Friday, July 16, 2010

Statist Fundamentalism

“Market fundamentalism” is the belief that a pure free market would succeed in providing the goods wanted by people with equity, sustainability, and efficiency. Those who believe in market failure use the term in a negative way, the way atheists look down on religious fundamentalists. Critics of free markets believe that market fundamentalists are mistaken, as they believe that the free market has failed and cannot possibly succeed.
In contrast, the term “statist fundamentalism” has had little use, even though statist fundamentalism is much more widespread than market fundamentalism. Indeed, I conjecture that most people are statist fundamentalists. So it’s time to lay out what that means.
First, one has to define “free market” in its purity. A pure free market is an economy in which all human action is voluntary. A governmental intervention is a law or policy that alters what voluntary action would otherwise do. An act is voluntary if it does not coercively harm others. Thus a pure free market would have no restriction or tax on honest and peaceful production, trade, consumption, and produced wealth.
A truly free market would exist in either in peaceful anarchism or else under a government that protects property rights. In a completely free society, public revenue comes from user fees, compensation for damage such as pollution, and ground rent. Tapping land rent for public revenue does not interfere with production, and is consistent with property rights when we agree with the natural-law philosopher John Locke that the earth was given equally to all humanity.
“Statist fundamentalism” is the belief that a pure free market is severely inefficient, unjust, or has outcomes that are unsustainable. Usually, statist fundamentalists believe that free markets fail in all three outcomes.
Statist fundamentalism is based on three errors. First, statist fundamentalists confuse the mixed economy, the interventionist system of today, with free markets. Secondly, statist fundamentalists believe that interventions have little effect on economic outcomes. Third, statist fundamentalists do not understand economic theory in its totality, and they do not understand the concept of freedom.
The first fallacy is evident in the claim by statist fundamentalists that oil spills, the boom-bust cycle, unemployment, and poverty provide evidence of market failure. The implication is that today’s governments practice laissez-faire, with unconstrained free markets. This overlooks the actual interventions that governments impose: massive taxation, restrictions, and subsidies.
The claim that there are free markets also overlooks the fact that in most economies today, a substantial amount of the output, in some cases over half, is from governmental provision. We have had mixed economies, mixtures of markets and government. In all countries today, a key economic resources, the money, is provided and controlled by governmental central planning.
When confronted with the fact of intervention and governmental provision, statist fundamentalists claim that these have little negative effect. Statist fundamentalist believe that the tax system just takes money from people, with little effect on economic activity. They believe that regulations are minor, of little consequence. They argue that subsidies are mere transfers of money, and do not affect how markets work. That is why they advocate higher taxes and more restrictions, since they think it will do good without having any significant negative consequences.
The belief by statist fundamentalists that interventions have little effect implies that they do not understand both economic theory and the concept of freedom. Some statists believe that slavery was a free-market institution, not understanding that “free market”means freedom for all human beings. Statist fundamentalists believe that cheating, stealing, kidnaping, and trespass are all part of the market, no understanding that liberty means free from coercive harm.
Contrary to the beliefs of statist fundamentalists, a pure free market does not mean “anything goes.” The free market is based on ethical freedom, and theft, including fraud, as well as force, are outside the market, violations of market property rights.
In their misunderstanding of economics, statist fundamentalists believe that a pure free market would be plagued with high amounts of pollution, there being no regulations against it. They overlook the fact that pollution that invades the property of others is trespass, a theft of other’s property, and in a truly free market, polluters would have to compensate for the damage.
The claim by statist fundamentalists that markets fail to provide equity also shows their lack of understanding. The rule of the market is, to the creator belongs the creation. This applies equally to all persons. Equality also implies to what human action has not created, namely the land, and the benefit of land is its market rent. There is equity when land rent is shared equally and creators keep their creations. A pure free market is inherently ethical and equitable.
Since statist fundamentalism is based on fallacies, the correction of these fallacies implies that its opposite, market fundamentalism, properly understood, is based on sound logic and evidence. The fundamentals of ethics and economics imply that market fundamentalism is true and statist fundamentalism is fundamentally mistaken.


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