20. Caste and Class: The Rothbardian View of Governments and Markets

David Osterfeld

This paper will examine Professor Murray Rothbard’s definitions of freedom and power. These definitions will be used to construct a formal model with which to analyze the operations of governments and markets. It will be shown that the model leads to the conclusion that markets result in classes while governments tend to produce castes. The paper will conclude by arguing that this model is a powerful explanatory and predictive device; that what one would expect to find if the model is correct is, in fact, what one tends to find.

Part I:

The Rothbardian Definitions of Power and Freedom

Professor Rothbard is a prolific writer. Practically all of his writing centers around, directly or indirectly, the concepts of power and freedom. In order to understand and assess the Rothbardian viewpoint, it is first necessary to examine what he means by these two terms. “Power” and “freedom” are defined in terms of violent activities. “Violence,” according to Rothbard, is the direct physical interference, or the threat of such interference, against the person (assault) or property (theft) of another, including the appropriation of another’s property under false pretenses (fraud).¹ Terms like “power” and “sovereignty,” Rothbard makes clear, “are appropriate only to the political realm.”² And “political-power terminology,” he says, “should be applied only to those employing violence.”³ Conversely, “freedom” is defined as “a condition in which one’s ownership rights in his own body and his legitimate material property are not invaded, are not aggressed against.”⁴ Freedom, he says, is the ability “to control what one owns.”⁵ It refers to the “absence of molestation by other persons.”⁶ Crime, which is a particular subset of power, is seen as an “invasion by the use of violence, against a man’s property and therefore against his liberty.”⁷ In brief, for Rothbard, “power” is defined solely in terms of the presence of violent activity; “freedom” is defined solely in terms of its absence.

Power

Professor Rothbard argues that since the free or unhampered market is nothing more than the nexus of voluntary exchanges, a market-grounded society would be one characterized by the absence of “coercion” or “political power,” i.e., a society in which “the power of man over man” has been “eradicated.”⁸ Since Rothbard defines both “power” and “freedom” solely in terms of the presence or absence of violent activities, and the threat of such activities, he has been criticized by some for disposing of the question of power relations by means of a semantic sleight-of-hand. Warren J. Samuels’s rather truculent critique of Rothbard is a good example of this line of thought.

While a society based on Rothbardian principles would be a “system without a state,” Samuels says⁹ it would not be a system without power relationships. For, he says, “power, coercion, and externalities … are ubiquitous.” They exist in all social systems. “The anarchist ideal, contemplated in terms of strict or absolute autonomy, is impossible.”¹⁰ Thus, one can “solve” the problem of power in society only by arbitrarily defining it in terms of certain types of coercion but not others. It is only through such “selective perception of mutual coercion,” Samuels maintains, “that the anarchist ideal is sensible—and that selectivity begs the critical issues.”¹¹

Rothbard’s definition of power and freedom in terms of physical violence comes in for especially caustic criticism. “Concentration upon physical violence and obedience is an undue narrowing of the focus upon the full range of mutual coercion,” he charges. Rothbard’s “non-aggression axiom,” the prohibition of any violence against the person or property of another, is “misleading and selective with regard to ‘invasions.’ ” He “can only pretend to abolish invasions by selectively admitting them, i.e., [he] abolishes only certain invasions and coercion.” And what invasions would Rothbard’s axiom abolish? Since his conception of voluntarism and freedom are “specified only in terms of market exchange,” they are “incomplete and selective.” Thus, “Rothbard’s system,” says Samuels, “would permit the operation of mutual coercion in the market, but he does not see it as pejoratively and analytically coercion. In other words he would abolish only the coercion he is willing to acknowledge.”¹² Given his arbitrarily narrow view of power, Samuels continues, Rothbard cannot see—or won’t admit—that the market is itself coercive and that it “gives effect to whatever structure of private power operates through it.” Thus, the “statelessness” of a Rothbardian society is a mere “pretense”; it is a “play with words” that “only functions to mislead.” Consequently, not only would there be the functional equivalent of the state, but it would be a state “skewed in favor of a propertied elite.” Rothbard’s “anarchism” “is not anarchism but a cleverly designed and worded surrogate for elitist or aristocratic conservatism.” It would result in a plutocracy in the truest sense of the word, and “it cannot claim attention as a work of serious scholarship.” In brief, “there is more to coercion, to voluntarism, and to freedom than Rothbard’s system admits,” and it is only by his “spurious” and, Samuels strongly implies, conscious, “sleight-of-hand of narrowly contemplating externalities and invasions” that he is able to solve the specter of power in his society.¹³

This is a stinging criticism that, despite its polemical tone, does raise an important question: is the Rothbardian—and more generally libertarian—resolution of the power problem simply a product of (conscious) abuse of the language; of a semantic sleight-of-hand?

While there is, admittedly, very little agreement either in ordinary language or even among political scientists regarding the meaning of the term “power,” what little consensus there is follows, I believe, the path taken by such political scientists as Robert Dahl, Harold Lasswell and Morton Kaplan. Since their’s is a respected approach to the question of power it will, perhaps, be worthwhile to examine Rothbard’s definition in terms of the Dahl-Lasswell-Kaplan approach.¹⁴

What is interesting about their analyses is the distinction they make between power and influence. For them, influence is a generic term that includes an entire family of more specific concepts such as power, authority, coercion, persuasion, force, etc. Power, on the other hand, says Dahl¹⁵ is “defined as a special case of influence involving severe losses for noncompliance.” Similarly, Lasswell and Kaplan¹⁶ note that “it is the threat of sanctions that distinguishes power from influence in general. Power is a special case of the exercise of influence: it is the process of affecting policies of others with the help of (actual or threatened) severe deprivations for non-conformity with the policies intended.”

A problem with Samuels’s critique is immediately apparent. For Samuels power is ubiquitous, but only because he (implicitly) defines it as synonymous with influence. But if the Dahl-Lasswell-Kaplan approach is followed power is clearly not ubiquitous. It is only one specific type—that involving severe deprivations or losses—of the far more inclusive concept of influence. Rothbard never denied that influence may be ubiquitous, but power certainly is not. If there is any abuse of the language it lies with Samuels, not Rothbard.

But even if one follows this approach the issue is far from being resolved. For is there, or can there be, market influence strong enough to constitute severe deprivation, i.e., can there be “economic power"?

There are two standard ways of proceeding: that of classification and that of comparison. The method—or perhaps more accurately, technique—of classification establishes two or more mutually exclusive and exhaustive categories or classes and then assigns the phenomena to one or the other of the classes. The comparative technique proceeds by establishing a continuum based on a particular concept or criterion (say “influence”) and then ranks the phenomenon along the continuum according to the degree to which the unit possesses the criterion. Thus, classification deals with the question of “either/or” while comparison concerns itself with the question of “more or less.”¹⁷

The approach taken by Dahl is that of comparison. He envisions taking a particular aspect of influence, such as scope, domain, cost of compliance, probability of compliance, etc., and ranking individuals or actions along a continuum ranging from low to high. Any individual ranked higher on the continuum than another would be considered to have “more” influence. Rankings above a designated point would be termed “power"; rankings below it would be denoted by some other term, say “persuasion.” The problem with this approach, as Dahl readily admits, is that the choice of a cut-off point between the degree of influence to be termed severe deprivation or power and that called minor deprivation or persuasion is “somewhat arbitrary.” Even more importantly, it leads inevitably into a morass of subjectivism. “No doubt,” Dahl, acknowledges,¹⁸ “what a person regards as severe varies a good deal with his experiences, culture, bodily conditions, and so on.” What may be considered as severe deprivation by one individual may be of little or no consequence to another.

The problem of using the comparative approach in this particular case is that its subjectivism robs it of any empirical import. It is not, in other words, “operational.”¹⁹ To be useful one would have to ascertain the degree of deprivation or pain suffered by any one individual in any particular situation. But given the subjectivity of feelings, it is obviously impossible for any one individual to determine precisely the degree of pain felt by another. But if one cannot do this then one cannot accurately, i.e., meaningfully, determine the degree of deprivation felt by another. And if one cannot do this then one certainly is unable to make interpersonal comparisons of deprivation. While one would be inclined to say that the degree of deprivation associated with the loss of a dollar would be greater for an indigent than a millionaire, how can we be sure? The indigent might be St. Francis of Assisi, who took a vow of poverty and for whom money was of no use, while the millionaire might be Howard Hughes or, even worse, Jack Benny, for whom every cent is infinitely precious. Regardless of the individuals involved, there is simply no meaningful way to ascertain with certainty and then compare the subjective feelings of one individual with another. Is the degree of pain that Jack Benny regards as severe of the same intensity as that which Helen Keller, the Marquis de Sade, or Joe Smith regard as severe? And even if it is, how can we ever tell? In short, the application of the comparison technique to the concepts of power and influence robs these terms of any empirical import.

What of the classification technique? This approach, as we have seen, does not compare things according to “more/less” but establishes criteria to construct mutually exclusive and exhaustive categories and then applies the criteria to assign the phenomena to one of the categories. This is the approach adopted by Rothbard. While it tends to be less discriminating than the comparative technique, it does have the inestimable value in this case of giving the concept of power something that the comparative technique could not: empirical import.

Rothbard doesn’t deny the ubiquity of influence. But rather than trying to determine the degree of influence one person exercises over another, he looks to the means one uses to obtain influence. Those attempts to influence others by violent means, defined in Lockean-fashion as physical force, or its threat or equivalent (fraud), against the person or property of another, is termed power. All non-violent, or what may be termed persuasive, means of influencing others are designated as voluntary. What of “economic power“? Since the only “economic power” anyone can exercise is the ability to refuse to agree to a proffered exchange, and since this is nonviolent according to Roth-bard’s definition, it is not considered power at all. Thus, the market, according to this definition, is a system of social coordination in which power is completely absent.²⁰

A possible objection is that power would not be absent from the market because, according to the Rothbardian paradigm, anyone would be permitted to either enter the business of providing protection to clients for a fee or purchasing the services of a defense company or police company. But this conclusion is incorrect. Defense agencies would, of course, be empowered to exercise force to protect the rights of their clients. But this would occur subsequent to a prior market exchange or agreement between an agency and its clients. Thus, even an exchange empowering a defense agency to use force to protect the rights of a client is a purely voluntary exchange characterized by the absence of power relationships.

Two caveats should be borne in mind. First, Rothbard looks at the means to influence rather than the degree of influence actually exercised. His taxonomy says nothing about the effectiveness of any particular influence-attempt in any particular situation. It is certainly consistent with his taxonomy for non-violent methods of influence to be more effective in a particular case or with a particular individual than violent ones. To use Jack Benny again, it is conceivable that “economic sanctions” such as the refusal to make an exchange profitable to Jack would be a more effective method of influencing his behavior than to threaten him with bodily harm.

Second, since one can define a concept in any way one desires, it is technically meaningless to speak of the “correctness” of a definition. But to be understandable a definition must bear some congruence to the way the term is commonly used. It would be ridiculous to define power in terms of, say, the length of one’s shoe strings. But within this limit the ambiguity surrounding the term provides one with fairly wide discretion to stipulate a particular definition. Rothbard’s definition of power in terms of physical violence certainly falls within the limits of common usage. For, as Dahl notes²² after acknowledging the ambiguity of the term, “probably among all peoples” physical violence such as “exile, imprisonment and death would be considered as severe punishment.” Dahl does not limit power to acts of physical violence as Rothbard does. But his statement, if correct, does indicate that the acts Rothbard denotes as violent are the ones that everyone can agree as being powerful. One can disagree with this definition of power and, given the stipulative aspect of definitions, it would be pointless to argue that Rothbard’s definition is the “only correct one.” But it must certainly be admitted to be a correct and plausible use of the term. It is therefore highly unfair to argue, as does Samuels, that Rothbard’s definition of power is an abuse of the language and a (consciously) misleading sleight-of-hand. On the contrary, H. E. Freeh,²³ who is otherwise critical of Rothbard, applauds him for “excellently sharpening the language,” precisely in the ambiguous area of power relationships.

