murphy accuses us of a “core mistake” running through our logic. The alleged mistake is assuming, to use the words of John Donne, that every man is an island. We have overlooked the fact that our income was made possible by a wide array of government services that we have benefited from. Seeing as our income was not entirely produced by our own effort, it’s only fair that the government gets “its share” back. Taxation is not theft. It’s “a reclaim of the money the government spent into the economy to enable you to work.” It is the government taking its rightful share of a jointly produced income.

So then, Mr. Spencer, what do you have to say to that?

Spencer as His Own Critic

In one of the most shocking turns in the history of libertarianism, Spencer basically said “Your reasoning is sound. I take back my claim. There is no right to ignore the state.”

But while Spencer conceded the point, many of his followers didn’t, and so it was left to them to offer a rebuttal, not only against the statists, but now also against their own teacher.

Murray Rothbard tells the story in his 1981 paper The Myth of Neutral Taxation, a paper which, perhaps owing in part to its criminally pedestrian title, has failed to receive the recognition among libertarians that it deserves.

As Rothbard explains, the key text in this story is a rebuttal to Spencer that appeared in the June 1904 edition of Benjamin Tucker’s anarchist periodical Liberty. The article carried the title “Spencer as His Own Critic,” and was attributed to an author known simply as “S.R.”

Spencer had died in December 1903 at the age of 83, and his autobiography was published posthumously in April 1904. Reading the autobiography, S.R. noticed that Spencer had penned some mock reviews of his own works. “Mr. Spencer,” writes S.R., “in order to show the incompetent critics ‘how to do it,’ proceeds to sketch out such a review of Social Statics as might have been written by a thoughtful member of the tribe who had honestly read the book through and given due thought to its arguments.”

S.R. notes that one part of this mock review “is of great and special interest to readers of Liberty.”

…I refer to Spencer’s remarks on that famous and thoroughly Anarchistic chapter, “The Right to Ignore the State,” which he omitted from the [illegible word] revised editions of Social Statics [without] a word of direct explanation, and the [doctrine] of which was tacitly denied in Justice [published in 1891]. In this imaginary review Spencer takes occasion to point out the alleged fallacy of the argument in that chapter—to show that the principle of equal liberty does not involve or lead to the recognition of the right to ignore the State.

S.R. goes on to quote the relevant passage. “Mr. Spencer,” writes the later Spencer in his mock review,

…actually contends that the citizen may properly refuse to pay taxes, if at the same time he surrenders the advantages which State aid and State protection yield him! But how can he surrender them? In whatever way he maintains himself, he must make use of sundry appliances which are indirectly due to governmental organization; and he cannot avoid benefiting by the social order which government maintains. Even if he lives on a moor and makes shoes, he cannot sell his goods or buy the things he wants without using the road to the neighboring town, and profiting by the paving and perhaps the lighting when he gets there. And, though he may say he does not want police guardianship, yet, in keeping down footpads and burglars, the police necessarily protect him, whether he asks them or not. Surely it is manifest… that the citizen is so entangled in the organization of his own society that he can neither escape the evils nor relinquish the benefits which come to him from it.

With this quote as an all-important clue, the mystery of why “The Right to Ignore the State” was omitted from revised editions of Social Statics seems to be solved. Though Spencer never comes out and says it explicitly, his mock review seems to indicate that he came to find the free-rider objection to his initial doctrine compelling. From this we can conjecture that he quietly tried to bury the chapter either out of a desire to avoid further publishing what he now considered to be a poor argument, or out of embarrassment that he ever published it in the first place, or both.

Fortunately for posterity, S.R. would not allow the master to walk back one of his most brilliant insights so quietly. Having presented the quote from the mock review, S.R. proceeds to push back on it—on Spencer’s own earlier grounds. “Spencer the critic is wrong, and Spencer the author is right,” writes S.R. “The former wrote without due thought upon the arguments of the latter, and especially without full realization of the far-reaching implications of the law of equal freedom.”

It is clear, notes S.R., that if there are benefits that can be relinquished, we have every right to relinquish them and stop paying taxes toward them. But what about benefits that can’t be renounced? S.R. asks the crucial question:

Is a man who refuses to pay for incidental advantages he has not solicited an aggressor? Is it a breach of the law of equal freedom to withdraw from a combination that, in working for itself and pursuing its own benefit, indirectly benefits one who is perfectly willing to forego the blessings of the uninvited beneficence?

The argument of Spencer the critic demands revision of the formula of equal freedom. Let me attempt the needful correction: Every man has freedom to do all that he wills, provided he infringes not upon the equal freedom of any other man, and provided further that no one confers upon him benefits which he cannot wholly surrender while remaining a producer and trader. Would this version have satisfied the author Spencer?

S.R. then provides his coup de grâce, a reductio ad absurdum:

Furthermore, if the right to ignore the State be denied for the reason assigned, has an individual the right to withhold proper contributions from neighbors who, individually or collectively, benefit him by caring for their own interests? If my neighbors hire private watchmen, they benefit me indirectly and incidentally. If my neighbors build fine houses or cultivate gardens, they indirectly minister to my pleasure. Are they entitled to tax me for these benefits because I cannot “surrender” them? It is unnecessary to multiply illustrations: the point is clear.

After a few more remarks, S.R. gives us his conclusion:

There were many crudities of thought and style in Social Statics, but the chapter which Spencer subsequently suppressed was one of the soundest and least vulnerable in the book. Spencer’s surrender of that part of his political philosophy remains an amazing fact. It involves the repudiation of the principle of equal freedom.

It is true, as Richard Murphy maintains, that we benefit from many things the state does, and that our income is partially attributable to these benefits. But the doctrine that we therefore owe the state a portion of our earnings—a portion the size of which it gets to decide, no less—results in absurdity when taken to its logical conclusion. It would mean that, should I ever cultivate a nice garden, hire security for my property, or create public goods by some other means, I am justified in marching over to my neighbour’s house and demanding, with the threat of force, whatever payment I think is sufficient to account for the unrenounceable incidental benefits he receives, at least some of which undoubtedly helped him earn his income. Such extraction of payment should not be enjoined by any just court, because after all, it’s not really theft, it is simply collecting the portion of his earnings that is rightfully mine.

The statist who scoffs at this being done by an individual but approves of it when it is done by a government only proves that they have a double standard on morality when it comes to the state, which I would actually argue is the essence of statism. They have fallen for the mystical idea that a government is something more than a collection of human beings and is thus entitled to be held to a looser moral standard.

Saving Face

I mentioned Albert Jay Nock’s 1939 endorsement of Social Statics above. Now that we have covered the history of Spencer dropping the chapter and the posthumous pushback on that decision from S.R., a pushback which was later recounted and endorsed by Rothbard, we have enough context to investigate the part I didn’t mention—that Nock added a footnote to his endorsement.

The footnote is most intriguing in light of what we have now uncovered. Nock writes:

In 1892 Spencer published a revision of Social Statics, in which he made some minor changes, and for reasons of his own—reasons which have never been made clear or satisfactorily accounted for—he vacated one position which he held in 1851, and one which is most important to his general doctrine of individualism. It is needless to say that in abandoning a position, for any reason or for no reason, one is quite within one’s rights; but it must also be observed that the abandonment of a position does not in itself affect the position’s validity. It serves merely to raise the previous question whether the position is or is not valid. Galileo’s disavowal of Copernican astronomy, for example, does no more, at most, than send one back to a reexamination of the Copernican system. To an unprejudiced mind, Spencer’s action in 1892 suggests no more than that the reader should examine afresh the position taken in 1851, and make his own decision about its validity, or lack of validity, on the strength of the evidence offered.

Nock’s comment here is cryptic. He doesn’t tell us which position he’s referring to. But it seems clear, in light of the context provided by S.R. and the comment about the position’s importance to the doctrine of individualism, that Nock is referring to “The Right to Ignore the State.”

It’s hard to say whether Nock was aware of S.R.’s comments in Liberty or the mock review that S.R. refers to. What is key is that, just like S.R. three-and-a-half decades before him and Rothbard roughly four decades after him, Nock goes out of his way to tell the reader that, in his opinion at least, early Spencer was right and late Spencer was wrong on this question. And Nock held this position despite almost certainly being familiar with the free-rider objection.

The reason I emphasize these references is this: It is quite embarrassing for the libertarian intellectual tradition that a leftist can say “Even Spencer, the man who first and most eloquently set forward your position, eventually came to see the exact folly in it that I am now pointing out, and abandoned the position as a result.” That is a serious blow to our credibility, and it is our loss that Spencer is no longer around to be convinced to change his mind back.

But when we can show that a long line of respected libertarian intellectuals—Tucker (as publisher), Nock, Rothbard—over the course of decades insisted with one voice that Spencer was wrong to abandon his earlier position, we can, to a degree, save face. Yes, even Spencer came to find your objection compelling. That is a testament to its strength. But many, possibly even a majority, of Spencer’s followers have refused to make the same concession, even, in some cases, after learning that their esteemed teacher himself made it. That is a testament to the objection’s weakness.

It is always painful to admit that our teachers can err. But Nock is right, we need to weigh each argument on its own merits, not on what its originator later comes to think of it, no matter how brilliant that originator may be. And the merits, as S.R. persuasively argues, are in favor of early Spencer and against late Spencer.

Regrettably, Herbert Spencer was not the only big-name libertarian to find the fairness version of the free-rider argument compelling.

Leonard Read vs. the Anarchists

In 1954 Leonard Read—the founder of FEE and the author of “I, Pencil”—published his book Government: An Ideal Concept. Read was a staunch minarchist (advocating a minimal, night-watchman state), but he never went all the way to anarcho-capitalism, and he actually pushed back on anarchism in this book. The late Brian Doherty (Rest in Peace…what a tragic loss for our movement) recounts the story in his 2008 book Radicals for Capitalism.

“In the early 1950s,” Doherty writes, “Read began to realize that he was surrounded by anarchists. And it worried him. Anarchism, he was certain, wasn’t correct.” One such anarchist friend was Baldy Harper, a FEE staffer who would later go on to found the Institute for Humane Studies in 1961.

Read decided to write down his thoughts on the anarchist question. According to Doherty, the manuscript that became Government: An Ideal Concept was originally titled “In Defense of Government.” One section of the final book was especially revealing—and concerning. According to Read…

Others have a moral right to protect themselves against anyone who would burden their energy, or energy exchanges, against anyone who would siphon off their livelihood. A person who by failure to attend to his own obligation, thereby loading it onto all others, engages in an inhibitive action against the society of which he is a member [sic]. He is not returning an equivalent for benefits and services received—this equivalent being an equitable tax. Thus the agency of society must, in justice, collect from him. This collection does not, therefore, classify as aggressive force, but rather as repellent or defensive force.

Reading between the lines of Read’s characteristically mystical rhetoric about “energy” and such, he seems to be making the exact same point that late Spencer made in his mock review, and that Richard Murphy is making today: it is just for the state to forcibly extract contributions from would-be free riders. Taxation is not theft because it is the just compensation that is owed for benefits received.

As a longtime admirer of Read, I want to be clear that, as with Spencer, I appreciate many parts of his philosophy and consider him, overall, to be a great champion of liberty. But on this particular question I am firmly on the side of his anarchist colleagues, who took great issue with this book. As Doherty writes,

Baldy Harper likened what Read did in this book to building a grand ship named Liberty and then setting sail—after boring holes in the bottom and giving the majority an augur and carte blanche to bore however many more holes they have a mind to.

…Read’s apostasy on forced taxation disturbed many of his friends, board members, and colleagues. They were especially annoyed that he chose to publish the finished product under FEE’s imprimatur (after apparently telling some of them that he had no such intention).

…His anarchist staffers were disappointed that Read did not permit their opposing views to similarly appear under FEE’s aegis, and that he hid attacks on Government: An Ideal Concept mailed to FEE and addressed to all of them. Harper hinted that the pamphlet and its aftermath made him hate Read briefly. Read’s attitude toward taxation made any protestations on his part that he was a true libertarian but bitter gall.

…Eventually Read stopped reading critiques of Government: An Ideal Concept; his heart had hardened to anarchistic arguments. Read violated what some purist libertarians saw as a cardinal rule: Although you were not obligated to take libertarianism to its farther reaches in all your public pronouncements, you at least must ensure that nothing you write directly violates the principle of noninitiation of force. [Elsewhere in the book Doherty refers to the Dallas Accord, which established a similar rule for the Libertarian Party].

Were Read and Harper aware that they were relitigating the very issue that decades earlier had pitted Herbert Spencer against Benjamin Tucker and S.R.? The lack of references to that previous chapter in the history of libertarianism suggests they weren’t. In any case, it’s noteworthy that this specific argument has proven to be a major sticking point for, not one, but at least two major libertarian figures, decades apart. No wonder the left continues to hammer away at it to this day.

An Argument That ‘Proves Far Too Much’

The enduring power of the free-rider-fairness argument makes it imperative for libertarians to familiarize ourselves with our movement’s history on this question, and especially with S.R.’s timeless refutation. Despite certain respectable figures falling from the straight and narrow path, we should take pride in the fact that a compelling response has existed in our intellectual tradition since the very first time the objection came to our attention, and that even decades later, Leonard Read was not able to resurrect Spencer’s fallacy without considerable pushback from fellow libertarians who perceived the error in that line of thinking.

The conclusion is inescapable. Taxation is theft. The state is a gang of thieves. Democracy does not make taxation consensual any more than gang rape makes sex consensual. Benefiting from the state’s services does not create an obligation to pay them any more than my neighbour benefiting from my public goods creates an obligation for him to pay me. As Rothbard writes in The Myth of Neutral Taxation, the free-rider argument “proves far too much.” After all,

civilization itself is a process of all of us “free-riding” on the achievements of others. We all free-ride, every day, on the achievements of Edison, Beethoven, or Vermeer. When capital investment increases, and technology improves, the real wages of workers and the standard of living of consumers increase, even though they have contributed nothing to these advances. By simply continuing to work and consume, laborers and consumers receive the benefits of the inventions and investments of others without paying for them. So what must we infer from this? Are we all to wear sackcloth and ashes? If our neighbors are wiser, prettier, or happier, we all benefit in countless ways. So what must we do about it? Must we all be taxed to subsidize their beauty and wisdom?

No. Instead, we should simply accept the fact that free riding is a normal and healthy part of a free society—and recognize the right to ignore the state.

There is, however, one form of free riding that we should condemn. If a group is regularly stealing from others, and thus living at their expense, that is surely a violation of justice, even if the group provides a few poorly run services in return.

Ironically, the only compelling form of the free-rider-fairness argument is the one that identifies the state as society’s great leech.

One element of Mamdani’s approach that has been especially noteworthy is his eagerness to push back directly and explicitly against his ideological opponents—almost like he’s taking a page out of my book. We first caught a glimpse of this in his January 1 inauguration speech, where he famously said “we will replace the frigidity of rugged individualism with the warmth of collectivism.”

More recently, Mamdani has taken to citing well-known catchphrases from conservatives and offering his response to them. “As we have responded to this crisis,” he said in his 100-day address on April 12, “I have thought often of the Margert Thatcher quote: ‘The problem with socialism is that you eventually run out of other people’s money.’ If anything, my friends, it seems that you eventually need a socialist to clean up the mess.”

He proceeded to take aim at Reagan in a speech on May 18. “Standing here this morning, I cannot help but think of the words of our 40^th president, Ronald Reagan. He famously said: ‘the nine most terrifying words in the English language are “I’m from the government and I’m here to help.”’ It’s a good quote, but I disagree. I think nine more terrifying words are actually ‘I worked all day and can’t feed my family.”

Maybe it’s just my bias, but I can’t say that I find this approach rhetorically effective. He is giving visibility to some of the punchiest conservative quips, which are famous precisely because they cleverly draw attention to the unflattering parts of the leftist program. Meanwhile, his responses come across as trying too hard to be equally punchy and memorable. It might be a good way to get attention, but I wouldn’t call it great oratory.

My other critique of this approach is that, like so much of politics, it’s all rhetoric and no substance. If you really want to persuade, give us an argument, not just a slogan.

Dissent Magazine and ‘Socialism in the City’

As one example of the left’s obsession with Mamdani, Dissent magazine’s Winter 2026 issue was called “Socialism in the City,” featuring articles such as “Zohran’s Promise” and “Mamdani’s Digital Machine.” Founded in 1954 by Irving Howe and Lewis Coser, Dissent is one of the classic publications of the American left. As such, I expect it will become a regular target here at Against the Left.

I’ve also noticed they have a podcast called Know Your Enemy, which is all about engaging with and understanding the American right. As you can imagine, I’m thrilled to learn that Mamdani is not the only one taking a page out of my book, especially because I suspect Know Your Enemy is far more substantive (In fairness, Know Your Enemy was launched before Against the Left, so technically, I’m taking a page out of their book).

Co-editor Patrick Iber sets the tone for “Socialism in the City” in his opening article:

Up to now, insurgent socialists have had the advantage of contrasting their theoretical programs with actually existing liberalism. But with Mamdani taking office, voters will be able to judge the merits of actually existing socialism too. His failures and successes will shape how people around the country think about the viability of a socialist program, and whether the people who identify as socialists are capable of enacting it.

I can’t help but see a comparison here with libertarians and Javier Milei. For once, we’ve actually gotten “our guy” in office. This comes with hope, but also trepidation. What if he doesn’t execute the plan well? What if his failures are attributed to our ideology, and the movement is set back decades? Few things are more devastating for a political philosophy than a unanimous public opinion of “Remember when we tried that and it completely flopped? Let’s not do that again.”

It seems fair that if we want the left to extend grace when someone from “our camp” gets a shot at leadership, we should likewise extend grace to them and not be too quick to use failures as evidence that their theory is bankrupt, as tempting as that always is. Not only is that fairer, but it’s also more in line with Austrian economics, which emphasizes that empirical evidence can never conclusively settle the capitalism vs. socialism debate anyways.

I like how Hoppe puts it in A Theory of Socialism and Capitalism:

In fact, whatever empirical evidence one brings forward against socialism, as soon as one adopts the empiricist-positivist philosophy… socialism is made immune to any decisive criticism, because any failure can always be ascribed to some as yet uncontrolled intervening variable.

Say Mamdani tries socialist policies, and then disaster follows. Sure, it might have been the socialist policies that did it. But at the same time those policies were being implemented, maybe Trump was screwing with the economy. Maybe a natural disaster struck, or unprecedented AI developments caught everyone off guard. There’s no way to demonstrate for certain, Hoppe is saying, that it was the socialism and not those other things that caused the disaster. And there are always other things that can plausibly take the blame. So pointing out all the times socialism and failure went together is at best good evidence that socialist policies cause problems. But the real debate is and has always been on the theoretical level.

Speaking of the theoretical debate, one article from this issue in particular caught my eye: “The Left Needs Bureaucrats” by Ned Resnikoff. Upon reading the title, my mind immediately went to Mises’s 1944 book Bureaucracy, a shorter work which has always struck me as somewhat underrated. Resnikoff’s piece highlights the tension between the left’s pro- and anti-bureaucratic factions, taking a pro-bureaucracy angle. Mises’s book, on the other hand, takes a decidedly anti-bureaucratic angle.

As such, I think it would be valuable to respond to Resnikoff’s article by exploring the points Mises makes in his book.

The Internal Left-Wing Debate Over Bureaucracy

After commenting on Mamdani’s success, Resnikoff highlights the “pernicious” tendency of the left to favor decentralized institutions, which has been described as “Jeffersonian progressivism” in contrast to a more “Hamiltonian” centralized approach:

The Jeffersonian-versus-Hamiltonian dichotomy is a little too schematic, but it does gesture toward a real tension within the American left. On the one hand, the left needs a muscular state—capable of overseeing large-scale infrastructure projects and redistributive programs—to realize its vision. On the other hand, there exists a strain of leftist thought that is inclined to reject anything that smacks of hierarchy, centralization, formal rules, and decisions made through any process other than consensus. Some leftists find themselves negotiating an uneasy compromise between these twin imperatives; others embrace one or the other.

Mamdani and some other high-profile figures of the socialist left, most notably Alexandria Ocasio-Cortez, have shown a pronounced interest in the uses of state power and public administration. But the left’s anti-bureaucratic wing, influenced by C. Wright Mills, Students for a Democratic Society, and other pillars of the New Left, remains alive and well.

He goes on to discuss DOGE and the curious common ground between that clearly right-wing initiative and the New Left. What they have in common has been called the “Californian Ideology,” which might be described as an inherent distrust of anything top-down. This raises an awkward question for the left:

But while the left has opposed DOGE and the Trump administration’s other attempts to strip-mine the administrative state, it has been more reluctant to reckon with the lingering influence of the New Left on its own attitude toward state power. It is not enough for the left to play defense against the right’s attacks on civil administration; the left must also follow Mamdani’s lead in embracing the power of bureaucracy.

To illustrate “the poverty of anti-bureaucratic politics,” Resnikoff turns to a 2014 discussion between Peter Thiel and the late left-anarchist David Graeber, a conversation which was “remarkably chummy,” because, says Resnikoff, both parties shared a common intellectual heritage in the New Left. When the topic of settling Mars came up, Thiel suggested companies like Elon Musk’s SpaceX were a promising way to get there.

Resnikoff isn’t fond of Graeber’s response, which had lots of rhetoric about the value of democratic structures but no concrete examples:

So what you’re left with is a vision far too airy and insubstantial to withstand a barrage from Thiel’s actually existing rockets.

