This essay concerns government. As background for this presentation I will provide a brief summary of the conclusions of the first presentation in this “Invisible Hand” series which examined the physical object nature of our money and some of the unfortunate consequences of that nature. I will be concise so if you have already read one or more of the earlier essays don’t worry, this review won’t take long.
All money in history (and pre-history) has been considered to be or to represent physical objects such as a basket of grain, a cow, a coin, or a paper bill. Today most money is in computer accounts and though it zips around the world from account to account at almost the speed of light, it still is treated as if it were a physical object of some sort. Because we treat money as if it were a physical object, anything which is true of physical objects in general will also be true of money. This obvious point is ignored by economists and others who talk and write about money even though it is the most important truth about money. The importance of the physical object nature of money cannot be overstated. What follows are some of the consequences of that physical object nature.
First, money is like other physical objects in that it can be taken from its owner against that owner’s will; by force, fraud, or stealth and it can also be lost or destroyed. This means that you need to suspect almost everyone of trying to get your money by fair means or foul.
Second, money must be amoral because all inanimate physical objects are amoral. Even animals are amoral, in that they have neither an ethical sense nor morality, especially when they are used as commodity money. You can use your physical object money for anything, good or bad.
Third, the money supply is independent of the supply of goods and services for sale because the supply of one physical object is independent of the supply of other objects.
Fourth, money falsely simulates a zero-sum game in monetary transactions because the money gained by one party must be lost by some other party or parties. Money makes us think that other people can gain money at our expense and that we can only gain money at their expense. It makes us treat others as if they were competitors, rivals, opponents, or even enemies.
Fifth, money is almost impossible for a society or nation to control. In every nation that attempts to limit, regulate, or tax trade a black market comes to exist; and organized crime flourishes in all nations.
Sixth, money transactions are two-party interactions. Two-party interaction is inherently unstable because if one party gets an advantage in power such as having more money, the stronger party can use that power to gain still more advantages. This is particularly true of money. The old saying “them as has, gets” is true. Possession of money does make getting more money quite a lot easier. Naturally, the weaker party in such two-party interaction will eventually want to end the interaction. Thus the relationship is unstable.
Keeping that review in mind, let’s consider government.
We know that money and agriculture developed at about the same time. With agriculture came the first towns: Nomadic peoples, such as those with hunting and gathering economies, do not build permanent villages; their homes tend to be camps of tents which can be packed up and moved. Even some of those cultures are really agricultural, in that they have domesticated animals beyond the dog; but crops require a permanent presence… villages are the norm for such an economy. Villages must be defended from both other villages and nomadic raiders. This is all from pre-history. We know the villages needed defending, because in many cases they had walls. We also know that the division of labor in such villages almost required commodity money to pay the military and the priests who were often the same folks.
If a spaceship landed and an alien creature approached a villager, he would have said “Take me to your leader.” Such villages have always had leaders: why is that? Why do we expect a village to have a leader, a mayor if you will? What does a rural farm village need with a top-down hierarchical social organization? We know that hunting-and-gathering cultures do not require such a social organization, because many did not have it. Why does life in towns or cities make such unequal relationships the norm?
Harkening back to those consequences of physical object money (henceforth to be called POM) we note that money tends to lead to power imbalances, because having money makes it easier to gain still more money. The top fighter in the village can recruit someone to help him by paying his helper money. Barney Fife got paid, even though he was pretty weak and incompetent. But being able to hire assistance meant that the top-dog fighter could get help when needed – not only to fight off outsiders who were threats – but also to make sure he got all the commodity money he was due, and perhaps a little extra from the village farmers. At this point we have government, complete with taxes. Here we have a monopoly on the application of legitimate force in the village. What made it legitimate? The toughest and best fighter was the guy doing the taxing, that’s what made it legitimate. To what other person could the general public appeal? Who was making the rules? That same guy: There was no appeal, there was no realistic alternative; except to kill that tough guy, which would require ganging up, or stealth. And even then… the village still needed to be protected. If you kill your best fighter, who’s going to protect you the next time raiders come?
