From this post, we see how we derive the fact that a person who engages in an exchange must value what he is receiving over what he is giving up.
Note that I am doing this from the point of view of one actor, but it applies to both. It’s interesting that, even with violent exchange, this analysis could be used to say that the individual being coerced also values what he is receiving over what he is giving up.
If Thievery Tom points a gun at Innocent Irene and demands that she give up a banana for his orange, she too is engaging in an exchange. Although violent, she is still purposefully acting, and (assuming she goes through with it) she thus prefers the state where she gives up the banana for the orange over the state where she retains the banana and he retains the orange. In other words, she prefers the orange to the banana.
I’m not sure if this can constitute a meaningful objection to the distinction between voluntary and involuntary action, but it’s something to think about.
My only response to this at the moment is that there’s a very real sense in which doesn’t value what she is receiving over what she is giving up. I don’t remember Rothbard responding to this sort of objection in Man, Economy, and State, and have not read enough Mises to say whether he responds to it or not.
The way it is solved likely revolves heavily around the introduction of voluntary action vs. involuntary action in the logical argument. As I come across this again in Mises or Rothbard, I’ll think about it.
One more thought: if someone responds, “well, of course she now has a new preference scale because of the introduction of a coercive individual,” I could say “well, anytime someone comes along and even offers an exchange, the other individual’s preference scale might change because of the introduction of the voluntary individual.”
And again, I’m not saying this is a meaningful objection nor am I saying that it can’t be easily “solved.” Just something I am thinking about at the moment.
1) All purposeful action involves a preference of one state over another.
2) Exchange is a purposeful action.
3) Therefore, exchange involves a preference of one state over another.
Premise #1: The state preferred is that which occurs with the successful action. The state being rejected is that which would have occurred had the action not been taken.
Premise #2: Exchange is purposeful, it has a goal in mind: to receive something by giving up something else.
Conclusion: This necessarily follows from #1 and #2: because exchange is a purposeful action, it involves a preference of one state over another. The state preferred is that with what is gained and lost in the exchange. The state being rejected is that where what is gained and lost in the exchange is not, respectively, gained and lost. The more common way of saying this is that he who engages in an exchange values what he is receiving over what he is giving up.
I’m doing this mainly for my own benefit. Spelling out the logic will help me understand the arguments more fully and make my own decision whether the stated conclusions do in fact necessarily follow from the premises. Hopefully, it will help others do the same. I don’t think this needs any more justification than that.
I was actually going to make a post saying I was taking a hiatus, because I’m in the middle of some work at the moment. But I figured I could do some GeneCallahan-style blog posts about the stuff I’m reading, since those posts don’t require as much effort above and beyond what you’re already doing and thinking about. (Unfortunately, if you’re reading this blog for insights comparable to what you’ll find on his site, you might be a little disappointed)
Just started reading Human Action. While Man, Economy, and State is fantastic, I don’t think you can get a full appreciation of Misesian methodology and epistemology without reading Mises himself.
Mises calls satisfaction a state where a person cannot and does not purposefully act. If you’re completely satisfied, you have no reason to act. A purpose means you have some goal worth attaining, and this implies this goal is better than what your state would be otherwise. This means some satisfaction is gained from achieving that goal, and thus you were not completely satisfied to begin with.
Mises goes on:
But to make a man act, uneasiness and the image of a more satisfactory state alone are not sufficient. A third condition is required: the expectation that purposeful behavior has the power to remove or at least alleviate the felt uneasiness. In the absence of this condition no action is feasible. Man must yield to the inevitable. He must submit to destiny.
The reason this condition is a necessary one can be demonstrated by an example (if you don’t find it straightforward). Take time for instance. Most people find the forward movement of time an inevitability. There’s nothing you can do to stop it, make it go backward, etc. and thus you don’t purposefully act to accomplish those goals. But what about people that make time machines? Clearly, they’re purposefully acting, right? Yes, but the only reason they are acting is because they have an “expectation” that their action has the power to change time; they don’t think it’s inevitable.
So according to the definition of action as purposeful behavior, expectation of some possibility of accomplishing your goals is a necessary prerequisite.
I have liked a TYT video on economics though it has nothing to do with cronyism in the economy (the only point on economics I typically agree with them on).
Peter Coy, in a Bloomberg Businessweek article, states:
A movement to give every person an “unconditional basic income”—no work required—is gathering speed in Europe. In its biggest victory to date, earlier this month supporters in Switzerland garnered more than 100,000 signatures on a petition and managed to get an initiative onto the national ballot.
The Swiss ballot initiative, which isn’t scheduled yet, doesn’t state how big the unconditional stipend would be, but supporters have mentioned 2,500 Swiss francs a month, which is a little under $2,800.