Fortunately, there is a real-world alternative to SpaceX that we can point to. It’s called NASA. It’s a public sector bureaucratic organization that has already sent multiple manned missions to the moon. A left that views getting to Mars as an important goal should embrace the democratically controlled state—not an anarchist collective or private fiefdom—as our best mechanism for reaching the stars and ensuring that the benefits of space exploration are broadly shared.

But Resnikoff is not merely interested in space exploration. He also notes that “the persistence of New Left anti-bureaucratic thinking acts as a self-imposed check on the left’s more earthbound aspirations.” For the left to succeed in its mission, merely preserving existing bureaucracies from attacks like DOGE is not enough:

At its best, government bureaucracy can be an instrument for leveling inequality and extending what Franklin D. Roosevelt called “freedom from want” to millions. The work of making freedom from want into a guarantee for everyone is still unfinished.

Drawing on this argument, he concludes by calling on his fellow leftists to consider becoming bureaucrats themselves. By doing so, he hopes they can both change the culture of existing bureaucracies in a progressive direction and build the institutional knowledge that will be needed to construct the ideal left-wing bureaucracies of the future.

Mises on Bureaucracy

That many on the left take issue with “bureaucracy” should be surprising to no one. As Mises notes in the first chapter of Bureaucracy, the term clearly carries an opprobrious connotation. But he goes on to make another, more startling, observation: hardly anybody really know what the term bureaucracy even means.

As a first step toward a definition, Mises notes that bureaucratic management should be contrasted with profit management, which he says is the only alternative. What’s more, if we want to understand what bureaucracy is and how it functions, we first need to understand the profit-and-loss system that characterizes free market capitalism.

Mises draws particular attention to the decentralized nature of profit management in a private enterprise:

The entrepreneur is in a position to separate the calculation of each part of his business in such a way that he can determine the role that it plays within his whole enterprise. For the public every firm or corporation is an undivided unity. But for the eye of its management it is composed of various sections, each of which is viewed as a separate entity and appreciated according to the share it contributes to the success of the whole enterprise. Within the system of business calculation each section represents an integral being, a hypothetical independent business as it were. It is assumed that this section “owns” a definite part of the whole capital employed in the enterprise, that it buys from other sections and sells to them, that it has its own expenses and its own revenues, that its dealings result either in a profit or a loss which is imputed to its own conduct of affairs as separate from the results achieved by the other sections. Thus the general manager of the whole enterprise can assign to each section’s management a great deal of independence. There is no need for the general manager to bother about the minor details of each section’s management. The managers of the various sections can have a free hand in the administration of their sections’ “internal” affairs. The only directive that the general manager gives to the men whom he entrusts with the management of the various sections, departments, and branches is: Make as much profit as possible. And an examination of the accounts shows him how successful or unsuccessful they were in executing the directive.

In other words, capitalism features a considerable degree of subsidiarity. The profit motive…

…joins together utmost centralization of the whole concern with almost complete autonomy of the parts, it brings into agreement full responsibility of the central management with a high degree of interest and incentive of the subordinate managers of sections, departments, and auxiliaries. It gives to the system of free enterprise that versatility and adaptability which result in an unswerving tendency toward improvement.

Bureaucratic management is very different:

Bureaucratic management is management bound to comply with detailed rules and regulations fixed by the authority of a superior body. The task of the bureaucrat is to perform what these rules and regulations order him to do. His discretion to act according to his own best conviction is seriously restricted by them.

What makes bureaucratic management necessary is the absence of profit and loss, such as exists in government enterprises. This brings us to Mises’s formal definition of bureaucracy:

In public administration there is no market price for achievements. This makes it indispensable to operate public offices according to principles entirely different from those applied under the profit motive. Now we are in a position to provide a definition of bureaucratic management: Bureaucratic management is the method applied in the conduct of administrative affairs the result of which has no cash value on the market. Remember: we do not say that a successful handling of public affairs has no value, but that it has no price on the market, that its value cannot be realized in a market transaction and consequently cannot be expressed in terms of money.

Having established the basic principles of profit management and bureaucratic management, Mises turns to a more detailed discussion of publicly owned enterprises.

It is clear that the champions of public enterprises—public schools, the post office, and so on—are not interested in making profits, he notes. They are perfectly happy to say that other goals are more pressing for them. However,

As soon as an undertaking is no longer operated under the profit motive, other principles must be adopted for the conduct of its affairs. The city authorities cannot simply instruct the manager: Do not bother about a profit. They must give him more definite and precise orders. What kind of orders could these be? The champions of nationalized and municipalized enterprise are prone to answer this question in a rather naïve manner: The public enterprise’s duty is to render useful services to the community. But the problem is not so simple as this. Every undertaking’s sole task is to render useful services. But what does this term mean? Who is, in the case of public enterprise, to decide whether a service is useful? And much more important: How do we find out whether the services rendered are not too heavily paid for, i.e., whether the factors of production absorbed by their performance are not withdrawn from other lines of utilization in which they could render more valuable services?

In the free market, profit and loss tell us whether a given service is more useful than the goods and services that must be given up to make it possible. The public, through their buying and selling, tell producers what they need and in what quantitates, and producers then adjust production according to these demands. “But,” Mises writes…

…if a public enterprise is to be operated without regard to profits, the behavior of the public no longer provides a criterion of its usefulness. If the government or the municipal authorities are resolved to go on notwithstanding the fact that the operation costs are not made up by the payments received from the customers, where may a criterion be found of the usefulness of the services rendered? How can we find out whether the deficit is not too big with regard to these services? And how discover whether the deficit could not be reduced without impairing the value of the services?

There is simply no way to know. Mises’s analysis here is one of the key sources for Rothbard’s comments in Power & Market that I discussed in “The Case for Privatizing Everything.” As Rothbard writes there:

The profit-and-loss test serves as the critical guide for directing the flow of productive resources. No such guide exists for the government, which has no rational way to decide how much money to spend, either in total, or in each specific line. The more money it spends, the more service it can supply—but where to stop?

Where to stop, indeed.

SpaceX vs. NASA

Resnikoff provides a perfect example of this issue with his comparison of SpaceX and NASA. Let’s assume, to make the argument simple, that SpaceX is a totally free market company that gets no money from government contracts. That would certainly be the ideal libertarian vision.

In a free market for space exploration, initiatives are only undertaken if they are expected to be profitable. This is of course a sensible rule from the perspective of the entrepreneur, but the more important point here is that it is also a sensible rule from the perspective of the public. A profitable initiative, in a free market, is one which yields more revenue than it costs, that is, one which is more valuable to the market than the alternative initiatives which could be pursued with the same resources if it were called off. When SpaceX creates a rocket, it uses up land, raw materials, personnel, and so on, all of which could have been used to create other things. The profit-and-loss test is what tells us whether the rocket or those other things are more urgently desired by consumers. A profitable rocket means the rocket is worth more than the alternatives. If the rocket takes a loss, it means the alternatives were more valuable, and it would have been better not to create it.

So we ask the question, how much expenditure on rockets should there be to maximize the benefit to the public? And the answer is, keep creating rockets until it is no longer profitable to do so—which is exactly what a private company like SpaceX would do in a free market. Because when it is no longer profitable to create an additional rocket, that means the resources required would be better used elsewhere. Thus, the market naturally finds and gravitates toward a kind of saturation point. As Mises writes:

With private profit-seeking enterprise this problem is solved by the attitudes of the public. The proof of the usefulness of the services rendered is that a sufficient number of citizens is ready to pay the price asked for them. There cannot be any doubt about the fact that the customers consider the services rendered by the bakeries useful. They are ready to pay the price asked for bread. Under this price the production of bread tends to expand until saturation is reached, that is, until a further expansion would withdraw factors of production from branches of industry for whose products the demand of the consumers is more intense. In taking the profit-motive as a guide, free enterprise adjusts its activities to the desires of the public. The profit-motive pushes every entrepreneur to accomplish those services that the consumers deem the most urgent. The price structure of the market tells them how free they are to invest in every branch of production.

Now consider a public enterprise like NASA, which Resnikoff concedes is a “bureaucratic organization.” What he probably doesn’t realize is that by conceding this, he is conceding that it is incapable of adjusting its outlays according to the needs of consumers.

The question again is asked, how many rockets should there be to maximize the benefit to the public? Nobody denies that more rockets—more money going to NASA—would be better for space exploration. The problem is that space exploration is only one of many thousands of competing desires which need to be weighed against one another. Let us grant that the bureaucrats are wise and publicly minded. Let us give all benefit of the doubt. The problem still remains, what is the amount of funding for NASA that will perfectly balance space exploration with all other initiatives such that the most urgent demands of the consumers, the public, are met, rather than having less urgent demands met at the expense of more urgent ones (which would happen both when too much is spent on space exploration and also when too little is spent)? The bureaucrat is at a loss. They have no way of knowing.

What they lack is the profit and loss test, which Mises calls a yardstick. Without the yardstick of profit and loss, the expenditures on space exploration by a bureaucratic agency like NASA are almost certainly going to be too high or too low. They will not be optimized for consumer preferences. They will not land at the saturation point. And even if they do hit the target at one point in time out of pure luck, the target quickly moves, because consumer preferences and the availability of resources changes. SpaceX can adjust with every change. Profit and loss constantly steer it toward just that degree of expenditure that is optimal. NASA has no way of figuring out where the optimal point is. It will certainly create a degree of space exploration, but it is unable to find that degree which is most economical.

Mises thus concludes:

Lenin’s ideal of taking the organization of the government’s postal service as the pattern of society’s economic organization and of making every man a cog in a vast bureaucratic machine makes it imperative to unmask the inferiority of bureaucratic methods when compared with those of private business.

…What is called in a very biased terminology the substitution of the service principle for the profit principle would result in an abandonment of the only method making for rationality and calculation in the production of necessities. The profit earned by the entrepreneur is expressive of the fact that he has well served the consumers, that is, all the people. But with regard to the performance of bureaus no method for establishing success or failure by calculation procedures is available.

I agree with Resnikoff that the left needs a muscular state to achieve its goals, and that the anti-bureaucratic left is flirting dangerously with free market thinking. But I would challenge Resnikoff to explain how he expects to help ordinary people with institutions that by their nature are incapable of weighing trade-offs. How does he know the right amount to spend on space exploration versus other initiatives to best address the most urgent needs of the public?

Freedom from want is a laudable goal. But as Mises shows, the way to get there is through the profit and loss system, not bureaucracy. Leftists who care about human flourishing will eventually need to wrestle with that fact—and decide whether they care enough about prosperity to set aside their prejudice against the private sector.

“A new Gallup poll confirms that most Americans hate the prospect of data centers coming to their communities,” writes David Sirota, a former Bernie Sanders speechwriter. “This revelation has been met with some anger among the tech crowd and its extremely online fans, but the opposition is entirely predictable for a few reasons worth reviewing, even if they are obvious.”

As someone who probably falls into the category of the tech crowd’s “extremely online fans,” it seems clear that this piece is directed at people like me. But you could say that about a lot of the pieces the left has been putting out on data centers. The reason I chose this one in particular to respond to is that it provides an especially good depiction of what I consider to be the left’s key error in the data center discourse.

Sirota begins by listing four reasons for why the opposition to data centers is predictable, which are worth responding to in turn.

Reason #1

“People don’t generally like the idea of living near industrial facilities that create a lot of noise pollution, and data centers can create a lot of noise pollution.”

I actually have quite a bit of sympathy for this. In libertarian legal theory, excessive noise pollution counts as a violation of property rights, so we would advocate for it to be outlawed. Murray Rothbard lays down the principle in one of his most important papers, Law, Property Rights, and Air Pollution, published in 1982:

Excessive noise is certainly a tort of nuisance; it interferes with a person’s enjoyment of his property, including his health. However, no one would maintain that every man has the right to live as if in a soundproofed room; only excessive noise, however vague the concept, can be actionable.

He goes on to quote a legal scholar explaining “the current general rule of the civil courts on nuisance suits for noise,” a rule which he describes as “cogent”:

A noise source is not a nuisance per se but only becomes a nuisance under certain conditions. These conditions depend on a consideration of the surrounding area, the time of day or night when the noise-producing activities take place and the manner in which the activity is conducted. A private nuisance is compensable only when it is unreasonable or excessive and when it produces actual physical discomfort or injury to a person of ordinary sensibilities so as to interfere with the use and enjoyment of the property.

The fuzziness of this principle is unfortunate, but nothing else makes sense. Banning all noise emissions is clearly absurd, but so is allowing anything and everything.

Critically, the fact that noise is a legitimate grievance doesn’t mean banning data centers altogether is the right solution. Far less heavy-handed solutions should be considered first, such as moving the data center farther away from residential areas, making it install soundproofing, so it emits less noise, or even compensating affected residents with monthly cash payments in return for an agreement to tolerate the noise.

Reason #2

“People don’t generally like the idea of seeing their residential electricity and water rates rise, and there is the perception — and some evidence — that data centers are linked to those price increases.”

I don’t dispute that data centers may increase local utility bills. The economic reasoning on that is pretty sound—more demand means higher prices, all else equal. Nor do I dispute that this would be a harm to local residents to the degree that it occurs. My point of pushback would be that there is nothing unusual or unreasonable about asking people to tolerate such harms in a free society.

Rothbard’s comments in Law, Property Rights, and Air Pollution are again applicable:

Legal and political theory has committed much mischief by failing to pinpoint physical invasion as the only human action that should be illegal and that justifies the use of physical violence to combat it. The vague concept of “harm” is substituted for the precise one of physical violence.” Consider the following two examples. Jim is courting Susan and is just about to win her hand in marriage, when suddenly Bob appears on the scene and wins her away. Surely Bob has done great “harm” to Jim. Once a nonphysical-invasion sense of harm is adopted, almost any outlaw act might be justified. Should Jim be able to “enjoin” Bob’s very existence?

Similarly, A is a successful seller of razor blades. But then B comes along and sells a better blade, Teflon-coated to prevent shaving cuts. The value of A’s property is greatly affected. Should he be able to collect damages from B, or, better yet, to enjoin B’s sale of a better blade? The correct answer is not that consumers would be hurt if they were forced to buy the inferior blade, although that is surely the case. Rather, no one has the right to legally prevent or retaliate against “harms” to his property unless it is an act of physical invasion.

A new industry coming to town and competing for your water and electricity is rather like a new man coming to town and competing for your girlfriend. It’s surely inconvenient, but you shouldn’t get a sympathetic ear from the mayor if you ask them to send the competition away.

Reason #3

“People don’t generally like the idea of artificial intelligence systems powering predatory pricing schemes, ruining the education system, and creating a panopticon — and data centers are the engines of those dystopias.”

This is like saying people don’t like it when online gambling happens, and the Internet makes it possible, so the Internet is an engine of online gambling. It’s technically true, but it’s a silly objection because the Internet makes millions of things possible, because it’s just a generally useful technology, much like AI. Shall we ban the Internet because some of the things it enables are things we don’t like? Wouldn’t it make more sense to go after the things we don’t like more directly?

Reason #4

“People don’t generally like the idea of giving tech companies billions of dollars of special tax breaks that could prompt higher taxes on everyone else — all to further enrich the tech oligarchs creating these dystopias.”

I understand the sentiment, but as with the previous point, this is really a separate issue. Tax breaks and data centers don’t have to go hand in hand. If it’s the tax breaks you’re opposed to, then don’t protest data centers. Protest tax breaks.

That Which Is Seen and That Which Is Not Seen

Sirota goes on to talk about the “additional political problem” for advocates of data centers:

Put simply: their plans don’t seem to offer any explicit benefit to people living near them.

In the past, local communities have been willing to tolerate significant downsides of economic development projects and to reject not-in-my-backyard-ism — as long as those projects were accompanied by the prospect of equally significant upsides in their backyards too. For example, your town might have embraced the smoke-belching factory and its pollution because the facility created and sustained a lot of jobs.

But when it comes to data centers, the perception is that it’s all downside and very little upside. Consider employment, which is the most visible and obvious sales pitch of most economic development proposals. When it comes to data centers, there’s very little of that upside. Indeed, once data centers are constructed, they do not create and sustain many long-term jobs.

After a few other remarks, Sirota summarizes his point:

For the average American, a data center looks like an annoying physical and financial encroachment that doesn’t create local job [sic], but threatens to make the affordability and education crisis worse, all to enrich a distant tech bro’s AI product, which is perceived to be dumb chatbots and clickslop videos on the internet.

How could anyone expect that to poll well and be popular?

I’m glad Sirota acknowledges by name the NIMBYism he’s describing. But what I really appreciate, and what makes this piece so perfect for my point, is his emphasis on the perspective of the average American.

Notice the language: “…their plans don’t seem to offer any explicit benefit…” “…the perception is that it’s all downside and very little upside.” “…a data center looks like an annoying physical and financial encroachment … which is perceived to be dumb chatbots…”

In other words, people are looking at the obvious, salient, conspicuous impacts of data centers and concluding that they seem like a pretty bad deal, with little upside and lots of downside. But the problem—which Sirota’s rhetoric heavily implies, even though he never mentions it explicitly—is that they are neglecting to consider other factors which are harder to see.

The French economist Frédéric Bastiat (1801-1850) famously drew attention to this common shortcoming in his classic 1850 essay That Which Is Seen, and That Which Is Not Seen. The opening lines are so cogent, to use Rothbard’s word, and have proved so seminal (Economics in One Lesson by Henry Hazlitt being a direct descendent), that they could fairly be regarded as the opening verses of the modern libertarian canon:

In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause — it is seen. The others unfold in succession — they are not seen: it is well for us if they are foreseen. Between a good and a bad economist this constitutes the whole difference — the one takes account of the visible effect; the other takes account both of the effects which are seen and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favorable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, at the risk of a small present evil.

Upon reading these lines, nobody would disagree about their truth and wisdom. And yet, perhaps from laziness, perhaps from some cognitive bias, the very people who will readily affirm the sagacity of this teaching so often fail to put it into practice. They see a visible and immediate benefit of some policy and rush to endorse it, without taking the time to consider the full scope of the unseen costs. Likewise, they see clear and immediate downsides to an initiative and rush to denounce it, uncurious—which is the essence of the crime—about the invisible benefits which may well render it a net positive.

This critique has been leveled against the left so often, and against statists more generally, that rhetoric for it abounds. But the one word that really captures the point is shortsightedness. In case after case, the issue libertarians are pointing out is that an argument is shortsighted. Data centers are simply the most recent instance of this problem.

It is true that data centers use up resources and generate negative externalities and enable projects which many consider to be harrowing. But it would be a mistake to only focus on these visible drawbacks and to neglect the invisible benefits. What is harder to see, but no less real, is that AI is solving millions of problems every day, leading to lower prices, technological breakthroughs, and unprecedented convenience. Allowing data centers to be built could very well mean lower prices at the grocery store. It might mean an improved cancer screening for a loved-one that gives them an extra 15 years of life. It might mean a world so prosperous that a part-time job pays what a full-time job used to, giving you back many hours in your week. The perception may be that the only upside is “dumb chatbots and clickslop videos on the internet,” but the reality is that it’s so much more than that.

Unfortunately, the nature of these benefits is that they are difficult to predict and almost impossible to trace. You probably won’t be thanking AI when grocery prices go up by 2 percent next year instead of a counterfactual 4 percent. But you should.

Conceding that the benefits of data centers likely vastly outweigh the costs on the whole, some may still have reservations. “This particular proposed data center in my town is only a drop in the bucket,” one might reason. “Since the benefit to me of AI won’t meaningfully change with or without it, whereas the cost will, wouldn’t it still be in my interest to oppose the specific project in my locale?”

This is NIMBYism at its finest. Drawing on this reasoning, which is clearly sound, you lobby vigorously to prevent a data center from being built in your backyard, and so does everyone else, because they face the same set of incentives, and then data centers don’t get built anywhere. It’s a classic prisoner’s dilemma.

The solution, as usual, is to deny the NIMBYs any veto power (with the exception of property rights violations like excessive noise), and when they complain about this, to say “tough luck, suck it up.”

That may sound insensitive, but keep in mind that the NIMBYs’ current posture is to leverage their political power to meddle in other people’s private affairs, and when those people complain about the coercion the NIMBYs’ response is to say “tough luck, suck it up.” When one group wants a property to be used one way, and another group wants it to be used another way, there is no way of satisfying both groups. There is bound to be a winner and a loser. So the question is not whether “tough luck” should be said, but simply who gets to say it. And frankly, I think it’s far more justified for a property owner to say “tough luck, I’m using my property as I see fit”—so long as he doesn’t violate property rights—than for his neighbours to say “tough luck, you’re using your property as we see fit.”

Technology Replacing Jobs Is Nothing to Worry About

A big reason why it’s really worth fighting the NIMBYs on this is that the gains AI is poised to deliver are truly breathtaking. A May 16 article in Fortune magazine carried the jaw-dropping headline “Microsoft AI chief gives it 18 months—for all white-collar work to be automated by AI.” Do you have any idea how good news that is? How much more prosperous we would be if even a fraction of that came true?

Many people struggle to get excited about this because they can’t see past the immediate threat to their job. This is where it’s important to have some perspective.

