Economics in Perspective: January 2006

ANARCHY, SOCIETY, AND SOCIAL EVOLUTION

Political anarchy and social anarchy are at opposite ends of the social development spectrum. The former is a society without rulers which relies on natural law and natural rights to maintain order, promote economic progress and ensure liberty and justice for all. The latter is a society without rules. Property rights are ignored and the only law observed is the law of the jungle. In between these extremes you will find totalitarian and democratic societies.

In a political anarchy individuals own and control specific units of property including land and capital (capitalism). Ownership is determined by customary rules. The system is organized spontaneously from the bottom up by individual decision making using a price system to coordinate activities.

Modern societies with rulers evolved from the post feudal system of monarchy where there was a king or queen who controlled people and their property, sometimes allegedly with instructions from God known as "divine right". In 1215 the Magna Carta limited sovereign authority and led to the development of democratically elected rulers. The subjects were allowed to vote for their ruler who then appointed bureaucrats to carry out their orders. The bureaucrats are assisted by a police force under the control of the ruler.

Some rulers are not elected but come to power through violence and aggression. These rulers also utilize bureaucrats and a police force to ensure that their orders are obeyed. Examples of this type of social system include Hitler in Germany, Stalin in the former Soviet Union, Mussolini in Italy, Mao in China, Saddam Hussein in Iraq, and Castro in Cuba. Examples of democratically elected rulers include the United States, Germany, and France. Democracy tends to reduce but by no means does it eliminate the violence and repression associated with totalitarian rulers. High taxation, taking private property for public use, and drug laws are examples of this. Whether the society is democratic or totalitarian, bureaucrats and their enforcers have a vested interest in maintaining the status quo. And every ruler shares the spoils of ruling with his constituency which creates another level of support. Combined with an effort to control what and how people think and since it does not depend on any one particular person, democracy has more staying power than totalitarian societies. On the other hand democracy tends to become totalitarian with widespread dissatisfaction from the limitations of democratically organized central planning. Consider Hurricane Katrina and then remember that Mussolini was reputed to have made the trains run on time. However central planning under a totalitarian leader is not likely to be a long-term solution because of conflicts with human nature and the extreme complexity of human social systems. As control inevitably becomes more rigid and oppressive, people will revolt as violence seems the only solution.

Both totalitarianism and democracy involve government control over people and property. With democracy there is freedom to elect rulers (assuming the elections are fair) but then the ruler can take away personal and economic freedom once elected.

Capitalistic socialism is a hybrid. It allows for private property but then the government controls how it is used. This is somewhat like feudalism where serfs owed certain duties to the lord of the manor in return for benefits such as mutual defense. An example is the drug war. Traditional socialism was practiced in the former Soviet Union. It involves the actual ownership of property by the government. An example of this type of socialism in the United States is public education. Sometimes capitalistic socialism and traditional socialism are mixed together as when publicly owned schools support the drug war with the DARE project and promote environmentalist activism. War leads to more of both kinds of socialism as people allow their property and persons to be used for what they perceive to be the greater good.

Political anarchy is fundamentally different than totalitarianism or democracy in that all property is under the control of individuals who have obtained it through production or original use or some derivative of those means. There are customary restrictions on how property can be obtained and used (title and contract law for example). Under totalitarianism all property is subject to the ruler's control without any limitations. Democracy usually has a constitutional framework purportedly to limit the ruler's control of people and private property but these limits have proven to be very flexible when they are left under the ruler's control or influence. After all the Supreme Court IS part of the ruling class. Capitalistic socialism has been more successful from an economic point of view than traditional socialism because of the increased productivity and organizational efficienceis associated with private ownership of property.

Political anarchy and totalitarianism are usually rejected immediately when debating forms of social organization since most people do not understand the former and the latter is usually just a brutal dictatorship. Arguments favoring democracy over political anarchy include all the familiar utilitarian plans to make society better such as the need for drug laws and public education. However the main arguments against both totalitarianism and democracy is that they both require violence or the threat of violence in order to operate. Try not paying your taxes for example. An argument that favors political anarchy is that complex systems are impossible to manage and control. Rulers using central control and bureaucracies are overwhelmed by information and coordination problems. Political anarchy is capable of organizing complex social systems using common law protection of private property and a price system. Of course the main argument in favor of totalitarianism over democracy is that it can be more efficient especially when everyone agrees on the same goal. This is why people tend to favor it in time of war. War is a key factor. It always leads to more totalitarianism which if continued after the emergency can become oppressive. If the oppression leads to revolution it will usually result in either another totalitarian leader or a democracy. Then the cycle repeats itself.

