Edited by Robert Higgs and Carl P. Close
Independent Institute • 2007 • 291 pages
$15.95 papeerback Reviewed by Doug Bandow

It doesn’t seem to matter how badly America’s foreign policy of global intervention has failed. The governing elite advocate more and more extensive intervention.

Virtually every leading national political figure insists that the United States must prevent Iran from developing nuclear weapons. The left wants to intervene in Sudan to save lives. Some on the right continue to mutter darkly about the need to confront North Korea if the nuclear negotiations stall. The Pentagon complains of excessive Chinese military spending, lest Beijing create a force sufficient to deter the U.S. from intervening in the Taiwan Strait.

It is a policy of war everywhere, all the time.

Robert Higgs and Carl P. Close, both of the Independent Institute, observe: “Before 1898, however, an opposite approach to foreign policy was widely considered to be more desirable and more consistent with the principles of the American Revolution. This approach—whether called neutrality, noninterventionism, or isolationism (the latter a smear word used by its critics)—boiled down to refraining from the use of military forces except to defend the nation against attack.” In Opposing the Crusader State Higgs and Close marshal a range of essays debunking the prevailing interventionist consensus.

Noninterventionism was the logical policy for America. Contributor Joseph Stromberg writes: ”Reinforced by geographical isolation from the rest of the world, the traditions of British insularity, and public preoccupation with expansion into contiguous land areas, nonintervention became the seldom-questioned premise of U.S. relations with established European powers and their empires.”

Over time, America’s interventionist episodes grew more frequent, but generated strong opposition. The Spanish-American War brought the United States its first overseas colonies. World War I took America back into the European quarrels that George Washington urged America to avoid. This conflict led, in Stromberg’s words, to “a general revulsion against war and grand crusades that was to last for two decades” and was overcome only with great difficulty—and with the help of the Japanese military—by Franklin Delano Roosevelt. Since then intervention has dominated U.S. policy, but opposition has flared against the hot wars, particularly in Vietnam and Iraq.

FEE’s own Sheldon Richman writes about the “Old Right Jeffersonians” who opposed the New Deal. Obviously, they failed to prevent intervention in the economy or in World War II, but they organized groups like FEE. Richman writes: “This fledgling and under-funded network nourished young scholars, supported the work of older ones, and planted the seeds of the classical liberal, or libertarian, movement that would begin to flourish in the mid-1970s.”

One of the great historical what-ifs is what if Senator Robert Taft had been elected president? Professor Michael Hayes of Colgate University attempts to answer that question. Taft believed the purpose of U.S. foreign policy was to protect the liberty of Americans and preserve the peace. Taft, writes Hayes, “abhorred war and consistently sought to avoid U.S. involvement in war if possible.” Needless to say, Taft was a very different Republican than those who dominate the GOP today.

Opposing the Crusader State also includes an interesting exchange between Ted Galen Carpenter of the Cato Institute and R. J. Rummel, professor emeritus at the University of Hawaii, over the so-called “democratic peace” thesis. Does democracy itself encourage peace? Rummel argues so, while Carpenter disagrees. Carpenter has the better case, particularly when he points out that during the Cold War the democratic United States cheerfully initiated regime change against a number of democracies. Nevertheless, whether the recent peacefulness of Europe most reflects the growing weariness of destructive war, democratic polities, increasing wealth, or merely the short time most of the continent has been democratic is impossible to say for certain.

The volume closes with a section on the impact of free trade and globalization. Edward Stringham of Trinity College dismisses the canard that wars are fought for trade: ”Contrary to widely prevailing views, markets and war do not go hand in hand. The market promotes peace.” Erich Weede of the University of Bonn goes even further, arguing for a “capitalist peace” and dismissing the claim that globalization destabilizes societies and creates conflict. The beneficial impact of markets helps explain the superficial success of the democratic-peace thesis, since democratic countries tend to be more capitalist.

Most Americans want peace. Most American politicians want war, or at least the sort of interventionist foreign policy that leads to war. How to help the former to rein in the latter? Higgs and Close provide a mix of history, theory, and experience that should aid development of a new, noninterventionist foreign policy.

Doug Bandow is the Robert A. Taft Fellow at the American Conservative Defense Alliance and author of several books, including Foreign Follies: America’s New Global Empire.

After War: The Political Economy of Exporting Democracy

by Christopher J. Coyne
Stanford Economics and Finance • 2007 • 248 pages $65.00 hardcover; $24.95 paperback
Reviewed by Ivan Eland

In an important new book, After War: The Political Economy of Exporting Democracy, Christopher Coyne, an economics professor at West Virginia University, cogently argues that since the late 1800s, American attempts to export democracy at gunpoint have been mostly unsuccessful. He convincingly demonstrates all military options to be flawed and advocates a noninterventionist, free-trade approach.

Coyne analyzed 25 U.S. occupations and concluded that ten years after American forces departed, only seven of the countries had achieved stable liberal polities (with results in four countries, including Iraq and Afghanistan, too early to assess). Thus the success rate of “nation-building” is only 28 percent.