In 1800 about 75 percent of the American labor force was employed in agriculture. In 1900 that number was about 35 percent. By 2000 it was less than 5 percent. With machines replacing humans so quickly in the agricultural sector, one might imagine that many people struggled to find work. But the data show the opposite. The unemployment rate has only gone above 10 percent a few times in American history over the same period, and its highest point was roughly 22 percent, which was in the middle of the Great Depression, that is to say, hardly caused by a technological revolution putting people out of work. What can we learn from this? That despite extraordinary levels of technology replacing jobs, new jobs have always rushed in to fill the old ones. There are always more wants to satisfy, and thus there is always more work for humans to do.

Not only are the downsides of technology replacing jobs overblown, but the upsides are also hard to overstate. Think about how revolutionary it was when modern technology like tractors came along and the workforce shifted away from farm work. Think about how much better standards of living became because of that. What the tech world is saying is that we are on the precipice of a similar revolution, which can only mean a similar jump in living standards. And you’re worried about paying a few more bucks for your electricity to make it possible? About having to find a new line of work, which is often happening anyways in a dynamic market economy? Look at the bigger picture! On net, our lives stand to be radically improved by this technology.

Even the lives of people who live close to data centers. Even the lives of people who lose their jobs.

We just need to get over our fixation with what’s right in front of us.

Full disclosure, I haven’t read the book, so this isn’t going to be a book review. Instead, I’ll be responding to a 2024 interview Slobodian did with Jacobin about the book, which I hope you’ll agree is a fairly good stand-in (I also haven’t read The Big Myth—I responded to an excerpt that had been published in The Harvard Gazette).

From what I’ve gathered reading the interview and various summaries, the book traces the development of special economic zones and the parallel development of the radical libertarian philosophy—some might say ideology—that often accompanies them. According to the book’s description, “Crack-Up Capitalism follows the most notorious radical libertarians—from Milton Friedman to Peter Thiel—around the globe as they search for the perfect space for capitalism.” In the words of Jacobin, Slobodian

…argues that the late-twentieth and early-twenty-first centuries have been equally characterized by the growth of subnational special economic zones, in which capitalists and investors are released from the normal constraints imposed by popular sovereignty. The emergence of these zones has happened hand in hand with, and given inspiration to, the development of radically libertarian pro-capitalist ideologies, which have dreamt of doing away with democratic rule altogether in favor of government by private contract.

The interview is far too long for me to respond to everything, so instead of a point-by-point rebuttal I’ll be responding to a few sections that I think represent some of the main ideas. Rest assured—and this goes for all Against the Left pieces—just because I don’t push back on a comment doesn’t mean I agree with it.

The Anarcho-Capitalist Objection to Democracy

Slobodian opens the interview by explaining who exactly he’s writing about:

The people who are at the heart of the book are more-radical libertarians or neoliberals than the kind that we might usually encounter. People like Friedrich Hayek and Milton Friedman and the like figured heavily in the last book I wrote.

Those folks do make an appearance in this book. But I’m more interested in the neglected group of anarcho-capitalists, who, rather than believing that democracy can be contained and reined in and constrained within certain legislative bonds, believe that democracy can and should be done away with altogether. They have a belief in a kind of pure market order within which everything is organized within private contexts, private actors, insurance companies, arbitration companies — all displace entirely the function of the ballot box or representative government.

Being an anarcho-capitalist myself, you can see why this book caught my eye. Slobodian really is talking about us! Not just Hayek and Friedman, but Rothbard and Hoppe, the most radical among the radicals.

The neoliberal label, of course, gets thrown around here and elsewhere in the interview. As in my response to The Big Myth, I will simply direct the reader to everything Phil Magness has written about this silly pejorative. I have nothing to add besides an endorsement of his excellent work on this subject. Essentially, it’s a made-up term with a fuzzy definition that kind of means something like the Washington Consensus, pro-globalization, pro-markets, but it gets applied to almost anything that’s to the right of Joseph Stalin, including libertarians, which we don’t like because it lumps us in with a bunch of mainstream figures like Bill Clinton who are not nearly free market enough in our books to even be considered fellow travelers.

One of the main themes of the book, as this quote and the book’s subtitle indicate, seems to be the tension between democracy and anarcho-capitalism. The interviewer, Daniel Denvir, highlights this well in one of his questions:

These radical libertarians do not try to make any sort of argument that a pure form of capitalism is real democracy. These figures are resolutely and explicitly antidemocratic. For some, you write, “Contracts would replace constitutions, and people would cease to be citizens of any place — only clients of a range of service providers. These would be anti-republics: private ownership and exchange displacing any trace of popular sovereignty.”

What are these figures’ issues with democracy? We sometimes think of bourgeois democracy as capitalism’s natural form of government. Your book, though, suggests that this is not always the case.

Slobodian gives an interesting response to this, but I think it will be helpful to hear a real an-cap answer the question. What is the anarcho-capitalist issue with democracy?

The first thing to point out would be that democracy is widely acknowledged to be a pretty poor system of government. “The best argument against democracy,” says the famous quip, “is a five-minute conversation with the average voter.” As the meme puts it, “the people are retarded.”

Putting the same idea in somewhat more serious terms, imagine if all the passengers on a plane took a vote to decide how to fly it. Imagine if all the patients in a hospital got to override doctors on how medical care would be delivered. It would be a disaster. So why should we expect any better outcome when we take people who have almost zero training in economics or law—and in many cases also demonstrate a concerning lack of common sense—and put them in charge of the government?

There are other issues as well. Arrow’s impossibility theorem highlights the difficulty of aggregating opinions with voting systems. Public choice economists point out that the incentives faced by voters, politicians, and bureaucrats are rarely conducive to satisfactory outcomes. And Robert Michels points out with his iron law of oligarchy that democracies almost never work as advertised.

The fact is that there is a considerable literature on the flaws with democracy for those who care to look for it, and it’s rather persuasive.

But the uniquely anarcho-capitalist objection is simultaneously more fundamental and more straightforward. Even if you could get around all the flaws mentioned above, we argue, the real problem is that democracy—majority rule—is just that, rulership. It involves one group being subjugated to another group, which we consider to be a violation of basic justice.

The common response is to point out that democracies are categorically different from despotism because they are based on popular sovereignty—the will of the people rather than the will of a tyrant. But the classical liberal Herbert Spencer (1820-1903), whom we might consider a predecessor to anarcho-capitalism, calls this defense into question in his 1851 book Social Statics, in a thought-provoking chapter called “The Right to Ignore the State”:

The rule of the many by the few we call tyranny; the rule of the few by the many is tyranny also, only of a less intense kind. “You shall do as we will, and not as you will,” is in either case the declaration; and if the hundred make it to the ninety-nine, instead of the ninety-nine to the hundred, it is only a fraction less immoral.

Spencer elaborates on this point in his 1884 essay The New Toryism:

…I emphasize the reply that the liberty which a citizen enjoys is to be measured, not by the nature of the governmental machinery he lives under, whether representative or other, but by the relative paucity of the restraints it imposes on him; and that, whether this machinery is or is not one he shared in making, its actions are not of the kind proper to Liberalism if they increase such restraints beyond those which are needful for preventing him from directly or indirectly aggressing on his fellows—needful, that is, for maintaining the liberties of his fellows against his invasions of them: restraints which are, therefore, to be distinguished as negatively coercive, not positively coercive.

As Spencer explains, it is not the form of government one lives under, but the existence of restraints, which determines the degree of liberty a person enjoys. Thus, the idea that democracy can never be authoritarian, and is in fact the antithesis of authoritarianism, is completely unfounded. A restrictive policy that has majority approval is still tyrannical. A liberating policy passed against the wishes of the majority is a coup against democracy and in favor of freedom.

Ludwig von Mises echoed Spencer’s remarks in his 1957 book Theory and History:

A rather superficial and shallow view of the problems of government saw the distinction between freedom and despotism in an outward feature of the system of rule and administration, viz., in the number of people exercising direct control of the social apparatus of coercion and compulsion. Such a numerical standard is the basis of Aristotle’s famous classification of the various forms of government. The concepts of monarchy, oligarchy, and democracy still preserve this way of dealing with the matter. Yet its inadequacy is so obvious that no philosopher could avoid referring to facts which did not agree with it and therefore were considered paradoxical. There was for instance the fact, already well recognized by Greek authors, that tyranny was often, or even regularly, supported by the masses and was in this sense popular government. Modern writers have employed the term Caesarism for this type of government and have continued to look upon it as an exceptional case conditioned by peculiar circumstances; but they have been at a loss to explain satisfactorily what made the conditions exceptional. Yet, fascinated by the traditional classification, people acquiesced in this superficial interpretation as long as it seemed that it had to explain only one case in modern European history, that of the second French Empire [often called Bonapartism]. The final collapse of the Aristotelian doctrine came only when it had to face the “dictatorship of the proletariat” and the autocracy of Hitler, Mussolini, Peron, and other modern successors of the Greek tyrants.

Drawing on this understanding, one of the main goals of an-caps in this conversation is to challenge the still-popular idea, which leftists constantly leverage to their advantage, that democracy and freedom are two sides of the same benevolent coin. The truth is that democracy is a system of rulership, and as such it is as inherently opposed to freedom as all other systems of rulership—and may be more or less tyrannical depending on the proclivities of the group that holds power.

Regrettably, we have been subject to so much propaganda telling us that “democracy” and “popular sovereignty” are good things, and are synonymous with freedom, that these have become rhetorically powerful tools. A leftist simply needs to point out that an-caps are “against democracy” and suddenly everyone looks at us suspiciously. “Don’t you want freedom?” we get asked. To which the response is, “Of course we do. That’s why we’re against democracy.”

Really, it’s the proponents of “democracy and freedom” who have some explaining to do.

The tension between freedom and democracy is especially evident when looking at the modern political landscape, where it’s clear that the proclivities of the ruling majority are for a significant degree of government intrusion in our lives, and have been for some time. It was this observation which prompted Peter Thiel to write “I no longer believe that freedom and democracy are compatible” in his seminal 2009 article “The Education of a Libertarian,” a piece which, both because of its author and its escapist conclusion, lies at the heart of the movement Slobodian is investigating.

Eventually someone will quote Churchill, “…democracy is the worst form of Government except for all those other forms that have been tried from time to time.” That may be, but this is where the anarcho-capitalist asks, “why do we need government at all?” Most people’s first response is to laugh at this, and fair enough. But sooner or later, we’re hopeful that people will become disillusioned enough with the status quo—or, better yet, will find themselves so repulsed by the idea of man ruling over man—that they come back to us and say, “Ok, explain this whole no-government idea to me.” (For those curious, see these two videos for a great introduction. For more in-depth explanations, see Bob Murphy’s Chaos Theory and the works listed in its Bibliography on Anarcho-Capitalism, compiled by Hoppe, and also Lee Friday’s little-known but insightful essay Police, Courts, and Prisons.)

For those who aren’t willing to go that far, the economist Bryan Caplan offers a more modest response to Churchill in his book The Myth of the Rational Voter. “…this saying overlooks the fact that the governments vary in scope as well as form,” he writes. “In democracies the main alternative to majority rule is not dictatorship, but markets.”

If getting rid of democracy entirely is out of the question, Caplan is saying, we can at least have a lot less democracy by limiting what the democratic government gets to control and how much of our money it gets to collect and spend, thus giving a greater role to free enterprise. From an an-cap perspective, that would certainly be a great step in the right direction.

Is Anarcho-Capitalism a Universalist Philosophy?

Another interesting theme that came up in the interview with Slobodian is the idea that anarcho-capitalism is not a universalist philosophy. Slobodian says:

The idea is not quite that, as with the French Revolution, here is a new template for organizing human social life: from now on, there will be something called human rights that will be universal, everyone will be both a person and a citizen, we will organize ourselves into these republics in which we can express our common will. If you’re the French revolutionaries, you’re quite literally trying to carry that vision across the border into the neighboring empire and from there into the rest of the world.

That’s our idea insofar as we have a kind of reflexive narrative of how political ideology works, or the history of political ideas in the modern era. Someone has an idea, and other people agree, and then over time they start to try to figure out ways to make everyone on Earth agree with them.

…What I think is challenging but also interesting about the true anarcho-capitalist proposal is that it makes no claims on the organization of the world as such. Nor does it offer a recipe to humanity for its salvation.

I can certainly see where Slobodian gets this idea. A common an-cap talking point is that an-capism allows for a wide multiplicity of different systems, a kind of pluralism to the max. If communists want to go off and form a little communist settlement, we won’t stop them. Indeed, an-capistan would likely be characterized by thousands of micro-communities, each experimenting with unique customs, norms, legal systems, and more to see what works best for them.

Having said that, I don’t fully agree with Slobodian’s characterization. We absolutely have a universal vision: we want the entire world to abide by the non-aggression principle (my own view is actually a bit more nuanced than this, but that’s for another essay). We want everyone everywhere to respect legitimate property rights, where legitimacy is determined based on Lockean homesteading rules.

Is Slobodian wrong about this, then? Yes and no. The truth is that this gets to a paradox at the heart of anarcho-capitalism, one which perhaps deserves more attention than it gets. The paradox is that we have a universalist scheme for the world, and that is to not have a universalist scheme for the world.

The communism example illustrates this well. I said above that an-caps would gladly tolerate a communist society in an-capistan. But what we mean by that is we would let a private property owner run their property like a commune, provided they don’t violate the private property rights of others. In other words, you can do communism as long as you respect private property rights. But, as any communist will tell you, a communism that respects private property rights is really no communism at all. Real communism, where private property is abolished, would not be tolerated in an an-cap society. So, when we say you can experiment with whatever system you like, what we mean is you can experiment with anything that doesn’t violate the principles of capitalism, which, according to a fair number of people, doesn’t leave much room for experimenting at all.

This may come across to many on the left as an “admission” that an-capism is totalizing, even totalitarian. But the truth is quite to the contrary. What an-capism does is totally prevent the left from running roughshod over people’s individual rights. They resent it and call it totalitarian because it stops them at every turn, without exception, from exercising power over others.

For Humanity, Against Democracy

On the heels of his comment about universalism, Slobodian pivots into accusing anarcho-capitalists of being motivated solely by naked self-interest. I’ll overlap the quotes by one paragraph so you can read the second part in context:

What I think is challenging but also interesting about the true anarcho-capitalist proposal is that it makes no claims on the organization of the world as such. Nor does it offer a recipe to humanity for its salvation.

In fact, it’s the opposite, in the sense that it thrives on variegation and diversity. It needs there to be the coeval existence of many different forms of production and social organization, so the people who are at the top of the pyramid can profit off of it.

…That’s just capitalist ideology as a political proposal. In the twentieth century, we’ve usually been trying to figure out the ways that liberalism and bourgeois ideology cloak the raw self-interest of capitalists inside languages of rights, of the social, of humanity as such, and above all of democracy. The challenge of critique has often been to show how those terms can offer a smoke screen or provide ideological cover for the material interests inside of them.

Anarcho-capitalists are like, “No more smokescreen. No more ideological cover. We’re just saying the way that capitalist logic works in the world, and we’re just calling that politics.

…Seventy years ago… people like Walt Rostow were saying, “We’re just all on the stages of economic growth, whether you’re a Chinese Communist, or a San bushman, we’re all going to get there.”

The anarcho-capitalist just looks at that and laughs. They’re like, “No, there’s no single timeline. The only task we have is to figure out the best way through the maze with our associates and people who are willing to pay us. We’re not moving at all on a single trajectory as humanity; humanity is a completely obsolete concept. People do not share a community of fate.”

Slobodian seems to think that dropping the democracy rhetoric is our way of dropping the pretense that we have any interest in helping ordinary people. By coming out as being against democracy, we are coming out as being selfish and uncaring.

But the truth is that we are still very much for individual rights, higher standards of living, and thriving societies. We just no longer believe that democracy is the best way to get there. We reject the idea, which Slobodian seems to take for granted, that people who care about humanity must necessarily support democracy.

I’m reminded of the story of Boris Yeltsin visiting a grocery store in Texas in 1989—one of the most famous stories in the libertarian canon. Yeltsin, a high-ranking Soviet official, couldn’t believe his eyes at the plentiful selection of cheap food that was available to the average American, far more than what his people had back at home. As his 2007 New York Times obituary put it, “he became more convinced than ever that Russia had been ruinously damaged by its centralized, state-run economic system, where people stood in long lines to buy the most basic needs of life and more often than not found the shelves bare.”

Why do us capitalists love that story so much? Because it beautifully illustrates the element of capitalism that we take the most pride in: cheap, plentiful goods for the masses. Our boast about capitalism is that it improves the standard of living of everyday people.

Mises leaned into this point in a series of lectures he gave in Argentina in 1959, which were later published as a book titled Economic Policy: Thoughts for Today and Tomorrow (this is the book that got the big UFC shout-out a couple years ago). “Whereas the old processing industries serving the rich people in the cities had existed almost exclusively for the demands of the upper classes, the new capitalist industries began to produce things that could be purchased by the general population,” Mises said, recounting the rise of modern capitalism. “It was mass production to satisfy the needs of the masses.”

“So I fully agree with the ultimate goal of raising the standard of living everywhere,” Mises says in another lecture. “But I disagree about the measures to be adopted in attaining this goal. What measures will attain this end? Not protection, not government interference, not socialism, and certainly not the violence of the labor unions (euphemistically called collective bargaining, which, in fact, is bargaining at the point of a gun).”

One of the problems with the left is that they seem to be stuck in this Manichean twentieth-century worldview that says one side cares about ordinary people, and thus supports democracy and interventionism, while the other side only cares about themselves, and thus supports free-market capitalism. Part of what an-caps are trying to do is challenge that conventional thinking.

We reject the idea that to be for humanity means to be for democracy. We reject the idea that one’s level of concern for the ordinary citizen is to be measured by one’s support for governmental intervention, just as we reject the idea that freedom means submitting to majority rule.

We have moved on from twentieth-century categories and twentieth-century talking points. And we think it’s about time the rest of the political spectrum followed suit.

The authors conclude by stating that Marx deserves better critics. He is a thinker worth taking seriously, they say, and it’s regrettable that his popular modern-day opponents get away with such sloppy and uninformed attacks.

I want to begin my response with a point of agreement. Marx is a formidable thinker, and he does deserve better critics. Mere handwaving at the horrors of twentieth century communism—regardless of how culpable we think Marx was for those horrors—is not nearly rigorous enough. We need to be levelling substantive critiques at specific, concrete ideas he put forward. I agree with Pinker that Marx was on the wrong side of history, but it pains me that Pinker and his ilk rarely articulate thoughtful, well-documented rebuttals that get to the crux of the Marxian argument. There is so much anti-Marxian rhetoric, yet so little compelling anti-Marxian argumentation.

Having said that, I also have an issue with Burgis and McManus. They rightfully call out that Pinker’s criticism of Marx is often intellectually lazy, but the two examples they offer to demonstrate this both miss the target. Briefly, their political example makes a bold claim that is demonstrably false, and their theoretical example attributes a position to Pinker that, so far as I can tell, he never claimed to hold.

So yes, Marx deserves better critics than Pinker, but he also deserves better defenders than Burgis and McManus.

On that note, let’s take a closer look at their two examples of Pinker’s alleged errors, and then I’ll give you a taste of what a good criticism of Marx looks like.

The Political Level: Did Marx Advocate Central Planning?

The political comments of Pinker that Burgis and McManus take issue with come from a recent podcast episode he did with Pooja Arora. “What’s remarkable is that Marxism has been tried,” he says. “Of course, a defender of Marxism would say it hasn’t really been tried anywhere. But certainly, the people who implemented it claimed they were implementing Marxism. And this is a massive global experiment with a very clear outcome, namely, the Soviet Union was a disaster, the imposition of Communism on Eastern Europe was a disaster…” Pinker goes on to spell out the usual talking points.

He then pivots to a discussion about what has made Marxism so attractive. Here is the full quote that Burgis and McManus cite:

[O]ne of the appeals of Marxism, though, and more generally of heavy, strong influence of government guided by intellectuals, which is that there are certain kinds of reforms that you can state as principles. You can articulate them verbally as propositions—like equality, human rights, democracy—but there’s other kinds of progress that take place in massive distributed networks of millions of people, none of whom implements some policy. But collectively, there is an order, an organization that’s beneficial. So that can happen organically through, for example, the development of a language. No one designed the English language. It’s just hundreds of millions of English speakers. They coin new words. They forget old words. They try to make themselves clear. And we get the English language and the other 5,000 languages spoken on earth.

Likewise, a market economy is something where knowledge is distributed. You don’t have a central planner deciding how many shoes of size 8 will be needed in a particular city, but rather information is conveyed by prices, which are adjusted according to supply and demand. And you’ve got a distributed network of exchange of information that can result in an emergent benefit. Now, intellectuals tend to hate that. They like rules of language—of correct grammar. They like top-down economic planning. They like cultural change that satisfies particular ideals described by intellectuals. And so rival sources of organization, like commerce, like culture—traditional culture—tend to be downplayed by intellectuals.

“All of this simply takes for granted that Marx called for a ‘heavy, strong’ super-state that would be ‘guided by intellectuals’ as it engaged in ‘top-down’ planning,” Burgis and McManus note in response. From their perspective, this view is entirely unfounded. “Anyone perusing Marx’s writings for evidence that he advocated a top-down regime of bureaucracy and centralized control will come up empty. He just didn’t.”

Indeed, Marx barely articulated any positive system at all, they insist. “Pinker seems to think that ‘Marxism’ is the name of a model of social organization, present somewhere in old books and ready to be ‘implemented’ after the end of capitalism. But this is a fundamental misunderstanding,” they write. Marx’s main project, you see, was to analyze the current state of society, capitalism, not to recommend a system that could be “implemented” somewhere, and certainly not a totalitarian centrally planned one. So “the idea that he advocated a ‘suffocating’ system of ‘centralized control’ by an all-powerful state just doesn’t withstand contact with his writings.”