We are now in a position to flesh out the remaining elements of what may be termed the Rothbardian influence-attempt taxonomy. While power has been defined as the use of violence, we have not distinguished between its legitimate and illegitimate uses. Yet Rothbard does make this distinction. For him, the initiated use of power is illegitimate while its defensive use is legitimate. This fits perfectly with the Dahl-Lasswell-Kaplan approach, which also distinguishes between the legitimate and illegitimate uses of power. Power that “is said to be legitimate,"—however that term is defined—notes Dahl, is “generally called authority,” while that which is said to be illegitimate is referred to as “coercion.”

The Rothbardian influence taxonomy can now be summarized as follows:

Influence-Attempts

Persuasion	Power
voluntary influence-attempts	violent influence-attempts
Economic Persuasion	Authority
includes:	legitimate power:
market exchanges negotiated agreements advertising	defensive violence
Social Persuasion	Coercion
includes:	illegitimate power:
speech gifts bribes ostracism discrimination	intiated violence       individual, private coercion       institutional, public coercion

The concept of “coercion” is perhaps the most interesting aspect of this taxonomy. Government does act to combat such individual, private acts of coercion as murder, theft, rape and the like. In that sense, government does exercise authority or legitimate violence. However, in order to exercise such authority it must first obtain operating revenues. Since government has, by definition, (1) claimed a monopoly in this area and (2) provides its defensive services to all (more or less) equally and regardless of payment, it has rendered the provision of defensive services a collective good. In order to eliminate “free riding” inherent in this manner of providing such goods and services, it is forced to use coercion, viz., taxation, in order to acquire its revenues. This means that governmental coercion is logically antecedent to governmental authority. That is, before it can use authority against individual, private coercion it must first engage in what may be termed institutional, public coercion. This presents an extremely interesting dilemma for the statist. For if, as is clearly implied in the term itself, the “illegitimate use of power” is immoral, and if governments must, of necessity, engage in such use of power, this means that government is an innately immoral institution.

In the purely voluntary, free market society advocated by Rothbard, power and even coercion would still be present. What is significant, however, is that since no one would have the right to initiate the use of power, institutionalized, public coercion would be completely absent. Individuals would have the responsibility of defending themselves, either directly or, more likely, through the purchase of the services of a police company or defense agency. Interestingly, since these services would (1) be provided competitively rather than monopolistically, and (2) on a selective rather than an equal access basis, the collective character of the service would be eliminated and with it the “free rider” problem. Those wanting protection could purchase the quantity and quality desired, the same as for any other good or service. Those preferring to fend for themselves would not be forced to purchase the services of any defense agency. While the defense agencies or police companies would use force, its legal use would be restricted solely to its defensive use, i.e., the exercise of authority. No agency would be empowered to initiate the use of force, i.e., to act coercively. This means that while individual, private coercion would be present in a Rothbardian society, institutionalized, public coercion, i.e., crime would be entirely absent.

There is one additional point. Rothbard’s goal is to minimize coercion. “The libertarian doctrine,” he writes,²⁴ advocates the “elimination of the power of man over man.” But isn’t it conceivable that although there would be no “public sector” and therefore no public coercion in a Rothbardian society, the total amount of coercion in a statist society, viz., public plus private, would be less than the total amount of private coercion in a stateless society? While this is a logical possibility, it is certainly unlikely. As even Rothbard’s critics readily admit,²⁵ the market is far more efficient than government. Hence, if the market were permitted to expand into areas now controlled by government there is every reason to believe that such a problem as the provision of police protection and security would be handled much more effectively. If so, one would expect the amount of coercion in a Rothbardian society to be considerably less than that in a statist society. It is noteworthy that what limited empirical evidence exists clearly supports the Rothbardian position.²⁶

Ramifications of the Rothbardian Influence Taxonomy

A few illustrations will help to clarify what is meant by such terms as “voluntarism,” “violence,” “coercion,” and “power.” A fairly common argument is that such things as a closed shop agreement, where some workers are “frozen out” of particular employment opportunities, or private discrimination, where some individuals are socially ostracized because of their color, nationality, religion, or on the basis of some other criterion, are inherently coercive, or at least powerful acts, which places Rothbard in a dilemma: either he must permit such acts, in which case he is opening the door to private coercion, or he must set up a state to combat them, in which case he is abandoning his anarchism.

Rothbard is on strong grounds in arguing that the dilemma is only apparent and results from the failure to adhere consistently to the definitions of power and coercion specified above. Power and influence were defined not in terms of the degree of influence exercised by A over B but by the means A chooses to influence B. Thus, a closed shop agreement or an act of discrimination may or may not be coercive. This depends not on, say, the number of people adversely affected or even the magnitude of the adversity, but on the way the agreement was consummated or the private act was undertaken.

If government, or some other uninvited third party, orders a closed or even an open shop, then it is coercive; not because it is either closed or open but because the parties were threatened with initiated violence if they did not comply. However, if (1) the employees agree to ban together and present a united front to their employer, and if (2) the employer agrees that he will not hire anyone who does not belong to the union, a closed shop will have been voluntarily agreed upon. Coercion, i.e., the initiation of the use of violence, was, in this case entirely absent. True, if someone wants to work for that particular employer he must join the union. But this is hardly coercion for, as the Italian legal theorist, Bruno Leoni²⁷ has commented, “You do not ‘constrain’ someone if you merely refrain from doing on his behalf something you have not agreed to do.” The only thing the members of the union did was to agree among themselves not to work for the employer unless he agreed to hire only union members and the employer, in return, agreed to the demand. It makes no more sense to say that non-union members are being coerced in this situation than to say that one is coercing Gimbles by buying socks from Macy’s. But if the employer were told by the union that unless he agreed to their conditions his factory would be burned or by the government that he would be fined or imprisoned, the closed shop agreement would be coercive in this case, since it was obtained through the threat of violence. The same would be true if the employer hired strike-breakers to crush the union or if Macy’s hired agents to harass Gimbles’s shoppers.

The situation is identical for acts of private discrimination. In a libertarian world all property would be privately owned and any individual would have the right to use his property in any non-violent way he desired. “It might be charged that all this will allow freedom ‘to discriminate’ in housing or the use of streets,” Rothbard notes.²⁸ And, he acknowledges, “there is no question about that. Fundamental to the libertarian creed is every man’s right to choose who shall enter or use his own property, provided of course that the other person is willing.” Clearly, if private discrimination is simply the right of an owner to determine who shall use his property then, regardless of how morally reprehensible it may be, it is, according to the libertarian definition, non-coercive. It is a method of exercising voluntary influence over another. What would be coercive, however, would be an order by an uninvited third party, which included the threat of physical sanctions for noncompliance, for either discriminatory or nondiscriminatory behavior on the part of any individual. As with the case of the closed shop, neither discriminatory nor nondiscriminatory behavior is in itself coercive but may be depending on how they were undertaken.

While voluntary private discrimination would be permitted, Rothbard believes that the market would tend to minimize such behavior by placing a cost on the shoulders of the discriminating property owner. Suppose, says Rothbard, that a landlord of an apartment building

is a great admirer of six-foot Swedish-Americans, and decides to rent his apartments only to families of such a group. In the free society it would be fully in his right to do so, but he would clearly suffer a large monetary loss as a result. For this means that he would have to turn away tenant after tenant in an endless quest for very tall Swedish-Americans. While this may be considered an extreme example, the effect is exactly the same, though differing in degree, for any sort of personal discrimination in the marketplace. If, for example, the landlord dislikes redheads and determines not to rent his apartments to them, he will suffer losses, although not as severely as in the first example.²⁹

In short, individuals seldom are aware of whether a good they are purchasing was made by a Caucasian or a black, a man or a woman, a Christian or a Jew. It is this ignorance or, if you will, this “impersonality of the marketplace” that prevents consumers from discriminating against others for reasons that have nothing to do with economic productivity and, consequently, imposes an economic sanction on those employers who do discriminate. The available empirical evidence provides considerable support for this proposition.³⁰

Freedom

Freedom, as defined by Rothbard, is a “condition in which a person’s ownership rights in his own body and his legitimate property are not invaded, not aggressed against. A man who steals another man’s property is invading and restricting the victim’s freedom, as does the man who beats another over the head.”³¹ For Rothbard, it is clear, freedom is a social concept, i.e., a condition characterized by the absence of interpersonal violence. In this sense it is not only “negative” but, as Hayek points out,³² it “refers solely to a relation of men to other men, and the infringement on it is coercion by other men.” Defining freedom in this fashion means that in a libertarian society everyone would have an equal amount of freedom, e.g., the right to engage in any non-violent activity they desired. But it is important to realize that this does not mean that everyone would have an equal ability to use that freedom. While the poor would have the same amount of freedom as the wealthy, the range of options is undoubtedly more limited for the poor than the wealthy. Unlike the wealthy, the prospect of an ocean cruise on the Caribbean or a vacation on the French Riveria would not be within the range of effective choice for most poor. The cognition that the ability to use one’s freedom is partly a function of one’s economic position is probably what Harold Laski meant by his remark that “liberty in a laissez faire society is attainable only by those who have the wealth or opportunity to attain it.”³³

Not only Harold Laski, but “progressives” such as J. R. Commons and John Dewey and “idealists” such as T. H. Green also define freedom as the “effective power to do specific things,” thereby viewing it in terms of the number of options open to a person. Libertarians, however, maintain a strict distinction between the absence of coercion and the power or ability to engage in specific things, and reserve the term “freedom” for the former. While acknowledging that the range of options open to an individual is an important question, it is, argues Hayek irrelevant to freedom:

The rock climber on a difficult pitch who sees only one way out to save his life is unquestionably free, though we would hardly say he has any choice. Also most people will still have enough feeling for the original use of the word “free” to see that if the same climber were to fall into a crevasse and were unable to get out of it, he could only figuratively be called “unfree,” and that being “held captive” is to use these terms in a sense different from that in which they apply in social relations.³⁴

Since, in a libertarian society, no one would have the right to initiate violence, such a society would, according to Rothbard, be “totally free.”³⁵ That is, since freedom is automatically restricted by any coercive act, the governmental transfer of several million dollars from a millionaire to a group of indigents would restrict freedom even though it might increase the options open to the indigents without perceptibily limiting the options of the millionaire. It is conceivable, therefore that freedom could be restricted at the same time that the number of alternatives open to particular individuals or groups might increase.

This raises the significant question of how important such freedom actually is. It is to this issue that we now turn.

Part II:

The Rothbardian View of Market and Government

The Nature of the Free Market

One of Rothbard’s central contentions is that the free market invariably increases “social utility.” His reasoning is as follows. Since any voluntary exchange will take place only when each participant expects to benefit, “the very fact that an exchange takes place demonstrates that both parties benefit (or more strictly expect to benefit) from the exchange.” Thus, since the free market is nothing more than “the array of all voluntary exchange that takes place in the world,” and since “every exchange demonstrates an unanimity of benefit for both parties concerned, we must conclude” that, provided all major externalities have been internalized, as they would be in a Rothbardian world of universal private property,

the free market benefits all its participants. … We are led inexorably, then, to the conclusion that the processes of the free market always lead to a gain in social utility. And we can say this with absolute validity as economists, without engaging in ethical judgments.”³⁶

This statement demands careful consideration in order to understand precisely what is and is not being claimed. It is well known that one can demonstrate an increase in “social utility” only when (1) at least one individual benefits and (2) no one is left worse off because of any exchange. But in the real world (1) peoples’ expectations about the future are often mistaken and, hence, businesses suffer losses or go bankrupt and anticipated profits from investments often do not materialize. Further (2) individuals are often disappointed because their proffered exchanges are rejected. Aren’t both of these examples of where the market renders at least one individual worse off and thus refute Rothbard’s statement that the market always increases social utility?