Coyne’s results closely agree with a study done in 2003 by Minxin Pei and Sara Kaspar for the Carnegie Endowment of Peace. Their study found that only four of 15 episodes of U.S. nation-building resulted in democracies lasting ten years or more (with the results from the two current episodes of Iraq and Afghanistan still out). That is a similarly abysmal 27 percent.

The author is vague about how he selected the episodes to put on his list of armed democracy-building adventures. As an economist working on a noneconomic issue, he naïvely seems to have taken the rhetoric of U.S. administrations at face value. However, a seasoned international-relations expert might have realized that despite the perpetual hype on installing democracy, some of these U.S. interventions—in fact, many of them—were not primarily done to bring democracy to the particular country. In reality, since the beginning of the last century, the United States, when overthrowing foreign governments, has often preferred friendly governments to democratic ones. The United States has even overthrown democratic governments and installed dictators—for example, in Iran in 1953, Guatemala in 1954, and Chile in 1973.

Coyne seems to accept that the Clinton administration’s motivation for occupying Haiti in 1994 and for intervening in the former Yugoslavia in 1996 (Bosnia) and in 1999 (Kosovo) was merely to install democracies. In actuality, Haitian refugees washing up in the key electoral state of Florida and giving the NATO alliance a new mission to justify keeping U.S. forces in Europe after the Cold War, respectively, may have been the primary reasons for those military actions. Similarly, Coyne also seems to buy the Bush administration’s “democratization” rationale on Afghanistan and Iraq. These realities do not affect Coyne’s principal effort to show that attempts at armed democracy-building usually fail whether or not installing democracy is mere rhetoric or the real purpose of the military interventions. But he does appear somewhat gullible in failing to acknowledge that building democracy might not have been the primary purpose of the interventions he examines.

The author also accepts the argument that failed states are dangerous to U.S. security and that something must be done about them. Laudably, to gradually push those states toward democracy, Coyne advocates a “hands-off” approach of nonintervention and unilateral U.S. free trade with them. Yet one should not assume that failed states half way across the world are automatically a threat to the United States. The threat of blowback anti-U.S. terrorism only occurs when the U.S. enmeshes itself in such civil wars and tries to “fix” the countries involved. Overstating the threat from failed states only adds to the hysteria that interventionists regularly exploit.

After demonstrating that most armed nation-building attempts haven’t been successful, Coyne tries to use game theory and other economic analyses to examine why. His conclusions are sound, but using game theory and its arcane terminology to reach the same result that could have been arrived at by logical reasoning and common sense detracts from the book’s impact. In the social sciences, such attempts at faux rigor do not add much analytical value and merely make it difficult for the lay reader to understand the valid points made.

Finally, Coyne doesn’t apply economic analysis to his own proposed solution. If he did, he would discover that his ideal solution of nonintervention and unilateral free trade with failed states would be undermined by Public Choice factors. Powerful lobbies for foreign intervention exist within the Pentagon and State and Treasury departments, and in a corporate world looking for hidden subsidies. Also, influential protectionist lobbies will deem unilateral free trade unfair. Coyne chooses the right approach, but he should have acknowledged the challenges of changing government policy in this fashion.

Despite these minor drawbacks, After War confirms that attempts at democracy-building at gunpoint rarely work. If President Bush had read this book before invading and occupying Afghanistan and Iraq, it might have given him pause. At least it should have.

Ivan Eland is a senior fellow at the Independent Institute and author of the books The Empire Has No Clothes: U.S. Foreign Policy Exposed and Putting “Defense” Back into U.S. Defense Policy.

Liberty and the Great Libertarians

Edited by Charles T. Sprading
Ludwig von Mises Institute • 2007 • 540 pages • $36
Reviewed by George C. Leef

This book was originally published nearly a century ago—in 1913 to be precise—and the Ludwig von Mises Institute has done the world a service by reprinting it. The collection is a welcome reminder of the great historical lineage of libertarian thought. It’s also a treasure trove of sterling insights and pithy quotations that are every bit as applicable now as they were one, or two, or three centuries ago.

Sprading was a libertarian writer and activist. The book tells the reader nothing about him, but a bit of Internet searching reveals that he was interested in many libertarian causes. Among other things, he adamantly opposed “blue laws” and American participation in the United Nations.

The book begins with an essay by Sprading on the essence of libertarianism. He equates human progress with the gradual acceptance of liberty. The first victory was for freedom of thought. Libertarians advocated freedom for all people to think, but, Sprading writes, “Authoritarians protested that freedom of thought would be dangerous; that people would think wrong; that a few were divinely appointed to think for the people. . . .” The battle for freedom of thought was followed by battles for freedom of speech, press, assembly, and religion.

Among Sprading’s many insights is that government officials usually stand to gain personally from the state’s expansion. “The more laws, the more ignorance of them; the more ignorance of the law, the more the laws are broken; the more the laws are broken, the more criminals there are; and the more criminals, the more policemen, detectives, lawyers, judges, and other officials that go to make up a strong and expensive government. All of this is good for government officials, but bad for the citizens who carry the load.” One sees an early grasp of Public Choice theory there.