To fully understand this debate over social organization it is necessary to study human nature, complexity theory, economics, history, law, and political philosophy. Since very few have such a background the debate is usually reduced to emotional appeals and manipulative obfuscation.

Societies undergo evolutionary change by developing moral standards and culture. Morality works with human nature to create certain outcomes in the culture which are then acted upon by natural selection with the best and most effective proliferating. This is a classic example of complexity theory since morality interacts with human nature to generate interactions and patterns of behavior. Rules of behavior can evolve slowly such as common law or be imposed suddenly such as orders from a dictator or new legislation from politicians. In contrast to evolved rules, imposed rules are often disruptive when inconsistent with the existing body of rules or with human nature (as they usually are).

As stated above democracy tends toward totalitarianism which then becomes less stable until social anarchy sets in with riots and revolutions. The United States entered a cycle of democracy toward totalitarianism starting in 1776. The period prior to the War For Southern Independence (aka the Civil War) was a fairly decentralized democracy and the period after that has tended toward centralized democracy and totalitarianism. This change has taken place over the last 2oo plus years due to war, business cycles, and the failure of utilitarian plans for society. These failures have generated more detailed plans which are being met with increased resistance and opposition. As the resistance becomes more widespread rulers respond first with requests for more power and if that fails they demand it. This is the well trodden path to social anarchy.

Democracy and totalitarianism are very costly social mechanisms not only because they are socially divisive and sometimes brutal but also because they need an expensive and inefficient bureaucracy to promote the ruler's goals. Political anarchy on the other hand is maintenance free and conducive to increased creativity and productivity. Paradoxically it also leads to more social cohesion because people cannot use government power to obtain unearned benefits from other people.

Question for Discussion: Is social anarchy inevitable?

COMPLEXITY THEORY AND SOCIETY

Have you ever wondered why there are no ground traffic controllers to avoid accidents and traffic congestion? Probably not but then we do have air traffic controllers. Why not use the same method with ground traffic? Of course the reason is that there are just too many automobiles to control. Can you imagine asking for permission to pull away from the curb every time you wanted to go somewhere? Any attempt to control every car would be futile since the amount of information needed to coordinate activities could not be obtained and processed fast enough to keep order. And yet traffic normally flows in a very orderly pattern. This suggests an important question. Is it possible to have order without having someone in charge? Orderly traffic flow without ground traffic controllers suggests the answer is yes. Scientists study self-organization with complexity theory. Economists call the process spontaneous order. The basic idea is simple yet profound. Order is not necessarily the result of planning and control. In fact just the opposite may be true . In some cases planning and control can lead to chaotic disorder. Consider the government's response to Hurricane Katrina for example. An orderly traffic flow is achieved not by ground traffic controllers but by simple rules combined with a negative feedback system and an information flow that allows people to make individual decisions which are then coordinated to everyone’s benefit.

Rule One is to drive on the right hand side of the road. Rule Two is to stop at red traffic lights and go only when the light is green. A negative feedback system comes into play when these rules are broken resulting in damage to persons and property. Relevant information is gathered systematically by drivers watching other drivers, the road, and traffic signals. It is important to note that only a small part of the total information needs to be gathered by each driver to make the system work. Contrast the resulting order from following these simple rules plus negative feedback and selective information gathering with the disorder that would result if someone tried to control the speed and direction of every car.

Another example of self-organization is checkout lines at the grocery store. There is no plan (such as males in one line females in another) that would get the average customer checked out in less time than the spontaneous order of customer choice. Think about it next time you are waiting in line to buy your groceries. Negative feedback occurs when you pick the longer line. Information gathering is done by each customer estimating the waiting time of each line. Notice this spontaneous order next time you drive to the store and when you get in line to make your purchases. Self-organization is something that works so well we take it for granted. Do we need someone in charge of ground traffic or grocery store lines? If not why do we need someone in charge of making society work better?

There are other lessons in these examples. One is that trying to control a single car or one person in line would lead to major problems unless the other units were controlled also. Some control necessitates more control and then more control until everything is under central control. Second, rigid control makes it impossible for people to discover better routes to travel from A to B or better lines to wait in at the store or better times to come to the store, etc.
As you think about these examples try to replace traffic patterns and grocery lines with all of society. Consider the multitude of inter-related decisions that individuals make as they try to achieve their individual goals. Society is a complex adaptive system. It cannot be controlled and at the same time be self-organizing. Control tends to feed on itself while eliminating creativity and liberty. Isn't this a high price to pay for order and security, especially when you don't get either one of them? An examination of the history of the United States shows this process in action as people and property have been increasingly put under the control of rulers advised by planners. Disorder and insecurity have increased as predicted leading to more control which then leads to more disorder and insecurity in a disasterous vicious cycle.