Future Expectations. It is certainly true that businesses sometimes go bankrupt and the expected profits from investments do not materialize. And Rothbard is certainly aware of this as his writings about profits and losses make abundantly clear.³⁷

Rothbard only claimed that individuals maximize their utility ex ante. This is certainly consistent with bankruptcy, unprofitable investments, the purchase of (losing) lottery tickets, etc. This can be easily demonstrated. Assume for simplicity that one has a .5 chance of having an investment yield a profit and a .5 chance of suffering a loss. If the individual believed that a profit would increase his future utility more than a loss would reduce it, the discounted present value of that investment would be positive. This means that, regardless of the actual outcome, the decision to invest would increase one’s present utility, while the decision not to would reduce it. Thus, the decision to invest would increase one’s utility ex ante, even if it proved to be a mistaken choice and thus reduced his utility ex post.

The significant point is that it is not the market, itself, that was responsible for reducing one’s utility but the uncertainty of the future. And this uncertainty, it must be emphasized, is an ineradicable element of nature and is therefore independent of any particular economic system.

In fact, since there are gains from trade to be made on the market by enabling others to reduce the risks they face, the market actually works to minimize uncertainty by enabling individuals to purchase insurance against practically any risk imaginable.³⁸

In short, reduced utility resulting from mistaken expectations about the future is not inconsistent with the Rothbardian position regarding decisions ex ante. Further, such mistakes are due to the uncertainty of the future. This uncertainty is not the result of the market but is inherent in nature. Finally, it is actually the market process that operates to minimize this uncertainty.

Rejected Offers. But what of the second category of action? Would it not be correct to say that one who had his offer of an exchange rejected had his utility reduced?

Assume for the sake of simplicity that two job applicants, Abbott and Costello, have equal ability. If Abbott offers to work for, say, $5.00 per hour while Costello makes an offer of $4.75 per hour, the employer will hire Costello. But if Abbott makes a counter offer of $4.50 per hour the employer would then hire Abbott. Costello must now decide whether he will offer less than $4.50 per hour. Suppose he decides against this. Abbott would then be hired at $4.50. Clearly, both participants, the employer and Abbott, gain. But what of Costello? Didn’t he lose? Wasn’t his utility reduced? The answer is no. First, Costello had the option of underbidding Abbott. The fact that he did not do so indicates that for him no job was a better option than a job at less than $4.50 per hour. Thus, Costello chose the better of the two options that actually faced him. That option was to make no exchange. That is, if Costello were coerced, either by a gun-wielding employer or the government, into working for less than $4.50 per hour, his utility would be lower than it would be in the absence of coercion. Thus, Costello made the choice which maximized his utility given the options facing him at the time of that choice.

But Costello desired a job at $4.75 per hour. His hopes were dashed when Abbott offered $4.50 per hour. Wasn’t his utility reduced by having his hopes for the job at $4.75 dashed? Costello’s failure to get the job does not mean that he is any worse off than he was before he made his offer. He did not have the job before he made the offer; he does not have the job after his offer was rejected. Thus, his realized or real world utility plane is unchanged. What has happened is that his hoped for increase in utility did not materialize; that is, his realized utility plane is lower than his hoped for or fancied utility plane, i.e., the utility resulting from an alternative that either could not occur or could occur only through the use of violence. Of course, there must always be a discrepancy between ones’ actual and desired abilities, between one’s realized and fancied utility planes. If this were not the case, if everyone’s desires were fully satisfied, all action would cease for any action would, by definition, entail a reduction in utility.

Put differently, the free market operates to increase every individual’s realized utility plane. To complain of a discrepancy between realized and fancied utility planes is simply to complain that one’s desires have not been fully satisfied. But this complaint reduces itself to the mundane observation that more is better than less, that abundance is better than scarcity. But scarcity, like uncertainty, is an ineradicable element of nature which is independent of any particular economic system. In fact, while scarcity cannot be eliminated, one can point out that the market is the most efficient institution for production yet discovered and is therefore a powerful engine for reducing scarcities. This can be briefly demonstrated.

Since consumers only buy what they intend to use, one can make a profit only by producing what consumers desire. This, of course, means that it is the consumers who ultimately direct production by their buying and abstention from buying. To produce their goods the entrepreneurs must bid for the needed resources. They therefore stand in the same relation to the sellers of factors as the consumers do to the sellers of final goods. Thus, the price for the factors of production tend to reflect the demand for them by the entrepreneurs. Since what the entrepreneur can bid is limited by his expected yield from the final sale of his product, factors are channeled into production of those goods most intensely demanded by consumers. If returns are not high enough to cover the cost of a particular operation this means that there is, in the eyes of the consumers, a more important use for the factors of production elsewhere. The market, therefore, allocates resources to their most productive point relative to the priority system that the consumers have established.

This can be demonstrated by the following. Assume that the market is in equilibrium. Also assume that a new technological breakthrough has enabled the production of a new commodity that is highly valued by consumers. The production of the commodity, however, requires the use of factor A. Those entrepreneurs who perceive this new profit opportunity will begin to bid for the factor. This increased competition for the available supply of A will cause its price to rise, forcing some of the users of A to curtail their purchases. But who will be the ones forced to curtail their purchases? Clearly, it will be those employers of A who are receiving the least renumeration for their product from the consumers, i.e., those who are employing A in its least product point. In this way the use of A is channeled from uses that the consumers value less highly into uses they value more highly. But further, the rise in the price of A will encourage other entrepreneurs, also anxious to make profits, to expand the production of A. In this way the free market works to employ “every possible factor of production for the best possible satisfaction of the most urgent needs of the consumer.”³⁹

The important point is that if market prices are interfered with, they become distorted and no longer reflect the demands of “society.” Resources are misallocated and production impeded. Since these inefficiencies reduce the size of the economic product relative to what it would have been on the unhampered market, intervention can only serve to increase the discrepancy between realized and fancied utility.

The Nature of Government

Government is that agency which exercises a monopoly on the legal use of coercion in society. Government is not a productive institution. It has no resources which it has not first taken from others. This means that in order for it to defend individuals from aggression by others it must first exercise prior aggression viz., taxation, in order to obtain operating revenues. Thus, violence is inherent in every act of government.

In order to analyze government it is necessary to distinguish between the actual or real world situation, i.e., the existing state of affairs, and what may be termed the counterfactual situation, i.e., the state of affairs that would have occurred had its emergence not been coercively prevented. Since on the free market all individuals must either remain on the same utility plane or move to a higher one, the market, provided major externalities have been internalized, would increase “social utility.” And because coercion, either present or prior, is inherent in government, any government action must reduce at least one individual’s actual or realized utility relative to his counter-factual utility, i.e., to what it would have been on the unhampered market. The logical conclusion, as Professor Rothbard points out, is that “no act of government whatever can increase social utility.” Hence, he continues, “a free and voluntary market ‘maximizes’ social utility” provided, he quickly adds, terms such as “maximize” and “increase” are interpreted in an ordinal rather than a cardinal sense.⁴⁰

Currently in excess of 50% of the budgets of practically all governments in the world are devoted to transfer payments. This makes wealth transfers, at least quantitatively, the most important function of government. The official justification for these activities is that they increase “social utility.” Since transferring wealth from some individuals to others reduces choice sets of the former while expanding them for the latter, this means that some are forced to choose between options that provide them with less utility than those they would have chosen on the market while others are able to choose from options that would not be open to them on the market. Since the utility of some is reduced while that of others is increased, any claim that “social utility” has been increased implies the ability to compare, if not measure, the utilities of different individuals. Thus, the justification for wealth transfers clearly implies the use of utility in its cardinal sense, defined here as the ability to measure and/or compare the utilities of different individuals.⁴¹ Those who maintain that wealth transfers can and do increase “social utility” should be able to support this claim with adequate evidence. The claim will be examined using two different standards (a) what may be termed absolute or apodictic certainty and (b) the more relaxed standard of reasonable certainty.

What can be said with absolute certainty about the effect of government wealth transfers on utility in a cardinal sense? Since no one has been able to show that direct interpersonal comparisons of utility are possible,⁴² nothing can be said with absolute certainty about “social utility” when there are both gainers and losers. It is possible that the beneficiaries benefit more than the losers are harmed, thereby increasing “social utility.” The reverse is also possible. This means that it is impossible to ascertain whether a given government action increased, or decreased “net social utility” or left it unchanged. As Professor Rothbard has put it, “[a]s economists we can say nothing about social utility in this case since some individuals have demonstratably gained, and some have demonstratably lost in utility, from the government action.”⁴³ But there is one possibility from which it is possible to draw conclusions which are absolutely certain even when coercion is present. If a coercive act (a) makes no one better off but (b) leaves at least one person worse off, it follows that “social utility” is reduced.

The results of the foregoing are interesting. One may say with certainty that the market always increases “social utility.” On the other hand, one can never state with certainty that any act of government ever increases “social utility,” and the only conclusion one could ever make with absolute certainty is that a given act of government reduced “social utility.” And this, as we shall see, is not as unlikely as might be thought.

This is as far as one can go while remaining in the realm of absolute certainty. However, by relaxing the standards from absolute to reasonable certainty, one can say much more.⁴⁴ There are two ways to examine this issue: (1) indirect, interpersonal utility comparisons within a given time-slice, and (2) intrapersonal utility comparisons over time. The question is, even using the relaxed standard of “reasonable certainty” do these approaches provide any convincing evidence that coercive wealth transfers may increase “social utility“?

Indirect, Interpersonal Utility Comparisons. In ordinary speech we make interpersonal comparisons of mental states. We often hear or make statements to the effect that A is happier, sadder, more in love or in greater pain than B. Granted that such loose talk can hardly qualify as scientific assessment, nevertheless, it would be rash to dismiss it as meaningless.

There is, obviously, wide variation in what makes different individuals happy or sad, and some variation in how individuals express these mental states. But that there is a great deal of “sameness” or “commonality,” especially in the outward expressions of our mental states, cannot be denied. For example, laughter denotes happiness; a grimace, pain. One can state with conviction, even of a stranger, that he had a happy expression, a friendly face, was the picture of health, did not look well, was in pain, etc.

In a similar vein, peoples’ tastes are in a large part a product of their past personal histories, the quality and quantity of their education, their culture, etc. It is therefore reasonable to suppose that there is a great deal of variety, especially cross-culturally, in what affects our utilities. Observation appears to confirm this. But, again, this should not be interpreted as meaning that there are not equally significant similarities. Observation bears this our as well. Whenever and wherever people in socialist countries have been permitted to express their preferences, such as in post-Mao China, and to a lesser extent in the countries of Eastern Europe and the Soviet Union, during the past two decades or so, they have opted for higher standards of living. And probably the major reason socialist politicians have been so successful in the Third World is that they have been able to convince large numbers of people that “redistribution” from the rich to the poor will being them abundance with little or no effort. It seems clear that such politicians would receive very little support if they promised oppression and poverty. Indeed, the uniformity of the desire for material wealth, even crossculturally, is remarkable, with Japan being only the most striking example. It is not too much to say that the life style of the “materialistic West” is the envy of the world. Indeed, the lure of the “American Way of Life” sparked the largest migration in the history of the world.⁴⁵

This is not to say that all individual preferences are identical. This is obviously not the case. It is only to say that there is probably enough similarity to enable us to make rough comparisons with reasonable certainty.