I’m glad TYT, particularly Cenk, is being honest in this video. A guaranteed paycheck from the government wouldn’t necessarily stop someone from working outright, but it would serve as disincentive to work in numerous ways: 1) if you’re unemployed, you will not try as hard to find a job (as Cenk admits he did), 2) if you do work, you will not work as hard as you used to (because you will have to work less than before to earn the same amount of income), etc. It’s a productivity killer and Switzerland’s standard of living will go down over the years.
For a causal explanation: human beings purposefully act, choosing one action over another based on which action is valued more highly. An individual, in deciding whether/how much to work, weighs the marginal benefit an additional unit of labor gives him (choice of action #1) against the marginal cost of working that is his leisure (choice of action #2). Now, the law of marginal utility tells us the more units of a good a person has, the less he will value each unit. Therefore, as he receives a guaranteed paycheck from the government, he’ll tend to value the benefit less relative to the cost, and thus work less.
(For an explanation of the law of marginal utility, consider yourself having access to X # of units of water. Let’s say units are gallons, and you have 1 unit – in other words, 1 gallon. You’re going to use this gallon for the most important thing to you, which is probably drinking water: after all, you need to survive. Let’s say you get 9 more gallons. Maybe now you can use a gallon to take a shower. What the law of marginal utility states is that, as the number of units you have increases, the less you value each unit. In the previous example, taking a shower was obviously not as valuable as drinking water. If you had to give up a unit, you would give up taking a shower, not drinking water. You’d give up an activity with less value. In other words, you’d give up a unit being used for an activity with less value. But if you only had one unit, you’d have to give up drinking water. The unit for taking a shower is not as highly ranked as the unit for drinking water, and thus, the more units you have, the less valuable uses they will be being used for, and the less value they have.)
Some respond that individuals could be more creative if they had their basic living income provided for. But this doesn’t mean the laws of the marketplace go out of existence. Creativity will have to obey market forces – in other words, people who are creative still need to satisfy the needs of others in order to generate income from their activities. “Creativity” is just another way of saying risky behavior, and individuals with almost $3000 in guaranteed income would take many more risks, a good amount which would end as utter failures.
On the judgment side of things, I believe that this policy would have a particularly horrendous effect on Switzerland’s economy. $2800/month is a lot, even enough to survive off of. It’s possible you could see the workforce destroyed and the tax revenue necessary to pay out the $2800 become smaller and smaller, until it ceased to exist.
I get the argument that people’s basic living should be provided for them. “Human beings have a right to live and goods are not so scarce that we cannot provide for every person’s basic needs in food, water, and shelter.” The issue with this type of thinking is that such a policy of guaranteed income by the government would kill incentives. People don’t have to work anymore – therefore, some people will outright stop working, some people will not try as hard to find work, and some people will “be creative” – but even while engaging in these creative ventures, individuals will lack as much of an incentive to apply this creativity in such a way that they earn income from the market. Losses are now trivial because basic income has been guaranteed. Therefore, the money (in real terms) used to provide for the basic income of citizens will go down, year after year, until scarcity actually is a problem for even basic needs.
And as that happens, if policy does not change, people will starve, and the population will decrease. What’s necessary to maintain a population like ours is private property and the incentives that come with it. The reason poor people in third world nations starve and lack basic amenities is because they lack private property.
The above video by TYT is in response to a statement Rand Paul made on Sean Hanity’s FOX News show about liberals having a misunderstanding of capitalism.
What was funny to me were the contradictory statements made by TYT
1) John Iadarola stated “We’re still going through the free market [in healthcare].” (1:43)
2) Ben Mankiewicz later stated “What I don’t think [Rand Paul] understands is that[. . .] we haven’t had [. . .] since 1929, unfettered capitalism. We don’t have capitalism [. . .] We had it, basically for a while, where there was no regulation, and something went horribly, horrible wrong, in October of 1929.” (3:18)
Iadarola proceed to agree and say that many other countries had less regulation than the US.
So first they argue that the free market in health care is terrible right now, then admit we don’t have free market. Just MAYBE, for the same reasons we don’t have a free market, we don’t have a free market in health care. Just maybe.
The last time we had something near a free market in health care was the 40s and 50s (but really, it was the mid to late 1800s before the imposition of licensing). And in those two decades, the percentage of the population with insurance exploded from 10% to about 80%. Finally, in the 1970s, only after Medicare, after Medicaid, and after the HMO Act of 1973, did healthcare prices begin to rise at a rate higher than the general CPI. In other words, price inflation only became a significant issue after numerous largescale government interventions had already infected the market.