Question for Discussion: Can complex systems be created or only discovered and analyzed?

NATURAL RIGHTS, UTILITARIANISM, AND PROPERTY

Rights are the equivalent of the rules of the road just discussed. Instead of driving on the right side and stopping on red, people agree to leave alone each other’s justly acquired property. An additional requirement is the availability of decision making information. This is done by the price system which requires markets, competition, property rights, and a stable monetary system. The purpose of this system is to create information about value which people can use to make rational coordinated decisions just as drivers do by seeing other drivers and traffic signals. How high or low a particular price is depends on how much utility or satisfaction it creates for how many people in relation to how much has to be sacrificed to produce it. Once prices are determined, a continuous process by the way, there is an opportunity to make a profit or loss from business decisions which then determine the allocation of resources. Loss is negative feedback which reduces wasteful use of resources. Profit is positive feedback that encourges risk taking, hard work, and creativity. All done without centrol control.
The system is complex not only because it involves millions of inter-related decisions but also because the forces that determine prices and profit or loss are constantly changing. The price system is also used to eliminate shortages and surpluses and to signal when more or less production of a particular product is needed while rationing what is available at the time.

The price system is on a level of complexity comparable to the human immune system and just about as well understood because we tend to take it for granted.
When human property rights are not respected either by individuals who we call criminals or by politicians and bureaucrats with their police force, this system begins to fall apart just as the traffic system would fall apart if we had no driving rules or if the drivers were visually impaired. It is interesting to note that rulers actually encourage disorder by trying to control people and property and then they step in to try and eliminate the very problems they themselves created which then makes things even worse. The more they try to control the system with rules and regulations that conflict with property rights and human nature the more disorder they create. Ironically as conditions deteriorate people clamor for more foxes to protect the chicken coops.

Utilitarianism is the idea that people and property ought to be used for the greater good of all. The use of property must therefore be determined not only by owners but also by rulers who supposedly know how to use it better than the owners. In effect people are used as if THEY are property, a means to whatever end the ruler deems appropritate for the good of society. This is the philosophy behind archy. It always leads to social disorder as rulers are corrupted by power and decisions are made that cannot possibly lead to their objective due to the complexity of the social system. It is like trying to control the speed and direction of every car so as to avoid accidents. This may work temporarily in limited situations but would certainly be counterproductive if applied to every car all the time. The consistent failure of utilitarianism to promote the greater good should make us skeptical of this philosophy but so far it has worked just the other way. As programs backfire, more programs are produced to deal with the negative unintended consequences of the previous programs. This creates a vicious cycle as the system loses its ability to self-organize. Democratic archy becomes more authoitarian and this ultimately leads to social disintegration. Complete disorder cannot last very long or we would all perish. It is soon replaced by a new archy which is also doomed to failure if history is our guide. As noted before, order can temporarily be restored by a return to archy but this is only a stop-gap measure. Only private property anarchy can restore order permanently. But it is particularly difficult to make the transition from no property anarchy to private property anarchy when the rules of the road have been eliminated. So the cycle repeats itself taking different amounts of time depending on particular circumstances. It has taken the United States only 200 years to move from democratic archy to the beginnings of authoritarian archy. The Roman Empire took longer while many South American countries have taken less time.

Question for Discussion: Can people have rights without having government?

AUSTRIAN ECONOMICS, BIONOMICS, AND SPONTANEOUS ORDER

Austrian economics, so called because its founder was from Austria, continues the tradition of the Spanish scholastics by-passing economists Adam Smith, Alfred Marshall, and John Maynard Keynes. The foundation of Austrian economics is to build an explanation of economic systems from the bottom up based on the actions of individuals rather than groups. In doing so it is a more accurate analysis since complex systems are not as predictable as individual actions. The major contributors to the field of Austrain economics are Menger, Mises, and Rothbard. Ludwig von Mises' book HUMAN ACTION is the widely recognized classic in this field. F.A. Hayak bridges the gap between Austrian economics and the broader field of social organization and philosophy. The Ludwig von Mises Institute promotes the study of Austrian economics.

Some of the important concepts of Austrian economics are subjective value, marginal utility, time preference, and the Austrian Business Cycle Theory. Mises predicted the crash of 1929 and modern Austrians have predicted many of the unintended consequences of current economic policies. Austrian economics is much more compatible with complexity theory and the concept of spontaneous order than today's mainstream economic thought such as the neo-Keynesian macroeconomic model and the Marshallian emphasis on equilibrium conditions.