It all gets rather depressing, doesn’t it? The same facts of the case have continued to be true down through the ages. Nothing has really changed: government is legitimate because it has control of the best weapons. Guys wandering the streets with assault rifles and big magazine clips notwithstanding; the army has much better and more effective weapons, so government is built on force… its essence is force. The people may try to dress up the matter, and governments almost always attempt to justify themselves, but it all really comes down to “they have bigger guns and better organization”.
Libertarians have noticed and recognized that home truth for some time. Libertarians oppose government oppression. They don’t like being pushed around and exploited by government any more than the next fellow. But unlike the next fellow, they don’t think that government has any right, moral authority, or justification for using force to push people around. I have read learned treatises on such issues by libertarian authors. They conclude that what governments do and what people let governments do is pretty awful. They see a lot of harm being done by governments, even the best of them. If one can consider something like a best among governments. Perhaps I should say least harmful of them. One cannot but agree that governments are harmful and are extremely dangerous.
Why have we not done something about governments? Where’s the revolution against governments? Why doesn’t somebody do something? Is it because we picture any resistance to governments as requiring violence and fighting and war? Is it because we picture something out of a science fiction movie about society falling apart and everything going to… well, not a good place. Why do we think that the solution to the abuse of force is more force? Why do we think that the set of fighters who overpower a government using force to do so will not simply replace that government and become the government?
I seem to remember that about 100 years ago there was a group of fighters in Russia who said they were fighting to eliminate government. They fought those who would retain a Tsar and those who would impose some form of democratic government: They won, and then they imposed a totalitarian government every bit as autocratic as the government of the Tsar – probably killed more people than the Tsar would have in their place.
You can’t trust people who say they are fighting to overthrow oppressive government. They may very well be sincere. But the founding fathers of the thirteen colonies of Great Britain who threw off an oppressive (in their eyes) government mostly owned slaves and put down Shay’s Rebellion using force. How different were matters for those slaves after the British had left? No so much, eh? No, you can’t believe what they say when they tell you to get your gun and fight off the government. We can look at the outcomes of past violent revolutions and see that not much good has come from them. A good guy with a gun can stop a bad guy with a gun. The problem is that the good guy doesn’t usually stay a good guy.
Let’s approach this from another direction: What if there was a place that no government wanted to rule? What if there was a place that government just didn’t care about? What would happen there? Well, government really doesn’t care much about really poor neighborhoods in cities. One can do pretty much whatever one wants to do there and government will hardly notice. Are such neighborhoods havens of safety and efficient economy? Not so as you’d notice. I think you will find force to rule in such neighborhoods, every bit the same as elsewhere that the government holds sway. The difference is that there’s very little money to be had in those poor neighborhoods so they’re not worth the time and effort of government to take a hand there. But even crumbs are of value to those who have nothing. Those with nothing find that it is worth their time and trouble using force to collect those crumbs.
What would happen if government were to magically disappear from a modern nation? We’ll ignore the international trade complications and the foreign relations aspects. What would happen internally? What would we modern citizens do? We would constitute a government just as quickly as we could. That’s what we know, and our chains have grown comfortable to us: we would miss them.
Let’s try again but this time when the government disappears, the people of the nation are all libertarians, millions of them; every one of them an advocate of anarchy and an opponent of the use of force, what would happen then?
There would be no government laws but there would still be contracts and businesses, of course. There would be no state police but there would, of course, be some people who would offer their services as bodyguards and security guards. There would be those who offer firefighting services as well: One can pay a monthly fee to such companies to assure that they will attend to any fire you may experience as soon as possible – note that this is not a tax – just a fee for services.
I fear that there will still be a temptation to steal, despite the lack of laws against theft. One could also pay a fee to guard agencies of private detectives who would help you prevent theft and try to seize and recover your valuables if they are stolen. These services, like the fire companies’, would only be offered if one pays that monthly fee. Now if there were to be only one detective agency, they could charge whatever they liked for their service. To encourage the public to pay the fees, they might even engage in a little burglary on the side. I can see where this could get ugly. I fail, however, to see how it could be avoided; unless, perhaps, we bring in several other detective agencies to compete with the first agency. That’s the spirit! We could have a free market in police. But how might the first group respond to such competition, when there is no law? If some of the detectives resort to force, who will stop them? I would think that there might be some rather unpleasant incidents resulting from unrestrained competition for business. Are anarchists immune to the temptations to use force to gain profit? One wishes it could be so, but life just isn’t that considerate.