He also anticipated Murray Rothbard’s analysis that the true class division in society is between producers, who are compelled to pay taxes, and the militant class of parasites who consume taxes and dominate the producers.

The bulk of the volume consists of readings from libertarian writers going back to the eighteenth century (Edmund Burke, Thomas Paine, Thomas Jefferson) and continuing up until the early twentieth century. There is a lot of great material, as well as some that is a little dubious.

Here, as an example of the former, is Edmund Burke’s trenchant view of the state: “Let us take a review of the dungeons, whips, chains, racks, gibbets, with which every society is abundantly stored, by which hundreds of victims are annually offered to support a dozen or two in pride and madness, and millions in an abject servitude and dependence.”

Thomas Paine was an early advocate of free trade and opponent of the destructive policies of trade wars: “War can never be in the interest of a trading nation any more than quarreling can be profitable to a man in business.”

Ralph Waldo Emerson on the waste of taxes: “Of all debts, men are least willing to pay the taxes. What a satire is this on Government! Everywhere they think they get their money’s worth, except for these.”

Henry David Thoreau understood the preposterous folly of government “economic stimulus” in 1854: “Yet this government never of itself furthered any enterprise, but by the alacrity with which it got out of its way.”

Herbert Spencer saw government as a “necessary evil” that mankind might eventually no longer need if it were to advance morally: “Were there no thieves and murderers, prisons would be unnecessary. It is only because tyranny is yet rife in the world that we have armies. Barristers, judges, juries, all the instruments of law, exist simply because knavery exists.”

Benjamin Tucker foresaw that there would be no stopping point once government starts to give in to egalitarianism: “The moment we invade liberty to secure equality we enter upon a road which knows no stopping-place short of the annihilation of all that is best in the human race.”

Auberon Herbert perceptively saw the illegitimacy of majority rule: “Majority rule is not founded—any more than emperor’s rule—on reason or justice. There is no reason or justice in making two men subject to three men.”

As I mentioned earlier, some of the people Sprading chose to include seem to fit the “libertarian” description poorly. For example, there is a selection from Wendell Phillips, who demands “the overthrow of the whole profit-making system.” He and a few others just didn’t understand that profits result from voluntary commercial interactions. Get rid of the profit system and you get rid of a lot of freedom. Overall, though, this is an excellent volume.

George Leef is the book review editor of The Freeman.

The Age of Turbulence

by Alan Greenspan
Penguin Press • 2007 • 531 pages • $35.00
Reviewed by Gene Callahan

I will do my utmost to be fair to Alan Greenspan in this review, but I must warn my readers that I have my doubts that I will fully succeed in doing so because, frankly, I am annoyed with the author for having made me wade through this piffle. It is not that there is nothing of interest in this book, but rather that those rare passages are mere jetsam floating in a sea of name-dropping (Did you know that British Prime Minister Gordon Brown is Greenspan’s “friend,” or that the author, “Bob” Rubin, and “Larry” Summers were “economic foxhole buddies”?), self-justification for the historical record, and commonplace economic homilies.

Greenspan is of course best known to the general public for chairing the Federal Reserve Board from 1987 to 2006, the second-longest tenure in that office. The focus of the first half of this book is on the series of crises he faced during his chairmanship: the “Black Monday” stock crash of 1987, financial meltdowns in Mexico, East Asia, and Russia in the ’90s, and the Internet boom and bust spanning the turn of the millennium. He depicts his role in those episodes as valiantly “groping through a fog” to find the best ad hoc response to each crisis.

Unfortunately, Greenspan never asks whether the Fed’s policies might have caused the difficulties it subsequently sought to fix. For instance, I did not find the concept of “moral hazard” appearing anywhere in this book. What that term means is that a government program intended to ameliorate the plight of investors facing large losses may prompt even greater risk-taking later in the expectation of another bailout should the situation turn sour. Rather than perpetuating a series of crises and costly bailouts, say those who warn against moral hazard, it’s better to bite the bullet once, accept the costs of a few big banks failing, and thereby motivate investors to be more cautious in the future.

Greenspan also skirts the question of the Fed’s role in the Internet stock boom. Some observers at that time contended that the board’s easy-money policy during the 1990s fueled an unsustainable rise in equity prices. I agree. Still, I would listen to a counterargument by Greenspan, but none is forthcoming; he only says that he believed “we’d never be able to identify irrational exuberance with certainty, much less act on it, until after the fact.”

What’s more, our author never considers whether it even is sensible to have an agency assigned to the Fed’s task. He admits that when he first was asked to chair that institution, he worried that “setting interest rates for an entire economy . . . involve[d] so much more than I knew.” But he never asks if performing that job inherently involves much more than any individual or committee can know, ignoring the arguments of Mises and Hayek that central planners always lack the information necessary to succeed in their appointed task.

