State of Innovation

Patents and Innovation Economics

Procedural Versus Substantive Law: The Constitution

Substantive law can be derived from first principles, while most procedural law cannot.  Procedural law exists to support and protect substantive law.  This means that substantive law is primary and procedural law is secondary.  This is important to understand in debates on laws and the Constitution.  An example of substantive law is the law against murder or property rights.  An example of procedural law is that you are tried in criminal court by a jury of twelve peers or requiring a warrant for police to undertake a search.

Procedural laws are somewhat arbitrary and under common law are often based on historical incidents.  For instance the idea of a trial by a jury of your peers comes from the Magna Carta.  The Magna Carta (1215 CE) was created in reaction to King John’s tyrannical rule.  The idea of being tried by your peers was in reaction to the King or his administration issuing arbitrary rulings.  The ultimate goal was to obtain fair trials where substantive law is correctly applied.  However, we are all aware of jury trials with unjust outcomes. 

Not surprisingly modern statists (both socialists and conservatives) have purposely confused the difference between substantive and procedural law.  One example of this is the idea of “procedural justice”, which in its broadest form is the idea that whether a legal proceeding is “just” is defined by whether the correct procedures were followed.  Under procedural justice, if King John followed the correct procedures then his actions were just.  “Criminal trials at the time took the form of ‘ordeals’ by fire or by water; supervised by the local priest. God was the judge, and he would ensure that the innocent survived — thus, suspects dunked in ponds were declared guilty if they drowned.”[1]  This is the sort of nonsense that procedural justice leads to.

Libertarians have a specific strain of procedural justice, which boils down to the non-aggression principle (NAP).  This concept is associated with Robert Nozick, Murray Rothbard, and Stefan Molyneux.[2]  The non-aggression principle is an attempt to short cut the hard philosophical work of defining rights and laws to protect them.  Here are a couple of examples of the nonsense the NAP leads to.

1) A nomad picks an apple from a tree.  The orchard owner points a gun at the nomad and demands he return the apple.  Who is the aggressor?  I can assure you that the nomad thinks the farmer is the aggressor.  The nomad does not recognize or understand the idea that you have a property right in something you grow.  To him property rights are defined by the first person to acquire something.  Of course, the farmer believes that the nomad is the aggressor.  It is impossible to determine who is the aggressor in the case without a proper definition of property rights, something libertarians have failed to do.  In fact, libertarians and Austrian Economics do not think property Rights exist, just a utilitarian legal clam to things, which they call property.

  1. An environmentalist blows up a libertarian’s SUV. Who is the aggressor?  The environmentalist argues the libertarian is the aggressor because he is putting greenhouse gases into the atmosphere and killing the planet and the environmentalist with it.  The libertarian points to his car and says the environmentalist is the aggressor.  Without reason and science it is impossible to decide who is the aggressor here.  A proper understanding of property rights is also necessary.

The non-aggression principle at best is derived from reason that also properly defines property rights and a rational ethics.  However, the NAP pushers think they can side step this hard work.  Without this foundation the NAP leads to nonsense.

Substantive laws protect people’s natural rights, which are the rights that can be derived from the fact you own yourself using reason (evidence and logic).  Procedural laws are rules that are designed to ensure your natural rights are protected by the government by requiring certain processes.  People often confuse procedural guarantees for rights.  Unfortunately, even the founders’ in the Bill of Rights made this mistake.  The sixth amendment is an example of this, but not the only example.

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the assistance of counsel for his defense.

You do not have a natural right to a trial, that the trial be public or speedy or by a jury.  You cannot create a formal logical argument that requires a speedy, public, jury, trial because you are the owner of your life and yourself.  We all know that speedy trials are not necessarily more accurate or just than slow trails.  The USSR held public trials.  This did not mean that they were not show trials.  In the United States today people are convicted of all sorts of crimes that meet the sixth amendment standards, but are not just because they are based on unjust laws.  For instance, people are convicted of unconstitutional securities laws, or drug laws, or environmental laws.  These trials are not just.

Confusing procedural guarantees with Natural Rights confuses the discussion and undermines our rights.  A procedural guarantee in almost all cases is a government created rule that is not based in strict logic.  If we call these procedural guarantees rights, then we logically open the door to the argument that “Rights” are created by governments.  One procedural (and evidentiary) rule that might be based in reason and Natural Rights is the maxim “innocent until proven guilty”.  However, this maxim is still not a right.  A right defines a moral (and legal) claim to take action without anyone’s consent.  The innocent until proven guilty maxim is not a right to take action.

The United States Constitution is mainly a document about procedural rules, not about protecting our rights.  As a result, we often put too much importance on the Constitution.  I have shown in my post, Property Rights: The Foundation of Freedom, that property rights/laws are much more important in protecting our rights than the Constitution.

When we examine the original Constitution (the Bill of Rights were added three years after the Constitution was ratified) we find it is composed of a preamble and seven Articles.  The first three Articles are directed to setting up the legislative, executive, and judicial branches of the federal government.  Article 4 is about the relationship between the States and the federal government.  It is important to remember that the Constitution did not and was not intended to setup the only or even the supreme government in the United States.  The Constitution setup a federal government to deal with problems that the states could not solve individually or that would cause chaos if each State government took their own different positions, for example foreign relations and war.

Article 5 is about the procedure of adding amendments to the Constitution.  Article 6 is about Prior Debts, National Supremacy, and Oaths of Office.  It is basically a hodgepodge of items that did not fit in the other articles.  Article 7 defines the procedure for ratifying the Constitution.

The high level structure of the Constitution is about procedures not rights.  The first three Articles define the structure of the federal government.  This structure is modeled after the government of the Roman Republic and the English monarchy.  Sorry Christians the United States Constitution is not a Christian document any more than geometry is Greek math.  The Constitution is devoid of any reference to God or the creator or any other reference to religion.  Article 6 does state this however “but no religious Test shall ever be required as a Qualification to any Office or public Trust under the United States.”

Article 1 of the Constitution sets up the legislature and divides it between a Senate and a House.  The Senate is made up of two people from each state picked by the state legislature.  The terms of office are set out for Senators and Representatives, minimum ages, and other procedural rules.  You cannot logically prove that the best government is made of three branches.  Or that the legislature should be divided into two houses, or that requiring a certain age to serve is necessary.  All of these are procedural rules and cannot be derived from our natural rights.  Despite this, it is important to point out when government officials do not follow the Constitution, because those are the rules they are supposed to be bound by.  However, not following many of the rules in the Constitution does not result in a violation of anyone’s Natural Rights.  The goal of government is to protect our individual rights and all this procedural stuff is just to help ensure that.  As the Declaration of Independence states:

All men are created equal, [that] they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men

There is only one right (Natural Right) mentioned in the United States Constitution and it is in Article 1, Section 8, Clause 8:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries

There is a lot of nonsense about the Patent and Copyright clause, including that the preamble (To promote the Progress of Science and useful Arts) is limiting on this RIGHT.  This is the same nonsense used against the 2nd amendment.  Preambles in law are not limiting, they are merely descriptive.  It makes no sense to say you have a right that is limited by some utilitarian criteria.  Article 1, Section 8 also starts with the phrase “The Congress shall have Power to”, which some people have interpreted as making patents and copyrights optional.  Protecting Rights cannot be optional.  The purpose of government is to secure peoples’ right.  The reason the patent and copyright clause is placed in this part of the Constitution is to direct the Congress to pass laws to implement them and to eliminate the States’ patent and copyright laws.  This is clear from the structure of the Constitution and its History and the fact that President Washington was upset with Congress for not passing a patent law sooner.[3]

People claim that other rights are mentioned in the original Constitution, however they are always confusing procedural guarantees with rights.  For instance, some people suggest that the Writ of Habeas Corpus is a right.  Even in the Constitution it is clearly stated that it is a privilege, which is also not quite right it is a procedural guarantee.  The Writ of Habeas Corpus is recourse under the law to determine if a person is being unlawfully detained.

The United States Constitution is mainly concerned with the structure of a federal government and the procedures it operates under.  It is not a guarantor of our individual rights, with the exception of the rights of inventors and authors.

 

Conclusion

Substantive law is based on our Natural Rights, which are derived using reason from the idea that we own ourselves and our life (which clearly includes the right to our own life).  Procedural law is designed to ensure the government protects our Natural Rights.  Procedural law generally cannot be derived from pure logical deduction and is often based in historical experiences.  When procedural law is treated as primary (procedural justice) it leads to all sorts of nonsense.  The United States Constitution is primarily about the structure and procedure of the federal government and is not the main legal protection of our rights.

 

 

[1] Geoffrey Robertson, Magna Carta and jury trial,  https://www.bl.uk/magna-carta/articles/magna-carta-and-jury-trial, accessed July 31, 2017.