This conclusion is strengthened by the “Law of Marginal Utility” which informs us that all individuals always act to satisfy their most urgent (satisfiable) desire first, their second most urgent desire second, their third, third, etc. This, of course, deals solely with the intrapersonal rankings of preferences and therefore does not, in itself, permit interpersonal comparisons, much less measurement, of utility. But while this law says nothing about either the content or degree of particular individuals’ utility, it does show that all individuals act according to the same process or principle, viz., the maximization of their utility, broadly conceived.

Put differently, the fact that all of us are members of the same species, homo sapiens, not only means that we must, by definition, possess certain essential traits in common, it also means that introspection is an invaluable tool in understanding the members or units of that class. “Whenever we discuss intelligible behavior,” Hayek, has observed:

we discuss actions which we can interpret in terms of our own mind. … If we can understand only what is similar to our own mind, it necessarily follows that we must be able to find all that we can understand in our own mind….

I am able to fit into a scheme of actions which ‘make sense’ just because I have come to regard it not as a thing with certain physical properties but as the kind of thing which fits into the pattern of my own purposive action.

If what we do when we speak about understanding a person’s action is to fit what we actually observe into patterns we find ready in our own mind, it follows, of course, that we can understand less and less as we turn to beings more and more different from ourselves. But it also follows that it is not only impossible to recognize, but meaningless to speak of, a mind different from our own. What we mean when we speak of another mind is that we can connect what we observe because the things we observe fit into the way of our thinking.⁴⁶

If Hayek is correct, then such universal principles of human action as the law of marginal utility combined with the observed similarities in such things as individual preferences and the outward manifestation of mental states permits us, after making due allowance for the observed variation in individual preferences, not to measure utilities but, rather, to make reasonably certain rough comparisons of utility.

If one insists on conceiving of utility in cardinal rather than ordinal terms, it follows that one must view it, just like any other phenomenon amenable to measurement, in terms of a continuum rather than a dichotomy. But since one cannot make exact measurements but, at best, only rough comparisons, the result would resemble a black/white color spectrum. One can distinguish black from white but as one moves down the spectrum one cannot tell where black ends and white begins. There is a massive “gray area” in between which is neither black nor white. Similarly, one can distinguish a child from an adult. One can even chart the evolution of the child into an adult, marking not just the years but the months, days, hours and even seconds. Yet, despite the precision of the measuring instrument one is still unable to point to an exact time that the child becomes an adult. The same is true of the “utility continuum.” Given (a) the differences in individual preferences and (b) the indeterminacy of interpersonal utility comparisons, assessments of differences in interpersonal utility planes are possible with even reasonable certainty only at polar extremes. To expect any more than this would be like trying to thread a needle with a jack hammer.

What, then, can be said with reasonable certainty of interpersonal utility comparisons? Compare, for example, the position of multimillionaire Robert Baron, III, with that of an indigent, Herb, living at or near starvation. An extra dollar would enable Robert to satisfy a preference that is ranked, say, one millionth on his utility scale while that same dollar would enable Herb to satisfy a preference that is ranked fifth on his. It is reasonable to suppose that the satisfaction of Robert’s one millionth preference would not provide as much utility to Robert as the satisfaction of Herb’s fifth preference would provide to him. It is, of course, conceivable that the reverse is the case. But for a dollar to provide Robert with “more” satisfaction than the indigent would so deviate from what observation, experience and introspection tell us is typical for human beings as to be characterized as abnormal. And since an abnormality is, by definition, a departure from the norm, the burden of proof is on those who assert an abnormality to demonstrate its existence rather than on others to disprove the assertion. In the absence of some fairly convincing demonstration of why and how either Robert’s or Herb’s sensibilities differ so markedly from those of ordinary human beings, the claim can be treated with a large degree of skepticism, if not contempt.

Doesn’t this lead to the conclusion that a massive redistribution of wealth would increase “social welfare.” I think not.

Wealth transfers can be divided into three types: (1) upward wealth transfers, where wealth is transferred from poorer to wealthier individuals or groups, (2) intra-group wealth transfers, where wealth is transferred from one poor individual or group to another poor individual or group, or from one middle-class individual or group to another, etc., and (3) downward wealth transfers, where wealth is transferred from wealthier individuals or groups to poorer ones.

Upward transfers of wealth would reduce the choice set among those whose choice set is already relatively small and expand the choice set among those whose choice set is already relatively large. The result is clear: it would reduce preference satisfaction among those who were already in the position of satisfying the fewest of their preferences. And it would increase satisfaction among those already in the position of satisfying the largest number of their preferences. Since such transfers move us in the position of polar extremes one can be reasonably certain that upward transfers of wealth reduce “social utility” and therefore could not be justified on the basis of welfare criteria.

Since polar extremes are not present in intra-group transfers, it is reasonable to suppose that the benefits of the recipients are roughly offset by the costs to the payers. It is not possible, therefore, with any degree of certainty to show that transfers either did or did not increase “social utility.” Given this uncertainty such transfers in and of themselves could not be justified on the basis of welfare considerations.

Downward transfers present the most interesting case. We have already seen that it is reasonable to assume that an additional dollar for Herb would increase Herb’s utility more than the loss of a dollar by Robert would reduce his utility. Hence, downward transfers would appear to increase “social utility.” But appearances can be deceiving. For transfers, especially if they are either downward or intra-group, initiate a process the outcome of which makes even the initial beneficiaries of the transfers worse off than they would have been even without the transfer. In order to understand this process we need to turn to the second approach, the intrapersonal comparison of utility over time.

Intrapersonal Utility Comparisons Over Time

The second approach differs from the first in that it does not attempt to compare the utilities of different individuals but to compare the utilities of the same individual at different times.

Wealth can be obtained through two fundamentally different means: (1) voluntarily, i.e., through production, exchange or as a gift, or (2) coercively, i.e., by taking, seizing, it from others.

Assume that Robert’s wealth was obtained coercively. The transfer of all or a large part of Robert’s wealth would reduce his utility. But there are additional results. Since he could no longer benefit from his coercive activities, the transfer would act as a deterrent or disincentive to coercion. And if Robert were permitted to retain noncoercively obtained wealth, the transfer would operate as an incentive for him to divert his energies from coercion to production. The result would not only be an increase in Robert’s utility from what it was after the transfer but his production would increase “social output” and therefore “social utility.” Moreover, if the transfer went to those who had originally earned the wealth, not only would it increase their utilities immediately, but keeping the rewards or gains from their production would, it is likely to assume, stimulate producers to expand their outputs, thereby increasing not only the utilities of the producers but “social utility” as well.

If we assume that Robert obtained his fortune voluntarily, the incentives created by wealth transfers are exactly reversed. The immediate effect of the government transfer from Robert to Herb would be, as shown in Figures 1 and 2, to reduce Robert’s utility while increasing Herb’s. But this is only the beginning of the process. How would Robert react to the continued appropriation of his earned income (the area ABCD in Figure 1)? Put differently, how would he react to policies that prevented him from raising his income beyond a certain level, say A in Figure 1?

Figure 1. Robert

Figure 2. Herb

If Robert has obtained the highest utility plane possible under the circumstances, he would of course, cease trying to increase his utility and rest content with simply maintaining it at the current level. This means that the transfer activities would, at time t₂, result in a discrepancy between Robert’s realized income D, and his counterfactual income, E. Moreover, it means that “society” as a whole would be impoverished by the loss of Robert’s production equal to the area BCE.

The wealth transfer is likely to have an equally significant impact on Herb’s behavior. Since the transfer brings about an immediate increase in Herb’s income from A to B (in Figure 2), and since Herb knows that the government will not permit his income to drop below that level, it is obvious that it would reduce, perhaps even eliminate, his incentive to produce. So long as Herb’s earned income falls below B his work is simply wasted effort on his part. That is, since work is a disutility any work yielding an income at or below line BC would reduce Herb’s utility since he could obtain the same or greater wealth without work. Thus, the transfer means that Herb would be better off by reducing the hours he works or by not working at all. If, for simplicity, we assume that Herb reacts to the transfer, like Robert, by maintaining his earned income at his current level (A in Figure 2), the transfer, represented by the area ABCD, increases Herb’s income at point t₁ At time t₂ his total income, earned plus transferred, is C. But this is the same income he would be enjoying had he not received any transfers in the first place. Hence, other things being equal, Herb is no better off at t₂ with transfers than he would have been in their absence; and “society” is poorer to the extent of Herb’s lost production, i.e., the area ACD in Figure 2.

The result is interesting. The government transfer hurt Robert. On the other hand it did not benefit Herb, at least in the long run. Since no one was benefitted and at least one person was hurt, the transfer “benefits” actually reduced “social utility” in this case.

One possible counterargument is that both Robert and Herb simply exchanged more leisure and a smaller income for a larger income with more work, and since leisure is a valuable good which contributes to one’s utility, neither have had their utility levels reduced. Leisure is a valuable good and we are constantly making incremental adjustments between leisure and wealth. But it is important to recognize that if one’s preferred option is additional wealth and if this option is coercively barred, then even if additional leisure is the best of the remaining options it still represents a decline in utility. If there is a reduction in the overall economic growth rate in a particular country and if that reduction can be traced to government policies it is clear that most if not all of that government’s citizens would have preferred the additional wealth. This, of course, would be especially true if the slowdown resulted from declining productivity and therefore produced little if any additional leisure. Recent empirical studies provide some indication that this, in fact, is the case.⁴⁷

Similarly, if economic output increases following a reduction in government regulation, one can conclude that all or most members of the society preferred additional income to leisure and that enforced leisure, provided there was some, meant that the members’ realized utility was below their counterfactual utility. The dramatic increase in agricultural output in those Third World countries that have recently reduced government interference in the agricultural sector compared to the continued low or even declining outputs of those countries with prohibitive taxes on and extensive government involvement with agriculture indicates that low economic output does not represent a preference for leisure over wealth.⁴⁸

One can also argue that there is no reason that long run interests should take precedence over short run interests. But it is a serious mistake to phrase the issue in this way. Individuals maximize their utility by making trade-offs “at the margins.” They choose to consume X units of goods A, X+l units of good B, and X—2 units of good C, etc. In similar fashion individuals maximize their utility by choosing to satisfy some desires in the present, others at t+1 and still others at t+n. One may choose to eat a hamburger now, buy an automobile next year and go to college in 10 years. We live in both the present and the future. We are constantly making trade-offs between satisfying certain desires now and satisfying other desires at various times in the future. The important point is that if one is to choose his optimal mix of present and future satisfactions the “rules of the game” should not be rigged so as to encourage or even induce individuals to behave in the short run in ways which produce long run results which even the actors themselves would disapprove of. For example, a 100% tax on all production would, it is fair to assume, eliminate all productive behavior. This would be the result even though the consequences would be (a) easy to foresee and (b) those which everyone would disapprove of. In short, the tax would induce or trap people into behaving in the short run in ways which would produce in the long run results which they not only could predict but would regard, even at the time of their choices, as undesirable or “irrational.” Whether or not a choice is “rational” depends on both the goals and values of the individual making the choice and the context within which the choice is made. It is possible that within a given context, the most rational choice open to an individual has consequences which even he would regard as irrational, i.e., counter to his own preference rankings. There is increasing evidence that government tax policies, transfer payments and the like place individuals within decision making contexts of this type.