But perhaps the most significant flaw in Greenspan’s discussion is his acceptance of the popular image of the economy as a machine, amenable to “fine-tuning,” and buffeted by quasi-mechanical forces like “inflationary pressures” and “over-heating.” That model provides the primary support for macroeconomic interventionism, but it is highly inaccurate. The course of an economy is not determined by impersonal, blind forces, analogous to gravity or electromagnetism in physics, but by conscious individuals choosing the best action they can envision. It is crucial to the cause of freedom to emphasize that “managing the economy” is nothing like “managing an industrial plant”—the latter involves adjusting the settings of various machines, while the former means restricting the options available to individuals for coping with their own lives.

The second half of this book consists of Greenspan’s take on a number of issues he sees as having global import, such as the rise of China, European social democracy, Latin American populism, “peak oil,” and international financial regulation. While his opinions in this section are often unobjectionable—China ought to embrace democracy, Latin American governments should protect property rights, Europe should deregulate its labor market—few of them are novel and most are expressed more cogently elsewhere.

Despite my criticisms, Greenspan is a bright fellow and there are interesting insights contained in the book. For instance, he recognizes the role of culture in enabling and supporting a market economy, something that was ignored by many Western economists, focused as they were on abstract economic models, in advising the ex-communist nations on how to transition smoothly to life under capitalism.

Even so, The Age of Turbulence is a work of little substance, and its composition appears to have been driven by vanity and a doubtlessly alluring advance from the publisher. I was paid to endure it, but I see no reason for readers of The Freeman to suffer as I did.

Gene Callahan is the author of Economics for Real People.

The line of attack might be seen as an application of Bastiat’s “broken window” fallacy.

As Murray Rothbard warned us, there are a great many “broken window fal­lacy mongers” about. If nothing else, their activities will keep us on our toes. A handful of examples may suffice and should help demonstrate that a basic understanding of econom­ic principles is critical if we are to understand important causal connec­tions in history and politics.

Let us begin with something that is supposed to be good: the much-heralded Keynesian “multiplier effect.” This is a second-level broken-window fallacy. Here a sophisticated fallacy-monger arrives, just after the free‑market economist has dispelled a first-order fallacy by expounding the “seen” versus the “unseen.” The second­ary fallacy-monger then says, “Oh sure, that sounds good, but there are many things the free-market econo­mist hasn’t told you.”

One such thing is the joyous world of the multiplier. This holds that any money invested in productive enter­prises will stir up great waves of activity throughout the economy at some mathematically constant rate, resting on some functional relationship between big economic aggregates (consumption, investment). Therefore, the state ought to expand the money supply (inflate) to make additional money available. At the end of the happy process, to paraphrase an old song, the solar radiation will be unwontedly great and there will be no precipitation.

Austrian-school economist Rothbard performed a great takedown of this notion with his suggested “personal multiplier.” Faith­fully following the mathematical form of the multiplier principle, he “proved” by reductio ad absurdum that a sum of money given to any reader of his book would, when spent, “prime the pump of a 100,000-fold increase in the national income.”¹

So it appears the Keynesian multi­plier is a theoretical bust. There is, however, a bureaucratic “multiplier effect.” Political scientist Tom Burns writes that kings created bureaucracies so as to govern more effectively and in time found themselves displaced by these officials. Republics and, later, democracies inherited the bureaucracies and ran with them.

As a result, civil society now exists only “as a vast residue from which power and authority have been extracted and distilled into sovereignty.” This works for the state because “Renaissance bureaucracy”—the ancestor of modern bureaucracies—“was a great chain of command” and “[d]ispersing sovereign power through the many chains of command of a bureaucracy multi­plies power.”

Burns quotes the German sociologist Niklas Luh­mann: “Thus power takes on a hierarchic, i.e., reflexive, form in order to be able to accomplish a multiplicity of influences simultaneously. …This extension of power is put through with the aid of such actions as representa­tion, transfer or delegation, which quite innocently sug­gest that the power which is being exercised remains what it was, while they actually multiply its effective­ness.” Luhmann adds: “To apply power to the reinforce­ment of power amplifies the total power available in a social system, by means of a sort of relay technique.”²

So there is a multiplier effect and, even if it isn’t mathematically constant, the state can answer for it.

Then there are claims about “cutthroat,” or “predatory,” competition in business, which is said to lower the moral tone of society and yield sundry zero-sum games. But competition can involve degrees of voluntary coop­eration within an industry, friendly relations between competitors, or it can run to personal rivalries, depend­ing on the personalities involved. It need not become a serious problem until or unless one party brings in the state to strengthen his hand. Even a businessman who loses out to competitors is not annihilated; he can find other work in the same industry or try his hand at some­thing new.

In some cases, fierce competition with outbreaks of violence may arise where property rights are unclear or unenforced, as in the famous “wars” in the Old West between the ranchers and the farmers, not to mention the beleaguered sheep herders. These conflicts were fair­ly manageable, however, compared to real, eliminative competition between states, which we call war. In these competitions, which are indeed predatory, one state may cease to exist altogether, or lose territory to another state.