[2] Matt Bruenig, The three big conservative philosophical frameworks, http://mattbruenig.com/2011/12/20/the-three-big-conservative-philosophical-frameworks/, accessed July 31, 2017

[3] Randolph J. May  and Seth L. Cooper, Constitutional Foundations of Copyright and Patent in the First Congress,  http://www.freestatefoundation.org/images/Constitutional_Foundations_of_Copyright_and_Patent_in_the_First_Congress_050714.pdf

July 30, 2017 Posted by | Legal Philosophy | , , , | Leave a comment

The Source of Economic Growth: Review

This is an excellent book that cuts through the morass of theories about …

 

This is an excellent book that cuts through the morass of theories about the source of wealth to make an identification that gave me a thrilling “Eureka!” moment, followed by an “Of course! Why didn’t I see that?” which comes with every brilliantly made, clearly expressed discovery. Thank you for clearing the cobwebs on the vital issue on the source of ongoing wealth — the dissemination of your well-supported identifications can make the difference in the quality of life in all nations for all lifetimes to come.

Terry Jean Taylor

 

 

July 3, 2017 Posted by | -Economics, Uncategorized | | Leave a comment

What is Regulation?

This is part of a series of articles exploring what the law would look like under an Objectivist government, one in which natural or individual rights were protected as the Declaration of Independence promised.  Remember the only right that the people give up to the government is delayed retaliatory self-defense.

Generally under Natural Rights we would consider all regulations as inconsistent with a proper government.  But what is regulation?  It seems like a dumb question, we all know what regulations are.  However, when you dig deeper the question becomes more complex.  Are contracts regulation?  What about tort laws?  What about laws on recording deeds for land?  Are these different than laws requiring registration of cars?  Some people have even argued that patents and copyrights are regulations.[1]  Unfortunately, the dictionary definition of regulation is not very helpful in resolving what a regulation is and what a law is.  Here is a standard dictionary definition of a regulation:

“a law, rule, or other order prescribed by authority, especially to regulate conduct.”  Dictionary.com

According to this definition, laws and regulations are the same thing.  However, I do not think that is what people mean by regulations at least in a legal/political sense.  In the United States the regulatory state is usually dated from the passage of the Interstate Commerce Act of 1887.  Most of us associate regulations with some sort of alphabet agency that employs large numbers of bureaucrats.  The Interstate Commerce Act of 1887 created the ICC (Interstate Commerce Commission), whose initial job was to set railroad rates and later to completely oversee all operations of all common carriers in the United States.  These rules that the ICC imposed on all common carriers are commonly considered regulations. 

 

Procedural Definition of Regulation

One definition of a regulation is a governmental rule that is not passed by the normal procedures required for laws.  In the United States this means it is a rule that was not passed by the House and Senate and then signed by the President (at the federal level).  This is the standard legal definition.  It is a useful definition as it points out that these rules are inconsistent with the Constitution and Parliamentary Governments also.

Regulatory agencies act as the rule maker (legislature), the enforcer of their rules (executive), and the judge (Judiciary).  This makes them extremely dangerous and unconstitutional.  The first sentence of the United States Constitution is:

All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.

Regulatory agencies also pull a slight of hand and characterize their rules as civil law (as opposed to criminal law), which means that the Bill of Rights does not apply.  The EPA (Environment Protection Agency) has even argued that the Bill of Rights, including the 4th and 5th amendment does not apply to the EPA ever (criminal or civil) and won in court.  This was in a case in which the EPA had applied a $32,500 fine per day on a middle class family, the Sacketts.[2]  The Supreme Court reviewed this case and did not throw out the EPA’s contention that the Bill of Rights does not apply to the EPA.  Instead the Supreme Court ruled that the EPA’s action was a final action and therefore subject to review by Article 3 courts (the only federal judicial branch allowed by the US Constitution).

The combining of all three branches of government into a single entity was the very definition of tyranny according to James Madison.[3]  It was also part of what the United States Revolutionary War was about.  For instance, the Declaration of Independence states “He (King George III) has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people and eat out their substance.”

Congress has proposed some very weak measures to rein in regulatory agencies, specifically the RIENs Act.  This Act allows for congressional oversight of regulations that would cost $100 million to the economy (see Regulatory Reform: REINS Legislation).  This does not solve the Constitutional problems with regulatory agencies and provides no direct relief to people attacked by regulatory agencies, such as the Sacketts.

I have proposed a more broad reaching legislation that would provide direct relief to people like the Sacketts, entitled Regulatory Bill of Rights.  It requires agencies prove that the regulation achieves its purpose and that it is the least expensive way of doing so, as defense to any regulatory action.  There are numerous stories of regulatory rules that do not even achieve their goals.  Here is an EPA ruling so absurd that its only purpose is to prove that environmentalists value everything above human life.

One of the most amazing rulings to come out of Browner’s EPA was a letter sent to the city of San Diego, ordering them to stop treating the sewage pouring into the Tijuana River Valley on the grounds that human actions were disturbing the “sewage-based ecology” of the affected estuary—ignoring the fact that the sewage posed a health threat to human beings (whose “ecology” obviously wasn’t considered as important by the EPA).[4]

It is also a defense to any regulatory rule that it is inconsistent with any other regulatory rule, in my proposed Regulatory Bill of Rights.  For instance, OSHA required backup alarms in commercial vehicles that conflicted with the EPA’s noise pollution requirements.

The proposed Regulatory Bill of Rights provides economic incentives for people (average citizens) to find less expensive regulations that achieve the same goal as the regulations proposed by Agencies.

 

Objective Definition of Regulation

I do not think this procedural definition of regulation is what most people mean by regulation.  If Congress and the President pass a law that every car owner has to report the tire pressure on all their cars by 8AM in the morning every day, I think most people would think this is a regulation.  The essence of what is a regulation is whether it requires preemptive action to prevent some potential harm.

Under standard common law a person was not required to take action to prevent a potential future harm.  A company could be charged with negligence if their poor design resulted in the injury, but only after the injury (or other harm) had occurred.  A car manufacturer, for example, could not be required to put in certain types of brakes or required to undertake certain types of testing under the position that it might prevent future accidents.  Probably the best example of this idea under common law is the Good Samaritan rule, which states that you do not have a duty to offer assistance to people in distress.  For instance, you do not have a duty to help pull people out of a burning vehicle and you cannot be charged with a crime for not helping them.

This is related to the common law principle that you are innocent until proven guilty.  All regulatory laws assume that you are guilty until proven innocent.  They assume a builder will commit negligent fraud endangering the buildings occupants, unless there are building codes and building inspectors.  They assume the bicycle manufacturer will endanger lives by not putting retro-reflectors on the pedals.  A regulation that makes no sense as the first thing any serious bicyclist does is replaced the pedals with clip in pedals that do not and cannot have retro-reflectors.

This idea that the law can require people to take action who have not committed a crime[5] is antithetical to freedom and the very basis of the regulatory state.  Based on this, I propose that the proper definition of a regulation is a government rule that requires people to take action who have not committed a crime (or as the end result of a civil suit).  Using this definition we can look at the questions posed in the second paragraph.

Are contracts regulation?  No.  Contracts are an agreement between two private parties, so they cannot be regulations.

Are tort laws regulation?  In general no, tort laws do not require private parties to take preemptive action.

Are laws on recording deeds for land regulation?  No (generally).  At least under common law you are not required to record your deed for your land.  However, failure to do so will undermine your evidentiary standing if you are involved in a fraudulent sale lawsuit.  Note if the fees are higher than necessary to perform the recording function or if the process is more complex than necessary to perform its function, then this might be considered a regulation.

Are laws requiring registration of cars regulation?  Yes.  Unlike recording of deeds for land, you are required to register your car.  The original excuse for these laws was the same as recording deeds; to more securely establish ownership in case of theft or a fraudulent sale.  Second the purpose has shifted.  Registration is about increasing government revenue, not ownership issues.  It is also about aiding the police in crimes having nothing to do with the ownership (transfer) of the car.  In other words it is big brother or part of the bad Nazi movies where they ask the person “show me your papers?”

It would make sense then that you would never hear Objectivists or Libertarians making these sorts of arguments.  However, many Objectivists and Libertarians do use this reasoning to support their positions on gun control, immigration/travel, and drunk driving laws.

Gun Control:  It is embarrassing when Objectivists support gun control laws.  One of their standard arguments is that guns are instruments of violence and this is a guns only purpose so they can be regulated as part of the state’s proper purpose to stop violence or because the government has a monopoly on the use of force.  This regulation can include registration of guns, limitations on what weapons can be owned, and restrictions on who can own guns.  Note that this argument assumes that gun owners have to take an action when they have not been convicted or even charged with a crime.  All of these are clearly regulations because they require preemptive actions by people who have not committed a crime and the purpose of these government rules is to prevent some potential harm.  This is not consistent with Objectivism.

A more sophisticated argument is that the right to own a gun is part of your right to self-defense (not your right to property).  Therefore the government can limit what weapons you can own and perhaps also require registration, because this does not interfer with your right to self-defense.  The argument is that no one needs a Howitzer or nuclear bomb or a machine gun for self-protection.