The natural progression would lead one to expect that only a few of the agencies would remain after a few years. In fact, the service is of such a nature that it is quite inefficient unless almost everyone in a geographic area employs the same service. A detective would just be too remote when needed unless the rates were very high. The result would be a monopoly of force for the area served by the agency. That’s beginning to sound very much like a government, isn’t it?
Unfortunately, I see things sliding right back to the way they are today. I see government popping up like green shoots after a forest fire. It might start small but it would soon be doing the same things governments do now.
Once again, as is my habit in these presentations, I will remind you of the role of the nature of POM in such events. That role is rather obvious to those who have followed the complete series to now.
We can start with consequence number one: that money can be taken from its owner against the owner’s will. Regardless of the POM in use in these cases, even if all the money is gold coins, the temptation to use force to take that money will be present. Even if less than one percent of those exposed to this temptation yield to it, the presence of that use of force will require the use of force to stop it. Some people may be reluctant to use force to resist. But the past tells us that such reluctance would be felt only by a small minority. Therefore we can say with assurance that there would be organized force present in this government free society.
Moving on to the zero-sum game consequence, we can see that the members of this society would see each other as opponents when it came to money matters. This competition would result in some acquiring significant advantages over the bulk of the other citizens. POM does become concentrated in the hands of a few. But there’s no limit to how much POM one desires. Therefore, the taking from others by force and fraud will continue but with more centralized force. Et voila, there it is, we have government back. That wasn’t so difficult was it? We didn’t even have to mention that POM is amoral and so would not resist being used to command force.
So even getting rid of government, if it could be arranged, would not solve the problem at all; because government would only return due to the use of POM. If libertarians want to truly end the evils of government, their only viable alternative is to change the nature of our money. No other course of action has the slightest chance of success. Any organized attempts to fight government as we know it will be exploited to achieve other, less noble, ends. There’s a considerable history of that sort of thing as well.
But many libertarians do not favor a complete absence of government. They see government as acceptable, but with a vastly reduced role. Like most economists, they see the role of government in the marketplace as that of preventing force and fraud. Economic transactions of all types express and embody contracts. The simplest transaction, a trade of money for some item, has a host of unspoken but well-understood conditions and terms. The buyer will provide valid “coin of the realm” currency in the agreed-upon amount, nor will he remove the item from the premises of the seller until the purchase is completed, and will not in any way damage the item while examining it. The seller will provide an item which is as was described in advertising the item. The item will perform any function normally to be expected of such an item. Any packaging or labels will accurately describe it. If presented as a new item, it will not have been previously used by any other owner. There are more, but I never attended law school so I don’t know all the details. If any of these conditions to the implied sales contract are violated, the other contracting party has a legal right to appeal to the authorities for redress of grievance: This is where the government comes in.
Government provides a means for settlement of disputes in the marketplace. Some breaches of contract are also violations of the law, and do not require that the abused party file a complaint. But whether such a complaint is filed or not, the circumstances and conditions in which the market functions include the probable or expected actions of agents of the government and its court system in the context of the law at the time.
In principle, the government is to prevent fraud and the use of force in market transactions: Violations of contracts in the market should result in governmental action to correct or redress any harm suffered by the victim of such violation, but is this what actually happens?
In some cases it actually does happen. An armed robber enters a store, opens the cash register, grabs the bills and runs. As this is a blatant use of force in violation of law and ethics, the store owner notifies the police and a search for the robber begins. In such cases the state is usually found to actually attempt to arrest and bring to trial the perpetrators of such actions. But such cases are only a tiny fraction of the total economic transactions in the market. Let’s examine a much more typical situation.