Economist Jörg Guido Hülsmann has proposed a political “progression theorem.” He argues that states are driven to expand territorially, when possible, in order to gain more revenue, in order to expand further, gain more revenue, and so on. The drawback is, as noted, that losing a major war can mean the “death of a state” (to use Rothbard’s phrase). After two destructive world wars, European states still seek to enlarge their incomes, but having reached the limits of politically feasible taxa­tion, they must enhance their revenues indirectly through inflationary fractional-reserve banking and public debt. As each central bank reaches its limits of monetary expansion, each state’s only hope is to have some even higher jurisdiction prop up its money (since the whole point has been to evade the normal penalties markets finally inflict on counterfeiters).

Expansion by Stealth

With war off the agenda, the bureaucracy of the embryonic pan-European state tries to expand its revenues and jurisdiction by peaceful, indirect means— more carrot than stick—by conning additional states into entering the EU,³ while deliberately failing to address fundamental “constitutional” questions such as withdrawal from the union, an expansion by stealth that nicely recapitulates the strategy of the Federalists in the United States in 1786–1787.

Historians Bruce Porter, William Hardy McNeill, Charles Tilly, and many others have treated eliminative state competition, with its attendant wars, as the main engine of rapid state building.⁴

Thus an inherent, irrational growth dynamic attach­es to states. Businesses, unlike states, know when to quit expanding because of the inbuilt profit-and-loss test. States can be said to expand “irrationally” because they have no such test, in part because the costs involved are not paid by the decision-makers themselves. Their only risk, as noted, is gambling and losing in some armed struggle with another power. This may be a restraint, but it is not as decisive as red ink on the quarterly report.

This is not to say that a state will always and contin­uously strive to expand externally. A state may be unable to extract sufficient resources from production, and cul­tural factors may intrude as well. A state unable to expand outward will certainly be tempted to make more work for itself at home. Successful states like the United States may do both simultaneously. In the case of a suc­cessful imperial state, a real synergy can get underway through institutional “blowback” from overseas policing methods, and such.

However we may sort this out, it seems that states are generally driven to expand in a way that business is not. Business competition is not very much like war at all, except in the realm of bad metaphors. Of course if the state’s regulatory branches shape the environment in certain ways that spread moral hazards everywhere, we can have something like the savings-and-loan scandal of the 1980s. But that came to an end when the free ride ran out; even here the message to quit arrived sooner than such messages seem to come to the state.

While on the subject of irrational growth, I should at least mention the complaints made in the 1940s that the market economy, because of inbuilt defects, could not produce enough growth, whereas Soviet communism doubtless could do so. By the late 1950s the complaint was that there was “too much” growth. Such shifts in attack suggest there is much truth to the famous com­ment of Joseph Schumpeter that, as far as most intellec­tuals are concerned, the guilty verdict against the market is already in, although the details of the indictment may change.⁵

One more item might be mooted before we leave the topic of competition and war. It is that militarism itself generates high time-preference and lowers the social (mar­ket) rate of saving.⁶ In her essay “The Iliad as the Poem of Force,” Simone Weil remarks in passing on the severe foreshortening of time as the fight-keen Achaeans approached Troy. Not knowing how much longer he may live, each Greek’s value-scale shifted dramatically toward present consumption and away from concern for the future.⁷ It is almost superfluous to mention the seedy material culture near any large military base, with pawn shops, strip clubs, and the like, as the dominant businesses.

The Inevitable Trend Toward Monopoly

The idea of an inherent expansionist dynamic brings us to the claim that competitive capitalism inevitably means the “eating up” of smaller enterprisers and the rise and persistence of giant private “monopo­lies.” This charge has been kicking around since the late nineteenth century in the United States, and the failure to address it adequately has led to all manner of histori­cal misunderstanding and bad legislation. Rothbard did address the matter, rather conclusively.

In a hundred-page tour de force,⁸ Rothbard reduced“monopoly” to its proper bulk and resurrected Lord Coke’s seventeenth-century definition of monopoly as “a grant of  special privilege by the State, reserving a certain area of production to one particular individual or group.”⁹ On this understanding, without legal-political barriers to entry even the largest business is not a monopoly; it is simply very good at satisfying the consumers and/or unchal­lenged by good competitors for the moment. But there is genuine monopoly: first, the state itself, which asserts a monopoly of initiating force within a given territory; second, enterprisers working under a grant of exclusive privilege from the state.

Here is how Rothbard describes the evils of monop­oly:

All the effects that monopoly-price theorists have mistakenly attributed to voluntary cartels, therefore, do apply to governmental monopoly grants. Produc­tion is restricted, and factors are released for pro­duction elsewhere. But now we can say that this pro­duction will satisfy the consumers less than under free-market conditions; furthermore, the factors will earn less in the other occupations.¹⁰

Once again, a problem said to arise on the market is to be found in the orbit of the state.

The Market Fosters Disorder and Social Disruption

The charge here is that the market economy, as such, leads to social disruption, social decay, “atomiza­tion” of society, alienation, and the rest. The decline of small towns and businesses will be highlighted. We are all doomed, it seems, to deal endlessly with dizzying and unwanted “social change.” The critics of course often have their own list—of desirable social changes—to be imposed by the state, but that is another matter.