There are numerous problems with this line of reasoning.  One is that a proper government cannot have rights that the people do not have themselves, except the right to delayed retaliatory self-defense.  This means that if people cannot own Howitzers or nuclear bombs or machine guns for self-defense then the government cannot have that right either.  Certainly a proper government could and should have these weapons and they should only be used in self-defense.

Second, people do have the right to revolution if the government fails to protect their rights.  This was established by John Locke and was the very basis of the American Revolution.  It is also the justification for the actions of Ragnar Danneskjold in Atlas Shrugged.

 

“Whenever the legislators endeavor to take away and destroy the property of the people, or to reduce them to slavery under arbitrary power, they put themselves into a state of war with the people.”

—John Locke

 

The goal of a revolution is to overthrow tyranny.

The overthrow of a political system by force is justified only when it is directed against tyranny: it is an act of self-defense against those who rule by force. For example, the American Revolution.

Ayn Rand, “From a Symposium,”Return of the Primitive: The Anti-Industrial Revolution, 173

http://aynrandlexicon.com/lexicon/revolution_vs_putsch.html

 

Arguing that guns are only justified under self-defense is a slight of hand.  It is an attempt to impose regulations that are justified on the worry about some potential harm.  This is inconsistent with Objectivism and common law (classical).

There is no justification why your right to property is limited by your right to self-defense.  Your right to self-defense is a derivative of your right to yourself and your life, meaning your right to property not the other way around.

Gun Control is not Consistent with Objectivism

 

Immigration/Travel Controls: In peace time your right to travel is part of your right to your own life.  If a person is not a criminal, stopping that person or demanding they show papers or asking them questions is the government initiating force against private people.  When you scratch the justifications for immigration controls most people suggest that immigrants will corrupt our cultural, political, or legal system.  These are inherently collectivist arguments.  The people who make this argument believe that an individual can be judged by where they grew up or their religion or their genetic heritage.  These are all collectivist.  They are antithetical to natural rights (individual rights) and Objectivism.  Note the justification is based on some potential future harm which makes immigration/travel restrictions necessary, which makes them regulations.

Another nonsensical justification is that we have some sort of collective property right and therefore we can band together to stop people from crossing a border.  There is no such thing as collective property rights and property rights cannot be used to significantly interfere with the right to travel.  I have written on this extensively in my post Property Rights: The Foundation of Freedom.  Ultimately, this is another rationalization to prevent some potential harm.

An absurd argument used by some so-called Objectivists to impose immigration/travel restrictions is the right of association.  The right to association, like all rights is personal and you are not forced to associate with immigrants and the immigrants/travelers also have the right of association.  In addition, the people who make this argument are using the right of association to limit everyone else’s right to association.  I cannot associate with a foreigner, because you do not want to associate with a foreigner.  This is just embarrassing when people make this argument.

Immigration/travel controls can be justified in times of war if the war is properly declared and there is a military purpose and that these controls are narrowly tailored and that it is the most efficient way to achieve an objective related to the war.  These circumstances are almost never meet except in the case of narrow corridors near the actual war zone.  For instance, there would have been no justification for such rules in the Spanish American War, the Revolutionary War, the Civil War, the Korean War, the Vietnam War and certainly not in the “War on Drugs” or the “War on Terrorism”.

The other justification for immigration/travel restrictions is to prevent the spread of disease.  Quarantines have a long history, even in common law countries.  The idea is that a person who knowingly has a disease or knows they are likely to have a disease is essential violating other peoples’ right to self-defense much like assault.  Quarantines are very problematic.  For instance, can you quarantine a person with a cold?  If not how do you decide when a disease is serious enough that a quarantine is justified?

In modern times, we do not impose quarantines internally in advanced nations.  Unless a country imposes quarantines internally, then there is no justification for quarantines for immigration/travel.  In addition, immigration/travel restrictions are very unlikely to have meaningful impact on the spread of diseases.  Ultimately, this justification for immigration/travel restrictions is an attempt to prevent future harm, which makes them regulations.

Your natural rights do not include the right to safety.  Life includes risk and that includes the risk of getting sick.  Everyone get sick.  If you do not want to get sick then stay at home.  There is no justification for immigration/travel restrictions based on the risk of spreading diseases.

In Peace Time there is no Justification for immigration/Travel Restrictions

 

Drunk Driving Laws: We have all been convinced that you are a Neanderthal if you do not think that there should be laws against drunk driving.  Unfortunately, this is all based on a very clever public relations campaign by MADD (Mother’ Against Drunk Driving).  MADD has substituted the nonsense of “alcohol related” for “alcohol caused” accidents.  MADD and the NHTSA (National Highway Transportation Safety Administration) have used this gross dishonesty to claim 16,000 people in the United States are killed in “alcohol related” accidents each year, when an honest definition is used only about 500 innocent people in the United States are killed.[6]  There were 35,000 traffic fatalities in the United States in 2015 up slightly from earlier years.  This means about 1.4% of traffic fatalities in the United States are caused by alcohol “impaired” drivers.

Scientifically a 0.08 blood alcohol level (BAC) does not statistically increase that persons’ chance of being in a car accident.  Many things, including a lack of sleep, increase the statistically likelihood of accident much more than a 0.08 BAC.  We can therefore dispense with the moral outrage, which is used to avoid logic.

The purpose of drunk driver laws is to prevent some future harm, which means it is a regulation.  Drunk driving laws are not consistent with Objectivism and Natural Rights.

 

Conclusion

A logical definition of a regulation is a government rule that requires people to take action who have not committed a crime (or as the end result of a civil suit).  All regulations are inconsistent with Objectivism, Natural Rights and Common Law (classical).  Regulations are always justified on the goal of preventing some future harm and violate the common law principle that people are innocent until proven guilty.

 

[1] KAROL ŚLEDZIK, PATENT TROLLS AND SCHUMPETER’S CREATIVE DESTRUCTION, file:///C:/Users/Dale/Downloads/Patent_Trolls_and_Schumpeters_creative_d.pdf accessed 5/27/17;

NEW BILL TARGETS PATENT TROLLS STUNTING ECONOMIC GROWTH, http://www.engine.is/news/issues/new-bill-targets-patent-trolls-stunting-economic-growth/2471 accessed 5/27/17.

[2] Damien Schiff, Sackett v. Environmental Protection Agency: Compliance Orders and the Right of Judicial Review, http://www.fed-soc.org/publications/detail/sackett-v-environmental-protection-agency-compliance-orders-and-the-right-of-judicial-review accessed June 17, 2017.

[3] Joseph Postell, http://www.heritage.org/political-process/report/administrative-state-constitutional-government#Part1 , From Administrative State to Constitutional Government, accessed June 17, 2017.

[4] Mark Hendrickson, The EPA: The Worst Of Many Rogue Federal Agencies, https://www.forbes.com/sites/markhendrickson/2013/03/14/the-epa-the-worst-of-many-rogue-federal-agencies/#6adc67221adb, accessed June 25, 2017.

[5] Rational criminal laws, where you have to have mens rea and caused harm or at least made substantial plans to do so.

[6] MADD (Mothers Against Drunk Driving) has had one hell of a run, http://www.drunkard.com/08_02_fighting_madd/ , accessed June 25, 2017.

June 28, 2017 Posted by | Legal Philosophy | , , , | Leave a comment

The Greatest Mistake in Economics: We Are Wealthier Because Profit Margins Are Small

Economists often argue that the West is wealthier because profit margins are driven down by competition.  For instance, here is a quote from an article in Forbes by a researcher at the Adam Smith Institute

What this means is that prices to us, the consumers, keep coming down as a result of that competition. And yes, if the prices we have to pay for things decline then we are becoming richer. Our real incomes are rising as a result.[1]

Economists have two scientific sounding theories for this idea, perfect and pure competition or the zero profit tendency.

Pure and Perfect Competition

According to Investopedia under perfect “Companies earn just enough profit to stay in business and no more, because if they were to earn excess profits, other companies would enter the market and drive profits back down to the bare minimum.”[2]  Economist hold up perfect completion up as the ideal market situation and any other situation result is “excess profits”.  In fact, perfect competition is the theoretical underpinning of anti-trust law.

There are a number of problems with this theory of perfect competition and I discuss them in depth in my book Source of Economic Growth, so this will just be a brief overview.  First of all we do not create wealth by consuming, we create wealth by producing and we can only produce more efficiently by inventing.  Our standard of living is defined by our technology.  Second the wealthiest countries are those that have producers (companies and workers) whose profit margins have not been squeezed to the bare minimum.  How wealthy are the owners of a company making the bare minimum of profits?  How much can they pay their employees, when their margins are at the bare minimum?