There is, for example, substantial evidence that the Great Society and War on Poverty programs of the 1960s not only failed to eliminate poverty in the United States but actually led to an increase not only in the number but in the percentage of poor. In trying to explain this phenomenon, Charles Murray pointed out that “A government’s social policy helps set the rules of the game—the stakes, the risks, the payoffs, the tradeoffs, and the strategies for making a living, raising a family, having fun, defining what ‘winning’ and ‘success’ mean…. The most compelling explanation for the marked shift in the fortunes of the poor,”⁴⁹ from the mid-1960s on, says Murray,

is that they continued to respond, as they always had, to the world as they found it, but that we … had changed the rules of their world…. The first effect of the new rules was to make it profitable for the poor to behave in the short term in ways which were destructive in the long term. Their second effect was to mask these long term losses—to subsidize irretrievable mistakes. We tried to provide more for the poor and produced more poor instead. We tried to remove barriers to escape from poverty, and inadvertently built a trap.⁵⁰

Numerous other studies, both of the United States⁵¹ and of foreign nations⁵² reached much the same conclusions: government transfer programs, tax policies and the like make it rational for the poor to choose options which will retard or even reverse their economic development. That is, it induces individuals to make choices which are counter to their own preferences.

There is one remaining but vitally important question: how long would it take for natural economic growth to put someone like Herb on a higher utility plane than he was after the receipt of the income transfer? This cannot be stated with certainty. It depends on many factors such as the size of the benefits received by Herb, the overall disincentive impact of income transfers, etc.

Nevertheless, some rough assessments can be made. Norman Macrae has shown that between the year 1 A.D. and 1776, the date of publication of Adam Smith’s Wealth of Nations, average per capita income remained fairly constant at about $250 (in 1975 dollars). The percentage of mankind living below the poverty level was 99%. Today, the percentage is less than 65%. Since world population has increased sixfold during this time, this represents an eightyfold increase in world output between 1776 and 1975.⁵³

If one uses more current data, Landau has shown that the annual growth rate of per capita GDP for the 16 most developed market economies averaged 6.3% for the 1955-73 period. The average share of government was 27% in 1955 but rose to 43% by 1979. Interestingly, the average economic growth rate for the 16 countries dropped to a mere 2% during the 1973-79 period.⁵⁴ Landau’s rather cautious conclusion is that “the growth of government consumption and investment expenditure has helped ‘cause’ the slowdown in economic growth.”⁵⁵

If, then, one assumes that 6.3% is the normal growth rate for a free market economy, per capita output would double every 11 years. This means that if transfers increased Herb’s income by, say, 33%, his realized income, even with transfers, would fall below, his counterfactual income in about five years. If growth rates were faster, which seems likely since the 6.3% growth rate occurred while government was consuming 27% of the GDP, the time frame would be even shorter.

Thus, there is good reason to believe that government actually reduces intrapersonal income over even relatively short periods of time. And since the evidence also shows that the vast majority of people prefer more to less wealth, it is reasonable to conclude that government transfers from rich to poor reduce the intrapersonal utility of all involved including recipients.

Conclusion

The market process, provided it operates within a legal framework which internalizes externalities, operates so as to perpetually increase the utilities of all participants. In contrast, the very existence of government reduces “social utility.” This can be demonstrated with certainty when utility is interpreted in ordinal terms. Although nothing can be said with certainty when utility is interpreted in cardinal terms we have found no convincing evidence that government transfers ever increase “social utility,” but considerable evidence that they reduce it. In short, the best available evidence indicates that government transfers inevitably reduce “social utility” regardless of whether that concept is interpreted in ordinal or cardinal terms.

It may be objected that only government transfer policies have been considered and that other government policies may have very different effects. But the fact is that there are no “other” policies. All government policies transfer wealth either explicitly or implicitly. Minimum wage rates, for example, “represent an implicit transfer within the least advantaged classes, from the most unskilled workers (who can no longer get any sort of job) to the best unskilled (who are integrated relatively more easily into the labor market). In the last analysis it is a regressive social measure,”⁵⁶ i.e., it is an upward transfer of wealth.

But if (1) all government policies transfer wealth, and if (2) all the available evidence shows that transfers reduce “social utility” regardless of whether that term is interpreted in ordinal or cardinal terms, then the inescapable conclusion is that, based on welfare criteria, government is an unjustifiable institution.

Part III:

Caste and Class

If government reduces “social utility” the obvious question is: Why the state? Why did the state emerge and why does it persist? This is both a legitimate and important question.

The Rothbardian View of the Origin and Persistence of the State

Rothbard was heavily influenced by the early twentieth century German sociologist, Franz Oppenheimer. It was Oppenheimer who introduced the distinction between the “political” and the “economic means,” a distinction which has assumed a central position in the Rothbardian analysis. Oppenheimer’s fundamental insight was that man can satisfy his desires through two mutually exclusive means. One is work; the other robbery. Work, by which he means one’s labor as well as what one receives in exchange for one’s labor, he designated as “the economic means.”⁵⁷

Robbery, the “unrequited appropriation of the labor of others,” is termed the “political means.” While these two means are mutually exclusive, their purpose is identical: the acquisition of wealth. Oppen-heimer therefore views “all world history, from primitive times up to our own civilization” simply as “a contest … between the economic and the political means.”⁵⁸

There are two ramification of this conceptual framework which Oppenheimer is quick to point out: (a) the state is the institutionalized embodiment of the political means, and (b) since production necessarily precedes robbery, society, by use of the economic means, must have obtained a certain level of economic development before the emergence of the state was possible.

This latter point, Oppenheimer feels, explains why no state ever existed among such groups as the primitive peasants (grubbers) or the primitive huntsmen.

The grubbers, for example, are attached to the land and live in both abject poverty and relative isolation. Such a situation provides no foundation for the rise of a state, for the primitive peasants are too impoverished to support one and too scattered from one another, physically, to organize even for their own defense. It is much different, however, with the herdsmen. Accidents of nature (luck) as well as the cleverness and diligence of the breeder produce distinctions in fortune and, consequently, distinctions of class. But since luck cannot be controlled and such traits as cleverness are not hereditary, economic equality soon begins to re-emerge. It is quite natural for the existing wealthy to block this trend by recourse to violence. This utilization of the political means is of the utmost significance, says Oppenheimer, because with it economic and social equality is “destroyed permanently,” and the foundation of the state is laid.

Theft is easier and more exciting than the tedious and disciplined routine of production. Thus the political means tends to breed on its own success. Its successful use in one case encourages its use in others. Consequently, the herdsmen began to turn more and more to the political means. The weaker herdsmen are able to flee before their onslaught, but the peasant cannot. His livelihood being tied to the land, he yields to subjection, and pays tribute to his conqueror; that is the genesis of the land states in the old world.” The state therefore emerges, according to Oppenheimer, when the developing economic means of the peasantry are subordinated, by the use of the political means, to the direction of the herdsmen.

Rothbard’s answer to the question: Why the state? is clear. Although the state inevitably reduces “social utility” it can be, and is, used by the group that is able to control it to provide benefits to itself at the expense of everyone else in society. This group has a vested interest in the creation and perpetuation of government. Moreover, it has the entire panoply of government resources, from use of tax revenues to purchase the allegiance of important groups, to political indoctrination through the “public” school system, to the use of force to quash any threat to its existence, at its disposal. In short, the group in control of the reigns of government is able to use the government’s monopoly on force to render both its own position and the government, itself, virtually unassailable.

Clearly, this line of reasoning points to the existence of a ruling elite, and Rothbard does not shy away from drawing this conclusion. “Those who succeed in any occupation will inevitably tend to be those who are best at it,” he says. And,

those who succeed in the political struggle will be those most adept at employing coercion and winning favors from wielders of coercion. Generally, different people will be adept at different tasks … and hence the shackling of one set of people will be done for the benefit of another set.⁵⁹

The state, he writes elsewhere “constitutes, and is the source of the ‘ruling class.’…”⁶⁰

The next question is: Who constitutes this dominant group? Who is the “ruling elite”? In primitive times it was easy to spot. One group, employing the political means, would subject another to its will and begin to extract tribute from them. Gradually, as this arrangement persisted, it came to be accepted and the extraction of tribute became systematized in the periodic payment of taxes to the “government.” As Walter Grinder, an economist influenced by Rothbard, summarizes, “[i]t is to this more powerful group that the wealth, plundered by the political means, accrues. In time this group becomes entrenched both politically and economically, through its plundered wealth.”⁶¹

But this relatively straight-forward process becomes much more complicated in today’s world. Now, all areas are ruled by governments. Hence, one cannot simply organize a military band, impose one’s will on a stateless society, call oneself a government, and begin to collect taxes. Further, since the government is the most powerful institution in society, a direct assault is usually doomed to fail. While in primitive societies the ruling elite was able to set up its own government, today this is no longer, or only rarely, possible. The ruling elite of today is that group which, working through the existing power structure, is able to obtain control of the government and use it for its own purposes. This means that the vast bulk of the government bureaucracy are not really members of the elite except in the broadest sense of the term, but rather conscious or unconscious servants of that group. It also means that, and this is perhaps more important, the essence of the state has remained unchanged from primitive times. It is still the institutionalization of the political means for the purpose of the transfer of wealth from the producing group to the exploiting or ruling group.

Though it might at first seem paradoxical, Rothbard believes that the ruling group of today is composed of the upper echelons of the capitalist class, or what Grinder refers to as the “corporate-financial super-rich,” although certainly not everyone who is rich is part of this elite. He reasons as follows. The position of the entrepreneur on the market is always insecure. Just as the market provides opportunities for the acquisition of wealth, it also presents the possibility of loss. This means that the entrepreneur could never relax. No sooner would he triumph over one competitor than he would be met by others intent upon cutting into “his” share of the market. No sooner would he uncover a lucrative area for returns on investment than other entrepreneurs would follow suit, the increasing production forcing the profit rate down. And as soon as he would fail to take advantage of the latest investment opportunities or adopt the latest methods of production he would risk losing his investment to those who did. And behind all of this there is, of course, the ever present possibility of entrepreneurial error. Since the first concern of the capitalist is to realize a profit, and since the rigors of the market mean that this is a difficult and perpetual struggle for an ever elusive object, the capitalist has no concern for the market, as such. Hence it was only natural for him to turn, whenever possible, to the state which, with its monopoly on the use of force, could institutionalize profits by implementing various statist measures such as tariffs, subsidies, licensing restrictions, etc., in order to keep out competition, raise prices and keep wage rates low. As Rothbard has put it, “all the various measures of federal regulation and welfare statism … are not only now backed by Big Business, but were originated by it for the very purpose of shifting from a free market to a cartelized economy that would benefit it.”⁶²

In other words, Rothbard believes that there is a natural affinity between wealth and power. Those who have political power can use it to obtain wealth. On the other hand, the wealthy are able to use their wealth to obtain political power. Once in control of the state, they are in a position to use the political means to perpetuate and even enhance their own positions in the socio-economic hierarchy. As Rothbard sees it, this creates a vicious circle: wealth can be used to acquire political power which in turn can be used to acquire more wealth. While the circle is not completely closed, its opening is certainly quite small. The “rise to the top” by those from the lower economic strata is not ruled out completely. However, its occurrence which would be difficult under any circumstances is made even more so by the artificial obstacles imposed by the elite. Such, in brief, is the individualist anarchist theory of the state as an instrument of elite rule.