In response to my proposal for a rennaisance in the government healthcare policies of the mid-19th century, please don’t commit the time fallacy. I’m not proposing we “go back to the 1800s.”. I don’t want healthcare itself to be as it was in the 1800s and I don’t want countless other things to return to the way they were during the 1800s.
Individuals should be free to choose between doctors (or no doctors) and between practices. People can choose to listen to “quacks” for advice if they want to, and true quacks will be eliminated from the market as they are revealed to be such. Certification is always a better policy than licensing, because it maintains freedom of choice while spreading information that may be relevant. Only liberty in health care will reduce prices and lead to satisfactory outcomes in the health of individuals.
I’m sure this has an alternative, “official” name, so if you know that, let me know (it might be a version of the association fallacy)! For now, I’m going to call it the time fallacy.
The time fallacy is typically used as a counterargument (made by person B) against an original claim (made by person A). Person A might make a claim of the form “X is good for us,” while the respondent would fallaciously reply “X did exist at time T. Therefore, person A wants to take us back to time T” (where other bad things occurred).
The Foundation for Economic Education is out with a new short video. It’s simple and easy to understand and I recommend watching it if you’ve ever wondered why business cycles occur.
This is one of the major reasons I started this blog 2 years ago: to explain business cycle theory.
I’ve made a few attempts at making this as simple as possible:
If you want a slightly more elaborated version of the video, feel free to check out Business Cycles for Dummies. The other two links don’t give as full an explanation of it, but they will help see how the process occurs more clearly. If you have any questions, feel free to ask them as well, I’d be glad to help in any way if I can.
Check out this post if you are unfamiliar with tax shifting. It will help in understanding the following.
Rothbard states “Shifting occurs if the immediate taxpayer is able to raise his selling price to cover the tax, thus “shifting” the tax to the buyer, or if he is able to lower the buying price of something he buys, thus “shifting” the tax to some other seller.” (p. 1156)
As he goes on to point out in the case of the general sales tax, however, both a producer’s selling prices go up and buying prices go down. So I thought these clearly could not be the key criteria.
He states “It is true that a tax can be shifted forward, in a sense, if the tax causes the supply of the good to decrease, and therefore the price to rise on the market. This can hardly be called shifting per se, however, for shifting implies that the tax is passed on with little or no trouble to the producer. If some producers must go out of business in order for the tax to be “shifted,” it is hardly shifting in the proper sense but should be placed in the category of other effects of taxation.” (p. 1156-1157)
My issue with Rothbard was, however, that I felt this argument could be flipped on him; Rothbard believed that a sales tax could be shifted backward.
I could say “It is true that a tax can be shifted backward, in a sense, if the tax causes the demand for the factors of the production of the good to decrease, and therefore the price of the factors to fall on the market. Production in this way is hampered, causing supply to decrease and marginal firms to go out of business. This can hardly be called shifting per se, however, for shifting implies that the tax is passed on with little or no trouble to the producer. If some producers must go out of business in order for the tax to be “shifted,” it is hardly shifting in the proper sense but should be placed in the category of other effects of taxation.”
This is because, even in Rothbard’s proposed correct version of events where a tax is shifted backward, supply decreases, meaning marginal firms go out of business.
If the above seems a little confusing to you, try this one instead:
In Murphy’s Study Guide to Man, Economy, and State with Power and Market, he states:
“Tax incidence refers to the actual long-run burden of taxation, which may differ from the immediate target. No tax can be shifted forward. (If retailers had this power, why wait for the tax?)”
That’s basically what I was trying to do, although my response to Rothbard’s is more detailed.
After discussing this with Dr. Herbener, he pointed out that the two cases are not symmetric in the relevant sense. What matters is not whether firms eventually go out of business, but whether firms immediately go out of business as a result of shifting the tax. It’s true that firms eventually go out of business in both scenarios, but in the forward shifting scenario, firms go out of business immediately (as supply decreases – this is the proposed mechanism for tax shifting for this scenario, firms immediately go out of business) while in the backward shifting scenario, firms go out of business eventually (the tax shift occurs earlier, the proposed mechanism being firms paying lower incomes to their facts, which they do not directly go out of business from, but eventually go out of business from because of the “other effects”).
Why is this important? Because the immediate effect is what matters for whether we call it tax shifting or not. If firms go out of business as an immediate effect of shifting the tax, this cannot be properly seen as shifting a tax. However, in every scenario where taxes are added to a free market, there will be “other effects”, or as I have been saying, eventual effects, where people are harmed, including firms. So firms being eventually hurt does not invalidate backward shifting as an example of tax shifting.
In conclusion, yes: a tax can be shifted backward and this is perfectly consistent with Rothbard’s argument against forward shifting.