We get wealthier by inventing new technologies that provide large profit margins.  Railroads had (have) much larger profit margins than human mules (Sherpa’s), or canal owners, or wagon drivers.  They still deliver goods for much less cost despite their higher profit margins.  In the future railroads may be obsolete as UAVs take over the job of transporting goods as Amazon is experimenting with.

 

Zero Total Profit Tendency

                Austrian Economics supposedly rejects the perfect competition theory, however they replace it with their own version, the tendency that total profits will be zero when an economy is in equilibrium.[3]  Like perfect competition they assume that competition will drive profits down or toward zero.

 

Conclusion

Competition is not the source of wealth.  In fact in a perfect world economically, we would all produce unique items of extremely high value.  This is not to say that government inhibition of competition is good or makes us wealthier either.  However, every property right (that is enforced) results in less competition and we would not be wealthier without property rights.  Competition is a result of capitalism, it is not the definition of capitalism or what makes us wealthy.  It is this sort of confusion about cause and effect that has so-called free market economists either arguing for anti-trust laws or arguing for anarchy (the absence of property rights).

The source of all real per capita increases in wealth is due to increasing levels of technology, not competition.  The only way we increase our level of technology is by inventing.  Property rights for inventors are the most important property right economically and the fundamental basis of all property rights.

[1] Tim Worstall, Amazon Vs Walmart On Free Shipping – It’s Not Capitalism That Makes Us Rich But Market Competition, https://www.forbes.com/sites/timworstall/2017/05/09/amazon-vs-walmart-on-free-shipping-its-not-capitalism-that-makes-us-rich-but-market-competition/#6dc7b5593c8e accessed June 7, 2017.

[2] Perfect Competition http://www.investopedia.com/terms/p/perfectcompetition.asp#ixzz4jLsXzRQ accessed June 7, 2017.

 

[3]Driving the Market Process: “Alertness” Versus Innovation and “Creative Destruction” https://mises.org/library/driving-market-process-alertness-versus-innovation-and-creative-destruction accessed June 7, 2017

June 8, 2017 Posted by | -Economics, Innovation, Patents, philosophy, Regulation | , , , | 2 Comments

Walter Williams and Overpopulation

In an article entitled, Overpopulation Hoax, on Lew Rockwell.com, Walter Williams argues that Thomas Malthus was incorrect in his prediction about food and population.  Williams misstates what Malthus said in suggesting that populations will have catastrophic collapses.  What Malthus predicts is that all species’ population will expand to fill the available food sources.  This means that individuals within the species will be on the edge of starvation.  If the population declines from starvation or because of some other cause, then there will be surplus calories available and the population will increase until there are no surplus calories for the species’ population.

Williams Misrepresents Malthus

If there is a positive genetic change (or positive change in the environment), there will be excess calories and the population will increase until there are no surplus calories for the species’ population.  This is true for all living species on Earth for all of history, including humans until about 1800.  Malthus’ ideas underlie all of evolutionary biology.  Even when I was born in 1960 over half the world’s human population was living in the Malthusian Trap (on the edge of starvation).  Today less than 15% of the World’s human population is living in the Malthusian Trap.  Overpopulation is not a hoax, however the catastrophic collapse nonsense of the environmental left, such as Paul Ehrlich predictions are.

Julian Simon Humans are Assets

Williams quotes economist Julian Simon that humans are the ultimate asset.   This is almost true.  Extra human beings being born in North Korea are a liability to the North Koreans, not an asset.  Humans are an asset when they are free to create new technologies and their property rights in those new technologies are protected.  Under those circumstances every additional human has a chance to be an asset.  The only way humans escaped the Malthusian Trap and the only way humans increase their real per capita income is by increasing their level of technology, which means inventing.  For more information about the cause of real per capita increases in wealth see my book Source of Economic Growth.

 

 

PS: Walter Williams is an excellent economist.

May 31, 2017 Posted by | -Economics, bioeconomics, Blog, Innovation | , , , , | Leave a comment

Property Rights: The Foundation of Freedom

In the United States, we tend to study the Constitution to secure and understand our freedoms.  This is a bit strange as our freedom throughout history has been secured mainly by property rights.  This was understood by the founders and many others.

 

There is a “diversity in the faculties of men, from which the rights of property originate…. The protection of these faculties is the first object of government.”[1]

James Madison’s Federalist 10

 

“The reason why men enter into society is the preservation of their property.” John Locke

 

“No other rights are safe where property is not safe.”

Daniel Webster

 

“Ultimately property rights and personal rights are the same thing.”

Calvin Coolidge

 

Without property rights, no other rights are possible.

Ayn Rand “Man’s Rights,” The Virtue of Selfishness, 94, http://aynrandlexicon.com/lexicon/property_rights.html

 

“Property rights … are the most basic of human rights and an essential foundation for other human rights.”[2]

Milton Friedman

 

Property rights in the United States were a matter of state law for most of its history, with the minor exception of the Fifth Amendment.  Thus to gain a better understanding of how our freedom is secured, we need to study property rights.  This is a big subject and this post will focus on the historical development and the philosophical foundations of property rights.

The concept of property rights started with some sense of ownership of food and personal possessions among nomadic people.  People had the idea of a superior moral claim to the apple they picked or the deer they killed or the clothes they made and wore compared to other people.  With the advent of the Agricultural Revolution people began to think they had a superior moral claim to the land they cultivated and the crops grown on this land, which was the beginning of the idea of property rights in land.  However, these were not real property rights, because the King or other political body almost always reserved the power to trample peoples’ property rights when it was politically expedient.  In the Middle Ages “property rights” were thought to reside ultimately in the King or the sovereign.  Legal realists still hold onto this idea.  During the Renaissance legal theorist worked on a rational basis for property rights, starting with Hugo Grotius in the early 1600s.  Adam Mossoff has written an excellent paper explaining the historical development of property rights theory including the major theories today, called What is Property? Putting the Pieces Back Together.[3]

After Grotiuss, John Locke continued the work of developing a rational theory of property rights.  Locke’s formulation is that anything in a state of nature (unowned) that someone makes useful, results in them having a property right in the item they made useful.  So if you shoot a deer you have property rights in the deer or if you plant olive trees on some ownerless land you have a property right in the land and the trees.  This is true according to Locke because you have an exclusive moral claim over yourself (body and mind) and anything you create value in gives you property rights in the item.  This is commonly summarized as having property rights in one’s self.

It is important to understand that all of law is based on property rights logically (and historically).  Some libertarians have tried to postulate systems where property rights are some sort of contract.  You cannot have a contract unless you have an exchange and you cannot exchange something you do not own.  You also need to have property rights over yourself to enter a contract.  Contract law presupposes property rights law and to reverse the process results in nonsense.  Tort law makes no sense without property rights.  If you do not own yourself or some property how can you claim to have been harmed.  This is true of all other areas of law also.

Property rights law was developed in common law countries and in the United States along Locke’s theoretical formulation for at least a century or more.  For instance, in the United States the Homestead Act (of 1862) provided that any adult who had not taken up arms against the U.S. could acquire 160 acres of land by farming and living on the land for five years.  The Act made the implicit assumption that the land was in a “state of nature” and that people could obtain property rights by making it more valuable.  This is almost an exact formulation of Locke’s theory of property rights, except that the land had to be surveyed first and the acquirer had to put in an application.

There are several interesting things about the Homestead Acts.  One is that they were first proposed before the U.S. Constitution was ratified and many other homestead acts were passed after the one in 1862.  The Homestead Act of 1862 was clearly passed as part of the politics of the Civil War in the U.S.  Another interesting point is the Homestead Act implies that land grants by Kings did not result in valid property rights.  For instance, the land grants to George Washington for his military service from the British Crown did not confer valid property rights in the land.  Washington had problems with squatters on this land, who seemed to understand that Washington’s property rights in this land were invalid since he did nothing to create value in the land.[4]

Another interesting thing about the Homestead Act is that the surveyed plats were separated by roads.  There were no taxes to create or maintain these roads, so they were un-owned land or land in which no one could have property rights in.  It is important to note that property rights in land that cannot be accessed make those rights meaningless.  An essential element of all property rights in land includes access to and from the land and the rest of the world.  This does not mean that the owner of the land cannot exclude people from their land, but it does mean that property rights in land cannot interfere with reasonable travel.  This is one of those questions in law where the philosophy lays out the general theory, but the law has to work out some practical realities in which there is no exact answer.  In the Homestead Act, they decided that roads had to exist around every square mile block of privately owned land (one mile grid).  This obviously would have to be modified sometimes for terrain and another distance or pattern for the roads could have been selected without violating the general principles.

It would also be an abridgement of people’s right to travel if property rights in land could imprison people.  People exercised the right to travel over land before there were any property rights in land.  Thus property rights in land that unduly impinge on the ability of travel violate other people’s rights.