Evaluation of the Rothbardian Viewpoint

Before evaluating this argument, two points need to be clarified. First, although Rothbard usually uses the term “class analysis,” “caste analysis” would be more appropriate.⁶³ The key distinction between “class” and “caste” is that the former is characterized by fluidity; the latter by rigidity. Individuals may move into and out of a class; such movement is precisely what is missing in a caste.

The distinction is crucial for grasping the Rothbardian position. It is a characteristic of the market process that wealth is dispersed unevenly. But if the market is free there are no external impediments preventing an individual or group from rising from a lower to a higher economic position. For example, such racial groups as the Jews and the Overland Chinese have generally abstained from politics. Yet without exception they have achieved economic success wherever they have migrated. In fact, this success was often achieved in the face of governmentally mandated discrimination.⁶⁴ Similarly, the vast majority of immigrants to America were penniless upon their arrival. This was a strictly temporary phase. After adjusting to American life, which usually meant adjusting to the shock of moving from a rural to an urban environment, these invididuals, and in fact entire ethnic groups, began to ascend the economic ladder, their places at the bottom being taken by succeeding generations of immigrants. Thus, while there is a permanent “bottom twenty percent” the individual occupants of that category were constantly changing. In brief, markets produce classes.⁶⁵

In contrast, a caste is characterized by its rigidity: one born into a caste remains in it for life. If the individualist anarchist is correct and the wealthy are able to use government to institutionalize their position one can refer to this as the transformation of a class into a caste. What is important for the anarchist position is that it is only through government that a socio-economic position can be institutionalized. As shown in Figure 3, this means that while the market results in classes, governments produce castes. These concepts are pure types. The question is not: which is present, class or caste? Elements of both can be found in all societies. The key question is the cause of the relative mix of class and caste. If Rothbard’s analysis is correct, one would expect to find relatively fewer castelike features, i.e., more fluidity, in more market oriented societies than in the more government dominated ones.

Figure 3. Class and Caste Distinctions

The second point needing clarification is the notion of conspiracy. The anarchist’s caste analysis should not be interpreted as a conspiracy theory. Analyses of the distribution of power in society are usually divided into two broad descriptive categories: pluralism and elitism. Pluralism insists that power is widely diffused; elitism maintains that it is highly concentrated. The anarchist analysis, of course, is in the elitist tradition. Now it should be evident that the real question is not: is power diffused or concentrated? Rather, it is: to what degree is power diffused (or concentrated)? Posing the question in this way enables us to see that rather than viewing elitism and pluralism as mutually exclusive categories, they are relative positions on a spectrum running from total concentration at one pole to infinite diffusion at the other. This is shown in Figure 4.

Figure 4. Degree of Power Concentration (Diffusion)

The extremes of total concentration and infinite diffusion are, of course, pure types. While they are useful for analytical purposes there are few if any “elitists” who believe that power is concentrated in the hands of a single person or even a few individuals; similarly, there are few if any “pluralists” who claim that power is infinitely diffused throughout society. One can, as was done in Figure 4, divide the spectrum in half and label those on one side “elitists” and those on the other “pluralists.” This is a convenient way of dealing with the differences and there is nothing wrong with this procedure provided one realizes that the real difference is a matter of degree; that one position shades into another and any line of demarcation is arbitrary. All that one can say is that those who are termed “elitists” believe that power is relatively more concentrated than those labelled “pluralists.”

When viewed in this light, it is clear that in its most extreme version elitism is compatible with the notion of a small, unseen conspiratorial elite, ensconced behind closed doors, busily pulling strings, bribing politicians and manipulating the key institutions throughout society. But nothing so sinister is required and neither the elitists in general nor Rothbard in particular subscribe to such a position. Rather, the validity of elitism hinges upon the presence of two things:

(a) a set of social institutions which regularly operates to the advantage of a relatively small group, i.e., the group benefits; and

(b) this group is primarily responsible for establishing and/or preserving those social institutions, i.e., the group rules.

It should be pointed out that neither of these propositions requires (1) that the elite is either omnipotent or omniscient; (2) that the elite always wins; (3) that the elite is a completely cohesive group; (4) that the elite is completely unresponsive to the needs and demands of the other groups in society; (5) that the presence of a ruling elite means that the other groups in society are made worse off in any absolute sense; (6) or that there is no mobility between the rulers and the ruled. This is because, it must again be pointed out, the difference between elitism and pluralism is one of degree, not kind. For example, the degree of “responsiveness” or “upward mobility” required of a particular theory would depend on the point at which the theory would place itself on the spectrum. The closer a theory is to the pole of “infinite diffusion” the greater the degree of responsiveness demanded of it. Similarly, such things as “elite omnipotence” or the complete absence of intergroup mobility is required only of those extremist theories falling on or near the poll of “total concentration.” The further one moves from this pole, the more mobility permitted by a theory. Having cleared away the underbrush the caste analysis can now be evaluated.

“In all societies, from societies that are very meagerly developed … down to the most advanced and powerful societies,” wrote Italian political sociologist Gaetano Mosca,

two classes of people appear, a class that rules and a class that is ruled. The first class, always the less numerous, performs all political functions, monopolizes power and enjoys the advantages that power brings, whereas the second, the more numerous class, is directed and controlled by the first.⁶⁶

This is a succinct statement of the elitist position. Is it congruent with the evidence?

One must admit that it is an accurate description of dictatorship. In the Soviet Union the Communist Party monopolizes control of the government and through it the entire society. It is the sole political party; no others are permitted to exist. Admission to the party is rigidly controlled, party membership kept to about 5% of the general population. Within the party power is concentrated in the hands of a very small group known as the Politburo. Since the Politburo determines its own membership, it is a self-perpetuating oligarchy. It is clear that party members, and in particular party officials, monopolize power. Not surprisingly, this group also “enjoys the benefits that power brings.” Officially, wealth is distributed fairly evenly. But this is quite misleading because of the huge economic and social benefits that accrue to party membership. Because of these benefits, there is a waiting list for admission to the party.⁶⁷

Dictatorships such as the Soviet Union fit the Rothbardian caste analysis: a small, distinct ruling group monopolizes power and uses that power for its own benefit. But what of democracies such as the United States? Isn’t it precisely because democracy introduces competition and thus the ever-present possibility of removal from office, that the rulers neither (1) constitute a ruling caste nor (2) are able to use their power to their own advantage?

Is there a ruling caste in the United States? Although space precludes a full-scale historical investigation, the evidence is at least very suggestive.

While more open than in the Soviet Union, acquiring elite positions in the United States can hardly be said to be equally accessible to all. Political scientists Kenneth Prewitt and Alan Stone among others have concluded that the wealthiest 20% of the families in this country supply about 90% of the ruling elite. Of the remaining 10% about 9% is drawn from families in the second 20% with the remaining 1 % scattered among the bottom 60%.⁶⁸ This is shown in Figure 5.

Figure 5. Income Groups and Elite Recruitment

In itself, this merely demonstrates the existence of a ruling class, not a caste. It is conceivable that there is a rapid turnover in the top 20%. But this does not appear to be the case. The ruling elite is composed of white, well-educated, wealthy, native-born, Protestant, middle-aged, males, the same traits, Dye and Zeigler have noted, that were required for elite status in 1789.⁶⁹ This evidence suggests that while individuals of exceptional intelligence, drive and/or luck can and do attain elite status, the elite is a relatively small, homogeneous, permanent and largely closed group.

This does not imply either that the elite is a conspiratorial group or that elite status is solely a matter of birth. “Achievement is the final arbiter of elite recruitment.” But there is a high correlation between birth and achievement. A Harvard graduate from a wealthy family with good connections is certainly much more likely to enter the elite than a son of a Midwestern garage mechanic. The simple fact is that opportunities are not distributed equally.

But it is not achievement in the abstract that is important, but a specific type of achievement. To cite Prewitt and Stone:

Persons who reach elite positions will have demonstrated ability to manage, direct and command…. This again suggests why the better-off contribute so disproportional to the elite groups. The wealthy or well-born have the initial advantages that provide the education and contacts necessary to gain positions in which talent and ability can be demonstrated on a grand scale. The used car salesman may be as skilled … and as hard-working as the president of General Motors, but he was born into the working class, not the upper classes … his friends also sell used cars, rather than direct corporations that sell them…. When the list is compiled of possible appointees to the Cabinet or possible candidates for the ambassadorship, it seems never to include the skilled, personable, hard-working used car salesman.⁷⁰

A final consideration is that individuals tend to associate with others of the same social status. It is quite natural, then, that the ruling elite would recruit most heavily from those with upper class backgrounds similar to their own, just as those with upper class backgrounds naturally gravitate toward elite positions. For the same reason those from lower classes tend to enter less esteemed positions. The son of the president of General Motors is far more likely to become a corporate executive than a mechanic; the son of a garage mechanic is much more likely to become a mechanic than a corporate executive.

In brief, the evidence does suggest that there is a ruling elite, that this elite is largely closed and tends to perpetuate itself, that elite recruitment is based on achievement but that there is a close affinity between achievement and birth. Moreover, none of this, it was argued, implies a conspiracy. On the contrary, the method of recruitment and self-perpetuation is quite natural. Although it may be too strong to refer to the ruling elite as a caste, it does exhibit a caste-like quality. The question that now must be addressed is: does this elite use its position to benefit itself?

Even granting the existence of a ruling elite, doesn’t competition for votes insure that the rulers will be responsive to the demands of the ruled? According to Anthony Downs this is precisely the case.⁷¹

The goal of a political party, according to the Downsian model, is to win elections. As such it can be compared to the firm in the business world. Just as in a competitive situation the firm will maximize profits by maximizing sales, so a party will win elections by maximizing votes. And just as the profit motive insures that the entrepreneur will respond to the demands of the consumer, the vote motive, assuming that the voters are well informed, constrains the political entrepreneurs to respond to the demands of the electorate. The moment the entrepreneur, in either case, fails to serve his clients the clients will turn to alternative suppliers.

Given the assumptions of vote maximization on the part of parties and perfect information on the part of voters, the conclusion that the parties will respond to the demands of the electorate must necessarily follow. This is a most comforting theory indeed. While consistent with the existence of a ruling elite this model assures us that the elite will be constrained from abusing its power by the ever-present possibility of displacement from office in the next election. Is this an accurate description of the democratic process?

Donald Wittman has challenged both of Downs’s assumptions.⁷² The real goal of a party, he says, is not to win elections but to maximize its utility. This is done by adopting policies in accord with the preferences of its members. Winning elections is a necessary means to this goal but should not be confused with the goal itself. A party will maximize its utility by adopting a platform which will maximize the party’s chances of winning the election while still retaining as many benefits for itself as possible.

Both the information level of the voters and the number of existing parties are key factors in the choice of a party’s strategy. With totally uninformed voters voting would be a random process. Since each party would then have an equal chance of winning regardless of its stand on issues, the rational party would adopt that platform which would provide itself with 100% of the benefits. Presumably, the more informed the voters the larger the share of benefits each party would be forced to offer the voters. At this point, the Downs and Wittman models are in agreement. Other things being equal party responsiveness is a function of the information level of the voters. Their difference here is that for analytical purposes Downs assumes perfect information while Whitman assumes a totally uninformed electorate. These positions are seen in Figure 6. The Downsian position is D,D′; Wittman’s is W,W′. But this agreement is more apparent than real. The relationship between information and responsiveness is never questioned by Downs. Given the assumption that parties are interested solely in winning elections, it is obvious that the relationship must hold, since winning is a zerosum game. However, argues Wittman, if parties are interested in maximizing utility, and if the number of parties is sufficiently small, collusion rather than competition may be the optimal strategy. In fact, what is more interesting is that the better informed the electorate, the greater the incentive for collusion. As shown above, the better informed the electorate the more benefits the competitive party would have to provide the voters. This, of course, is precisely Downs’s point. But this also means the fewer the benefits retained by the party. Thus, party competition with informed voters would all but eliminate the benefits to party members. In such a situation instead of competing against one another to serve the voters, it becomes rational for parties to collude with one another against the voters. Major issues are then avoided, the competition is limited to “advertising and product differentiation,” and the voters are denied a choice on fundamental policy issues.

