Rothbard's Blind Spot
This is my response to Len Larson's post in Hazlitt - Public works mean taxes...
Yeah, that's a pretty great paper by Rothbard. Man, I hate giving him credit.Originally Posted by Len Larson
Before jumping in gotta warn you that there's going to be quite of bit of redundancy...but the point is to emphasize what's important and to help demonstrate that Rothbard's critique of the government was based on a false premise. It definitely does not take away from the value of his contribution...but it does help us understand why so many of his followers have been aimlessly wandering around in the wilderness.
Ok...here we go.
In The Myth of Neutral Taxation he references another paper of his...Toward a Reconstruction of Utility and Welfare Economics. In that paper, which is also pretty darn great, he starts off by saying..."Individual valuation is the keystone of economic theory." I definitely agree...which is why individual valuation is the keystone of pragmatarianism. Here's what Rothbard had to say about individual valuation...
...and again...The crucial point is that when consumers spend, they benefit, because the expenditures are voluntary. The consumers buy product X because they decide that, for whatever reason, it would benefit them to buy that product rather than use the money on some other product or save or add to their cash balances. They give up money for product X because they expect to prefer that product to whatever they could have done with the money elsewhere; their preference reflects a judgment of relative benefit from that, as compared to another, purchase. In my own terms, spending choices by consumers demonstrate their preference for one, as compared to another, way of using their money.
It should be obvious that demonstrated preference is important to Rothbard's argument. Yet, I just created the Wikipedia entry for demonstrated preference. Rothbard's followers should have created and developed that entry a long time ago. That they have not done so is irrefutable proof that they are lost in the wilderness. Developing Rothbard's economic argument just wasn't a priority for his followers. Instead, they put all their eggs in his non-aggression principle basket. This principle of theirs trumps the need to understand economics...opportunity cost concept, partial knowledge and so on. This means that they have no idea how markets truly work. Therefore, they are advocating a religion...not economics.The concept of demonstrated preference is simply this: that actual choice reveals, or demonstrates, a man’s preferences; that is, that his preferences are deducible from what he has chosen in action. Thus, if a man chooses to spend an hour at a concert rather than a movie, we deduce that the former was preferred, or ranked higher on his value scale. Similarly, if a man spends five dollars on a shirt we deduce that he preferred purchasing the shirt to any other uses he could have found for the money. This concept of preference, rooted in real choices, forms the keystone of the logical structure of economic analysis, and particularly of utility and welfare analysis.
Rothbard, however, promoted both. Let's ignore his religion and focus on his economics.
In terms of strategy...what do you think that liberals will focus on in that passage? Here's my guess...We have no idea how much the taxpayers would value these services, if indeed they valued them at all. For example, suppose that the government levies a tax of X dollars on A, B, C, and so on, for police protection—for protection, that is, against irregular, competing looters and not against itself. The fact that A is forced to pay $1,000 is no indication that $1,000 in any sense gauges the value to A of police protection. It is possible that he values it very little, and would value it less if he could turn to competing defense agencies. Moreover, A may be a pacifist; so he may consider the State's police protection a net harm rather than a benefit. But one thing we do know: If these payments to government were voluntary, we can be sure that they would be substantially less than present total tax revenue.
Imagine you are a door to door salesman. Your bottom line would depend on getting your foot in the door. So do you think it would help get your foot in the door if you were covered in blood, wearing a hockey mask and wielding a bloody butcher's knife? Nope. The people we need to sell to are the very people who don't believe that the total tax revenue should be substantially less. So do you think it would help get your foot in the door to mention anything about taxes being theft...or about the total tax revenue being substantially less? Nope. Those things only prevent us from getting our foot in the door. Anything that limits our ability to help people understand the importance of individual valuation is a stumbling block that should be removed. So let's remove it...which would leave us with this...If these payments to government were voluntary, we can be sure that they would be substantially less than present total tax revenue.
This is very true. What's the solution? Get rid of taxes or implement pragmatarianism? If A is a pacifist...then in a pragmatarian system...he just won't give any of his taxes to any government organizations that use violence. Therefore, we can have taxes and individual valuation.We have no idea how much the taxpayers would value these services, if indeed they valued them at all. For example, suppose that the government levies a tax of X dollars on A, B, C, and so on, for police protection—for protection, that is, against irregular, competing looters and not against itself. The fact that A is forced to pay $1,000 is no indication that $1,000 in any sense gauges the value to A of police protection. It is possible that he values it very little, and would value it less if he could turn to competing defense agencies. Moreover, A may be a pacifist; so he may consider the State's police protection a net harm rather than a benefit.
Same thing...in a pragmatarian system taxpayers would be able to engage in ethical consumerism.Only the free market, then, can determine different qualities or degrees of a service. Second, and even more important, there is no indication that for a particular taxpayer, the government is supplying a "service" at all. Since the tax is compulsory, it may well be that the "service" has zero or even negative value for individual taxpayers. Thus, a pacifist, philosophically opposed to any use of violence, would not consider a tax levied for his and others' police protection to be a positive service; instead, he finds that he is being compelled, against his will, to pay for the provision of a "service" that he detests. In short, equal pricing on the market reflects demands by consumers who are voluntarily paying the price, who, in short, believe that they are gaining more from the good or service than they are giving up in exchange. But taxation is imposed on all people, regardless of whether they would be willing to pay such a price (the equal tax) voluntarily, or indeed whether they would voluntarily purchase any of this service at all.