It appears the Romans understood this.  In the twelve ancient Roman tablets that set out the law, tablet seven appears to require land owners to maintain the roads.  “1. Let them keep the road in order. If they have not paved it, a man may drive his team where he likes.”[5]  Table eight requires “Where a road runs in a straight line, it shall be eight feet, and where it curves, it shall be sixteen feet in width.”[6]  Tablet nine requires “When a man’s land lies adjacent to the highway, he can enclose it in any way that he chooses; but if he neglects to do so, any other person can drive an animal over the land wherever he pleases.”[7]  The Roman tablet eight also require space between buildings, “A space of two feet and a half must be left between neighboring buildings.”[8]  This last law could have been for travel or to keep fires from spreading through the city.  Unfortunately, there does not appear any commentary to let us know.

Some people have suggested that this ownerless land for roads in the Homesteading Act is inconsistent with Ayn Rand’s Objectivism: “Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.”[9]  This mistake is based on a misunderstanding.  There is no such thing as property.  There are property rights and things in which people may have property rights.  In informal language we often use the shorthand property to refer to something in which we or other people have property rights.  Unfortunately, this shorthand results in confusion.  Correctly interpreted what Rand’s statement is saying is that governments cannot have property rights in land or anything else only people can.  What the government has is a custodial duty.  The government cannot have a moral claim to have made something useful, only individuals can do this.  Rand explained it this way with respect to the Homestead Act of 1862:

Thus, the government, in this case, was acting not as an owner but as the custodian of ownerless resources who defines objectively impartial rules by which potential owners may acquire them.[10]

Rand did not directly address the concept of property rights, however she laid out many of her ideas in two articles in Capitalism: The Unknown Ideal: 1) The Property Status of Airwaves, and 2) Patents and Copyrights.  Rand echoes Locke when she explains the origin of property rights, “Any material element or resource which, in order to become of use or value to men, requires the application of human knowledge and effort, should be private property—by the right of those who apply the knowledge and effort.”[11]  Rand is stating that because you made/created something valuable you have a moral claim to the item that is greater than other peoples’.  Rand’s main refinement over Locke is to make it clear that this includes mental effort (in a way Locke leaves more ambiguous), “thus the law establishes the property right of a mind to that which it has brought into existence.”[12]

One important point that should be clear from this discussion is that dead people cannot have property rights.  Property rights are a moral and legal relationship between a person and an item (tangible or intangible).  A related point is that when someone abandons their property rights by no longer making something useful, then it is ownerless again and therefore in a state of nature.  This means that someone else can come in and make the item productive again and therefore acquire property rights in the item.  This is a very complicated subject and covering it in even a cursory way could be a whole book, however I will point to some examples.  In common law there is something called adverse possession, which “is a situation when a person who does not have legal title to land (or real property) occupies the land without the permission of the legal owner” and gains legal title to the land.[13]  Another complicated situation where these principles come into play is when a person dies or estates law.  A dead person cannot have property rights in anything, so suddenly those items they had property rights in are ownerless.  Property rights in land do not go on forever as many people assume.  A detailed- discussion of this issue is beyond the scope of this article.

We have talked about how property rights arise, but not what they are.  Many people think that their property rights in their land are unlimited that they go up infinitely into the sky and down to the center of the Earth and they can do anything they want on their land.  Why do they think this?  Did they create value 500 feet below the surface of their land?  Did they create value 500 feet into the air above their land?  Of course not.  The property rights you obtain are related to the value you created.  The most common form of property rights is called “fee simple” in the law.  Fee simple allows you (ignoring building codes) to farm/ranch and have a house (building), run a business, etc. on your land.  It does not allow you to put a commercial hog sty on your farm next to your neighbor’s house.  This would violate nuisance laws, which ensure that you have reasonable enjoyment and use of your land.  On the other hand, you cannot buy a farm and then build a house next to your neighbor’s pig sty and then sue them for nuisance.

In addition, there are other groups of property rights such as mining rights, which come in two varieties, lode and placer.  Lode mineral rights are designed to ensure that the person who discovers a vein of say gold is the owner of the whole vein.  Otherwise it would be easy for other people to say they discovered the obvious other end of the vein and profit at the expense of the true discoverer of the vein.  These rights may not include any rights to the surface land above them, while a place type of mineral rights does.  There are also grazing rights, water rights, easements, trademark rights, property rights in chattel, copyrights, patent rights (inventions), trade secrets, etc.  All of these property rights are different and come with different rights of action and rules, based on the value that was created.

The property rights you obtain are related to the value you created

Property rights are not monolithic as many people seem to believe.  As Adam Mossoff explains in his paper, Why Intellectual Property Rights? A Lockean Justification:

As Locke first explained, property is fundamentally justified and defined by the nature of the value created and secured to its owner … To wit, different types of property rights are defined and secured differently under the law.

Some property rights come with the right to exclude, however grazing rights do not include a right to exclude unless the person is interfering unreasonably with the grazing rights owner’s ability to graze the land.  Even with “fee simple” ownership of land your right to exclude is limited to using reasonable means to exclude people who are interfering with you enjoyment and use of your land.  This means you cannot shoot someone for crossing your land.

Property rights are a vast and complex area of law of which this article just touches on.  Property rights are the most important area to securing our freedoms and all law starts with and builds on property rights.  The key philosophical foundations of property rights are:

Property rights is the foundation of all law

Property rights are a moral and legal claim to take action with respect to an object

Property rights arise when a person creates value

The rights obtained with property rights depend on the value created

– they are not monolithic.

Property rights are the foundation of all our freedoms and

much more important than the Constitution in securing our freedoms.

 

[1] The Economic Principles of America’s Founders: Property Rights, Free Markets, and Sound Money, Paul Ermine Potter and Dawn Tibbetts Potter, accessed 4/15/17,  http://www.heritage.org/political-process/report/the-economic-principles-americas-founders-property-rights-free-markets-and#_ftnref3

[2] Milton Friedman’s Property Rights Legacy, Forbes, Ken Blackwell, accessed 4/15/17 https://www.forbes.com/sites/realspin/2014/07/31/milton-friedmans-property-rights-legacy/#238d1416635d

[3] Mossoff, Adam, What is Property? Putting the Pieces Back Together. Arizona Law Review, Vol. 45, p. 371, 2003. Available at SSRN: https://ssrn.com/abstract=438780 or http://dx.doi.org/10.2139/ssrn.438780

[4] George Washington, Covenanter squatters, http://explorepahistory.com/hmarker.php?markerId=1-A-28F accessed April 30, 2017.

[5] http://www.historyguide.org/ancient/12tables.html, accessed May 7, 2017.

[6] http://www.constitution.org/sps/sps01_1.htm, accessed May 7, 2017

[7] http://www.constitution.org/sps/sps01_1.htm, accessed May 7, 2017

[8] http://www.constitution.org/sps/sps01_1.htm, accessed May 7, 2017

[9] “What Is Capitalism?”Capitalism: The Unknown Ideal, 19 Ayn Rand Lexicon, http://aynrandlexicon.com/lexicon/capitalism.html accessed May 7, 2017.

[10] Ayn Rand, Capitalism: The unknown Ideal, The Property Status of Airways, p. 132.

[11] Ayn Rand Lexicon, “The Property Status of the Airwaves,” Capitalism: The Unknown Ideal, 122

[12] Ayn Rand, Capitalism: The Unknown Ideal, Patents and Copyrights, p. 141.

[13] https://en.wikipedia.org/wiki/Adverse_possession, accessed May 7, 2017.

May 20, 2017 Posted by | -History, -Legal, Legal Philosophy | , , | 2 Comments

What’s Wrong with Patents Today?

A recent order by the Court of Appeals for the Federal Circuit (CAFC) summarizes everything that is wrong with patent law today (and perhaps the US generally).  The CAFC in an order in Cascades vs. Epson, Sony stated “there is no inconsistency in concluding that patent rights are property and that the source of that right is a public right conferred by federal statute”  A number of things should stand out in this statement, for instance the idea that a right is granted by a federal statute.  This means are rights come from government, not as the Declaration of Independence says that they are inalienable.  If rights come from our government, then they can be taken away by the government, which means they are not “rights” but grants.  This idea goes back to the Devine Right of Kings.  The American Revolution was fought over the idea that there is no such thing as the Devine Right of Kings.  However, in the United States today it is clear that the law does not apply to the government, just like it did not apply to the King, it only applies to private citizens.  For instance, see Hillary Clinton, the IRS, Eric Holder, the NSA, the EPA, and on and on and on.

The next thing that should strike you is the phrase “public right.”  What is a public right?  A right is a moral claim to take action and in which no one can morally stop them from taking that action.  Only individuals can take action.  A group all doing the same thing is just a group of individuals in which all of them are taking action.  This nonsense of a public right goes hand in hand with group identity politics, such as women’s rights, Black rights, gay right.

Patents are issued in the name of the inventor(s) not the company employing them, because they recognize that people create inventions not entities.  The inventors legally own the invention (patent) first and then they assign it to the company.  This clearly shows that inventions are owned by the individual(s) not the public.  What is a public right anyway?  Here is how Wikipedia explains a public right.