These are bold comments, but then again, these authors have read a lot of Marx. Surely, if they tell us that a certain set of ideas is simply nowhere to be found in Marx, we can take them at their word?

Alas, we can’t, as will shortly be demonstrated.

But first, one of the interesting things to note about this argument is that it’s a very absolute claim. If you’re going to argue “nowhere does Marx say this,” then an opponent simply needs to provide one counterexample to disprove the claim. And I am saying that I have such a counterexample. I have found a place where Marx advocates top-down central planning!

Since these are such serious Marx scholars, you can imagine that it was not so easy to find. If Marx quotes to this effect were in any of his well-known works, these scholars would have been aware of them and wouldn’t have argued so forcefully. But it seems I have come across a piece of Marx’s writing so obscure that even these astute scholars have missed it. Doubtless most laypeople have never heard of it. It’s called The Communist Manifesto.

Let’s see what Marx and his friend Engels wrote in this little-known 1848 document, shall we?

The immediate aim of the Communists is the same as that of all other proletarian parties: formation of the proletariat into a class, overthrow of the bourgeois supremacy, conquest of political power by the proletariat.

Well now, that does seem a touch totalitarian. But what does it mean practically? There’s nothing here about top-down control or central planning. Perhaps some other selections will flesh it out.

The proletariat will use its political supremacy to wrest, by degree, all capital from the bourgeoisie, to centralise all instruments of production in the hands of the State, i.e., of the proletariat organised as the ruling class; and to increase the total productive forces as rapidly as possible.

Oh, well that’s awkward. But even if it’s centralised, surely Marx doesn’t intend a system that could be described as “heavy,” “strong,” or “suffocating,” right?

Of course, in the beginning, this cannot be effected except by means of despotic inroads on the rights of property, and on the conditions of bourgeois production; by means of measures, therefore, which appear economically insufficient and untenable, but which, in the course of the movement, outstrip themselves, necessitate further inroads upon the old social order, and are unavoidable as a means of entirely revolutionising the mode of production.

Ok, well, this is all very abstract. Surely, he doesn’t mean the kind of top-down totalitarianism that characterized twentieth-century regimes. Oh, look, he gives us a helpful 10-step plan for—can there be any other interpretation?—“implementing” his system.

These measures will, of course, be different in different countries.

Nevertheless, in most advanced countries, the following will be pretty generally applicable.

1. Abolition of property in land and application of all rents of land to public purposes.

2. A heavy progressive or graduated income tax.

3. Abolition of all rights of inheritance.

4. Confiscation of the property of all emigrants and rebels.

5. Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.

6. Centralisation of the means of communication and transport in the hands of the State.

7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.

8. Equal liability of all to work. Establishment of industrial armies, especially for agriculture.

9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.

10. Free education for all children in public schools. Abolition of children’s factory labour in its present form. Combination of education with industrial production, &c, &c

Here, to refresh your memory, is Burgis and McManus: “Anyone perusing Marx’s writings for evidence that he advocated a top-down regime of bureaucracy and centralized control will come up empty. He just didn’t.”

And again: “…the idea that he advocated a ‘suffocating’ system of ‘centralized control’ by an all-powerful state just doesn’t withstand contact with his writings.”

Well, something here clearly doesn’t withstand contact with Marx’s writings, but it sure isn’t Steven Pinker’s podcast remarks.

The Theoretical Level: Marx’s Enlightenment Credentials

Having discussed the political level, Burgis and McManus now turn to the theoretical level. “Is it true,” they ask, “that Marx and Marxism reject the Enlightenment, giving way to a host of identity-fixated critical theories that can only end in Gen Z girlbosses and woke M&Ms? This is, again, a ridiculous claim to make, which even a cursory reading of Marx would cure you of. Marx was emphatically, as even a critic like Ian Shapiro notes, a thinker of the ‘mature Enlightenment.’”

These comments call back to a quote from Enlightenment Now that Burgis and McManus cite in the introduction:

More insidious than the fettering out of ever more cryptic forms of racism and sexism is a demonization campaign that impugns science (together with reason and other Enlightenment values) for crimes that are as old as civilization, including racism, slavery, conquest, and genocide. This was a major theme of the influential Critical Theory of the Frankfurt School, the quasi-Marxist movement originated by Theodor Adorno and Max Horkheimer, who proclaimed that ‘the fully enlightened earth radiates disaster triumphant.’ It also figures in the work of postmodernist theorists such as Michel Foucault, who argued that the Holocaust was the inevitable culmination of a ‘bio-politics that began with the Enlightenment, when science and rational governance exerted increasing power over people’s lives[…] Though Critical Theory and postmodernism avoided ‘scientistic’ methods such as quantification and systematic chronology, the facts suggest they have the history backwards. Genocide and autocracy were ubiquitous in premodern times, and they decreased, not increased, as science and liberal Enlightenment values became increasingly influential after World War II.

“In this version of intellectual history,” Burgis and McManus remark after sharing this quote, “what the bearded socialist was cooking up as he took notes on all those books in the British Museum entailed a dangerous rejection of the Enlightenment values that made the world great.”

To summarize, based on the above quote, Burgis and McManus attribute to Pinker the view that “Marx and Marxism reject the Enlightenment,” which they say is “a ridiculous claim to make.” The only problem is, I’m having trouble figuring out where exactly Pinker makes that claim.

What Pinker claims, in my reading of the above quote, is that the Frankfurt School was anti-Enlightenment as well as being quasi-Marxist. Now, it’s conceivable that their anti-Enlightenment attitude is one of the things they share with Marx, but I don’t see Pinker claiming that. He is simply saying that they were anti-Enlightenment, and that they also had Marxist elements. Perhaps he sees them as quasi-Marxist because they see the world through the lens of class conflict, like Marx did. Perhaps that is what they share with Marx, and their anti-Enlightenment attitude is an area where they deviate from Marx. Pinker doesn’t say, but that’s exactly the point. Burgis and McManus are attributing a position to Pinker that he doesn’t articulate here. Maybe he articulates it somewhere else, but then of course it would be incumbent on the authors to cite their source. As it stands, it looks like this quote is their only source for Pinker’s alleged claim that “Marx and Marxism reject the Enlightenment.” In other words, this entire section of the essay springs from a basic error in reading comprehension.

After a lengthy discussion about why Marx really was an Enlightenment thinker—which we are free to agree with because Pinker never claimed otherwise—the authors give us another Pinker quote. They write:

Interestingly, we aren’t the first ones to raise this objection. In a 2019 interview Pinker is pressed on this point about Marx by Quillette magazine… [The interviewer asks] shouldn’t “Marx be counted as an Enlightenment thinker?”

In response, Pinker retreats into a conceptual haze worthy of Jordan Peterson, saying there can be “no correct answer to the question of whether some writer deserves to be counted as part of the Enlightenment.” He goes on to say that “words mean what people take them to mean” and as far Pinker is concerned Enlightenment stands for “the ideal of using reason and science to advance human welfare…”

Now of course Pinker is right that big terms like “Enlightenment” aren’t logically airtight. They are often fuzzy, and there are figures who may be peripheral or ambiguous members. But there are limits to this ambiguity, and it must be said if Marx doesn’t count as a person committed to using “reason and science to advance human welfare” then no one is. If he’s not an Enlightenment thinker, there are no Enlightenment thinkers.

Burgis and McManus say that Pinker “retreats” from his position, as if he has been called out on his erroneous claim. But they have presented no evidence of him making the claim they are attributing to him, so Pinker isn’t retreating from anything. Sure, they can argue that Marx was definitely an Enlightenment thinker in contrast to Pinker’s claim that it’s hard to say, but now we’re truly debating historical categories and semantics. This is hardly convincing evidence that Pinker is misrepresenting Marx on account of his deep unfamiliarity with the thinker, which is, let’s remember, the thesis the authors are trying to advance.

Böhm-Bawerk’s Critique of Marx

We have seen that Burgis and McManus have some gaps in their analysis, to say the least. And yet, as I indicated at the outset, their takeaway is still one that I share: Marx deserves better critics. Pinker may have been right about the political and theoretical points above, but he is still a poor critic of Marx because he neglects to engage at a technical level with Marx’s concrete ideas and theories—and probably isn’t as familiar with them as he should be.

Fortunately, Marx does have some better critics, and part of my goal with Against the Left is to introduce you to them so that you can learn their arguments and thus push back against Marxist thinking more effectively. Two individuals in particular stand out in this regard: Eugen von Böhm-Bawerk (1851-1914) and his student in the Austrian tradition, Ludwig von Mises (1881-1973).

To give a sample of what a good criticism of Marx looks like, let’s briefly look at Böhm-Bawerk’s classic work debunking the Marxian edifice: his 1896 book Karl Marx and the Close of His System.

Marx, says Böhm-Bawerk, begins Volume I of his three-volume magnum opus Capital by laying down his famous law of value (Marx lived from 1818 to 1883. Volume I was published in 1867. Volumes II and III were published posthumously by Engels (1820-1895), in 1885 and 1894, respectively). The law states that, since the value of a commodity is determined by the amount of “socially necessary labor time” that was absorbed in creating it, commodities exchange according to the proportion of socially necessary labor time incorporated in them. What “socially necessary labor time” means exactly is kind of confusing, but the basic idea is that when two people make a trade, the exchange ratio (say, three shirts for one ounce of gold) is determined by what will make it so that equal amounts of “socially necessary labor” are being traded. So, say it took 2 hours of this labor time in total to produce each of the three shirts, for a total of 6 hours. We would then expect that it took roughly 6 hours to make the ounce of gold, because then we’d be trading a commodity that took 6 hours of labor time to make for another commodity that took 6 hours of labor time to make. If shirts suddenly started taking only 1 hour to make while gold conditions stayed constant, we would expect them to trade with gold at a ratio of 6:1, and so on.

With this law in mind, we come to Marx’s key equation. Think about a capitalist, Marx says. He begins with a sum of money, then trades it for commodities, like tools, machinery, and labor, which work together to produce a product. He then takes the product and sells it, usually for more money than he initially put out. This transition from money to commodities and then to more money can be represented as:

M-C-M’

The question, the world-famous question, is this: where does the increase, the surplus, come from? Well, Marx reasons, it can’t be when money is initially traded for commodities, because we know from the law of value that everything trades according to its socially necessary labor time—equal for equal. At the same time, it also can’t be when the final product is sold, for the same reason. Thus, the increase must come in the middle. But how?

Marx argues that it comes from exploitation of the labor commodity, that is, from paying workers less than the value they produce.

An example will help to illustrate how this works.

Say a capitalist hires a worker to spin 10 pounds of cotton into yarn, which takes the worker about six hours. Let’s assume that the value of one hour of “socially necessary labor time” in this society is 50 cents, so these are considered equivalent amounts. This would mean that the worker would be creating $3 of value in his six hours of work. The 10 pounds of cotton, let’s say, took a total of 20 hours to produce, so the capitalist buys it for the equivalent, that is, $10. Tools are also consumed during the work, worth 4 hours, which means $2.

The capitalist, then, starts with $15 (M) and buys the following commodities (C):

• $10 (20 hours) for 10 pounds of cotton

• $2 (4 hours) for tools consumed

• $3 (6 hours) for 6 hours of labor

Thus, the capitalist spends $15, the equivalent of 30 labor hours, for commodities. Since the worker’s labor and the value of the tools are “absorbed” into the final product, the value of the yarn is also $15 (30 hours), and so the capitalist breaks even and there is no profit.

But this will not do for the capitalist, so he comes up with a scheme to create a surplus.

To understand this scheme, we need to reflect back on Marx’s labor theory of value. One way of stating it is that the value of a commodity is equal to the working time necessary for its reproduction. For labor, that means a day’s wages will be equal to the amount it takes for a worker to just barely subsist for a day. In our example above, $3 a day is the amount of money a worker needs to continue living so that he can work again the next day, which is why that is the market price for his labor.

But what if the capitalist makes the worker work 12 hours a day instead of 6 hours? The worker’s pay, Marx argues, would still be set at $3 per day, but now he is producing more output for the capitalist. Of course, more raw materials would be needed, but their value is fully absorbed into the final product, so it’s no problem. The numbers for a 12-hour day might look like the following:

• $20 (40 hours) for 20 pounds of cotton

• $4 (8 hours) for tools consumed

• $3 (6 hours) for 12 hours of labor

The capitalist spent $27 (54 hours) (M) on commodities (C), but the final product, which absorbs all of the value added, is worth $30 (60 hours) (M’). Thus, the capitalist makes a $3 profit. Where does this surplus come from? It comes from the fact that the laborer worked 12 hours and was only paid for six. The worker generated a surplus value of $3 for the capitalist, effort that was unfairly appropriated. This exploitation of the worker, says Marx, is the source of the capitalist’s profits.

With this framework in mind, Marx now defines some terms. Constant capital is the money that the capitalist spends on means of production that aren’t labor, in our case, the raw cotton and the tools. Variable capital is the money that is spent on labor, that is, converted into wages. In our example above the capitalist allocates $24 to constant capital and $3 to variable capital. Total capital is the sum of the two, that is, $27.

The rate of surplus value is defined as surplus value/variable capital. In our example, there was $3 of surplus value ($30-$27) and $3 of variable capital, so the rate would be $3/$3, or 100%. Finally, the rate of profit is defined as surplus value/total capital. In our example, that would be $3/$27, which is about 11%.

Now, says Böhm-Bawerk, we come to a highly inconvenient problem for Marx. Out in the real world, there is a well-established fact, disputed by no one, not even Marx, that the rate of profit across industries tends to be relatively equal. If one line of production is making a 20% return while all the others are making 5%, capital will shift into that lucrative line, increasing the supply and reducing the return until it is around the level of other lines. Thus, there exists a tendency for the rate of profit to be roughly the same everywhere.

The problem is that, in Marx’s system, it also seems to be a reasonable assumption that the rate of surplus value would be roughly the same everywhere. Workers across industries tend to require the same wages for subsistence and work about the same number of hours.

However, different industries have different proportions of constant and variable capital, what Marx calls the organic composition. Some industries spend a lot more on labor relative to raw materials and tools compared to others. The problem is that if you have different organic compositions and the same rate of surplus value, Marx’s theory implies that you will have different rates of profit. In other words, his theory predicts an outcome that we know empirically to be not at all the case.

The following table helps to illustrate the issue. Different lines of production with different organic compositions are compared. Notice how, when the rate of surplus value is held constant and the composition of capital is allowed to vary, the rates of profit change.

It is clear that different industries require different proportions of constant and variable capital. And yet, it is also clear that the rate of profit across industries tends to be equalized. So if the rate of surplus value is assumed to be relatively equal across industries, we have a problem, which, according to Böhm-Bawerk, is one of the central problems in the whole Marxian system.

To summarize the rest of Böhm-Bawerk’s analysis, Marx finally tries to explain himself in Volume III, but in doing so ends up contradicting his earlier law of value.

The whole question of whether Marx contradicts himself on this matter has come to be known as the transformation problem. Various responses to Marx have been given, such as Böhm-Bawerk’s, and responses to those responses, and so the debate rages on over a century later. In future Against the Left pieces I might flesh out the other parts of Böhm-Bawerk’s analysis or respond to Marx’s defenders, but we’ll leave it here for now.

After highlighting what he sees as a glaring contradiction in Marx’s system, Böhm-Bawerk concludes that clearly, Marx took a wrong turn somewhere. Later in the book, Böhm-Bawerk suggests it was all the way back at the law of value, and gives compelling arguments to that effect. Though, as mentioned, debate on this subject continues to this day, most modern Austrians maintain that Böhm-Bawerk’s original analysis remains unsurpassed and undefeated.

But even if we can show that Marx’s system is theoretically flawed, there is a nagging question that any critic of Marx needs to be able to answer, namely, if labor exploitation is not the cause of the increase, of the M-C-M’ phenomenon, then what is?

A Better Explanation of Profits

The answer, according to Böhm-Bawerk and the Austrian school, is time. The passage of time between production expenditures (M-C) and actually selling the product to the consumer (M’) is why the final product usually sells for more than the sum of the inputs.

Time produces this increase in two different ways: interest, which accounts for time preference, and, where applicable, entrepreneurial (sometimes called “pure”) profit, which accounts for uncertainty. Mises clears up the confusing terminology in his 1951 essay Profit and Loss. “Many errors concerning the nature of profit and loss were caused by the practice of applying the term profit to the totality of the residual proceeds of an entrepreneur,” he writes. “Interest on the capital employed is not a component part of profit. The dividends of a corporation are not profit. They are interest on the capital invested plus profit or minus loss.”

In other words, when a business spends $100 and then earns $120, the $20 surplus or “profit” or “dividend” is technically a combination of an interest return and profit, the profit component sometimes being called “pure” or “entrepreneurial” profit to distinguish it from “profit” in the sense of the total surplus.

The phenomenon of interest is well-understood. You pay interest on a loan because money today is worth more than the same amount of money tomorrow. What is less well-understood is that the same kind of phenomenon exists within the structure of production. If a worker contributes today to a final product that will not be sold to the consumer until a year from now, the mere window of time between when the wages are paid and when the revenue is generated comes with a certain amount of value. If the capitalist pays wages upfront and then has to wait to sell the product, then that explains why he gets an interest return on that time. The clinching argument is that the worker can always lend their wages to the capitalist at interest until the day the final product sells, in which case they will have done the waiting and earned the interest. By choosing to take their pay long before the product sells, the worker is choosing to let the capitalist reap the interest return.

The other source of the increase, where applicable, is pure profits, which are earned when a capitalist correctly speculates about the future state of the market. If a capitalist pays you $20 today, say, but then it turns out that his sales increased by $30 as a result of your work, then he pockets the difference, which could be considerably more than just the interest return. A worker might complain that this is unfair, but the worker did not risk anything, so why should they get any reward? The capitalist could just as easily take a loss on their investment, and clearly the worker would not be okay with reduced pay in that case.

The deal between a worker and a capitalist is that the worker gets paid today, and with certainty, while the capitalist gets paid tomorrow, and with uncertainty. The delay and the risk are the source of interest and (if you’re lucky) pure profits, respectively. If a worker wants to reap those rewards, they are welcome to open a Robinhood account and become a capitalist themselves. No one is stopping them.

Some may object that private equity is the only way to really make money as a capitalist, and that the start-up costs to get into that are prohibitive for the vast majority of workers. But Mises gives a decisive rejoinder in Profit and Loss to this common objection:

Entrance into the ranks of the entrepreneurs in a market society, not sabotaged by the interference of government or other agencies resorting to violence, is open to everybody. Those who know how to take advantage of any business opportunity cropping up will always find the capital required. For the market is always full of capitalists anxious to find the most promising employment for their funds and in search of the ingenious newcomers, in partnership with whom they could execute the most remunerative projects.

What is deeply regrettable about the interest/pure profit explanation to the Marxists is that there is nothing sinister going on when it comes to profits. There is no exploitation here, just the market pricing in the impact of time preference and uncertainty. The interest return is the moral equivalent of making a loan and earning interest. And pure profit is just making money from correct speculation. It’s the moral equivalent of buying a piece of gold hoping that the price will go up and then selling it for a profit a year later if you were right. Is that a moral way to make money? I don’t see why it wouldn’t be. Did your gain come by ripping off or exploiting the guy you initially bought the gold from? Of course not.

If you agree with me that neither of these ways of making money are immoral, then you should agree that there is nothing immoral about profits, and thus all the leftist rhetoric demonizing profits as ill-gotten gains is completely uncalled for. The only exception is when profits are made, not from honest trade in a free market, but from a market rigged by coercive (often government) intervention. But then it is not profits as such that are the problem, but the unjust way in which they were obtained, much like how it’s unjust for a thief to profit off of their thievery.

Wanted: Good Modern-Day Critics of Marx

This may all sound very theoretical, but adopting the right perspective on profits is quite a big deal. The Marxist paradigm is where we get the popular idea that capitalists exploit workers by paying them less than the value they create, that this exploitation is the source of profits, and that therefore profits are evil and a kind of theft. If people are not told—even more, are not persuaded with informed argumentation—that this Marxist view has been debunked for over 100 years, they will continue to believe these complete falsehoods about capitalism and advocate all the usual anti-profit policies that go with them, which is a problem because profit and loss are actually crucial for a well-functioning economy.

So why don’t we see more defenders of capitalism arguing along these lines?

I think part of it is that the Marxism debate has long been settled in academic circles. Indeed, arguing about Marxism with modern-day economists is a bit like arguing about alchemy with modern-day chemists. Most modern chemists, if asked to “refute” or “debunk” alchemy would probably look at you funny. They would also not be very good at it, because they never even studied the “alchemy debate” in school, because that paradigm has just been so conclusively debunked for so long that the only reason anyone studies it today is if they are interested in the history of ideas.

After the marginal revolution (1870s), putting forward a pre-marginalist economic theory like Marxism as a serious idea is almost embarrassingly anachronistic. A student of economics is tempted to ask, “where have you been for the last century and a half?” And then they aren’t even going to engage in giving a serious point-by-point rebuttal, because the logical thing to do in that situation is just laugh and move on.