Fig. 6: Responsiveness as a Function of Information

Collusion prevents the benefits from flowing to the voters. They are retained by the parties for internal distribution. Thus, either way, according to Wittman, the voters lose. If voters are completely uninformed the parties might compete but they will adopt policies that will provide themselves with all of the benefits. With two parties, each party would have a 50% chance of winning 100% of the benefits. If voters are informed parties will collude, in which case each party will have a 100% chance of receiving 50% of the benefits. This is shown in Figure 7.

Fig. 7: Party Utility Under Competition and Collusion

In brief, in contrast to the Downsian model in which parties are viewed as sales-maximizing firms, Wittman depicts them as profit-maximizing oligolopists:

Just as oligolopists often collude against the consumers, the parties may collude against the voters. In such cases the distinction between multiparty systems and one party systems may not be very great.⁷³

For our purposes it is not necessary to prove collusion, although several examples come immediately to mind: the 1940 agreement between Roosevelt and Wilkie to avoid the issue of the war in Europe; the apparently tacit agreement between the parties to avoid such issues as civil rights in the 1950s and the war in Vietnam in the 1960s. Since Downs’s model hinges on the correlation between responsiveness and information, we need only examine this relationship. Public opinion studies consistently indicate an appalling lack of political knowledge on the part of the average citizen. Only about 50% even know that each state has two Senators; fewer still can name their Congressman or know the length of his term, much less what party he belongs to or how he voted.⁷⁴ Given this dearth of information, most voters would be much closer to W,W than D,D′. That is to say, information levels are too low to insure much in the way of responsiveness.

Interestingly, while Downs assumes perfect information, he nevertheless comments that since the preservation of the democratic process is a public good, voting and the acquisition of political information are irrational. Put differently, while the Downsian model works only when the voters are well informed, Downs himself says that given the marginal costs and benefits of political information it is rational to be politically ignorant. This admission deprives the model of its previously comforting conclusions as Downs appears to be saying one shouldn’t really expect the democratic process to be very responsive after all. But this was precisely Wittman’s contention all along. Ultimately, their only major difference, then, is whether parties will compete for all of the benefits or collude for a share of the benefits.

Although political parties might not insure a responsive system, some commentators have argued that the interest group does. This is the position taken by the pluralists.⁷⁵ Individuals who perceive a problem will naturally gravitate toward one another and form a group. Often this group will then make demands on government. These groups are so numerous that no single group can ever reach a position of dominance. If it ever appeared that a group was beginning to become too powerful other groups would join forces to counter this. Government is seen as an umpire mediating between the demands of these groups. Decisions are reached through compromise and bargaining in which every group gets some of what it desires, but no group gets all of what it wants. This too is a comforting theory. Government is responsive to the public, this time not as expressed through political parties but through interest groups.

Although far more sophisticated than this, the foregoing is the gist of the pluralist position. There is no doubt an element of truth in pluralism, but the picture is far less rosy than the pluralists would have it. To operate effectively in the interest group system three things are required: time, money and expertise. Both time and money are required to put together an effective interest group; money is also required to hire the services of lobbyists; and some expertise is needed to know how to manipulate the political system. The simple fact is that these traits are not distributed randomly but are clustered at the top end of the politico-economic ladder. As one commentator has put it, the interest group system is “skewed, loaded, and unbalanced in favor of a [wealthy] minority.” And, he adds, probably “about 90 percent of the people cannot get into the pressure system.”⁷⁶ This means that in so far as the government responds to the demands of interest groups, and those demands are more or less restricted to a wealthy minority, government policies will reflect the interests of this minority. Politicians, writes Alfred Cuzan “have no incentive to redistribute income and wealth from ‘the rich’ to ‘the poor.’ A politician gains nothing taxing well-organized, well-informed, high-income groups and spending the money among a larger number of unorganized low-income people who might not even realize the benefits of the action. On the contrary, the organized, high-income groups will oppose him while the unorganized poor will do nothing.” “Political profit is made,” Cuzan continues, “by taxing the uninformed and the unorganized and spending on the informed and organized.” The former tend to be the poor; the latter the rich. Cuzan terms this the “iron law of political redistribution.”⁷⁷

Far from representing the interest of the public at large, as claimed by the pluralists, the interest group system is, in fact, almost ideally suited to the interests of a wealthy elite. Thus, neither political parties nor interest groups prevent the emergence of a ruling elite. Nor, it would seem, do they prevent that elite from using its position to benefit itself.

From the foregoing one would expect that government would make class lines more rather than less fluid. A full scale test of this hypothesis would take us too far afield. But a cursory review of the data does lend support for it.

The standard interpretation of the Progressive Period of the late nineteenth and early twentieth centuries holds that many businesses had achieved monopolistic positions which they were using to gouge the public. Responding to public pressure government intervened to subject business to regulatory control. Recent historical and economic scholarship has largely discredited this view by showing that the business elite actually favored government regulation. Why? Far from tending toward monopolism markets in practically every area were becoming increasingly competitive. To cite a single example, in 1894

AT&T was the only company in its field. By 1907 AT&T found itself in competition with over 22,000 companies. Similar trends, if less dramatic, existed in such fields as oil, steel, meat packing and automobile production to name but a few. Big business desired government regulation as a means to rescue itself from the increasing competition. And such regulation did serve to institutionalize its economic position. As one historian phrased it,

political power in our society after the Civil War responded to power and influence in the hands of businessmen, who have often had more leverage over political … then over business affairs—and they were quick to use it to solve business problems”⁷⁸

The New Deal is another period in which government is usually viewed as responding to popular pressures to shackle big business. Yet, as historian James Martin notes, “contrary to the brave talk of the ‘reformers’ financial concentration steadily piled upon between 1933 and 1941.”⁷⁹ Similar findings were reported by Prewit and Stone,⁸⁰ and Radosh and Rothbard⁸¹.

Finally, analyses of current income transfers do not indicate any transfer from the rich to the poor. Although the federal income tax appears to be progressive, much of the progressivity is eliminated by loopholes. And when this is combined with the regressive nature of social security and most state and local taxes, the overall effect is that the tax burden is “essentially proportional for the vast majority of families.”⁸²

When one considers the direct effect of such government programs as subsidies to businesses such as Lockheed and the Chrysler Corporation, and the indirect effect of such policies as licensing restrictions and tariffs, which cost consumers in excess of $130 billion a year, the overall effect of government policies appears to be a slight transfer of wealth from the less well off to the better off. Two examples serve to illustrate this point. A study of the Shaw-Cardozo ghetto in Washington, D.C. revealed that in 1967 the federal government spent $45.7 million to fight poverty. However, it took out of that same area $50 million in taxes.⁸³ And economist Walter Williams has determined that $250 billion dollars is spent annually at all levels of government in the name of “fighting poverty.”⁸⁴ Now, if all of this were simply divided equally among those families with reported incomes below the poverty line, each family would receive a yearly stripend of $34,000. Of course very little of this ever reaches the poor. Most of it gets eaten up in bureaucratic overhead or siphoned off by private contractors.⁸⁵

We can now conclude. According to the Rothbardian caste analysis the upper classes are able to use their wealth to capture control of government. They are then able to use the coercive arm of government to institutionalize their positions. In this process economic and social mobility becomes more restricted as the economic class congeals into a political caste. This holds true regardless of the type of government.

Although dictatorships tend to be more castelike than democracies, the evidence does indicate support for the anarchist position. Neither political parties nor interest groups have prevented a ruling elite from emerging. While this elite is not completely closed, it does appear to be relatively permanent enough to be termed castelike, if not actually a caste. And finally, evidence was adduced which indicates that this elite does “enjoy the advantages that power brings.”

Conclusion

The Rothbardian paradigm has been presented in some detail, from its logical origins in the distinction between “freedom” and “power” to its analysis of markets and governments. It was shown that the market maximizes “social utility” when that term is used in its ordinal sense. Moreover, even when “social utility” is interpreted in a cardinal sense there is no convincing evidence that any act of government ever increases “social utility” relative to the market. It was also shown that the logical corollary of the Rothbardian analysis is that markets produce classes while governments transform those classes into castes. Finally, an overview of the empirical evidence indicates that the model has very strong explanatory power.

In short, the Rothbardian paradigm is a potent analytical tool which enables us to accurately survey the complicated politico-economic landscape.

Notes

1. Murray N. Rothbard, Power and Market (Menlo Park, Calif.: Institute for Humane Studies, 1970), pp. 179-80.

2. Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1970), pp. 179-80.

3. Ibid., p. 561.

4. Murray N. Rothbard, For A ’New Liberty (New York: Macmillan, 1973), p. 43.

5. Rothbard, Power and Market, p. 179.

6. Ibid., p. 164.

7. Rothbard, For A New Liberty, p. 43.

8. Rothbard, Power and Market, p. 172.

9. Warren J. Samuels, “Anarchism and the Theory of Power,” in Further Reflections In the Theory of Anarchy, Gordon Tullock, ed. (Blacksburg, Va.: University Publishing, 1974), p. 48.

10. Ibid., p. 40.

11. Ibid., p. 40.

12. Ibid., p. 51.

13. Ibid., p. 49-46.

14. Robert Dahl, Modern Political Analysis (Englewood Cliffs, N.J.: Prentice-Hall, 1970), p. 14-34; idem “Power,” International Encyclopedia of the Social Sciences, vol. 12 (New York: Macmillan, 1968), pp. 405-15; Harold Lasswell and Abraham Kaplan, Power and Society (New Haven: Yale University Press, 1950).

15. Dahl, Modern Political Analysis, p. 32.

16. Lasswell and Kaplan, Power and Society, pp. 74-76.

17. Arthur Kalleburg, “The Logic of Comparison: A Methodological Note on the Comparative Study of Political Systems,” World Politics (October 1986): 69-82.

18. Dahl, Modern Political Analysis, p. 32.

19. Not everyone, however, regards the lack of “operationalizability” as a liability. See, for example, Giovanni Sartori:

Now, we are surely required to reduce ambiguity by cutting down the range of meanings of concepts. But the operational criterion of reducing ambiguity entails drastic losses in conceptual richness and in explanatory power. Take, for instance, the suggestion that ‘social class’ should be dismissed and replaced by a set of operational statements relating to income, occupation, education level, etc. If the suggestions were adopted wholesale, the loss of conceptual substance would be not only considerable, but unjustified. The same applies, to cite another example, to ‘power.’ To be concerned with the measurement of power does not imply that the meaning of the concept should be reduced to what can be measured about power—the latter view would make human behavior in whatever collective sphere almost inexplicable” (Giovanni Sartori, “Concept Misinformation in Comparative Politics,” The American Political Science Review [December 1970]: 1045).

Two things are worthy of note. First, the use of imprecise concepts may well be worthwhile, even needed, at the level of research. But this can hardly be the case at the level of application, i.e., as used by decision makers. And it is the level of application that Rothbard is concerned with. Second, even at the level of research, “conceptual richness” may well prove to be merely a euphemism for “conceptual confusion.”