In America, public rights, as compared to private rights, belong to citizens but are vested in and vindicated by political entities. Public rights cannot be vindicated by private citizens. A right must normally be a private right to be vindicated in court.

A patent does not and never did fit this definition.  A patent is private right and the government is recognizing that right not creating it.  A patent is not like the “right” to a trial by jury, which is not really a right but a procedural guarantee and is still not a public right according to the definition from Wikipedia.

May 13, 2017 Posted by | -Law, News, Patents | , , | Leave a comment

Is Objectivism Compatible with Austrian Economics?

There have been a number of papers comparing Objectivism to Austrian Economics.  The motivation appears to be Rand’s relationship with Ludwig Von Mises, since both are known for advocating Laissez Faire Economics.  Most of these papers have focused on ethics, particularly whether the subjective theory of value in Austrian Economics (AE) is consistent with Objectivist ethics.  The majority of these papers have argued that AE (at least the Menger-Mises side) and Rand are actually very similar and compatible, but not all including Rand herself.  In order to arrive at these conclusions, the authors have often provided nuanced explanations of what the Austrians or Rand said.  For instance, Richard Johnsson argues:

It seems to be a well-established fact that there are similarities between Rand and Menger, despite the objectivist/subjectivist issue.  Once we concede that something can be intrinsic value, in Moore’s sense, I believe the differences between Austrian subjectivism and Rand’s Objectivism vanish.[i]

Roderick Long concludes in his paper, Praxeology: Who Needs It:

I have argued that the features of Misesian praxeology that Rand found most objectionable—its aprioristic methodology, its value subjectivism, and its claims about motivational psychology—can be reinterpreted in ways that make them congenial to Rand’s philosophical principles while still preserving the essential points that Mises was seeking to make. Hence there is no reason for those of a Randian philosophical bent to deprive themselves of the powerful methodological instrument developed by Mises and his fellow Austrians: praxeology, the a priori science of human action.[ii]

And Ed Younkins argues:

Objectivism’s Aristotelian perspective on the nature of man and the world and on the need to exercise one’s virtues can be viewed as complementary with the praxeology of Austrian economics.[iii]

Objectivists are generally more critical of the Hayek branch of AE.  For instance, David Kelley writes “if a defense of freedom depends on individualism, and individualism presupposes individuals capable of genuine self-direction, Hayek cannot successfully defend freedom.”[iv]  Ed Younkins says this about Hayek, “Hayek is primarily concerned with the nature, scope, limits, use, and abuse of reason in human life. For Hayek, a man’s knowledge of the world and himself is at best limited, incomplete, and uncertain.”[v]

This paper will focus primarily on the similarities and differences of the epistemology of various Austrian Economists (Menger, Mises, Hayek) and Rand.  Rand and the economists will be taken at their word.  Unlike many previous researchers, this paper will argue that the epistemological theories of Austrian Economists are incompatible with Objectivism and inconsistent with the science project of the Enlightenment.

 

Menger

Menger lays out his epistemology in his book Investigations into the Method of Social Sciences.[vi]  Lawrence H. White in the introduction to the book, explains.

Fortunately, Menger draws and even emphasizes a suitable distinction between the “realist-empirical orientation of theoretical research” and the “exact” orientation (p. 59). The search for so-called ,”exact laws” alone is more appropriately considered the task of purely theoretical research in economics. We can make sense of “exact laws” as theoretical propositions which (necessarily) take an “if-then” form: if conditions A and B hold, then condition C must also obtain. Menger rightly insists (pp. 70, 215) that realist-empirical generalizations (e.g., A and B are usually accompanied by C) can by their nature never attain the strictness that necessarily characterizes logical implications. The two sorts of “laws” are on different epistemological planes. So without too much dissent from Menger’s thought we may divide economic theory from economic history where he divided strict theory from what he considered an empirical sort of theory. What is empirical is really historical, and this accounts for its different status from what is deductive.[vii]

Lawrence H. White goes on to explain:

But this is not because, like some economists, he (Menger) sees empiricism or positivism or falsificationism as the only proper method for both social science and natural science. Instead he argues (p. 59 n. 18) that both the search for empirical regularities and the formulation of non-empirical, non-falsifiable (“exact”) theories are methods common to both economics and such natural science fields as chemistry. In viewing theoretical research in every field as having a non-empirical proposition at its core, Menger’s position bears some resemblance to that of modern philosophers of science. [viii]

As a person who has a masters’ degree in physics and a BS in Electrical Engineering and has worked with scientists and engineers his whole life, I am unaware of any so-called theoretical side of chemistry or other natural science that is ‘non-empirical, non-falsifiable (“exact”)’ nor have I ever heard such an idea proposed by others.

Ed Younkins describes Menger’s epistemology as:

Menger distinguishes between the empirical-realistic orientation to theory and the exact orientation to theory (36–44). Whereas the empirical-realistic branch of economics studies the regularities in the succession and coexistence of real phenomena, the exact orientation studies the laws governing ideal economic phenomena. He explains that empirical-realistic theory is concerned with regularities in the coexistence and succession of phenomena discovered by observing actual types and typical relationships of phenomena. Empirical realistic theory is subject to exceptions and to change over time. Theoretical economics in its realistic orientation derives empirical laws that are valid only for the spatial and temporal relationships from which they were observed. Empirical laws can only be alleged to be true within a particular spatiotemporal domain. The realistic orientation can only lead to real types and to the particular. The study of individual or concrete phenomena in time and space is the realm of the historical sciences.[ix]

Younkins and White both seem to agree that according to Menger there is theoretical side of economics that is exact and cannot be tested empirically.  Menger argues there is also an empirical side of economics, which is not exact and subject to change over time.

Menger’s epistemology should be familiar as it is a restatement of the analytic-synthetic distinction.  “Analytic propositions are true by virtue of their meaning, while synthetic propositions are true by how their meaning relates to the world.”[x]  Not surprisingly the origin of this distinction can be found in Kant and comes from his metaphysics, in which he argues there is a noumenal and phenomenal realm.[xi]  The noumenal realm is a realm of pure ideas and phenomenal world is a realm where our senses are engaged.  This logically gives rise to an epistemological analytic-synthetic distinction.

Leonard Peikoff states, “The theory of the analytic-synthetic dichotomy presents men with the following choice: If your statement is proved, it says nothing about that which exists; if it is about existents, it cannot be proved.”  Menger seems to disagree with at least the analytic (theoretical) side.  Menger seems to argue that theoretical laws of economics can be derived by just thinking about them.  Somehow these theoretical laws can tell us something empirical about economics.  Whether that is true or not, it is not consistent with Objectivist epistemology and it is not science.  The philosophy of science is a complex topic especially now days when Karl Popper is supposed to be the foremost philosopher of science and the Copenhagen Interpretation of Quantum Mechanics appears to undermine objectivity and even the law of identity.   However, even these deviations in the philosophy of science do not suggest that science can be divorced from empirical evidence.

 

Mises

Mises’ epistemology is described in his praxeology, which is supposed to be the study of human action.  The Action Axiom is the fundamental starting point of praxeology and it states “that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals.”[xii]  According to Mises the principles (axioms) “are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts.”[xiii]  Mises continues, “A fashionable tendency in contemporary philosophy is to deny the existence of any a priori knowledge. All human knowledge, it is contended, is derived from experience.”[xiv]

According to Long, Rand objected to this idea of a priori knowledge in her marginalia of her copy of Human Action.  “There is no ‘a priori’ knowledge,” Rand insisted in the margins; “[t]here is no knowledge not derived from experience” (Rand 1995a, 113–14).”[xv]

Long argues that Rand’s definition of axioms is the same as Mises’ a priori.  Long admits that Rand ultimately bases her axioms on reality while Mises does not, but relies on Rand’s explanation of an axiom as “a proposition that defeats its opponents by the fact that they have to accept it and use it in the process of any attempt to deny it.”[xvi]

According to praxeology the attempt to deny the action axiom necessarily means that you are acting towards a purpose.  While it might be true that the person arguing against the action axiom is taking action toward a goal, it is not true that a person having a seizure is taking ‘conscious actions toward chosen goals’.  A person in an abusive relationship suffering from ‘battered person syndrome’ is not engage din conscious actions toward chosen goals.  Advocates of praxeology might argue that the abused person feels responsible for the abuse they are suffering and therefore they are working toward the goal of relieving their guilt.  Any impartial observer would say that the abused person’s actions are not working toward relieving their guilt or getting out the abusive relationship.  In economics it is at least an open question whether the idea of unintended consequences fits the action axiom.  In that case the result obtained was not those the person(s) was striving for.

Note, Rand says that an axiom requires a person accept it in any attempt to deny it.  Arguing that person having a seizure is not engaged in conscious actions toward chosen goals, does not mean that they have accepted the action axiom.