Everyone from the tamest “liberal” centrist to the wildest Marxist or feudal reactionary feels free to make these charges. Paul Baran and Paul Sweezy’s fundamen­talist-Marxist tract, Monopoly Capital, which blamed lit­erally everything deplorable in American life on late, or “monopoly,” capitalism, is just a sample of this genre.¹¹ Nice work, if you can get it; but it seems likely that these critics don’t have the right target in their sights.

I now introduce the Interstate Highway Theorem. It flows from the safe assumption that no capitalist or con­sortium of capitalists would have risked their own money on this “eighth wonder of the world.” The theo­rem simply states that, on their own, free-market partic­ipants would never have put together such a highway system, and of course they did not. We would have had roads of some kind, but not this particular public-goods boondoggle.

The interstate highways grew out of congressional pork-barrel politics and Cold War military-industrial considerations, and were popular because they “made work” for certain contractors and allied unions. Any losses to small towns, or to picturesque American ways of life dependent on those towns, caused by the build­ing of interstates may be addressed to whatever federal departments presided over their construction, enforced eminent domain on wicked “hold-outs,” and subsidized the usual corporate suspects to build those roads. They may not be addressed to the free market.

Another aspect of this alleged problem is the claim that social conditions in market-based societies render people “inauthentic,” cutting the ground out from under true friendship and treading all true fellow-feel­ing under foot. Leaving Jean-Jacques Rousseau, a pio­neer of this attack, to one side, it is enough to consider what the Scottish Enlightenment writers said on the matter in rebuttal. Sociologist Allan Silver points out that for Adam Smith “instrumental” friendships based on exchange (What have you done for me lately?) were actually “more pervasive before commercial society instituted the distinction between markets and person­al relations.” Further, in pre-capitalist societies, as understood by the Scottish thinkers, “the space between friend and enemy was not occupied, as in commercial society, with mere acquaintances or neutral strangers, but charged with uncertain and menacing possibilities.”

Thus the “Scots understand commercial society as limiting instrumental exchange to the newly distinct domain of the market…. Before commercial society, the purpose of friendship, as the Scots see it, was to help friends by defeating enemies….” So it turns out, on the Scottish thinkers’ analysis, that we can see “commercial society, far from ‘contaminating’ personal relations with instrumentalism, as ‘purifying’ them by clearly distin­guishing friendship from interest.”¹²

While we are still on the theme of social disruption, we may ask who causes the bulk of it. Political scientists Youssef Cohen, Brian R. Brown, and A. F. K. Organski have pointed out that a good many Third World conflicts “are defensive in nature: they are all brought about by the aggressive expansionism of the state,” especially where “states are still involved in the primitive accumu­lation and centralization of power resources.” These writers suggest that “over a relatively long period of time state expansion will generate violent conflict” and thus “it is the progression toward greater order itself that pro­duces much of the relatively greater violence we find in new states.”

They conclude that “the evidence strongly suggests that the rate of economic development is related to both the rate of state expansion and collective violence in a way that runs contrary to the way postulated by the dominant view on such matters.” Further, “state expan­sion seems to produce much more violence than economic growth…. Rather than state expansion being an antidote for the violence produced by economic modernization, our rather limited evidence shows that it is economic modernization which is the antidote to the violence produced by state expansion.”¹³

State-building may itself be the fundamental error and so-called “failed states” may well have earned their plight. Of course an array of stupid Cold War tricks played by the great powers in those countries can answer for part of the outcome as well. But this consideration leaves us yet within the realm of state action.

To put matters another way, markets work well at what they are supposed to do; governments work badly at what they are supposed to do. Governments do, how­ever, work well at other things: creating violence, disor­der, and disrupting orderly social life. Since they do so while imposing something they call “order”—by threats, intimidation, and violence—most people are content to imagine that governments are the source of order.

Inflation

Many writers see inflation, especially where it refers to any set of rising prices, as another problem inherent in the market economy. The state must there fore be ever watchful and ready to resort to various stern measures to “fight inflation.” Some critics—for example, the conservative historian John Lukacs—like to talk vaguely of general social inflation: of values, grades, esthetics, and everything. And while he does not lay these ills directly at the feet of the market economy, oth­ers do. For many critics, market relations as such are sup­posed to render everyone radically unstable, rationally self-centered, and prone to go deeply into debt so as to have the whole panoply of consumer goods sooner.

But leaving to one side the cultural question of the inflation of the American ego by Emerson, Whitman, and others, price inflation would seem the primary cul­prit and it comes from the state. If individual rates of time preference are lowered by easy credit, leading to the consequences of which many writers complain, we must inquire into the origins of the easy credit. Obviously, I take it as having been thoroughly shown by Ludwig von Mises and Rothbard, among others, that inflation is the expansion of the supply of money through state-con­trolled central banks, which, if taken far enough, is the cause of economic depressions.¹⁴

The cultural history of the late nineteenth and early twentieth centuries is badly in need of rewriting by a historian who can analytically separate out new methods of mass marketing (for example, by Sears and Roebuck), installment buying, “Fordism,” and the like, from mone­tary expansion by the Federal Reserve. Once this is done, we may expect to learn that “inflationary” excess­es in culture, consumption, education, and so on arose crucially from expectations grounded in easy money.As noted, easy money leads us straight to the state, the cen­tral bank, and their social allies in business and academe who believed that an expanding money supply was the key to prosperity. The unhampered market, once more, may plead innocent.