But the fact is that there are Marxists among us, and, perhaps more importantly, millions of leftists who would never claim Marx and yet who continue to think along the erroneous lines he laid down. The Steven Pinkers of the world are not going to help us much in fighting these bad ideas. Nor, unfortunately, will most modern economists. But thinkers like Böhm-Bawerk and Mises will. If we resolve to read their rebuttals and understand their arguments, perhaps we ourselves can become the better modern-day critics that Marx deserves—and desperately needs.

“I was very surprised to see so many teenagers and people within the age group I was targeting tell me they were in favour of this resolution, in part because they felt they have no choice but to be on social media,” said Quebec MP Rachel Bendayan, who championed the motion. “So it’s not a ban for a ban’s sake. It’s something that would change the way society operates at the moment.”

Supporters point to Australia, where a similar ban took effect on December 10, 2025, resulting in roughly 4.7 million social media accounts being deactivated. Though clearly controversial, the policy is proving popular in Canada as well. A March poll by the Angus Reid Institute found that 75% of Canadians would support a ban.

The impetus for this policy naturally traces back to concerns about child welfare in the age of ubiquitous social media. An April 19 op-ed in the Quebec-based outlet La Presse—penned by two technology experts who are putting together a petition for the ban—spells out the argument.

“No one would dispute the idea of ​​verifying a teenager’s age before selling them alcohol,” write Dan Robichaud and Jean-Sébastien Giroux. “We demand the same for platforms whose designers knew, and wrote in their own internal memos, that they were making children sick.” They point to a landmark trial in California that was decided on March 25. In the words of the op-ed authors, “Meta and YouTube were found liable for designing deliberately addictive products for children.”

To alleviate concerns about privacy and data collection, they propose that new age-estimation technology can be used instead of traditional identity verification. “We want to be able to tell our children that no, not all their friends are on Instagram, because no one their age should be,” they write.

While no legislation has been tabled yet, it’s clear that momentum for this idea is building quickly. “We’re in the early stages of having this debate,” said Bendayan when her resolution passed, “and what today did was kick off what I hope will be a national conversation.”

Well then, as a foray into what I hope will be a very short “national conversation,” I’d like to take this opportunity to express my sincere disagreement with this proposed policy.

Telling Parents How to Parent

My view about parents’ rights is very straightforward, though not always easy to apply in practice. If parents are abusing their children, it is reasonable for the government to step in. If they aren’t, the government should stay out of their way and let them make their own parenting decisions. Where exactly the line is for abuse is always a hard question, and I don’t have good answers. What I will say is that overly broad definitions of abuse are often a convenient excuse to impose our parenting preferences on others. If Jimmy’s parents give him a 20-minute time out-instead of 10-minutes, we should probably show some restraint before sending in the police to “rescue” Jimmy from such “abusive” parents.

If the argument is that letting your under-16 child access social media is a form of abuse, I would tell you that this is way too broad of a definition of abuse. That would mean millions of parents are currently abusing their children as we speak, and I just don’t buy that. However, this doesn’t seem to be the argument. Instead, the argument is simply “we should ban it because it’s bad for kids.” In other words, the government should simply command parents to parent in a certain way, for their child’s own good.

This is a harrowing principle when you think about it.

Imagine if the government sought to regulate a child’s diet. Maybe chips and candy and soft drinks would be banned for those under 16. Surely that’s unreasonable, but isn’t it equally unreasonable to regulate a child’s media diet? A child can consume food that is bad for them just as they can consume content that is bad for them. Shall we regulate child food consumption, then, for the child’s safety?

I suppose we already do to an extent with alcohol laws. Come to think of it, it was clever for Robichaud and Giroux to make that analogy—we already have a precedent for overriding the preferences of parents with respect to what their children consume, so what’s the big deal? Well, the big deal is that this precedent is equally intolerable! “No one would dispute the idea of verifying a teenager’s age before selling them alcohol,” they write. This is a smooth piece of rhetoric, and the fact that yours truly does in fact happen to dispute the idea in question probably does nothing to weaken the rhetorical punch.

But I want to challenge you to rethink this seemingly common-sense position. Why should the government get to decide at which age a child begins consuming alcohol, and not parents? If a parent allows their child to consume hard drugs, I think you’ve got a case that this counts as abuse. But alcohol? I’m not arguing it isn’t harmful. I’m arguing that it’s rightfully the parent’s purview to make decisions about that kind of harm, not the government’s.

The threshold for the government getting involved should be whether a given parenting decision can be classified as abusive. Letting one’s 15-year-old drink may be harmful for them, but so is letting them eat tons of sugar. Are we really prepared to argue that these allowances constitute abuse? If not, then why should the government have any right to get involved? The state is not the child’s legal guardian, after all.

I’m reminded of a line from Pierce v. Society of Sisters, a landmark U.S. Supreme Court case decided in 1925. In delivering the opinion of the Court regarding an Oregon statute that required all children to attend public school, Justice McReynolds wrote that “The child is not the mere creature of the State.” In other words, he or she is not someone whom the state can simply boss around at will, with no regard to the wishes of parents.

Michael Malice has put it somewhat more bluntly. “Socialists regard your property as their property,” he often remarks, “but even more nefariously regard your children as their property.”

Kids Are Not All the Same

Another problem with the idea of a youth social media ban is that not all kids are alike. Some kids are more susceptible to these kinds of harms than others. Why should the more robust ones be punished for the weaknesses of their peers? What’s more, some mature earlier than others. A sweeping, one-size-fits-all ban treats all kids of the same age as if they were the same, when they are in fact very different.

My heart especially goes out to precocious kids in this regard. I have had the privilege of knowing some brilliant young entrepreneurs who have leveraged social media to build their brand, as well as young scholars who use it to follow interesting thinkers, engage in intellectual debate, and learn about the world. Do we really want to see those kinds of opportunities cut off for them?

A related concern is that social media bans are infantilizing, which may contribute to a culture of prolonged adolescence and delayed maturity. Teens should be encouraged to join the adult world as quickly as possible, but they can only do that if we are willing to give them the rights and responsibilities of adults.

To sum up, I don’t deny that there are risks to social media use, especially for youths. What I take issue with is the idea that the risk tolerance preferences of the majority should be imposed on the minority that disagrees.

It’s worth emphasizing that this is a mere preference, an opinion, that happens to be held by a substantial number of people. In a free society, merely having an opinion about how other people should raise their children does not entitle you to enforce that opinion on unwilling parents, even if a majority of voters in that society share your opinion.

The essence of liberty and tolerance is allowing people to live their lives in ways we disagree with as long as they are peaceful/non-abusive. That includes parenting decisions. By trying to enforce their parenting opinions on others, the left is demonstrating that they have no respect for a parent’s right to raise their own children as they see fit. They would rather children be raised according to the state’s principles and the state’s ideology.

Speaking of which, another resolution from the Liberal National Convention, which was also adopted, calls for those under 16 to be banned from using AI chatbots. No ChatGPT helping you with your homework. No learning how to use the tools that the modern world increasingly depends on.

Fortunately, that idea seems to be gaining less traction—for now.

But first, some context.

In a February 24 sit-down with Matthew McConaughey, Chalamet was talking about the film industry and the need to adapt to evolving consumer tastes:

I’m really right in the middle, Matthew. Cause I admire people, and I’ve done it myself, [who] go on a talk show and go, “Hey, we gotta keep movie theaters alive. You know, we gotta keep this genre alive.” And another part of me feels like, if people wanna see it, like Barbie, like Oppenheimer, they’re gonna go see it and go out of their way and be loud and proud about it. And I don’t want to be working in ballet or opera, or things where it’s like, “Hey, keep this thing alive” even though it’s like, no one cares about this anymore.

He realized on the spot that he “just took shots for no reason.” But the cat was out of the bag, and the response from the opera and ballet communities was swift. “We’d love to change your mind,” wrote the English National Opera on Instagram. “…free tickets on us to help you fall back in love with opera anytime xoxo.”

Other responses were less lighthearted. “Perhaps one of the greatest mistakes human beings can make is to compare themselves with others, or to compare one form of expression with another,” wrote Colombian ballet dancer Fernando Montaño in response to Chalamet’s comments.

The elephant in the room, of course, is that Chalamet has a point. “What the big organisations in the UK failed to mention is that dwindling audience numbers post-Covid have led to significantly fewer stage shows being produced, meaning more people in the industry are out of work,” writes Rebecca Humphries for The Guardian. “It may be an awkward truth, but opera and ballet are going the way of stamp-collecting, churchgoing and blacksmithing, and appreciation alone will not rescue them.”

The reality is that these are dying industries, and while pointing that out may sting for those involved, it doesn’t change the fact that consumers just aren’t as interested in patronizing these forms of entertainment as they used to be. It doesn’t change the fact that Netflix on the couch is a far more desirable way to spend an evening for the vast majority of consumers than Swan Lake in a cramped auditorium.

Acknowledging this trend, Chalamet challenges us to think about how we want to respond to it. Should we cling desperately to the popular artforms of the past, no matter how unpopular they have become in the present? Or should we embrace change and allow the consumer to lead the way? Chalamet suggests that the latter approach is the path with more grace. I think he’s right.

In fact, Chalamet’s sentiment comes across as refreshingly forward-thinking and entrepreneurial, even capitalistic. “The consumer is king” is his message. “Your art is worth what people are willing to pay for it, and you have to adjust with the times. It is undignified to try to keep an old genre alive in perpetuity when everyone else has moved on—or to lecture the masses about their lack of taste.”

Two Kinds of Democracy

But maybe some forms of art are worth preserving even if there is little to no market demand for them. This is the case that Jarek Paul Ervin makes in his piece on this story for Jacobin. He writes:

Opera and ballet are in genuine financial and cultural crisis, and anemic celebrity white knighting does little to expand their audience.

Yet far too many of Chalamet’s critics are ignoring the role of public infrastructure in the modern life of the performing arts. Well into the twentieth century, opera and dance preserved their mass appeal even as new paradigms emerged — including film. Especially in Europe, they did so on the back of ambitious state ownership programs and public funding.

The real question isn’t whether anyone cares about opera and ballet — it’s who will pay to keep them alive. What these art forms need isn’t celebrity defenders but a renewed commitment to the kind of ambitious public support that preserved their relevance in the past century.

To no one’s surprise, Ervin is suggesting that the government step in with “ambitious” public funding to keep these dying art forms alive. “Culture is defined by shared values and the institutions that make art accessible to ordinary people,” he concludes. “Whether art forms live or die is a collective choice, and it should not be left to the whims of the market.”

That last line is particularly interesting. As I read the situation, the market is precisely how we make “collective choices” (technically a collection of individual choices, but I’d rather not be pedantic about this). If the “whims of the market” have shifted against opera and ballet, it’s because consumers have collectively decided that they want less of those art forms.

What Ervin means, of course, is that a democratically elected government should make this choice rather than consumers.

In his 1949 treatise Human Action, the Austrian economist Ludwig von Mises clarifies the distinction between these two means of making a “collective choice,” which we might call economic democracy and political democracy:

With every penny spent the consumers determine the direction of all production processes and the minutest details of the organization of all business activities. This state of affairs has been described by calling the market a democracy in which every penny gives a right to cast a ballot. It would be more correct to say that a democratic constitution is a scheme to assign to the citizens in the conduct of government the same supremacy the market economy gives them in their capacity as consumers. However, the comparison is imperfect. In the political democracy only the votes cast for the majority candidate or the majority plan are effective in shaping the course of affairs. The votes polled by the minority do not directly influence policies. But on the market no vote is cast in vain. Every penny spent has the power to work upon the production processes. The publishers cater not only to the majority by publishing detective stories, but also to the minority reading lyrical poetry and philosophical tracts. The bakeries bake bread not only for healthy people, but also for the sick on special diets. The decision of a consumer is carried into effect with the full momentum he gives it through his readiness to spend a definite amount of money.

One might note that opera and ballet are likewise minority tastes that the market caters to despite the fact that most people have little to no interest in consuming them.

The question that Ervin is really raising is whether it is preferable to make collective choices by means of economic democracy or political democracy. Shall the consumer decide which art forms live and die, or shall the voter and his proxy, the legislator?

Ervin, who considers himself among those “interested in saving the performing arts,” prefers political democracy. In his ideal world, “we the people” as voters would make a collective choice to fund opera and ballet out of taxpayer dollars if these industries could not support themselves in the free market. He wants this, presumably, because he considers opera and ballet to be important sources of cultural richness. They have value as high art, and a society that believes in cultural flourishing would be foolish to simply let that disappear.

The Problem with Political Democracy

One of my main issues with political democracy is that it involves forcing people to pay for things that they would rather not support. If you consider yourself someone who believes in tolerance or live and let live—as I know many on the left do—this should be a big problem for you, too.

In another section of Human Action, Mises spelled out the coercive nature of government in no uncertain terms:

It is important to remember that government interference always means either violent action or the threat of such action. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.

What political democracy effectively says is that people who will not support a certain initiative voluntarily should be made to support it by the force of law. Say you do not want your money going toward ballet or opera. According to Ervin, you should be compelled to hand over your taxes regardless. If you don’t pay your ballet and opera taxes, you should be fined. If you refuse to pay the fine, you should be arrested. If you resist arrest, you should be shot.

This is what government compulsion means. True, it rarely gets to the most extreme point, because most people acquiesce long before it becomes life and death. But the government stands prepared to escalate all the way. Their ethos is not live and let live. It is “do as we tell you, or else.”

Maybe such compulsion is necessary for law and order, for certain basic government functions like police, courts, and prisons. But Ervin insists that even the arts should be funded with the threat of a gun if the free market won’t do it. And that’s just something I can’t stomach. I have too much respect for people’s autonomy, for letting them make their own choices about which causes they want to support. I don’t believe in forcing people to subsidize specific industries just because I happen to think those industries are important.

I like how Milton Friedman put it in his 1962 book Capitalism and Freedom:

Indeed, a major source of objection to a free economy is precisely that it does this task so well. It gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.

When Ervin says that the life and death of certain artforms “should not be left to the whims of the market,” what he’s really saying is that you and I should not be free to allocate our money as we see fit. We should be forced to fund what a majority of our neighbours thinks we ought to fund.

In other words, compulsion, not tolerance, should be the rule.

If you think of yourself as being on the left, ask yourself, is that really in line with your values?

The single biggest issue I have had with the liberty movement ever since becoming a libertarian in 2018 is that we rarely give compelling, substantive answers to the best arguments of our intellectual opponents. I created Against the Left as my way of calling out this strategic error, this crucial gap in the liberty movement’s initiatives. The message of this Substack to libertarians is a gentle reproach: you are focusing your efforts on the wrong places. You are avoiding what you ought to be leaning into.

Easily the most conspicuous example of this problem is the question of market failure. I realized early in my libertarian journey that market failure was by far the strongest and most relied upon argument that statists use against the free market. It is almost universally accepted by economists, and it is widely cited by politicians and pundits.

Compare this to the lackluster quality and quantity of libertarian content that exists on this topic. There are some articles out there, for sure. Even a few books, for those few who get far enough in their studies to know where to look. But, in my opinion, the libertarian response on this question has generally been incredibly weak. And judging by the widespread acceptance of the market failure doctrine, even among many self-described free marketers, most other people who’ve thought about this feel the same way.

I’m going to address market failure head on in this piece—the first time I have ever attempted to do so, despite being borderline obsessed with this topic for most of my time as a libertarian. As such, this will be one of the most important articles I’ve ever written.

But before getting into the actual debate, I want to stress the meta-point that there is a massive delta between how central this question is to the free market vs. interventionism debate and how little attention it gets from libertarians. To be intentionally shocking and provocative, I think something like 30-50% of our movement’s resources should be devoted exclusively to the market failure question. Entire think tanks (plural) should exist that only do welfare economics—studying and interacting with the arguments of Pareto, Pigou, Kaldor, Hicks, Little, Arrow, Samuelson, Rothbard, Cordato, and so on.

If you’ve never heard of many of these names, you’re proving my point.

The lack of attention given to market failure in particular has for years been my biggest pet peeve with the liberty movement. We talk such a good game, we have so much rhetoric about the invisible hand and spontaneous order. And it’s just all so much talk. The statists see right through it. “Don’t externalities create deadweight loss?” they ask. “Don’t natural monopolies need to be regulated?” Libertarians have answers, like we do for everything, but they are, in my opinion, largely unimpressive answers. And we certainly aren’t shouting them from the rooftops, like we ought to be. It’s much easier, you see, to write a piece about rent control, or the minimum wage. Those are safe topics, easy topics, well-trod ground, familiar talking points.

They also don’t move the needle, because they don’t tackle the central statist arguments.

As you can probably tell, I’m somewhat passionate about this. And I’m not saying I have all the answers. Like most economic debates, market failure is thorny, technical, and requires years of study before you can properly weigh in on it. I’m not really qualified in this regard, but I feel compelled to draw on my limited knowledge to say something, because I don’t see any of the big-name libertarian academics covering this topic satisfactorily.

So here is my rough first stab, venturing out to the limits of my knowledge, where I may very well make mistakes, hoping that my efforts will at least inspire others to give this topic the centrality and attention it deserves but so rarely receives.

Eric Weinstein vs. Glenn Beck

By January 2021 I had already been long convinced that market failure was the main argument of the left, or at least of its most intellectual and scholarly side. I was not surprised, therefore, when Eric Weinstein pulled it out in his much-anticipated conversation from that month with Glenn Beck. But something about the way Eric presented it in that conversation struck me, and I’ve never forgotten about it since. Eric was straight up patronizing to Glenn about it, and yet he had every right to be, because Glenn was way out of his depth.

The relevant exchange took place around the 45-minute mark of their hour-and-a-half conversation. After Eric made a comment about UBI, Glenn responded with “I am a free market [guy]…” Eric cut him off, “No you’re not.” “I’m not?” Glenn responds. “No,” Weinstein said, “because you’re a smart guy, and you know that market failure exists. So, for example, if I produce a public good and it is both inexhaustible and inexcludable, do you want me to produce something of incredible value and capture none of the value that I create? No, you don’t. The free market, in its idealized, childlike sense, will make sure that I am punished for producing a public good, and no thank you, so I decline your free market principle.”

Beck flounders, completely unequipped to meet Eric’s argument. And Eric calls him out on it. “We don’t have time for this, you’re not a free market guy anymore, that was then,” Eric says. He goes on to explain that there is the part of the economy where markets fail and the part where they don’t, and doing free markets for most things only makes sense in a world where the majority of the economy falls into the latter category. “So my point is, you need to update fast, and I don’t have time to explain it… Free market ideology in the current era is not going to cut it,” Weinstein tells Beck. It is “simplistic.” Beck continues to flounder, being totally outclassed. It’s almost painful to watch.

Lest anyone suspect that this was a one-off, Eric reiterated his market failure rhetoric in a January 2026 thread on X, coincidentally almost exactly five years after his conversation with Beck. “Republicans should restrain those conservatives who don’t understand that research is not a market good,” he wrote. “It has value that is inexhaustible and inexcludible. Learn public good theory and market failure 101. Sheesh.”

So there you have it. The gauntlet has been laid down. What does the free market camp have to say in response to these charges?

In my experience, there are a number of responses that can be and have been made, each of which have their merits. To bring some clarity to this subject, I think it will be helpful to group these responses into categories and discuss each category in turn.

Four Responses to Market Failure

If market failure theory is completely conceded, then one cannot be a free marketer. The theory clearly demonstrates that government intervention can set the economy on a better course. Each free marketer, therefore, must have some pushback to this theory that they subscribe to. The only question is which form of pushback they find most compelling.

Here are the various possible forms of pushback from my perspective. We’ll start with the softest possible objection and then move toward increasingly fundamental objections.

1) Ethical Objections

The softest form of pushback is to completely accept the market failure argument, but argue that, for moral reasons, we should still do free markets even though they will admittedly lead to worse welfare outcomes. Upholding the non-aggression principle (NAP), in this view, is simply more important than economic efficiency. That economic efficiency must be sacrificed to uphold the NAP is regrettable but is ethically preferable to the alternative.

2) Market Failure is Real, but Narrow

In Milton Friedman’s 1962 book Capitalism and Freedom, he essentially admits that market failure is a problem that the government needs to solve. From my understanding of the history, it was this work more than any other which set the precedent of otherwise free market economists straight up conceding the market failure doctrine. Friedman’s libertarianism—to the degree that it exists—lies in the fact that he sees only a few areas where markets fail. For the vast majority of sectors, free markets are the way to go.

This approach, of course, is not available to anarcho-capitalists, who need to show that free markets are superior in everything (assuming we want to make a consequentialist case for anarcho-capitalism and not just a deontological case). But its merit is that it is intellectually respectable to the mainstream. We can stand against protectionism and so on without facing the charge that we are denying basic economics. Even the most ardent market failure economists will tell you that trade barriers harm welfare.

3) Public Choice and Government Failure

The public choice school has argued against the market failure position on the following grounds: granted that markets sometimes fail. The issue is that governments fail as well.

They argue that the same kind of prisoner dilemma problems that exist in free markets also exist in governments—and are often much worse in the political domain. So while government intervention in theory can correct market failures, in practice giving governments jurisdiction over various problems can be expected to lead to worse welfare outcomes than the admittedly imperfect market outcomes.

David Friedman makes this point well in a 2018 address for the Oxford Union. “Market failure is an argument for government intervention in markets,” he said, “but a stronger argument against, once one remembers to apply the same analysis to both systems, to think of the political system not as benevolent demigods standing up there doing good, but as people just like us, and just like the people in the private market, each of whom has his own objectives and is trying to achieve them as best he can.”