Another part of Mises’ action axiom is, human action is necessarily always rational.  According to Mises, “the term ‘rational action’ is therefore pleonastic and must be rejected as such.  When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless.”[xvii]  Mises further states, “however one twists things, one will never succeed in formulating the notion of ‘irrational’ action whose ‘irrationality’ is not founded upon an arbitrary judgment of value.”[xviii]

This is a clear contradiction between Rand and Mises on an epistemological and ethical level.  This is not a minor disagreement, but goes to the very fundamentals of Mises’ praxeology and Objectivism.  Long however argues that this is not the case.  “Mises of course did not mean that people always pursue the most rationally defensible ends (for Mises there are no such things) or even that, given their ends, people always choose the most rationally defensible means to their ends. In part, what he meant was simply that human action is purposeful.” [xix]  According to Long, when Mises says people always act rational, he means “in a manner appropriate to their situation in the way of actually seeing it that is constitutive of their action. And this is a claim that Rand has no reason to reject”[xx]

Rand defines reason as, “reason integrates man’s perceptions by means of forming abstractions or conceptions, thus raising man’s knowledge from the perceptual level, which he shares with animals, to the conceptual level, which he alone can reach.  The method which reason employs in this process is logic—and logic is the art of non-contradictory identification.”[xxi]  Thus for Rand to act rationally is to act in accordance with reason.  This does not include all purposeful actions.  Hitler acted purposively to kill off the Jews, but this action cannot be considered rational according to Rand.

All the massaging of what Rand and Mises meant cannot reconcile these two radically different positions.  While English was Mises’ second language, his ideas about praxeology were fundamental and Mises never retracted his statements or reinterpreted them and neither did Rand.  An informal review of video lectures by Austrian Economists shows that they take Mises at his word.  It is very dangerous to reinterpret what people are saying.

Mises is clear that praxeology is a type of philosophical rationalism.

“[Praxeology’s] cognition is purely formal and general without reference to the material content and particular features of the actual case. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori.”  Mises, Human Action, p. 32

“All theorems of economics are necessarily valid in every instance in which all the assumptions presupposed are given.” Mises, Human Action, p. 66

“Apart from the fact that these conclusions cannot be “tested” by historical or statistical means, there is no need to test them since their truth has already been established. Historical fact enters into these conclusions only by determining which branch of the theory is applicable in any particular case.”  Murray N. Rothbard https://mises.org/library/praxeology-methodology-austrian-economics.

Philosophical rationalism is defined as “the doctrine that reason alone is a source of knowledge and is independent of experience.”[xxii]  Philosophical rationalism is commonly associated with Descartes and Spinoza.  Here is what Rand said about rationalism.

[Philosophers came to be divided] into two camps: those who claimed that man obtains his knowledge of the world by deducing it exclusively from concepts, which come from inside his head and are not derived from the perception of physical facts (the Rationalists)—and those who claimed that man obtains his knowledge from experience, which was held to mean: by direct perception of immediate facts, with no recourse to concepts (the Empiricists).[xxiii]

Mises’ epistemology is not science.  At a minimum science always requires that concepts (hypothesis) are checked against reality and reality is ultimate determiner of what is true.  William Thomas, Director of Programs at The Atlas Society, argues that Mises was not a philosophical rationalist and shows that some of the concepts Mises uses, such as money, can only be derived from experience.  This is another attempt to massage the words of Mises.  What this shows is that Mises’ praxeology and his ideas about money result in a logical contradiction.  Rand’s response from Atlas Shrugged might be “contradictions do not exist. Whenever you think that you are facing a contradiction, check your premises. You will find that one of them is wrong.”

An interesting point is that Mises’ subjective theory of value is fundamental to his ideas on praxeology.  “Let us note that praxeology does not assume that a person’s choice of values or goals is wise or proper . . . “[xxiv]  “However one twists things, one will never succeed in formulating the notion of ‘irrational’ action whose ‘irrationality’ is not founded upon an arbitrary judgment of value.”[xxv]  As a result, it is impossible to separate the subjective theory of value from Mises praxeology.

George Reisman makes some important point about Mises’ contention that economics (science) should be value-free.

The notion that science and value should be divorced is utterly contradictory. It itself expresses a value judgment in its very utterance. And it is not only self-contradictory, but contradictory of the most cherished principles of science as well. Science itself is built on a foundation of values that all scientists are logically obliged to defend: values such as reason, observation, truth, honesty, integrity, and the freedom of inquiry. In the absence of such values, there could be no science. The leading historical illustration of the truth of these propositions is the case of Galileo and the moral outrage which all lovers of science and truth must feel against those who sought to silence him. [xxvi]

 

Hayek

F.A. Hayek’s epistemological ideas are contained in his ideas on “cultural evolution”.  Hayek was proud of his ideas on cultural evolution and considered them central to his ideas on economics.  “The theory (cultural evolution), of which Hayek himself was proud, is on all accounts central to his economic, social, and political project”[xxvii]

Cultural evolution is the idea that social institutions, such ethics, law, and economic systems are created by a non-rational evolutionary process.  “According to this theory, rules, norms and practices evolve in a process of natural selection operating at the level of the group. Thus, groups that happen to have more efficient rules and practices tend to grow, multiply, and ultimately displace other groups.”[xxviii]

Bruce Caldwell describes cultural evolution as:

The term “cultural evolution” refers to the evolution of a tradition of learnt rules, norms, ethical precepts, and practices, “especially those dealing with several property, honesty, contract, exchange, trade, competition, gain, and privacy” (Hayek 1988:12). This cultural heritage emerged through “a process of winnowing and sifting, directed by the differential advantages gained by groups from practices adopted for some unknown and perhaps purely accidental reasons” (Hayek 1979:155). The traditions and institutions that resulted allowed the development of a vast extended order, one capable of sustaining huge increases in population, an order that would have been considered fantastical to earlier humans existing under more primitive conditions.[xxix]

According to Hayek, no individual is capable of using reason to determine which social institution will end up with the best result beforehand or why a particular set of social norms does work well.  Linda C. Raeder in Humantis makes this point and also points out that David Hume’s ideas entered the mainstream libertarian movement through Hayek.

“The picture of man as a being who, thanks to his reason, can rise above the values of civilization, in order to judge it from the outside . . . is an illusion.”  For Hayek, morals, values, and reason are entirely natural phenomena, evolutionary adaptations which have enabled man to survive and flourish in his particular kind of world.

Perhaps no other area of Burke’s and Hayek’s thought is as congruent as their understanding of the role of reason in human affairs; their views are so close as to suggest that Hayek’s thought on this issue is merely an elaboration, although quite an extensive one, of Burke’s theme. Hayek developed several of Burke’s most crucial insights: 1) the priority of social experience (or “tradition”) over reason; 2) the notion that inherited social institutions embody a “superindividual wisdom”  which transcends that available to the conscious reasoning mind; and 3) the impotence of reason to ‘design’ a viable social order.[xxx]

David Kelley elaborates on this point:

Hayek, by contrast, is a critic of what he calls ―constructive rationalism. His concept of rationalism is somewhat idiosyncratic, and is not equivalent to Rand‘s conception of reason. Nevertheless, it leads him to claim that ―no universally valid system of ethics can ever be known to us, which is obviously not consistent with her view. For Hayek, moral rules have a status lying ―between instinct and reason.

Is Hayek anti-reason?  It’s hard to say, however arguing that reason is fundamentally limited (as opposed to making a mistake) in understanding reality without any real evidence is an attack on reason itself.  Like Hume, Hayek cannot say reason is completely impotent, because what would be the point of writing.  Writing presumes some ability to reason.

Hayek’s case for freedom is based on the limits of reason.  In order for Hayek’s cultural evolution to work, you cannot substitute the decisions of a single leader (or small group) for those of the masses.  To do so undermines the evolutionary process.  As David Kelley explains:

This case for market freedom is essentially negative. Hayek seems to think that if socialist planning were possible, socialism might be the morally ideal system. But the inescapable ignorance of would-be planners excludes that possibility: ―If there were omniscient men, if we could know not only all that affects the attainment of our present wishes but also our future wants and desires, there would be little case for liberty.

Hayek does not think that reason can tell you how or why social institutions, including the law and ethics work.  This is totally inconsistent Rand’s ideas and undermines the very idea of science.

Interestingly, Hayek’s position on ‘the subjective theory or value’ is a fundamental part of his epistemology, just like Mises’.  His cultural evolution requires that we cannot formulate a rational ethics because that would undermine the evolutionary process.  As a result, every ethical system is subjective and therefore so is every law.  The most we can do is put our faith in the process and blindly hope our ethical and legal systems are better than they were in the past because of the evolutionary process of cultural evolution.