20. In this context it is worth noting that in his review of Rothbard’s Power and Market, Milton Shapiro has aptly noted that perhaps a better title would have been Power or Market; Milton Shapiro, “Power OR Market: Government and the Economy: a Review,” Libertarian Analysis, vol. 1, no. 4 (1971): 22-29. Regardless of the title, Power and Market is probably the most sustained and intellectually brilliant critique of government ever written.

21. Rothbard, For a New Liberty, p. 219-52; idem, “Society Without a State,” Libertarian Forum (January 1975): 3-7.

22. Dahl, Modern Political Analysis, pp. 32-33.

23. H. E. Freeh, III, “The Public Choice Theory of Murray N. Rothbard: A Modern American Anarchists,” Public Choice 14 (1973): 249-50.

24. Rothbard, Power and Market, p. 172.

25. Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974); John Hospers, Libertarianism (Santa Barbara, Calif.: Reason Press, 1971); idem, “Will Rothbard’s Free Market Justice Suffice? No,” Reason (May 1973); James Buchanan, “Social Choice, Democracy, and Free Markets,” Journal of Political Economy (April 1954); and Gordon Tullock, Private Wants, Public Means (New York: Basic Books, 1970), p. 170.

26. William Wooldridge, Uncle Sam the Monopoly Man (New Rochelle, N.Y.: Arlington House, 1970), pp. 116-17; David Osterfeld, Freedom, Society and the State (San Francisco: Cobden Press, 1986), pp. 350-63.

27. Bruno Leoni, Freedom and the Law (Princeton: Van Nostrand, 1972), p. 55.

28. Rothbard, For A New Liberty, p. 208.

29. Ibid., p. 209.

30. See Thomas Sowell, Race and Economics (New York: Longman, 1975); idem, Ethnic America (New York: Basic, 1981); idem, The Economics and Politics of Race (New York: William Morrow, 1983); and Walter Williams, “Commentary,” Newsweek (24 September 1979); idem, The State Against Blacks (New York: McGraw-Hill, 1982).

31. Rothbard, For A New Liberty, p. 43.

32. F. A. Hayek, The Constitution of Liberty (Chicago: Henry Regnery, 1972), p. 12.

33. Harold Laski, “Liberty,” Encyclopedia of the Social Sciences, vol. 9 (New York: Macmillan, 1946), p. 443.

34. Hayek, The Constitution of Liberty, pp. 12-13.

35. Rothbard, Power and Market, p. 160.

36. Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” in On Freedom and Free Enterprise, Mary Sennholz, ed. (Princeton: Van Nostrand, 1956), p. 250.

37. Rothbard, Man, Economy, and State, pp. 463-69.

38. Ibid., pp. 498-501; idem, Power and Market, p. 161.

39. Ludwig von Mises, Human Action (Chicago: Henry Regnery, 1966), p. 744.

40. Rothbard, “Towards a Reconstruction,” p. 252-53.

41. Julian Simon, “Interpersonal Welfare Comparisons Can Be Made—And Used for Redistribution Decisions,” Kyklos 27 (1972): 63-98.

42. Simon argues that “it is scientifically wrong to say that in principle individuals’ welfare cannot be compared.” “In principle, the definition (and measurement) of ‘utility’ is no more difficult than the definition (and measurement) of ‘chair’ or ‘money.’ One simply describes a set of operations that seem to fit one’s common or intuitive associations of the word ‘chair,’ ‘money,’ or ‘utility.’ Of course no operational definition is perfect.” But “If no operational definition of a word makes any sense, we may take this as a sign that the word we seek to define is metaphysical or nonsensical or non-scientific.” Simon proposes to use such things as “suicide rates,” “murder rates,” “surveys of verbal reports about well being,” etc. I must admit that I do not find any of these very convincing. Now Simon maintains that if one does not believe that these, or other measurable rates, are reasonably accurate proxies for utility then the term utility is “nonsensical.” But I simply do not see that because a concept is not measurable it logically follows that it is “nonsensical.” I simply do not see why it is illogical to maintain that (a) utility does exist; that it does have an ontological status, but (b) it is not measurable. Simon’s position, it seems to me is based, on the non sequitur that if it cannot be measured it doesn’t exist, ibid., pp. 64-67.

43. Rothbard, “Towards a Reconstruction,” p. 252.

44. Whether one wishes to admit as evidence conclusions based on such relaxed or weak assumptions is another question altogether.

45. Sowell, Ethnic America, p. 3.

46. F. A. Hayek, Individualism and Economic Order (Chicago: Gateway, 1972), pp. 66-68. Adam Smith reaches much the same conclusion:

As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation. Though our brother is upon the rack, as long as we ourselves are at our ease, our senses will never inform us of what are his sensations. … By our imagination we place ourselves in his situation, we conceive ourselves enduring all the same torments, we enter as it were into his body, and become in some measure the same person with him, and thence form some idea of his sensations, and even feel something which, though weaker in degree, is not altogether unlike them…. Whatever is the passion which arises from any object in the person principally concerned, and analogous emotion springs up, at the thought of his situation, in the breast of every attentive spectator” (Adam Smith, Tlie Theory of Moral Sentiments [New Rochelle, N.Y.: Arlington House, 1969], pp. 3-5).

47. See D. L. Landau, “Government Expenditure and Economic Growth in the Developed Countries: 1952-76,” Public Choice 47, no. 3 (1985): 459-78; Mancur Olson, The Rise and Decline of Nations (New Haven: Yale University Press, 1982); and Melvyn Krauss, Development Without Aid (New York: McGraw-Hill, 1983), especially pp. 157-60.

48. “In Praise of Peasants,” The Economist (2 February 1985): 86-87; David Osterfeld, “Famine in Africa,” The Journal of Social, Political and Economic Studies” (Fall 1985): 259-74; “China: Capitalism in the Making,” Time (30 April 1984): 26-34; David R. Francis, “China’s Economy Picks Up Speed,” Christian Science Monitor (7 March 1985).

49. Charles Murray, Losing Ground (New York: Basic Books, 1984), p. 9.

50. Ibid., p. 9.

51. See James Gwartney and Thomas McCaleb, “Have Antipoverty Programs Increased Poverty?” The Cato Journal (Spring/Summer 1985): 1-16; Dwight Lee, “The Politics of Poverty and the Poverty of Politics,” The Cato Journal (Spring/Summer 1985): 17-36; and David Osterfeld, “The Government, the Market and the Poor,” The Freeman (November 1980): 643-59.

52. Lee, “The Politics of Poverty"; Krauss, Development Without Aid; Peter Bauer, Reality and Rhetoric (Cambridge, Mass.: Harvard University Press, 1984); Peter Bauer and Basil Yamey, “Foreign Aid: What Is at Stake?” in The Third World, W. Scott Thompson, ed. (San Francisco: Institute for Contemporary Studies, 1983), pp. 115-35; Thomas Sowell, “Second Thoughts About the Third World,” Harpers (November 1983): 34-42; David Osterfeld, “Assessing the New International Order: Prospects for Third World Development,” The Journal of Social, Political and Economic Studies (Spring/Summer 1982): 3-26; idem, “Famine in Africa"; idem, “Resources, People, and the Neomalthusian Fallacy,” The Cato Journal (Spring/Summer 1985): 67-102.

53. James Schall, “The Bishops’ Pastoral on Economics and Social Justice,” The Intercollegiate Review (Fall 1975): 7-15.

54. Landau, “Government Expenditure and Economic Growth,” p. 460.

55. Ibid., p. 473.

56. Henry Lepage, Tomorrow, Capitalism (LaSalle, 111.; Open Court, 1982), p. 122.

57. Franz Oppenheimer, The State (New York: Free Life Editions, 1975), pp. 1-41.

58. Ibid.

59. Rothbard, Power and Market, p. 127.

60. Murray N. Rothbard, “The Anatomy of the State,” in The Libertarian Alternative, Tibor R. Machan, ed. (Chicago: Nelson Hall, 1974), pp. 69-93.

61. Walter Grinder, “Introduction” to Albert Jay Nock, Our Enemy, the State (New York: Free Life, 1973), pp. xviii-xix.

62. Murray N. Rothbard, “Confessions of a Right-Wing Liberal,” Ramparts (15 June 1968): 51.

63. Rothbard has, on rare occasions, used the term “caste.” But this has been either relegated to footnotes (Power and Market, p. 198, 5n) or placed in parentheses (“The Anatomy of the State,” p. 82).

64. Sowell, The Economics and Politics of Race.

65. Sowell, Ethnic America.

66. Gaetano Mosca, Trie Ruling Class, (New York: McGraw-Hill, 1939), p. 50.

67. Konstantin Simis, USSR: Trie Corrupt Society (New York: Simon and Schuster, 1982), pp. 535-64; Hedrick Smith, The Russians (New York: Balantine, 1984), pp. 30-64.

68. Kenneth Prewitt and Alan Stone, Trie Ruling Elites (New York: Harper and Row, 1973), pp. 136-37.

69. Thomas Dye and Harmon Zeigler, Trie Irony of Democracy (Monterey, Calif.: Duxbury, 1981), pp. 19-107.

70. Prewitt and Stone, Trie Ruling Elites, pp. 143-44.

71. Anthony Downs, An Economic Theory of Democracy (New York: Harper and Row, 1957).

72. Donald Wittman, “Parties as Utility Maximizers,” American Political Science Review (June 1973): 490-98.

73. Ibid.

74. Dye and Zeigler, The Irony of Democracy, p. 191.

75. See David Truman, The Governmental Process (New York: Alfred Knopf, 1951); Robert Dahl, Who Governs? (New Haven, Conn.: Yale University Press, 1962); Earl Lathan, The Group Basis of Politics (New York: Octagon Books, 1965).

76. E. E. Schattschneider, The Semisovereign People (Hillsdale, 111.: Dryden Press, 1975), pp. 34-35.

77. Alfred Cuzan, “Political Profits: Taxing and Spending in the Hierarchical State,” American Journal of Economics and Sociology (July 1981): 165-71.

78. Gabriel Kolko, “Power and Capitalism in 20th Century America,” Liberation (December 1970): 21-26. Also see, idem, Trie Triumph of Conservatism (Chicago: Quadrangle Books, 1967); D. T. Armentano, The Myths of Antitrust (New Rochelle, N.Y.: Arlington House, 1972); A. S. Dewing, “A Statistical Test of the Success of Consolidations,” Quarterly Journal of Economics (1921): 84-101; Roy Childs, “Big Business and the Rise of American Statism,” in The Libertarian Alternative, Tibor R. Machan, ed. (Chicago: Nelson-Hall, 1974), pp. 502-524; Yale Brozen, “Is Government the Source of Monopoly?” in Trie Libertarian Alternative, Tibor R. Machan, ed. (Chicago: Nelson-Hall, 1974), pp. 149-68.

79. James Martin, “Business and the New Deal,” Reason (December 1975): 20-26.

80. Prewitt and Stone, The Ruling Elites, pp. 44-50.

81. Ronald Radosh and Murray Rothbard, eds., A New History of Leviathan (New York: E. P. Dutton, 1972), pp. 111-87.

82. Joseph Pechman and Benjamin Okner, Who Bears the Tax Burden! (Washington, D.C., Brookings Institution, 1974), p. 10.

83. Rothbard, For A New Liberty, p. 190.

84. Williams, “Commentary,” p. 57-59.

85. See George J. Stigler, “Director’s Law of Public Income Redistribution,” The Journal of Law and Economics (April 1970): 1-10; and Gordon Tullock, “The Charity of the Uncharitable,” Western Economic Journal (December 1971): 379-92.