To his credit, Milton Friedman also made this point. But the difference between father and son, as I understand it, is that Milton still thought it was desirable to have the government address certain market failures, whereas David does not.

4) Complete Rejection of Standard Welfare Economics

The most radical response to market failure is to call into question the whole mainstream theory of welfare economics on which the market failure argument is based. This approach exists almost exclusively in the Austrian school, specifically in thinkers such as Rothbard, Hoppe, Block, and Roy Cordato. According to this view, standard welfare economics suffers from severe theoretical shortcomings due to its reliance on what are considered to be deeply flawed neoclassical models, as well as its reliance on certain dubious assumptions which are rarely acknowledged with sufficient transparency (such as everyone having an “equal capacity for satisfaction”). In light of the first point, this debate is inextricably linked to the broader neoclassical vs. Austrian debate, which traces all the way back to Menger vs. Walras.

One of the key papers in this tradition is Rothbard’s 1956 essay Toward a Reconstruction of Utility and Welfare Economics. In this paper, Rothbard argues that standard welfare economics inevitably relies on interpersonal utility comparisons (IUCs), which are not objective and thus not scientific. All that we can say as economists, he argues, is that when two parties make a voluntary trade they are both better off ex ante, so all voluntary trades are welfare enhancing for the parties involved.

While I think Rothbard makes a number of important points, I’m not satisfied with his reframing of the debate. As such, I’d like to offer my own reframing—still in the tradition of this fourth approach—drawing on Spencer, Rothbard, Salerno, Cordato, Mises, Hayek, Kirzner, and Hoppe, among other influences.

The Ultimate Goal and the Two Paradigms for Getting There

Since welfare economics is so technical, it can be easy to lose sight of the bigger picture. So I want to begin my reframing of this discussion by stepping back and reminding us all why we are doing this in the first place. The fundamental question, the debate that we must always keep front of mind, is this: which economic system is most conducive to maximizing prosperity? By prosperity I mean something like human well-being, including physical and mental health, happiness, success, flourishing, and so on. Various measures of prosperity exist, like the Human Development Index (HDI), which aggregates measures of health, education, and income, to give a sense of how prosperous a country is. No measure is perfect, but they at least help us describe what kinds of things we’re aiming for.

Answering this question—which economic system creates the most prosperity, that is, which system maximizes something like HDI—is the whole point of welfare economics, and arguably of applied economics in general. This is why Adam Smith titled his groundbreaking book An Inquiry into the Nature and Causes of the Wealth of Nations. How can we become rich and prosperous as a society? Which economic policies will get us there the fastest? This is the central question.

Smith gave us the answer of the classical economists:

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.

In the mid twentieth century, however, a different school of thought developed. Markets are great for many things, it argued, but sometimes they fail. Thus, the best way to achieve prosperity is not complete laissez-faire but a combination of free markets in some areas and interventionism in other areas. The most mature formulation of this doctrine came to be known as Kaldor-Hicks efficiency (a development of the Pareto efficiency tradition).

This Kaldor-Hicks/market failure paradigm has become so dominant that most mainstream economists cannot conceive of welfare economics in any other way. But—and this is the other key reframing that I want to introduce—there is a second, competing paradigm of welfare economics in the modern era (post marginal revolution), one which has rarely been described as such, which is a big part of the problem. The Austrian economist Joseph Salerno calls it Böhm-Bawerk efficiency. Böhm-Bawerk efficiency is essentially what I tried to describe in this article—profit and loss systematically ensure that scarce factors of production are allocated in the direction of the most urgent needs of consumers as determined by their buying choices in the market. Here is how Salerno describes it in his 1992 paper Mises and Hayek Dehomogenized:

The criterion of social welfare that is implicit in Misesian catallactics is therefore “Böhm-Bawerk efficiency,” which emphasizes the role of monetary calculation in enabling individuals to rationally evaluate and allocate the means at their disposal when pursuing their goals through social action, i.e., action that makes use of voluntary exchange and the social division of labor to realize its aims. Whereas Pareto efficiency and its Hayek-Kirzner plan coordination variant represent unrealizable standards—because based on perfect information and foresight—for evaluating the social outcomes of the choice process, Böhm-Bawerk efficiency invokes an ideal but attainable standard, i.e., the efficient ex ante allocation of resources by an individual choosing under uncertainty, and indicates the day-to-day coordinated functioning of the economy that results when the institutional preconditions of monetary calculation and, therefore, of rational social action are fulfilled.

…In sum, the unhampered market is socially efficient because it provides the incentive for social action by establishing a tight producer-consumer nexus that gives full sway to consumer choice in determining the allocation of resources. On the other hand, any coercive intervention into the market, which necessarily distorts or annuls its intricate calculational nexus coordinating consumer preferences and entrepreneurial choices, ipso facto generates a less efficient allocation of resources, i.e., one that does not completely and exclusively reflect the anticipated preferences of the participants in the social division of labor, and lowers social welfare. We may thus conclude that every act of intervention unambiguously lowers social welfare.

Notably, neoclassical Kaldor-Hicks efficiency and Austrian Böhm-Bawerk efficiency are mutually exclusive. Implementing Kaldor-Hicks efficiency means moving away from free markets and thus thwarting Böhm-Bawerk efficiency. Likewise, implementing Böhm-Bawerk efficiency means moving toward free markets and thus thwarting Kaldor-Hicks efficiency. We must choose which of these two welfare economics paradigms we wish to implement. We must choose which one we believe is most likely to maximize HDI scores.

Due to the suspect theoretical foundations of the Kaldor-Hicks model and the compelling nature of the Austrian/Misesian model, it seems to me that pursuing Böhm-Bawerk efficiency is more likely to maximize HDI scores than the alternative—even if the alternative didn’t run into all the public choice problems and were perfectly executed. This is fundamentally why I think free markets in everything is the best way to maximize prosperity, and why I reject the market failure position.

I would love to give a more concrete argument here, but unfortunately this is where the debate gets very technical, and I don’t trust my command of the arguments well enough at this point to tell you exactly why I think the Kaldor-Hicks paradigm is flawed and inferior. Instead, then, I am trying to point you to good scholars who I think tackle this issue persuasively.

Multiple Avenues for Retreat

It may well be that one day, upon further study, I become convinced that standard welfare economics is correct and that government interventions can satisfactorily address market failures, at least in theory, and thereby improve prosperity. But if I were ever to adopt that view and thus concede the fourth position, I imagine that the third position, namely public choice and government failure, would be very compelling to me, and I would go on making the consequentialist case for anarcho-capitalism on that basis, as David Friedman and Bryan Caplan, among others, have so ably done.

Supposing I then become convinced that the public choice position is also untenable, I imagine I would take a Milton Friedman type of position, which is still considerably in the direction of free markets compared to the median voter. And should that, too, one day become uncompelling to me, I may very well take the ethical argument and give up on trying to argue for the free market on consequentialist grounds. But even then, I would still be a free marketer.

The point is, part of why I am so convinced about the desirability of free markets is that my position has multiple compelling places that I can retreat to and still be fairly if not entirely free market oriented. The Eric Weinsteins of the world may dismiss the hardline Austrian position as crankery, but what is their response to the public choice argument? What is their response to Milton Friedman? The ethical pushback option is the only one with a fairly predictable response: economic efficiency simply matters more than liberty.

But we are a long way from having to litigate that question, because the consequentialist case for free markets is robust. If intellectual heavyweights like Eric Weinstein want to argue that case, I’d encourage them to at least pick on someone their own size.

That Canada is facing a housing crisis is disputed by almost no one. That one of the chief problems is a lack of housing supply is also generally acknowledged—Block’s comments notwithstanding. Indeed, the main debate between the Liberals and Conservatives in recent years has merely been over how best to increase the supply. The Liberals see government-subsidized housing as the solution. Conservatives, on the other hand, would have governments relax zoning rules so the private sector can develop new housing. It will come as no surprise to readers of this newsletter that I strongly favor the latter approach.

But Block wants to bring the debate to a higher level. He suggests that the relative consensus on supply being the issue is misguided. Instead, he proposes that the problem is the financialization of the housing market.

Block makes a straightforward empirical argument to counter the supply-shortage position. Looking at the last fifty years, housing prices have clearly soared, and he presents data to this effect. And yet, he notes, over that same period the stock of dwellings per capita in Canada has also risen. There are more housing units per person today, when prices are high, than there were fifty years ago, when prices were lower.

Block thus writes:

The “supply-shortage argument” is encapsulated by the [Canada Mortgage and Housing Corporation’s] claim that “increasing housing supply is the key to restoring affordability.” If the argument is correct, then we should expect to see evidence that increases in dwellings per capita lower prices over time. But historical data show the opposite.

“In the face of these indicators it is not viable to argue that a supply shortage has driven housing prices up,” Block concludes. “There is no shortage of supply.”

To rebut Block’s argument, we first need to review basic price theory—what does economics teach us about how prices are formed and why they change? Of course, most people can recite the old “supply and demand” argument. And to be sure, that’s basically where we’re headed. But, to make a similar point as in my previous piece, I think most people’s understanding of supply and demand is too superficial, leaving them ill-prepared to respond confidently to arguments like the one Block is putting forward. So let’s review this theory from the ground up, getting a little more technical than usual so that we really understand it, and then I’ll show you how we can use price theory to expose the error in Block’s argument.

Price Theory 101

A price is simply an exchange ratio between two goods or services (we’ll mostly focus on physical goods for simplicity). If I give you two bananas in exchange for one apple, we can say that the price of the apple was two bananas per apple, or 2:1. When money is one of the goods being exchanged, then we are talking about money prices. If a box of cereal costs $3, then the price in terms of money is $3 per box, or 3:1.

Exchanges only take place when both parties expect to benefit, that is, when both parties value what they get more than what they have to give up to get it. The concept of value scales is thus central to the analysis of exchange. For the box of cereal, we might have the following value scales. Brackets mean the item is not currently in the person’s possession.

These scales indicate that I would be willing to pay up to $4 for a box of cereal, and the grocer would be willing to sell it for as little as $2. I value the box more than $4, but not more than $4.01. Likewise, the grocer values the box of cereal less than $2, but not less than $1.99.

With the scales arranged thus, there is a window between $2 and $4 where mutually beneficial exchange can take place. If we agree on, say, $3, then I am happy, because I valued the box more than the $3, and the grocer is happy, because he valued the $3 more than the box. The price we end up agreeing on is not determined except to say that it must be within this window. Where in this window it falls comes down to how well each of us bargains—our “higgling” as the Austrian economist Eugen von Böhm-Bawerk called it.

The above example is called isolated exchange, because there are only two parties. Now let’s add a number of buyers so that we have one-sided competition. Instead of writing out all the value scales, we’ll simply designate the maximum buying power of each buyer, that is, the highest price they would be willing to pay for the box. We will arrange them by their buying power for simplicity.

If a single grocer is faced with these buyers, what do we expect the price will be? Clearly, it cannot be more than $10, because that is the most anyone is willing to pay. But it also can’t be below $8, because if bidding started at, say, $5, B1 would bid the price up until he outbid everyone else, that is, until the price rose above the first excluded buyer, namely B2.

The only other thing we have to keep in mind is that the sole seller may have a different minimum selling price that they would accept, say, $7, or maybe $9. If their minimum selling price is $7—they would not sell it unless they could get at least that much for it—then it’s clear that the buyers will simply put the price in the $8-$10 window, all of which would be satisfactory to the seller. But if the seller’s minimum selling price was $9, then even if B1 bid $8.50, the seller would refuse. Only if the price was above $9 would the seller be willing to trade, and of course it must still be below $10 for B1 to be willing to trade.

The law for one-sided competition among buyers, then, is that the maximum price will be the highest price that anyone (in this case B1) is willing to pay, and the minimum price will be either the highest price of the first excluded buyer (B2) or the minimum selling price of the seller, whichever is higher. Within this range price is determined, as in isolated exchange, by bargaining.

Now let’s look at one-sided competition with one buyer and multiple sellers. Rather than having a maximum buying price, sellers have a minimum selling price, a price below which they would not make the trade. A group of competing sellers might have the following minimum prices. As before, we will arrange them from most powerful (i.e. most willing to trade) at the top to least powerful (least willing to trade) at the bottom.

As we can see, S1 would sell the box for as low as $1, but S4 will only sell it if he can get $4 or more, S6 insists on $8 or more, and so on.

Now I come into the market as a sole buyer, willing to pay up to $4. The analysis is precisely the reverse of the previous case. At $4, S1, S2, S3, and S4 are all willing to sell, and so they start to bid the price down. Eventually, S1 says he’ll sell it for less than $2, pushing even S2 out of the market. If my maximum buying price is $4—I would pay up to $4 to get it—then it’s clear that the final price will be above $1 but below $2. If my maximum price were, say, $1.50, however, then the price range would be between $1 and $1.50. Thus, price in a market with one buyer and multiple sellers falls in a window bounded, on the low end, by the minimum price of the most capable seller (S1), and, on the upper end, by either the minimum price of the first excluded seller (S2), or the maximum price of the sole buyer (Me), whichever is lower. Within this range price is determined, again, by bargaining.

If you need to, re-read the above section so that you’re really comfortable with the logic. It’s actually simpler than it might seem at first glance, and it’s honestly kind of cool.

But the really cool part is when we have multiple sellers and multiple buyers at the same time, which is far more realistic for the vast majority of real-life markets. This is called two-sided competition.

Two-Sided Competition and the Marginal Pairs

Let’s say we have a market with seven possible sellers, each possessing one box of cereal they might be willing to sell, and seven possible buyers, each interested in one box, for the right price. Let’s further stipulate that these buyers and sellers have the maximum buying prices and minimum selling prices of our market participants in the two examples above, namely, B1-B7 and S1-S7. Since there are seven sellers each with one box, the total quantity of boxes in the market is seven, and thus that is the most that can be traded.

Here are the value scales again, for ease of reference.

To discover the rules for price determination, let’s proceed as before, picking an arbitrary price where bidding can start and thinking through what would happen. At $2.50 per box, say, we would have two sellers interested in selling, namely S1 and S2, and six buyers willing to buy, namely B1-B6. With such an imbalance, the buyers would begin to outbid one another, pushing the price up.

At $3.50 per box, B6 has dropped out, but S3 is now ready to trade. We thus have three sellers and five buyers. Since the imbalance remains, the price continues to be bid up. If it becomes $4.50, we will have four sellers, S1-S4, and four buyers, B1-B4. Since there are four willing buyers and four willing sellers at this price, we can expect a market exchange to occur, with the four most capable sellers selling their boxes to the four most capable buyers.

The price can perhaps go a bit higher, but if it goes too high then the opposite force begins to kick in. Say we start bidding at $7.50. At this price, five sellers (S1-S5) are happy to trade, but only two buyers (B1 and B2) are interested. Noticing this competition, the sellers offer lower and lower prices, gradually knocking out sellers and bringing in buyers until a market clearing price is again reached, that is, a price where the quantity supplied equals the quantity demanded.

With this in mind, we can now ask, given the value scales of the various market participants, what is the window in which the market clearing price will fall? Perhaps a more helpful way of asking this question is: what are the upper and lower bounds of price for there to be an equal number of buyers and sellers?

Let’s start with the upper bound. There are two ways the price can get too high for the market to clear. One is if we induce another seller to come in. The other is if we knock out a buyer. We saw earlier that $4.50 is a market clearing price. Would $5.50 still clear the market? In this case, there would still be four sellers, but now there are only three buyers. B4, who was previously included, is now no longer interested. Thus, the number of buyers and sellers is not equal, and the market doesn’t clear.

Our problem could have come from the seller side, however. If the seller value scales were arranged in such a way that a new seller came in before B4 dropped out, then the new seller would cause the inequality before B4 had a chance to.

Since these individuals play a particularly important role, it helps to give them specific names, as in the previous examples. B4 in this case is the last included buyer, that is, the buyer with the lowest maximum buying price who still gets included in the market when the market clears. The other important role is the first excluded seller, which is the first seller who would jump in if the price moved above the market clearing price window. In our example, the first excluded seller is S5.

The rule for the upper bound in two-sided competition is that it is equal to either the maximum buying price of the last included buyer, or the minimum selling price of the first excluded seller, whichever is lower. In our example, B4’s maximum buying price ($5) is lower than S5’s minimum selling price ($7), and so $5 is the upper limit. The market will not clear above that price.

Now for the lower limit, which follows a beautifully parallel logic.

We begin again at $4.50, which we know clears the market. As we move down in price, we again run into one of two possible problems. Either a new buyer will be induced to come into the market, or an existing seller will be induced to leave. In either case, the quantity supplied no longer equals the quantity demanded, and the market doesn’t clear.

In our example, moving down in price yields interesting results when we get to $3.99. At this price, S4 is no longer interested, and, at the same time, B5 suddenly wants in on the action. One can imagine, of course, that if S4’s minimum selling price was slightly higher, say $4.05, then they would trigger the problem first. Likewise, if it was B5 whose maximum buying price was higher, then it would be he who determines the lower bound.

Thus, the rule for the lower bound in two-sided competition is that it is equal to either the minimum selling price of the last included seller, or the maximum buying price of the first excluded buyer, whichever is higher. In our example, these prices happen to be the same ($4), so that will be the lower bound.

Together, the two individuals who are involved with the upper bound and the two who are involved with the lower bound constitute the marginal pairs, the four people whose value scales determine the window of possible market clearing prices.

Note that, if we wanted to, we could use our above figures to create a graph showing the quantity demanded and the quantity supplied at different prices. The result would be the familiar X-shaped supply and demand curves. But I trust you’ll agree that the marginal pairs approach illustrates the concept much more vividly. Another benefit of this approach is that it highlights the centrality of the value scales of buyers and sellers in determining price.

Stock and Total Demand to Hold

“That’s all very interesting,” you might say, “but how does this help us debunk Niko Block?” Well, I’m getting there. Unfortunately, we still have a bit more theory we need to cover.

When we talk about the need to increase the “supply” of housing, we’re not typically talking about directly changing the value scales of sellers. What we really mean is increasing the physical stock, that is, the actual number of houses out there to be owned.

To support the thesis that increasing the physical stock is an important means for lowering the price, we need to have a theory that connects price with stock, and specifically one that demonstrates that more stock equals lower prices. We haven’t really done that yet, so let’s extend our analysis above to develop that theory.

Here, again, are the value scales, for ease of reference.

Looking back at our buyers and sellers, we can ask an interesting question: what is the quantity demanded at $9.50? It’s tempting to say one, namely B1, because he is the only buyer who would pay that much for a box. And there’s a sense in which that’s true. But think about S7. S7 currently possesses a box and is not willing to give it up at that price. So really, S7 has a kind of reservation demand for his box, that is, a demand to hold on to it. If we add the quantity demanded both from buyers and from the reservation demand of sellers, we get what we might call the total demand to hold, or simply total demand.

If we calculated the quantity supplied (QS), seller demand to hold (SDtH), quantity demanded (QD), and the total demand at each price, we would get the following table.

What’s interesting about this table is that in the market clearing price window, here represented by the price $4.50 (note QS=QD=4 at this price) the total demand is equal to the stock, that is, 7 units. This is not an accident. It is part of what it means for the market to clear. When the market clears the total demand for the good at the market clearing price is always equal to the amount of the good that is actually out there.

The economist Murray Rothbard illustrates this idea well in Man, Economy, and State by graphing supply, demand, total demand, and stock. Notice how supply and demand intersect at the same price as stock and total demand.

With this in mind, we can now use our theory to predict what happens when the stock changes and value scales are held constant. Say a fire destroys three of the cereal boxes, so there are only four left in the economy. Let’s say it was S2, S4, and S6 who lost their boxes. S2’s minimum selling price was $2, which means he valued the box more than $1.99 but less than $2. Now boxless, S2 becomes a buyer with a maximum buying price of $1.99. Similar changes happen for S4 and S6. Our new buyers and sellers now look like this.

Now let’s reproduce the table above for a stock of four units instead of seven.

The market clearing price window is now higher, and we can see that $7.50 would be a market clearing price (QS=QD=3), and that this price corresponds with a total demand of four, which is equal to our stock. We could have determined this market clearing price simply by reading off the first table, since total demand as a function of price didn’t change, but we wouldn’t have known the market clearing quantities. Similarly, we can see that if our stock went up to, say, nine, the market would clear around $3.50, and so on.

The conclusion is inescapable. All else equal, more stock means lower prices and less stock means higher prices. This confirms our intuition, which tells us that a good which is relatively abundant will have a lower price, and a good which is relatively scarce will command a higher price.

Now we are really getting somewhere. We are starting to see why stock and price are necessarily inversely related. And, if you have a sense of where this is going, you’ll notice that we’ve already introduced the key clause that will debunk Block’s analysis. But before we can turn to that debunking, there’s one more piece of theory that the housing market in particular forces us to grapple with.

Complements and Substitutes

All of the above theory explained the market for a single good, in our case, boxes of a specific kind of cereal. If the quantity of the good is such and such, we said, and the demand for it is so and so, then here is how the price will be determined. However, the tragically misnamed “housing market” is not actually a market for the good “housing” because there is no such good. Instead, it is a series of markets for individual houses—technically plots of land—most of which people do not regard as interchangeable and thus can’t be considered to be the same good.

Is that it, then? Is the whole theory of supply and demand simply inapplicable to housing?

Not so fast.