Market Failure

Dear old “market failure” must necessarily be mentioned here. This notion is basically the obverse of the public-goods problem. Suffice it to say that in the view of some observer, “the market” has failed to do X, or provide much-needed service Z. Part of the problem stems from the tendency to reify the market and then fault this monolithic mechanism or super-mind, or whatever it is supposed to be. But the market is not a thing or a person, but is instead a com­plex and extensive network of bilateral exchanges, which for convenience we call the “market.”¹⁵ Another variant is to complain that exchanges are being blocked by excessive transaction costs or the like, when on the face of it, a particular “market” hasn’t come into being simply because, as things stand, no one wants to exchange the things some observer would like to see exchanged.¹⁶ I don’t know who is supposed to keep track of missing markets that should exist, unless of course it is the state.

But we must leave this topic for now, since it is large enough to justify treatment elsewhere.

The alleged “atomization of society” brings us to the grave problem of “social action.” It is interesting that whenever successful social action takes place, as it does all the time, governments and their apologists immedi­ately denounce it as a dreadful evil, because the people cooperating do not do what these observers would like them to do. Actually occurring social action always turns out to be the wrong kind, and is reinterpreted as a social problem.

One thinks of the gathering attack on societies in which kinship relations help structure business relations and markets—as in East Asia, for example. This, appar­ently, is the most wicked “crony capitalism,” which, lack­ing transparency and the like, must be corrected by whatever superpower happens to be in the neighbor­hood. But from a free-market standpoint, what is actual­ly wrong with doing business with your cousin, if the state as such is not in the picture?

Stamping out “ethnic” allegiances in trade in the name of market freedom, “transparency,” and fairness might sound good to some people, but who exactly would do the stamping? Obviously, it would have to be the state, which is the indispensable culprit in crony cap­italism to start with. (This is a key in Russia and China, where it is often the former communist bureaucrats who are today the state-connected crony capitalists.)

During the Vietnam War, well-placed American social scientists studied the supposed failure of social action in South Vietnam. What this seems to have meant is simply that such social cooperation as existed failed to generate much support for the South Vietnamese state sponsored by the United States. Given the alleged absence of a properly functioning social structure, one theorist suggested that the South Vietnamese state sub­stitute itself for the missing intermediate structures.¹⁷ We cannot resolve here the obvious problem that if the state provides the structures, they will no longer be very intermediate.

It is probably not market relations that have leached away people’s personal autonomy, thereby reducing their ability to cooperate and undertake social action. Once again, I would suggest looking in the direction of the state.

Tying of Services and Products

Another complaint is that businesses attempt to “tie” goods and services to one another, rendering the poor consumer dependent on one product line. They may well try, but other actors in the market and con­sumers themselves will find ways around this practice.

It is otherwise with the state. As Sheldon Richman has mentioned to me, states “tie” their “products” and “services” all the time. As a precondition of driving on government roads, you get to patronize the govern­ment-sponsored insurance cartel. In some states you get to have your car checked by a government-sponsored mechanic. Go to a government airport and you get a taste of the government’s idea of providing security.

And your Social Security number, which Congress swore would never become a national ID, is fast coming to resemble a Soviet-style internal passport.

Even on the most pessimistic reading of this issue, the market remains well ahead of the state.

Now we come to the claim that business corrupts politics. Well, yes and no. Politics does not seem to require much corrupting.

Naturally, there are plenty of actual businessmen who are happy to enlist the state to restrain trade for them, grant them subsidies and bounties, and the rest. They try to use the state for their economic advantage. This is the “instrumentalist” view of the state, which holds true across a wide range of activities and which is, despite what some writers think, entirely compatible with a great deal of state “autonomy.” After all, if the state did not have independent power, it wouldn’t be much of an aid to these interest groups, would it?

There is indeed plenty of business-government col­laboration around, enough to justify calling it by its own name: corporatism.¹⁸ Since such practices are the antithesis of laissez-faire liberalism, it is hard to see how the free market can rightly get the blame for them. We are back in the ballpark of the state again, this time with some of its allies.

I have long believed that if a given society had suf­fered, successively, a drought, a famine, and a flood, fol­lowed by a popular revolt set off by grinding taxation and, finally, a foreign invasion, the typical historian would lay primary blame for the unhappiness of the people on the failure of the market economy. We have just seen this kind of judgment made in relation to the disaster in New Orleans.

Even if we were somehow to blame the sinking of New Orleans on politicians who talk a lot about free markets, this has nothing to do with any real chain of causation that would reach back to the free market. The talkers currently in office have famously spent hundreds of billions of dollars on misbegotten war in Iraq, which suggests that their talk about frugality, free markets, and the rest is so much eyewash. There is no disembodied “free-market ideology” stalking the country and forcing the poor government to leave levees in disrepair or unimproved.