How much of the deficient good should be supplied? That should be determined by the demonstrated preferences of taxpayers.In the first place, how much of the deficient good should be supplied? What criterion can the State have for deciding the optimal amount and for gauging by how much the market provision of the service falls short? Even if free riders benefit from collective service X, in short, taxing them to pay for producing more will deprive them of unspecified amounts of private goods Y, Z, and so on. We know from their actions that these private consumers wish to continue to purchase private goods Y, Z, and so on, in various amounts. But where is their analogous demonstrated preference for the various collective goods? We know that a tax will deprive the free riders of various amounts of their cherished private goods, but we have no idea how much benefit they will acquire from the increased provision of the collective good; and so we have no warrant whatever for believing that the benefits will be greater than the imposed costs. The presumption should be quite the reverse. And what of those individuals who dislike the collective goods, pacifists who are morally outraged at defensive violence, environmentalists who worry over a dam destroying snail darters, and so on? In short, what of those persons who find other people's good their "bad?" Far from being free riders receiving external benefits, they are yoked to absorbing psychic harm from the supply of these goods. Taxing them to subsidize more defense, for example, will impose a further twofold injury on these hapless persons: once by taxing them, and second by supplying more of a hated service.
Rothbard acknowledged that people desire public goods. If we created a market for public goods...then the provision of these goods would be connected to its collection of payment. If you want more protection for the environment...then you'll have to give more of your taxes to the EPA...and/or convince others to do so.Do cases exist where only coercion can yield desired services? At first glance, Baumol’s “external economy” grounds for an affirmative answer seem plausible. Such services as military protection, dams, highways, and so on, are important. People desire that they be supplied. Yet wouldn’t each person tend to slacken his payment, hoping that the others would pay? But to employ this as a rationale for State provision of such services is a questionbegging example of circular reasoning. For this peculiar condition holds only and precisely because the State, not the market, provides these services! The fact that the State provides a service means that, unlike the market, its provision of the service is completely separated from its collection of payment. Since the service is generally provided free and more or less indiscriminately to the citizens, it naturally follows that every individual—assured of the service—will try to shirk his taxes. For, unlike the market, his individual tax payment brings him nothing directly. And this condition cannot be a justification for State action; for it is only the consequence of the existence of the State action itself.
Creating a market in the public sector would build a junction between benefit and payment.A second important point is that, in contrast to the market, where consumers pay for received benefits (or, in nonprofit organizations, where members pay for psychic benefits), the State, like the robber, creates a total disjunction between benefit and payment. The taxpayer pays; the benefits are received, first and foremost, by the government itself, and secondarily, by those who receive the largess of government expenditures.
This is all true...except...if taxpayers had the freedom to shop for themselves in the public sector...then if a taxpayer gave 25 cents to the EPA...then we can conclude that his (expected) benefit is greater than the value to him of the money given up in exchange.Since "benefits" are subjective, we cannot measure anyone's benefit on the market either, but we can conclude, from a person's voluntary purchase, that his (expected) benefit was greater than the value to him of the money given up in exchange. If I buy a newspaper for 25 cents, we can conclude that my expected benefit is greater than a quarter. But since taxes are compulsory and not voluntary, we can conclude nothing about the alleged benefits that are paid for with them. Suppose, in analogy, that I am forced at gunpoint to contribute 25 cents for a newspaper and that that newspaper is then forcibly hurled at my door. We would be able to conclude nothing about my alleged benefit from the newspaper. Not only might I be willing to pay no more than 5 cents for the paper, or even nothing on some days, I might positively detest the newspaper and would demand payment to accept it. From the fact of coercion there is no way of telling. Except that we can conclude that many people are not getting 25 cents' worth from the paper or indeed are positively suffering from this coerced "exchange." Otherwise, why the need to exercise coercion? Which is all that we can conclude about the "benefits" of taxation.
If you and I were both given the same exact tools and raw materials...then perhaps we'd come up with two entirely different products. The market is so great because everybody is given the opportunity to use their dollars to indicate which of our products they find more valuable. Rothbard and I both used the same great tools and raw materials...but he produced anarcho-capitalism while I produced pragmatarianism.
It should be clear that, based on Rothbard's best economic arguments, anarcho-capitalism depends on the premise that you can't have taxes and individual valuation. Hopefully it should also be clear, based on my counter-arguments, that Rothbard's premise is faulty...it is entirely possible to have taxes and individual valuation.
Arguing against taxes does absolutely nothing to help the people who want public goods to understand the importance of individual valuation. All it does is prevent them from learning about the keystone of economics. That's why pragmatarianism...aka tax choice...is something that we should all actively promote.
Am I a better writer than Rothbard was? No. Am I a better public speaker than Rothbard was? Not even close. Am I smarter than Rothbard was? No. Am I better looking than Rothbard was? No. Do I have my own 10 commandments / NAP? Nope. But if you're tired of wandering around in the wilderness then I'm pretty sure I know where the exit is.
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