For starters, some houses are interchangeable. Imagine a row of newly built townhomes. They are essentially in the exact same location, they are built by the same developer to the same standards in the same year. It is quite likely that market participants will regard these as completely interchangeable and develop value scales around them accordingly. Thus, it is possible to have multiple units of the same good in the realm of housing, in which case the stock and total demand analysis is completely applicable—more stock means a lower price, all else equal.

All other units of housing may not be regarded as interchangeable, but they are still economic goods with prices determined by supply and demand. The stock of these goods just happens to be one in most cases, so we are looking at one-sided competition with one seller and multiple buyers.

What’s more, while they may not be perfectly interchangeable, we can be fairly confident that individual housing units will still be regarded as substitutable. To understand the housing market, then, we need to familiarize ourselves with the economic theory of complements and substitutes.

In analyzing how prices of different goods relate to one another, economists have come up with two categories: complementary goods and substitutable goods. Complementary goods are goods that often go together, like golf clubs and golf balls. The prices of these goods tend to go in opposite directions. If golf clubs become more scarce and thus more expensive, people will golf less, causing them to demand fewer golf balls, causing the price of those balls to fall.

Substitutable goods are goods that people will substitute for one another. Different kinds of cereal would be an example. People might buy one brand of cereal instead of a different brand. In housing, people might buy one house instead of another. (Note the etymology: in-stead, which means in the place of, or “substituting for”).

The rule for substitutes is a bit more complicated (the complexity has to do with elasticity), but for many cases a reasonable simplification is that prices of substitutes rise and fall together. If Brand A of cereal becomes more scarce and thus more expensive, people will shift into Brand B, and the resulting increase in demand causes Brand B to also become more expensive. On the flip side, if Brand A becomes more abundant, resulting in a lower price, then people will demand less of Brand B, which will lower the price of Brand B.

Notably, if a completely new substitute product, say Brand C of cereal, comes on the market then the demand for Brand A will also go down as people shift to Brand C, leading to lower prices for Brand A (in this case we are no longer simplifying—this law always holds true. See p. 284 of Man, Economy, and State).

The parallels to the housing market should be clear. In most cases, each new dwelling represents a completely new product being introduced to the market. Since pretty much all dwellings in a given locale are regarded to some degree as substitutes for one another, the introduction of more individual dwellings, all else equal, reduces the demand for all other dwellings. Lower prices are the inevitable result. It is in this sense that we can say, speaking loosely, that increasing the “supply of housing” will lower the cost of housing, all else equal.

Ceteris Paribus

We are finally ready to address Block’s argument head on. Here, again, is his core claim:

The “supply-shortage argument” is encapsulated by the [Canada Mortgage and Housing Corporation’s] claim that “increasing housing supply is the key to restoring affordability.” If the argument is correct, then we should expect to see evidence that increases in dwellings per capita lower prices over time. But historical data show the opposite.

To understand what Block is doing here, let’s start with a simpler argument that’s more obviously wrong.

Say someone wanted to investigate the relationship between housing price and supply, and so they pulled data from the last fifty years on the median house price and the absolute number of dwellings in Canada. What they would find is that house prices have been steadily rising, and that the number of dwellings—the “supply of housing”—has also been steadily rising. Since the two have been increasing together, they might conclude that, whatever the relation between supply and price may be, it certainly isn’t the case that more supply leads to lower prices, as those ideological economists keep telling us.

The fallacy in this line of reasoning should be obvious. During that same time, population has drastically increased, leading to a significant influx of demand. Those pesky economists added a critical clause to their doctrine: all else equal, often expressed in Latin as ceteris paribus. The doctrine did not state that more supply would always lead to lower prices. It said more supply leads to lower prices all else equal. In other words, the impact of supply is to push price down, but if other factors, such as an increase in demand, push price up enough to more than offset this, then it is entirely possible to see more supply accompanied by higher prices. Thus, empirical data showing more supply and high prices going together do not refute the doctrine that supply exerts a downward pressure on price. They simply point to an increase in demand. If you want to isolate the impact of supply on price, you need to hold all else equal. You need to control for changes in demand.

This is what Block is trying to do by introducing his dwellings-per-capita figure. Keenly aware of the above reasoning, Block responds by saying “You’re absolutely right. Numbers that don’t control for demand tell us nothing. That is why I am looking at dwellings-per-capita.”

With a per capita figure in view, the simple objection that Block is not controlling for demand is nullified. True, population increased over the past fifty years, but if we compare, not the absolute number of houses, but the number of houses per person, then we can get a picture of how supply relative to demand has changed. If this dwellings-per-capita figure has increased at the same time as price has gone up, no one can argue that he’s not controlling for population change. He has held all else equal, he has isolated supply, and if the data show that this isolated supply has increased with price, then the economists have no answer. They must simply go back to their drawing boards and puzzle over how their theories could have been so wrong.

Such is the story that Block is trying to sell.

The critical error in this story is the assumption that population is a good proxy for demand. Block’s argument requires us to accept that controlling for population is equivalent to controlling for demand. But that is simply not the case. Demand is determined not only by the number of people in the market as buyers, but also by the intensity of their desire to own the good. Thus, demand can go up even if population stays the same. All that would be required is for people to rank housing more highly on their values scales. To be sure, demand is likely correlated to population, but it is a mistake to assume that it follows population numbers in lock step.

Since Block hasn’t controlled for demand, he isn’t really holding all else equal. True, population has grown slower than supply, but we have good reason to believe that demand has actually grown faster than supply. That reason is, of course, that prices are up! Since we know from our price theory that supply puts a downward pressure on price, we can conclude that if supply has gone up and price has gone up then demand must have gone up enough to more than offset the downward pressure of the increased supply. Indeed, the very peculiarity that Block points to in order to make his case, namely, that supply and price seem to be positively correlated even after controlling for demand, is the best evidence that his analysis didn’t properly control for demand. When you measure the sides of a right triangle and find that they don’t conform to the Pythagorean theorem, you don’t conclude that Pythagoras was wrong; you conclude that your measurement was wrong.

What is a better proxy for demand? I don’t know. Nothing will be perfect. But it also doesn’t matter, because economics is not an empirical science. We don’t need to do studies and crunch numbers to learn the laws governing prices. We can deduce them all from our armchair, as we just did above.

Why is demand up so much? I suspect it’s partly because housing is increasingly seen as a good investment, so people have become more interested in putting a lot of money in it.

Conclusion

Price theory tells us that prices are determined by supply and demand (or stock and total demand), and specifically that prices decrease as supply (or stock) increases, and that prices increase as demand (or total demand) increases, all else equal. It also stipulates that the introduction of new substitutable goods leads to lower demand and thus lower prices for their substitutes, all else equal. Applying this logic to the housing market leads to the commonsense conclusion that increasing the number of houses available is an effective means of lowering the cost of housing. This conclusion is not disproven by the data Block presents, because those data only control for population, not for demand.

There is no doubt that financialization plays an important role in the housing market. But if the left truly cares about addressing the housing crisis, they should really learn some economics and consider getting on board at least with the supply-side push, if not the YIMBY movement as a whole.

In the meantime, let it be known that elementary price theory remains undefeated.

“There are certain things that are just not designed for the private sector,” said Shrestha, noting that energy delivery “is, for me, at the top of that list.” She argues that the current for-profit model “is spiraling the rates out of control at a time when we do have real supply chain issues.” A recent feasibility study by NewGen Strategies and Solutions suggests that ratepayers could see significant cost savings if the takeover went forward. “We don’t need investors to be owners here,” Shrestha insists. “We can own this ourselves.”

The question of whether to go with private ownership or government ownership in various sectors has of course been litigated a thousand times. Proponents of government ownership argue that the profit-oriented nature of private companies makes them ill-suited for certain tasks, resulting in high costs and low quality. Free market proponents, meanwhile, argue that a privatized system is more economically efficient, and if private companies seem to be failing, it may very well be because of government regulations that are making low costs and high quality impossible.

The utilities sector is particularly thorny in this regard, because, owing to the natural monopoly doctrine, private utilities are granted certain legal privileges, but are also highly regulated, to the point where their rates are determined by public service commissions.

One of the main issues with the whole private vs. public debate, as I see it, is that neither the leftists nor most free market proponents really seem to understand the “economic efficiency” argument of the free market side all that well. To be sure, everyone has heard of the general idea that the profit motive encourages businesses to operate efficiently, but I think most people only have a surface level understanding of this argument, resulting in a rather uncompelling pushback against the advocates of public ownership. As such, I’d like to take this opportunity to lay out that case to the best of my ability, in a way that hopefully makes it a bit more concrete, and, as a result, gives it a bit more punch.

A discussion of the aforementioned natural monopoly doctrine would also be appropriate since we are discussing a utility (e.g. How can you have healthy market competition when it would obviously be absurd to run parallel gas and electrical infrastructure? Wouldn’t monopoly prices be inevitable in the absence of regulation?). However, that issue really is its own can of worms, and this Jacobin piece doesn’t get into that argument, so I’m going to punt on this topic for the time being. For the record, though, I don’t feel like the free market camp has done a particularly good job of addressing this question, so I do hope to provide some good insights on this at a future date. To the interested reader I would recommend two essays, one by Howard Baejter Jr. and one by Hayek, as free market pieces that are not bad on this topic.

Anyways, let’s talk about why private ownership is generally preferable to public ownership.

The Concept of Economy

I’m going to be covering a lot of ground in a short space here, so let me say at the outset that if you want the full understanding, you really need to read Man, Economy, and State with Power & Market by Murray Rothbard. Published in 1962, Man, Economy, and State is basically his main economic treatise where he develops the entire Austrian system from first principles. Power & Market was published later, but they are best read together and are often combined in one volume, as above. Yes, I know they are long. Trust me, it’s worth it.

To understand the argument for turning as much as possible over to the private sector, we first need to appreciate the concept of economy. What does it mean to economize something?

The Austrian economist Eugen von Böhm-Bawerk (1851-1914) provided a good illustration of this concept in his classic discussion on marginal utility from his 1889 book The Positive Theory of Capital (in Book III, Chapter IV). Böhm-Bawerk tells a parable about a pioneer farmer who is faced with the decision of allocating five sacks of grain over the course of a year until the next harvest. The farmer, Böhm-Bawerk posits, would need one sack for food just to stay alive, a second to be well-nourished, a third to feed his animals, a fourth to make “coarse spirits,” and with the fifth he might feed parrots.

Some important categories are introduced in this set up. First, we have the good, which is sacks of grain. These sacks are assumed to be homogeneous from the perspective of the actor. That is, the farmer regards them as interchangeable—the degree to which they are actually physically similar or dissimilar is irrelevant. This perceived homogeneity is what makes them all the same good. We also have here the stock, or the amount of the good, in this case five sacks. And then there is the farmer’s scale of values, which is the rank-ordering of his preferences that can be satisfied with individual units of the good. In this case his scale of values is:

• Value 1: A sack of grain to survive on

• Value 2: A sack of grain to maintain my health

• Value 3: A sack of grain to feed my animals

• Value 4: A sack of grain to make coarse spirits

• Value 5: A sack of grain to feed parrots

Böhm-Bawerk now asks us to imagine what would happen if the farmer were to lose one sack of grain. Say, for instance, he lost the sack of grain that he was planning to use for feeding his animals. Would he then forego feeding his animals? Of course not. Instead, he would reallocate the sack that was designated for the parrots to his animals and forego feeding the parrots. We can thus see that no matter which sack he loses, it is the lowest value, one could say the marginal value, that is given up as a result. If we are asked “what is the value of one sack of grain to the farmer?” the answer is “the value attached to the least important end that he would have devoted any sack to.”

Similar reasoning applies if he starts off with a different stock. If he has three sacks, for instance, then losing one sack means, no matter which sack actually is lost, that he will reallocate sacks in such a way that he has two to feed himself and foregoes feeding his animals.

I would submit that this reallocation of the stock to satisfy the highest ranked values, in order, is what it means to economize something. If the farmer used four sacks to satisfy Values 1, 2, 4, and 5, we would say that this is an uneconomical use of the sacks. Economy is practiced when there are no “holes” in allocation, where the stock is applied to values beginning at the top and working down the value scale without gaps until you run out of stock.

From this it becomes clear why economy and efficiency are such similar concepts. What is efficiency? It is maximizing output per input. In this case our input is our stock, our output is the values we wish to satisfy. When the existing stock is allocated beginning with the highest value and then working down until it is exhausted, without skipping any, then we are deriving the maximum possible “value” and thus “output” with that stock. But if there are holes, if four sacks are allocated to Values 1, 2, 4, and 5, say, then there is an opportunity for improvement. We can take the sack that’s being allocated to Value 5 and put it toward Value 3, which would be a net gain in “output” for the same “input” of four sacks. Hence, if we have any holes in the allocation, it is uneconomical and thus inefficient.

We are now in a position to anticipate the conclusion of our entire analysis (and I am drawing particularly here on Herbert Spencer’s 1853 essay Over-legislation, which does the best job I have so far come across of making this point). The economy, that is, the free market, the network of production and exchange in society, is actually an economy in the sense that it naturally and spontaneously economizes resources.

Scarce factors of production (land, labor, and capital), like sacks of grain, have many uses, but some uses are more important to consumers than others (making the first units of food versus making the first units of literature, for example). The virtue of the free market, it will be argued, is that it systematically moves in the direction—as new information continuously becomes available—of allocating these scarce factors of production toward meeting the most urgent needs of consumers (i.e. toward meeting the rank-order of “society’s needs” starting from the top and working down with no holes) as determined by the prices they are willing to pay for goods and services. If this is true, then the free market is “optimizing” in a way, it is creating a kind of “efficiency,” and the degree that you move away from the free market is the degree that you push it away from this optimum.

But to really appreciate this point, we need to take off the cover of the free market and look inside to see how it actually works.

Understanding the Market Mechanism

Many people are familiar with the idea of consumer sovereignty: businesses have to either do what consumers want or lose money. But how does that actually work in practice?

When a business produces things, whether goods or services, it takes different amounts of inputs and combines them into an output. It might take, for example, 3 units of X and 5 units of Y to produce 1 unit of Z, where X and Y are factors of production (land, labor, or capital) and Z is the final product. We can represent this process with what economists call a production function:

3X + 5Y = 1Z

If Z sells for $100, we could write our production function as:

3X + 5Y = $100

Throughout the economy, businesses are running a bunch of different production functions to make a variety of products. But the factors of production are scarce. If we look at factors that can be used to create multiple products (called nonspecific factors), like hammers, trucks, warehouses, labor, and so on, it’s clear that businesses will have to compete for them, and the factors will go to the highest bidder. Businesses might compete, for example, to rent warehouse space. The business that bids the highest will get to use it for that price. Labor is similar. Wages, the “rental price” of labor, are determined by supply and demand.

The rental price of a factor—and its allocation—is thus dependent on how much businesses are willing to pay to use it. That is in turn determined by how much the business expects to increase its revenue by using it. If a business expects to gain, say, $20 in extra revenue from renting an additional unit of a factor, it will be willing to pay up to $20 to rent that unit (the extra revenue from employing an extra unit of a factor is called the marginal revenue product (MRP). We’re ignoring discounting for simplicity). Drawing on our earlier example, the production function to represent this would be:

4X + 5Y = $120

For technical reasons that Rothbard explains, each additional unit yields the business less additional money. Thus, assuming for the moment perfect foresight, the business has a demand schedule for factors based on anticipated marginal revenue products, such as the following:

Business A’s Demand Schedule for Factor X

• First unit: $23

• Second unit: $22

• Third unit: $20

• Fourth unit: $20

• Fifth unit $18

This tells us that the business would gain an extra $23 in revenue if it went from using zero units of X to using one unit, and so it would pay up to $23 for that unit. It would make an extra $22 by adding a second unit, and so on.

Other businesses, running different production functions, have similar demand schedules for Factor X, but with different prices. What’s cool is that we can combine all of these particular demand schedules into a general demand schedule for the factor, such as the following. Notice how all the particular demand schedules are spliced in with one another when we order everything from highest to lowest.

General Demand Schedule for Factor X

• First unit for Business A: $23

• First unit for Business B: $22

• Second unit for Business A: $22

• First unit for Business C: $21

• Third unit for Business A: $20

In reality, of course, the demand schedule has thousands of entries. This is a highly truncated version for pedagogical purposes.

Now, in Austrian theory, one way to think about price determination is that you take a general demand schedule, count from the top down until you reach the amount of the stock, and then whatever number is there will be the equilibrium price. In this case, if there are only three units of X available in the economy, that would mean the price is $22. If there are five units, the price would be $20. The reason this happens is because of competition between businesses bidding for factors (again, Man, Economy, and State has a much more thorough explanation. The concept of marginal pairs is also key if you really want to understand the technical details of how prices form). Because of this competition, the available units of the factor get allocated to all the uses above that price on the general demand schedule.

When we say price is determined by “supply and demand” this is one way to think about what that means. A bigger stockpile of resources means we can go further down the general demand schedule and get lower prices. A smaller stock means we can only fulfill the most pressing demands, where most pressing means “willing to pay the most.” Likewise, changes in demand schedules will also change the prevailing price.

What I like about this approach to price theory is that it directly connects prices to physical abundance. The intuition that having a bigger stockpile of resources at our disposal makes things more affordable, and thus makes us richer, is a lot easier to see in this set up than in more traditional presentations.

The key insight here is that, because of competition, available units of a factor are always allocated from the top of the general demand schedule and working down until all units are being employed. And since consumer willingness to pay for the products determines these business demand schedules for factors, consumers ultimately determine how the limited supply of factors is distributed among the various possible production functions. If Business A gets two units at the going rate while Business B gets one, it’s because consumers have communicated, through their willingness to pay for the products, that this distribution best satisfies their most urgent needs. Consumers, in a free market, are effectively “allocating” land, labor, and capital in the most “economical” way, in much the same way as Böhm-Bawerk’s farmer allocates sacks of grain according to his preference ranking so that the highest priority values are satisfied as much as possible.

Scarce factors are thus “economized” in a manner of speaking—put toward their “most valuable” use—though Hayek astutely points out that the general schedule of marginal revenue products is not a value scale, so technically this is not economizing in the strict sense of the word. This is why Hayek (and Mises) preferred to call the market a “catallaxy” (from a Greek word meaning “exchange”) rather than an economy—and why we need to be careful when using words like “economic,” “efficient,” or “optimal” when describing the superiority of the free market. I also suspect that this is what motivated Hayek’s famed “coordination” language.

The Critical Role of Profit and Loss

The above analysis explained the equilibrium price to rent a factor of production—that is, the price that the economy tends toward—and the corresponding allocations. But in our dynamic economy characterized by uncertainty about the future, actual prices of factors are never at the equilibrium level. Since producers don’t actually know how much an extra unit of a factor will increase their revenue, their demand schedules for factors, and thus their bids and the resulting factor prices, are based on guesses about future sales. This is where profit and loss come into play.

For the sake of analysis, let’s assume that we know what the future will bring. We know, let’s say, that the marginal revenue product for Factor X in various businesses will be the schedule shown above. Here it is again, adding a few other units:

General MRP Schedule for Factor X

• First unit for Business A: $23

• First unit for Business B: $22

• Second unit for Business A: $22

• First unit for Business C: $21

• Third unit for Business A: $20

• First unit for Business D: $17

• First unit for Business E: $17

Now, because we can see into the future, we know that Business C, in this case, will take a loss on a first unit of Factor X if it rents it for any price above $21. It will have paid more for the factor than the resulting increase in revenue. But Business C doesn’t know this. It has to guess. The entrepreneur has to ask himself how much he expects the first unit of Factor X to boost his sales.

Let’s say he incorrectly guesses that it will boost his sales by $24. In this case, he would be willing to pay up to $24 for the first unit of the factor. The general demand schedule, then, if everyone else guesses correctly, will look like this:

General Demand Schedule for Factor X Under Uncertainty (Losses)

• First unit for Business C: $24

• First unit for Business A: $23

• First unit for Business B: $22

• Second unit for Business A: $22

• Third unit for Business A: $20

• First unit for Business D: $17

• First unit for Business E: $17

Now say there are three units available in the economy. What happens? Well, according to our price theory, the price will be $22, and the three units will go toward a first unit for A, B, and C. In a way, Business C, by guessing wrongly, has bid that third unit away from where it would otherwise have gone, namely, toward a second unit for Business A. It has unknowingly frustrated the preference ranking of the consumers. It’s punishment for this error is taking a loss, in this case, a loss of $1, because it paid $22 for the factor but only increased its revenue by $21. As a result of this loss, it will likely scale back that line of operation in future decisions, which will bring the overall allocation more in line with consumer preferences, assuming those preferences don’t change too much in the short run.

Now let’s look at an example of Business C making a profit. Just as loss is what happens when you guess worse than your competitors, profit is what happens when you guess better than them.

Say Businesses A and B underestimate the value of X. They anticipate lower marginal revenue products than would actually be realized. But Business C anticipates correctly (as well as Businesses D and E). The general demand schedule might look something like this:

General Demand Schedule for Factor X Under Uncertainty (Profits)

• First unit for Business C: $21

• First unit for Business D: $17

• First unit for Business E: $17

• First unit for Business A: $14

• First unit for Business B: $14

• Second unit for Business A: $13

• Third unit for Business A: $11

With three units in the economy, the price would be $17. But now units are being allocated to Businesses D and E, which is relatively “uneconomical” from the point of view of the consumers, who would like to see factors allocated according to the general MRP schedule. By putting a unit toward his line of production, though, Business C is pushing things in the right direction. His reward for shifting factors toward a higher ranked (i.e. more important) production function is a $4 profit, because he bought the factor for $17 and it increased his sales by $21. If A and B are in similar lines of business as C, they will soon observe that C is making profits and realize that they have left profits on the table by not bidding high enough to secure any units of X. They will swiftly outbid D and E in the next round, assuming they expect the state of the market to change only minimally, at which point the structure of production will better reflect consumer values.