Talk is cheap, not frugal.

After all, despite the alleged outbreak of frugality, bil­lions upon billions of dollars still flow into the federal treasury and bureaucrats still manage to spend them. Neither the people nor the free market—conspicuous by its absence–should answer for bad decisions made by officials allocating money taken from the toiling masses. Probably if you have a levee, you ought to maintain it. This is entirely separate from the question of whether government should have been in the levee-building business in the first place, or whether people should live in flood zones. Tackling these questions would involve us in an historical regression into the remote origins of a situation significantly shaped by government, a situation fraught with peril if the government should ever let its own creations slide.

The buck still stops with the federal government because it took the bucks, some of which could have fixed its levees, and then did not do so. Leaving aside the ethics of how governments get their money, the United States had plenty of it, and chose to squander much of it on a night out in the Middle East. The left is right to point this much out.

But the left will not follow us further along our path of analysis. This particular mixture of state activity and inactivity—Iraq versus New Orleans—goes to such questions as whether governments are very good at managing anything and whether states can even calcu­late rationally. Our best evidence says, no. As Rothbard puts it, “[T]he costs of government are bound to be much higher than those of the free market…. [T]he State cannot calculate well and therefore cannot gauge its costs accurately.”¹⁹

So, no, the free market did not sink New Orleans, nor did its shambling cousin, the disembodied and selective free-market talk found in and around the Republican Party.

A Parthian Shot

The last topic broached reminds us that the Repub­lican Party habitually proclaims its fervent wish to put government “on a businesslike basis.” Democrats usually favor putting business on a government-like basis. The difference between the two programs is this: the second is possible and it could go forward, up to the point that social cooperation and markets collapse; the former is literally impossible.

Government cannot be put on a businesslike basis because it lacks the profit-and-loss test available to busi­nesses on the market. Thus it doesn’t know when to stop doing something, short of a disastrous setback, cannot calculate its costs, and so on. But enough about govern­ment; I think we can agree that for the topics just can­vassed at least, the market is not guilty and the state is about to enter the witness box.

Notes

1. Murray N. Rothbard, Man, Economy and State, vol. 2 (Los Angeles: Nash Publishing, 1970 [1962]), p. 759.
2. Tom Burns, “Sovereignty, Interests and Bureaucracy in the Modern State,” British Journal of Sociology, December 1980, pp. 494–95.
3. Jörg Guido Hülsmann, “Political Unification: A Generalized Progression Theorem,” Journal of Libertarian Studies, Summer 1997, pp. 81–96.
4. Bruce Porter, War and the Rise of the State (New York: Free Press, 1994), William Hardy McNeill, The Pursuit of Power (Chicago: University of Chicago Press, 1982), and Charles Tilly, “Warmaking and Statemaking as Organized Crime,” in Peter B. Evans, Dietrich Rueschemeyer, and Theda Skocpol, eds., Bringing the State Back In (Cambridge: Cambridge University Press, 1985), pp. 169–91.
5. Joseph Schumpeter, Capitalism, Socialism, and Democracy (New York: Harper & Row, 1950), p. 144.
6. On war and time preference, see Hans-Hermann Hoppe, “Time Preference, Government, and the Process of De-Civilization,” in John V. Denson, ed., The Costs of War (Auburn, Ala.: Ludwig von Mises Institute, 1999), pp. 455–508.
7. Si^an Miles, ed., Simone Weil: An Anthology (New York: Weiden­feld & Nicolson, 1986), pp. 174–75,181.
8. Rothbard, chapter 10, “Monopoly and Competition,” pp. 560–660.
9. Ibid., p. 591, Rothbard’s wording, not Coke’s.
10. Ibid., p. 789.
11. Paul Baran and Paul Sweezy, Monopoly Capital (New York: Monthly Review Press, 1970).
12. Allan Silver, “Friendship in Commercial Society: Eighteenth-Century Social Theory and Modern Sociology,” American Journal of Sociology, May 1990, pp. 1481–82,1484, and 1487.
13. Youssef Cohen, Brian R. Brown, and A.F.K. Organski, “The Paradoxical Nature of State Making: The Violent Creation of Order,” American Political Science Review, December 1981, pp. 904, 907–909 (italics added).
14. Rothbard, pp. 745–47.
15. For all that has been said against nominalism, sometimes we are dealing with a name.
16. One could almost call this the Chicago School variant.
17. Charles A. Joiner, “The Ubiquity of the Administrative Role in Counterinsurgency,” Asian Survey, August 1967, p. 553.
18. See Robert Higgs, Against Leviathan: Government Power and a Free Society (San Francisco: Independent Institute, 2005).
19. Such problems are in a way the socialist calculation problem writ small; see Rothbard, pp. 803 and 825–26, where he notes that under socialism “each governmental firm introduces its own island of chaos into the economy; there is no need to wait for full socialism for chaos to begin its work” (p. 826). Obviously, the principle applies in its prop­er degree to government “firms” or departments under present-day “mixed-economy” corporatism.