A potential customer enters a store hoping to buy an item. The store is arranged to be inviting and attractive. Merchandise is displayed in ways intended to entice the customer and arouse in his mind a desire to possess that merchandise. This is fine: I don’t think anyone objects to such practices. But let’s examine the situation a little more closely. The customer has an idea of what he wants to use the item to accomplish. To make our example easier to visualize, let’s say the item to be purchased is a cell phone. So our customer, John, wants to buy a cell phone. Now John is no expert on cell phones nor is John an expert in the law. John then attracts the attention of a sales clerk, who works on commission. The more he sells and the higher the prices of the items he sells, the more money he gets. The clerk, we’ll call him “Jerry,” knows quite a lot about both cell phones and the various contracts that are involved in the purchase and use of the various cell phone plans. So Jerry will first of all try to find out what John hopes to buy. John says he wants to buy a cell phone. Jerry directs John’s attention to a medium-priced unit, having estimated John’s probable income and resources as sufficient to be able to pay for such a service. John entered the store wanting only phone service but when Jerry points out that with this phone he can also do email, John is intrigued. Jerry shows John how easy it is to use. He inquires about John’s work and shows that, even at lunch, John does not have to be out of touch since the phone can serve as a pager. Jerry asks if John travels on vacations or business. John’s “sometimes” response gives Jerry the opening he needs. Jerry suggests a slightly higher-priced phone which can also provide GPS service. There are several such upgrades as the conversation progresses. The phone becomes a virtual Aladdin’s lamp to John. It even will play games and provide the latest news and sports. John is convinced that he just has to have that phone. That it will improve his life greatly and may even save his life if there’s a tornado. So John leaves the store with a marvelous bit of modern technology having signed a contract that obligates him for several years.
This is a common case in the market in which the expert has far more knowledge than the novice. The buyer has far less knowledge of the product than the seller. The buyer has no idea how the product works, cannot fix it if something goes wrong, and signs a contract which even if he read it he would not understand how the courts will interpret it. In such situations, it would be strange, indeed, if the seller, Jerry, did not take advantage of the buyer. “Let the buyer beware” is all very well and good as a maxim and is certainly good advice, but just because you are wary does not mean that you are safe from fraud. The market in which the seller has far more knowledge than the buyer simply is not a free market. In the modern world, with such a great division of labor, a setting that makes us fabulously wealthy in comparison with the economy of 500 years ago, it is simply impossible for a person to function in that market without being quite vulnerable. Even reading the ingredients on the label does not tell us what we’re getting. Bottles of pure spring water have more than water inside because the plastic is not chemically completely inert. Fruit in the store probably has insecticide or herbicide on it and, perhaps, in it. Meat has chemicals fed to the animal which were not provided by nature alone. In other words, you simply cannot be expert enough on your own to defend yourself from fraud in the market.
But it’s worse than that: It seems that the government whose legitimate duty it is to prevent and prosecute fraud in the market seems to ignore that duty. I know that there is considerable complaint about the government interfering in the market, and the government does interfere in the market, without doubt; but the market provides numerous opportunities for fraud. How can the government prevent and prosecute fraud in the market without being present in the market? When a small fraud occurs – say in selling a cell phone certain pertinent facts are ignored or misrepresented – what are the chances that the government will get involved? What are the chances that the clerk will be prosecuted? What are the chances that it will be the policy of the business to commit that fraud every chance it gets because that will maximize profits? What are the chances that few people will be thinking of that store’s frauds when shopping for cell phones? The absence of government influence in this situation is a problem.
Let’s consider another effect on the market, that of having no two products being the same. That is, how about when you shop for some product, say health insurance, and you have 50 different health insurance companies each of which has 50 different plans which you are eligible to buy. How can you decide, rationally, which is the best for you in your situation? Do you really have expertise in both medical probabilities and the law? You would need both to make a rational decision. But let’s say you take the advice of experts and find just the plan for you. Great! Now how many of the insurance companies offer that particular plan? Exactly one. But a free market requires that there be many of the same product offered by different sellers so that one can choose on the basis of price. Since no two of the 2500 plans are the same, you cannot do a realistic price comparison. Besides, there’s another factor which you should consider. Given that you buy insurance from company X, what are the odds that company X will actually pay what the contract says they are to pay? Again, just because you have a contract does not mean that the other party will live up to that contract. Government should step in to require the terms of the contract be followed. But does it? What proportion of the time? Will company X increase its profits by ignoring the contracts and taking the occasional hit from a government fine?