It’s almost like businesses are being guided by an invisible hand to allocate society’s resources effectively.

As we can see, if all businesses correctly predict the future, then there are no profits or losses. But this is impossible, so the next best thing is to let entrepreneurs try to guess what consumers most urgently desire. Their profits and losses and subsequent adjustments then push factor allocations and prices in the right direction.

If consumer tastes, technology, and so on don’t change, entrepreneurs will eventually learn and in future iterations factor prices will more closely approximate their marginal revenue product. But things are always changing, which means the equilibrium state is a moving target. This is why Rothbard once characterized the market as a dog chasing a mechanical rabbit. We are always moving toward equilibrium, but just as soon as we start getting close, the position of equilibrium moves, and so the whole process of adjustment begins again. This is also why Austrians talk about the market as a process rather than a fixed system. The economy—technically the catallaxy—never arrives at equilibrium. It is always adapting to new circumstances.

If you’re feeling a little lost at this point, don’t worry. This is a complicated subject, and I’m still figuring it all out myself. But I wanted to take a stab at explaining this, however poorly, because it really is the mechanism that makes the whole market tick. This is what economic calculation, the invisible hand—the entire argument for the free market—consists of at the most technical level.

Anyways, having established the basic idea of the free market as an “economizing” system, a process that systematically allocates scarce factors of production to the most important ends for consumers, let’s turn to Rothbard’s comments in Power & Market about how government ownership messes up this system.

Why Government Ownership Causes Problems

Leftists often say that the need for businesses to make profits is a bug of the free market system. In fact, it is its most central feature. It is the means by which consumers force businesses to only engage in lines of production that are at the top of the consumer priority list.

Say I’m Business A. If the going rate for Factor X is $21, what’s to stop me from renting three units instead of two? The answer is: the need to make profits. This is good, because allocating three units to my line of production would be “uneconomical” from the point of view of the consumers. Resources would have to be withdrawn from uses that consumers consider to be more urgent in order to be put toward uses that consumers consider to be less urgent.

Now imagine that the government takes over Business A in the name of public welfare. What happens? As Rothbard notes, one of the most significant changes is that there is now a split between receiving the product or service and paying for it. Instead of customers purchasing goods for themselves at a price they are willing to pay, we have taxpayers being forced to hand over an arbitrary sum of money, and then the government handing out “free” or at least subsidized services to the public.

Notice that as a result of this split the whole concept of profit and loss goes out the window. The government may invest a certain sum of money in Business A, and provide a certain level of service, but the decision to spend more or less is not guided, like it is in the private sector, by expected profits. The government can always get a bigger and better service by spending more money on it, but where should it stop? The scarce factors used to produce it must be withdrawn from other lines of production. How does the government know when it has hit the point where the cost to consumers of lost resources elsewhere is more important than the benefit gained by additional investment in this line of production? The decision is arbitrary. And since there is no method for discovering the “optimal” allocation of resources, consumer preferences are inevitably contravened. The “planned chaos” (to borrow a phrase from Mises) of allocation by fiat is substituted for the unplanned order of allocation by private profit-seeking enterprises.

It is this central insight that led Henry Hazlitt to write his perceptive rejoinder to government ownership in the aptly titled essay, Private Property, Public Purpose:

The socialists and communists propose to cure poverty by seizing private property, particularly property in the means of production, and turning it over to be operated by the government.

What the advocates of all expropriation schemes fail to realize is that property in private hands used for the production of goods and services for the market is already for all practical purposes public wealth. It is serving the public just as much as—in fact, far more effectively than—if it were owned and operated by the government.

The left cares about the welfare of the masses, and they often paint capitalists as only caring about the narrow interests of the rich. But this is a complete caricature. The reality is that both sides care about the welfare of the masses, and the reason us capitalists advocate private ownership is because we genuinely believe, based on the analysis outlined above, that private ownership is better for the masses than government ownership. The institution of private property is championed because, in our view, it does a better job of improving public welfare than government ownership. If the left wants to push back on us, they would do well to question our economic reasoning rather than our motives.

The universal nature of this logic is worth emphasizing. Nowhere in this analysis was there any indication that these ideas apply more to some sectors than others. There is no difference, in terms of these economic principles, between kitchen appliances, medical services, education, roads, cars, houses, or anything else. It should all be privatized, because it all needs to be balanced in the great consumer priority list. Every increment of public ownership introduces what Rothbard calls an “island of calculational and allocational chaos.” The more of these islands that exist, the more the economy loses the ability to bring factor allocations in line with consumer preferences.

Closing Thoughts

We’ve spent a long time up in the realm of abstract theory, so let’s come back down to New York State. As we noted in the opening, one of the things assemblywoman Sarahana Shrestha said is that “There are certain things that are just not designed for the private sector,” and that energy delivery “is, for me, at the top of that list.” She mentions healthcare as another industry in that category. One would be curious, in light of the above analysis, to learn exactly which things she regards as being “just not designed for the private sector,” and what criteria she uses to determine that list of things. Why are energy and healthcare on that list and not paperclip manufacturing?

One suspects that, when pressed, she would invoke the magic words that for decades have been the one seemingly untouchable argument for interventionism: market failure. In the case of energy, the alleged market failure is that of a natural monopoly—and presumably she has some reason why government ownership is a better way to resolve it than private ownership with stringent regulation, which, as mentioned, is the status quo.

I appreciate that economists almost universally see this as a powerful argument for deviating from laissez-faire. But part of why I’m punting on it for now is that we can’t properly have the market failure debate if we don’t even understand the basic argument for the free market and privatization in the first place, including production functions, marginal productivity, and all the other technical details outlined above. It behooves us all, regardless of where we stand, to move beyond slogans and rhetoric and actually study the nuts and bolts of economic theory—to learn how the market works before trying to analyze how it allegedly breaks.

From an Austrian perspective, there is perhaps no better place to start than Rothbard’s Man, Economy, and State with Power & Market.

One source of chaos that quickly grabbed a lot of attention was the battle over the $100 billion Supplemental Nutrition Assistance Program (SNAP), also known as food stamps. On October 27, the U.S. Department of Agriculture (USDA), which runs the program, announced that the 42 million Americans who rely on SNAP funds would have to look elsewhere in just a few short days. “Bottom line, the well has run dry,” said a prominent message on the USDA website. “At this time, there will be no benefits issued November 1.”

The following two weeks witnessed a legal frenzy that became so convoluted that it now has its own Wikipedia page. Some benefits did end up getting cut off for a number of days, enough to put serious pressure on food banks, but once the shutdown ended things returned to normal.

Watching this all unfold live, the leftist commentator Carl Beijer wrote up an interesting piece for his Substack on November 3, which was republished by Jacobin on November 4. We can think of this event, Beijer says, as a kind of unintentional experiment in austerity. Those libertarians keep telling us they want to get rid of welfare programs like food stamps. Well, now they have gotten their wish, however briefly, and by golly, the hunger crisis that leftists had always warned would happen in such a circumstance came right on schedule. Didn’t those right-wingers promise us that private charity would rush in to pick up the slack? Where is the upsurge in voluntary giving that they have always had such faith would be forthcoming?

The evidence seems damning. It seems like the debate is over and the verdict is in. As the title put it, “The SNAP Freeze Shows Charity Is No Substitute for Welfare.”

But, on closer inspection, Beijer’s analysis misses the mark in some important ways.

Can Charity Replace Welfare?

After opening with news of foodbanks being strained in early November, Beijer introduces what he sees as the disconnect between what food bank workers know and what capitalists seem to think:

In all of this coverage, one thing you won’t find is a food bank worker who is surprised by this outcome. Still, this is the opposite of what capitalist discourse in the United States would lead one to expect. In that narrative, the private sector is much better suited to feed the poor than state welfare programs could ever be. They’re more efficient, more localized, and best of all: they don’t rely on taxes. For this reason, the private sector should be more than able to pick up the slack of the government shutdown.

As an example of this capitalist narrative, Beijer cites a 2020 essay on poverty and welfare from former Cato Institute senior fellow Michael Tanner. I’ll quote a bit more of the relevant section than Beijer does to provide some context:

Still, if we reduced or eliminated government welfare spending, would there be enough charity to meet the needs of the poor? The numbers provide a reason for concern: as much as Americans give, that amount currently falls well short of the nearly $1 trillion that federal, state, and local governments spend on anti-​poverty programs.

But that fact ignores evidence suggesting that, in the absence of government welfare programs, private charitable giving will almost certainly increase. Numerous studies have documented a “displacement effect,” whereby government programs crowd out private giving.

Beijer continues, commenting on the second section of the above quote:

To corroborate this, Tanner points to a study which observes that as government poverty programs expanded in the twentieth century, private poverty programs declined. While this shows that there may be a displacement effect, this does not show that but-for public programs, private charity will cover the costs of poverty. And in fact, the historical record shows otherwise: until the 1940s, the United States’ poverty rate typically hovered well above 50 percent.

In any case, SNAP’s funding lapse has provided the perfect opportunity to test this supposed “displacement effect” — and so far, the results aren’t looking good. One may object that the private sector needs more time to take over the state’s responsibilities, but the public had plenty of notice that a funding lapse was possible. Moreover, one of the chief advantages of private charity is supposed to be its efficiency: as Tanner puts it, “few successful charities have the burdensome bureaucratic infrastructure of government programs.”

Taking this analysis as a whole, it becomes clear that Beijer is trying to pin a rather extreme claim on to capitalists, namely, that private charity would completely replace government welfare, 1-for-1, if that welfare were to dry up. He says our narrative is that it “should be more than able to pick up the slack” and “will cover the costs of poverty.” Thus, according to Beijer, Tanner’s citations fail to substantiate his position: his citations only prove that some extra charity would be forthcoming without government welfare, not that it would be enough to fully replace that welfare.

Except, Tanner never endorsed the extreme “complete replacement” position that Beijer attributes to him. I can see how Tanner’s presentation of the point might give that impression—he probably could have phrased it better—but I think a charitable reading would have to conclude that Tanner nowhere asserts that private charity could or would replace government welfare 1-for-1 if that welfare were scaled back.

The other example of the capitalist narrative that Beijer cites comes from Tyler O’Neil, a senior editor at the Daily Signal. Unlike Tanner, O’Neil does seem to suggest that private charity is up to the task of completely replacing SNAP. “I already live in an America where generous people contributed so that nonprofits have $4.1 trillion in revenue,” O’Neil writes in an October 30 article, which Beijer quotes. “This massive charitable sector should be able to address a problem like food stamps.”

Beijer expresses skepticism about O’Neil’s claim, a skepticism which I’m inclined to share. Private food assistance would surely increase in the absence of SNAP—and O’Neil highlights some ways in which that happened in early November (evidence which directly contradicts Beijer’s claim that “the results” of this test of the displacement effect “aren’t looking good”). But, like Beijer, I find it incredibly unlikely that private food aid would increase by $100 billion if that amount of SNAP funding simply disappeared.

And I don’t think I’m the only capitalist who would admit this. Beijer presents O’Neil’s position as representative of the capitalist side, but I actually think O’Neil is the outlier, and that the displacement-effect position that Tanner and I endorse—which concedes that 1-for-1 replacement is incredibly unlikely—is far more representative. So Beijer presents his article as a slam dunk on a common capitalist talking point, but really, to the degree that he has a point, it’s a slam dunk on a somewhat utopian position which, while some capitalists do hold it, amounts to a strawman for the vast majority of us.

But even the point against O’Neil’s position is fairly weak, because Beijer’s dismissal of the short-notice problem is quite unreasonable. Does he seriously mean to suggest that private charity’s response on November 1 was just as energetic as it would have been with 6 months of notice and complete certainty about SNAP being cut off? The SNAP freeze only shows that you won’t get a 1-for-1 replacement on short notice with tremendous uncertainty. I agree with Beijer that even if the private sector had a fair shot it wouldn’t deliver 1-for1, but Beijer overstates his case when he tries to say that our experience in early November is good evidence for this. What happened in early November was anything but a fair shot for private charity.

Policy on the Margin

Faced with my concession on behalf of the capitalist side that private charity probably wouldn’t replace SNAP 1-for-1 if that program were abolished—O’Neil’s quixotic remarks notwithstanding—Beijer would likely change tactics. “Aha!” he would say. “So you concede that the poor will be worse off in the absence of government welfare. Well then, you just don’t care about the poor. People are starving here. Just look at the food bank lines!”

Libertarians would of course object to the idea that we don’t care about the poor. Indeed, part of the motivation behind our free-market policy prescriptions is precisely that we believe they would be particularly helpful to the poor, as Tanner discusses in his article. Disapproval of the welfare approach to helping the poor is very different from not wanting to help them.

“Fair enough,” Beijer might say. “But since the kind of free-market reforms you’d like to see aren’t realistic in the short-term, the practical policy question is what we should do on the margin, today, starting from the status quo. If you are keen to help the poor, wouldn’t you agree that, from your perspective, free trade etc. should be implemented first, and welfare programs should be maintained until such time as your free-market policies have worked their magic, and only then, as one of the last items in the transition to pure capitalism, be wound down?”

This is an interesting question. Given that we have a statist system, given that the government currently hampers prosperity in myriad ways, are libertarians still in favor of welfare cuts, today, even if nothing else changes? My gut wants to say yes, but I think there’s reason to hesitate. To give an extreme example, should the government stop providing food to people in prison because it would save taxpayers a bit of money? Clearly, they should just release the prisoners (let’s assume they committed non-violent “crimes” for simplicity) so that they can get food on their own. But say the government refuses to do that. Would we still advocate no money for food, because dammit that’s taxpayer money? I’m willing to bite a lot of bullets in favor of liberty, but that one seems unreasonable. And if that’s unreasonable, maybe we should apply similar thinking to the open-air prison known as a government’s jurisdiction. First release the prisoners, then stop giving them taxpayer-funded food.

Having said that, I do think that in the current environment hacking away at welfare programs as much as possible is still the right thing to do. There are plenty of government charitable initiatives, and the idea that every single one of these should be a sacred cow until the very last scribble of regulation is repealed also strikes me as unreasonable. The poor are already getting boatloads of taxpayer money from myriad government welfare initiatives. They would still get boatloads even if SNAP were completely abolished.

So even if you are of the opinion that government welfare programs should be maintained to some degree for extreme cases as long as we live in a statist system—which I am personally sympathetic to—there has to be some limiting principle to what counts as extreme enough to justify robbing Peter to pay Paul. Are 1 in 8 Americans (the number on SNAP) really in such extreme circumstances that compelled funding—which is arguably a kind of theft—is justified to help every single one of them get food? Surely welfare levels are currently far higher than this “extreme cases” principle would justify, and cutting even 50% of SNAP—even with everything else staying the same—would be a reasonable initial demand from the taxpayers, who, though sympathetic for the most exceptional circumstances, are understandably less keen to subsidize the entire bottom 12% of the population—many of whom, let’s be honest, probably aren’t on the brink of starvation. Many of whom, in fact, are actually obese.

Optics

According to a 2021 study by the USDA, 39% of SNAP recipients are obese. Another 26% are considered overweight, 33% are considered normal weight, and a mere 3% are considered underweight. As shown in the table below, not only do these numbers closely mirror the breakdown for those who don’t participate in SNAP, but the obesity rate is actually higher for SNAP participants.

For those not familiar with welfare policy, these numbers may come as a bit of a shock. And, critically, I think the fact of that shock is as important as the numbers themselves. Because what the shock tells us is that the average weight of SNAP recipients is not nearly as conspicuous as other elements of this debate, like overwhelmed food banks. In other words, the left has a major advantage when it comes to the optics of the welfare debate. Everyone sees the food bank lines, which tend to make people more supportive of expanded welfare, but relatively few see what a typical SNAP recipient looks like, which would likely make people less supportive of expanded welfare.

While obesity numbers lead us to question the neediness of SNAP recipients, we would also do well to question the deservingness of SNAP recipients. And just as the obscurity of the average poor person makes the average taxpayer largely blind to their level of need, it also makes us blind to the personal choices they are making that might make us think twice about wanting to help them—or at least about how much we want to help.

The English polymath Herbert Spencer makes this point well in his 1884 essay The Coming Slavery:

The kinship of pity to love is shown among other ways in this, that it idealizes its object. Sympathy with one in suffering suppresses, for the time being, remembrance of his transgressions. The feeling which vents itself in “poor fellow!” on seeing one in agony, excludes the thought of “bad fellow,” which might at another time arise. Naturally, then, if the wretched are unknown or but vaguely known, all the demerits they may have are ignored; and thus it happens that when the miseries of the poor are dilated upon, they are thought of as the miseries of the deserving poor, instead of being thought of as the miseries of the undeserving poor, which in large measure they should be. Those whose hardships are set forth in pamphlets and proclaimed in sermons and speeches which echo throughout society, are assumed to be all worthy souls, grievously wronged; and none of them are thought of as bearing the penalties of their misdeeds.

Unlike with neediness, it’s hard to come up with a statistic that indicates the deservingness of the average SNAP recipient. Maybe something like credit card debt or job application rates would give an indication—high credit card debt and low job application rates might show that an individual is less deserving of welfare, and vice versa. Having said that, there is one line of evidence that is pretty damning: how people’s attitudes toward welfare change when they become more familiar with the people receiving welfare.

This brings us to Caleb Hammer.

Caleb Hammer is a YouTuber who has soared to fame in recent years. His YouTube channel, where he hosts his show Financial Audit, was launched in 2020 and currently sits at 2.8 million subscribers. On the show, he goes through his guest’s finances and gives them recommendations for how to improve their financial health. Often, his guests have made rather poor money decisions, leaving them in a world of hurt—and leaving viewers with the impression that a fair number of the poor have only themselves to blame for their financial woes, and thus maybe don’t deserve all the help they get from the government. After some leftists took issue on X with this unintended effect of the show, prompting Hammer himself to respond, Sean Fitzgerald perfectly summed up the phenomenon:

Adding to this anecdotal evidence, a 2024 study in the British Journal of Political Science found that “exposure to poor people weakens support for redistribution among the rich.” In a recent comment about this study on X, science blogger Emil Kirkegaard connected it with what’s known as contact hypothesis, the idea that contact with people from out-groups can reduce a person’s prejudice toward those groups.

Kirkegaard explained his approach to this idea in a 2024 Substack article:

In [standard contact hypothesis], the more exposure to some outgroup (immigrants, foreigners, other races etc.), the more one will truly understand them and be more friendly to them. You can see where this might apply. Suppose all you know about people from [outgroup] is the propaganda the media tells you, which is that they [are] Very Bad People. Then you meet some of them in real life, and they turn out to be OK People. The false impression given by the media was dispelled. However, what if the media tells you lies, but they are in the opposite direction? Well, then you should see the opinions get more negative, not more positive. There is some evidence for this.

…I think we can thus reformulate the contact hypothesis in the light of stereotype accuracy and propaganda. When the media gives you a misleading impression of the behaviors of some group, and you then get some real exposure to representative members of this group, your opinions will get closer to the truth, which means they will get more or less hostile depending on the direction of the media bias. I submit this is a fairly obvious model of social interactions.

Kirkegaard thus posted:

To put it starkly, if the average taxpayer lived with the average SNAP recipient for a week, there would probably be a tax revolt before the week was through.

A famous tweet that was shared in the replies sums up the controversial takeaway from this whole line of thinking:

Yet another factor that pushes the optics in the left’s favor is the relative obscurity, to the average voter, of how much the government spends on SNAP—both the total amount and how that amount has changed over time. Did you know, for instance, that SNAP spending has roughly doubled over the last 20 years? In 2007, inflation-adjusted SNAP spending was a mere $47 billion.

Suddenly, cutting it in half doesn’t sound nearly as radical, does it?

Taking all these factors together, then, the point is this: if your gut reaction to the proposed 50% cut was to dismiss the idea as ludicrous, consider the possibility that this reaction was formed by layers of one-sided, heavily biased optics, and that, were you better informed, you too would consider that kind of a cut to be, as I called it above, a reasonable initial demand.

Biting the Bullet

“But then my point stands,” Beijer would likely say. “The welfare cuts you advocate would lead to overwhelmed food banks, just like we saw in November.” Yes, they very well might—though I would stress that free market policy reforms would do much to alleviate this problem if only the leftists would allow us to make them.

But yes, even if nothing else changes, even if it causes overwhelmed food banks, we should cut SNAP significantly. Why? Because coerced charity is only justified in the most extreme cases, and the vast majority of those currently on SNAP simply do not qualify.

The fact is that the kind of people who receive government food assistance are a lot less needy and deserving than they are made out to be by the leftists who relentlessly champion their cause. There is absolutely some genuine need out there, but there is also a massive lobby pushing for ever-greater handouts to this most powerful of special-interest groups. These advocates prey on our compassion, conveniently leaving out the unflattering details about the poor that, were voters more familiar with them, would undoubtedly make many think twice about subsidizing this group to the tune of hundreds of billions of dollars.

The “callousness” behind this position is difficult to muster toward the frail, saintly single mother who is invariably held up as a representative of those in need. But it comes much more easily when you start to understand the kind of people who are actually on the receiving end of all this aid.