Bionomics uses a rain forest instead of a clock as a metaphor to help understand economic systems. According to bionomic analysis the economy is complex and evolving like a rain forest and not a system with linear mechanical functions that can be "fixed" if only the right policies are put in place. Bionomics places a great deal of emphasis on the evolution of information and technology in determining the outcome of the economic process.

Question for Discussion: Is the main function of economic education to help people understand spontaneous order?

EVOLUTIONARY PSYCHOLOGY AND SOCIETY

If private property anarchy is the most just, stable, and productive of all the alternative forms of social organization why does it not exist anywhere? That is a good question. To answer it we must look at human nature through the lens of evolutionary psychology.

The human mind is hard-wired at birth to make us feel certain ways under particular conditions (with some exceptions called psychopaths). These feelings influence our actions and reactions. This is the result of adaptations and natural selection over millions of years.

For example most everyone likes sweets and fats. This is not taught but is the result of an evolutionary process that selected for these genes during a time when the human environment was low in calories and food. People who liked fats and sweets lived longer and had more children. The others died out over time. Of course environments change and adaptations once beneficial may not always be good for us. Consider as a case in point our widespread problem today with obesity. It takes a long long time for adaptations to adjust and sometimes they don't adjust in time to avoid the fate of the dinosaurs.

What instincts have a bearing on social relationships? Here is a partial list. (1) fear and anger; they have their place but also make it easy for rulers to manipulate people to go along withtheir plans. (2) the herd instinct; most people prefer to be part of a group. That is why patriotism is so popular as well as school songs and colors. Professional sports teams always represent a particular town to maximize the benefit from this instinct. Family loyalty is another example. (3) aggression and submission; most animals, including humans, are basically submissive and accept the concept of hierarchy sometimes known as the pecking order. There is not enough room for too many aggressive ones. The bumper sticker "Question Authority" makes most people feel uncomfortable. They prefer to accept authority perhaps because they need it to feel secure. This instinct can be manipulated by the dominant ones of our species who lust for power and want to control other people. (4) territoriality; this instinct is what makes nationalism popular. It is what makes it so important to protect "our" borders. Territoriality relates to another instinct which encourages us to separate people into "us" versus "them" categories and then to distrust and even dislike those who are "them".

These instincts when effectively used by politicians and dictators lead to archy or rulership. But there are other instincts that favor private property anarchy. For example, most people are instinctually cooperative and acquisitive and they are capable of developing moral values such as not harming other people without just cause in the same way they are hard-wired to be able to learn language skills. These instincts lead to peaceful productivity and exchange without central control.

The status quo is a powerful force to overcome and short-term prospects for developing a society without rulers is increasingly dim as rulers compete for power so they can pursue elusive utilitarian schemes and sometimes just to have the power itself, which of course corrupts them absolutely. And finally there is the fact that most people are not risk takers. They prefer not to take any risks unless the reward is very high and fairly certain. To them the perceived security of a bad status quo is preferable to the remote possibility of having a much better future.

Question for Discussion: Do humans have instincts or is that something only animals have?

HISTORY, LAW, AND POLITICS

Without theory facts can seem disorganized and unrelated. Without facts theory is just a mental exercise without any relationship to the real world. It is a good idea to study both. In the social sciences there are no controlled experiments so the best we can do is to look for evidence that supports or conflicts with our theories. The analysis of laws and policies using historical perspective can provide an opportunity to see which theories are supported by facts and which ones conflict with the facts.

Complexity theory and evolutionary psychology provide a framework to help us understand why social problems are never solved by a central authority and in fact are actually made worse by the attempt itself. History and economic analysis support this conclusion over and over again. It is a basic lesson that will continue being taught until we learn it.

Question for Discussion: Are there any particular events in the history of the United States that illustrate the concept of path dependency in complexity theory?

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Post-Graduate Additional Reading:

http://www.mises.org/rothbard/newliberty.asp#preface

http://www.lewrockwell.com/rothbard/rothbard66.html#jr

http://www.mises.org/etexts/keynestheman.pdf

http://www.lewrockwell.com/hoppe/uncertainty-insurance.html

http://libertyunbound.com/archive/2006_04/higgs-war.html

http://www.lewrockwell.com/orig6/bylund4.html

http://www.lewrockwell.com/rozeff/rozeff70.html

http://www.lewrockwell.com/hein/hein131.html

http://www.lewrockwell.com/orig7/woods-d1.html

http://www.lewrockwell.com/paul/paul319.html