There is clearly a role for government in preserving a free market. A market without order, without regulations, without good reason to trust is not a free market in any respect. So how do our governments actually work around the world?
Governments attempt to regulate the market and the actions therein. They do not, in actual practice, attempt to create and maintain a free market. The officials of government, the legislators, courts, police, and other regulators will probably say, proclaim, and announce that everything they do is to preserve the free market from scoundrels; but that is not at all what they do. In governments proclaiming socialist ideology, the government officials announce, proclaim, and affirm that everything they do is for the good of the people and follows the urgings of the masses; but that is not at all what they do.
What they do in most cases is what gains them the greatest expectation of pay. This pay may be in the form of bribes, contributions to their re-election campaign, or promise of a high-placed job in private industry after leaving government employment. It may even be in the form of insider information concerning pending business deals and laws affecting them… But no matter what that expectation is based upon, they will definitely not be paid for supporting a free market or for the good of the people. There’s no money in supporting a free market or the good of the general public. Nobody ever got rich attempting to make the market a free market. Nobody ever got rich striving to increase the standard of living of the general public. That’s not how the market works. That’s not how one gains wealth.
I would like to bring to your attention the fact that almost all the appropriate functions of government exist to prevent people harming each other or taking each other’s property by force or fraud. If one could not take money by force or fraud there would be far less for government to do.
On a more cheerful note, we can examine how a money type of a different nature could bring about the very things which libertarians say they want. All we have to do is examine what would happen with a money type of a different nature.
To begin with, let’s have money which does not have those POM consequences. If this non-POM cannot be taken from its owner against that owner’s will, then there will be no use of force or fraud against money owners since it could have no effect. Thus there would be no government taxes and no government spending. What motivations for law and its enforcement by force would remain to those in government? Lacking the ability to tax and spend, government cannot hire anyone to do anything. If a government official wants something done, a request is about all the force he would have at his disposal. Therefore he could not command obedience, he could only request cooperation. There’s no force in that request or that kind of relationship. Since the non-POM cannot be taken from its owner by force or fraud there’s no need for government to prevent such events.
Moving on, we come to the amorality of POM. With non-POM, the money could be used only for moral actions. I don’t think any libertarian would object to the moral use of money. Especially if there’s no one telling other people what constitutes morality. I know that’s hard to imagine but that’s what happens to morality when there’s no central authority backed by force to impose any ethical system. Morality comes to be consequential ethics. That is, an action is considered to be immoral if it harms others. An action is considered to be moral if others benefit from that action. So money would tend to result in actions which benefit others and in a reduction in actions which harm others.
With non-POM we would have money which emphasized the mutual interdependence of human beings rather than simulating a zero-sum game relationship. People would expect other people to help, not exploit. Everyone would be on your side. People would try to protect you from harm.
With non-POM, monetary transactions are three-party interactions in which the power relationships are: A has power over B, B has power over C, and C has power over A. That relationship is stable. For each party, any temptation to abuse its power is balanced by the knowledge that they are also completely vulnerable to the third party. With that situation, the wealth can be concentrated without it causing any problems at all.
Finally, the supply of non-POM is always balanced with the goods and services for sale. An increase in production is always matched by an increase in the supply of money to buy them.
Of course, the government has no control over the supply of money. All government officials from chief executives through legislatures and on to the police on the street get paid based on net benefit. Therefore any attempt to exploit or abuse power would be resisted by all the other government workers. In fact, government would be almost totally irrelevant. Those persons in government who provide useful and beneficial services would earn money. But those who provide no useful services do not earn money. Naturally one would expect them to go do something else.
With a non-POM, the provision of useful information earns money. There’s no need for taxes or fines. There’s no need to sue or cut off subscribers who don’t pay. There is no need for copyrights or patents. Earnings come to exist without their having to come from someone else. No one has to give up money for someone to earn money. There’s no zero-sum game at work here. If you benefit others you have earned money.