 

Economics vs. Philosophy

It is clear that Austrian Economics’ epistemological positions are incompatible with Objectivism and science more generally.  However it is entirely possible that despite this, Austrian Economics has achieved great things in economics.  For instance, David Kelley has shown that John Locke made a number of epistemological errors with respect to perception, in his book The Evidence of the Senses, and yet Locke’s ideas on Natural Rights are still profound and fundamentally sound.

In this case however, when Objectivists and Austrians are talking they are not even speaking the same language.  For instance, when Rand says she is for capitalism, she means “a social system based on the recognition of individual rights, including property rights”[xxxi]  By individual rights, Rand means a moral claim based on man’s nature and discovered using reason.  Austrians do not think that a rational ethics is possible.  As a result to Austrians, capitalism is an economic system that has low levels of governmental interference, based on some utilitarian criteria.  (You cannot live without an ethical system, so most Austrians default to utilitarianism)

When Objectivists talk about property rights, they mean an ethical claim to take action with respect to something, such as land.  This ethical claim is based on a rational, natural rights system.  When Austrians talk about “property rights”, they do not really mean a “right” in any way except a purely arbitrary legal claim.  Austrians argument for “property rights” is a purely utilitarian or historical argument (Hayek) that can be fudged to meet the utilitarian goal or historical precedence.

These differences result in real differences in economic policy.  Menger, for instance, advocated 1) public works constructed by the state such as roads, railways and canals, 2) government established agricultural and vocational training institutions, 3) state intervention to stop clearing of forests on private property in the mountains of Austria when this clearing had serious and bad effects on agriculture, and 4) government intervention to stop child labour.[xxxii]           Hayek was in favor social security, some sort of government provided health care, emergency government assistance for natural disasters, and suggested that manipulating the money supply might be used to alleviate recessions/depressions.[xxxiii]

Even Ludwig Von Mises waffles on economic policies that are inconsistent with capitalism as an Objectivist would define it.

There are certainly cases in which people may consider definite restrictive measures as justified. Regulations concerning fire prevention are restrictive and raise the cost of production. But the curtailment of total output they bring about is the price to be paid for avoidance of greater disaster. The decision about each restrictive measure is to be made on the ground of a meticulous weighing of the costs to be incurred and the prize to be obtained. No reasonable man could possibly question this rule.[xxxiv]

Note that Mises justification for fire regulations is based on utilitarianism, which Rand condemns as “’the greatest good for the greatest number’ is one of the most vicious slogans ever foisted on humanity.”[xxxv]

The Austrians sound a lot more like modern conservatives than capitalists.  When it is a government policy that Austrians are in favor of, they are quite happy to override peoples’ individual rights.  They just want these programs to be run more efficiently.  Austrians make a number of errors in their analysis of the economy also, however there is not time in this paper to take on these issues.

 

Conclusion

Austrians often argue that if you do not support the Austrian school of economics then which school (economists) do your support then, as if this was an election or a smorgasbord with a limited number of choice.  Science is a creative endeavor and we are not limited only the existing choices.

New Growth Economics’ central point is that wealth is created by the human mind.  This should be exciting to Objectivists, because that sounds very much like Ayn Rand.  It also points to an objective basis for economics.  Every human needs to acquire and consume a minimum number of calories or they die.[xxxvi]  This provides an objective standard that is very similar to Rand’s standard for her ethics.  It also ties economics to biology, particularly human biology, just like Rand tied her ethics to biology.

Inventions are the result of applying man’s reasoning power to the objective problems of life.  The way we become wealthier is by increasing our level of technology.  I explain this in more detail in my book, Source of Economic Growth; in my Savvy Street article, entitled ‘Inventing at the Intersection of Biology and Economics’; and in my 2015 & 2016 talks at Atlas Summit.

All species are biologically designed to spend most of their existence on the edge of starvation.  The fact that human beings, starting around 1800, were the first species to permanently escape this condition, needs a profound answer based on man’s unique nature, his ability to reason.

[i] Richard C.B. Johnsson, The Journal of Ayn Rand Studies Vol.6 no. 2 Spring 2005 pages 317-335.

Subjectivism, Intricism, and Apriorism,:Rand Among the Austrians, Penn State University Press, http://www.jstor.org/stable/pdf/41560286.pdf.

[ii] Roderick D. Long, “Praxeology: Who Needs It JARS, http://praxeology.net/praxwho-x.pdf

[iii] Edward W. Younkins, The Journal of Ayn Rand Studies Vol.6 no. 2 Spring 2005 pages 337-374, Menger, Mises, Rand, and Beyond, Centenary Symposium, Part II Ayn Rand Among the Austrians, http://quebecoislibre.org/younkins28.pdf

[iv] David Kelley, Rand versus Hayek on Abstraction,  Symposium: Rand and Hayek on Cognition and Trade, Reason Papers Vol. 33, https://reasonpapers.com/pdf/33/rp_33_1.pdf.

[v] Edward W. Younkins, The Road to Objective Economics: Hayek Takes a Wrong Turnhttp://rebirthofreason.com/Articles/Younkins/The_Road_to_Objective_Economics_Hayek_Takes_a_Wrong_Turn.shtml

[vi]https://mises.org/sites/default/files/Investigations%20into%20the%20Method%20of%20the%20Social%20Sciences_5.pdf ,  INVESTIGATIONS INTO THE METHOD OF THE SOCIAL SCIENCES WITH SPECIAL REFERENCE TO ECONOMICS

[vii]https://mises.org/sites/default/files/Investigations%20into%20the%20Method%20of%20the%20Social%20Sciences_5.pdf ,  INVESTIGATIONS INTO THE METHOD OF THE SOCIAL SCIENCES WITH SPECIAL REFERENCE TO ECONOMICS, Introduction, p. xi.

[viii]https://mises.org/sites/default/files/Investigations%20into%20the%20Method%20of%20the%20Social%20Sciences_5.pdf ,  INVESTIGATIONS INTO THE METHOD OF THE SOCIAL SCIENCES WITH SPECIAL REFERENCE TO ECONOMICS, Introduction, p. xiii, Lawrence H. White.

[ix] Edward W. Younkins, The Journal of Ayn Rand Studies Vol.6 no. 2 Spring 2005 pages 337-374, Menger, Mises, Rand, and Beyond, Centenary Symposium, Part II Ayn Rand Among the Austrians, http://quebecoislibre.org/younkins28.pdf

[x] Wikipedia, Analytic–Synthetic Distinction, Accessed  October 21, 2016, https://en.wikipedia.org/wiki/Analytic%E2%80%93synthetic_distinction.

[xi] Kant’s noumenal/phenomenal distinction is restatement of Plato, in which there is a realm of forms (ideas) and the imperfect world we live in.

[xii] Murray N. Rothbard, “Praxeology: The Methodology of Austrian Economics”, https://mises.org/library/praxeology-methodology-austrian-economics

[xiii] Ludwig Von Mises, Human Action, p. 32, https://mises.org/sites/default/files/Human%20Action_3.pdf

[xiv] Ludwig Von Mises, Human Action, p. 32, https://mises.org/sites/default/files/Human%20Action_3.pdf

[xv] Roderick D. Long, “Praxeology: Who Needs It JARS, p. 300, http://praxeology.net/praxwho-x.pdf

[xvi] Galt’s Speech,, For the New Intellectual, 155, http://aynrandlexicon.com/lexicon/axioms.html

[xvii] Ludwig Von Mises, Human Action, 1.I.32, http://www.econlib.org/library/Mises/HmA/msHmA1.html

[xviii] Ludwig Von Mises, Human Action, The Scholar’s Edition, p. 104.& https://mises.org/library/what-do-austrians-mean-rational ,  What Do Austrians Mean by “Rational”?, MISES DAILY ARTICLES, Accessed 6/9/16.

[xix] Roderick D. Long, “Praxeology: Who Needs It JARS, p. 309, http://praxeology.net/praxwho-x.pdf

[xx] Roderick D. Long, “Praxeology: Who Needs It JARS, p. 310, http://praxeology.net/praxwho-x.pdf

[xxi] “Faith and Force: The Destroyers of the Modern World,” Philosophy: Who Needs It, 62, http://aynrandlexicon.com/lexicon/reason.html.

[xxii] Dictionary.com, http://www.dictionary.com/browse/rationalism, accessed October 22, 2016.

[xxiii] “For the New Intellectual,” For the New Intellectual, 30, http://aynrandlexicon.com/lexicon/rationalism_vs_empiricism.html.

[xxiv] Murray N. Rothbard, “Praxeology: The Methodology of Austrian Economics”, https://mises.org/library/praxeology-methodology-austrian-economics

[xxv] Ludwig Von Mises, Human Action, The Scholar’s Edition, p. 104.& https://mises.org/library/what-do-austrians-mean-rational ,  What Do Austrians Mean by “Rational”?, MISES DAILY ARTICLES, Accessed 6/9/16.

[xxvi] George Reisman, Capitalism: A Treatise on Economics, p. 36, http://www.capitalism.net/Capitalism/CAPITALISM_Internet.pdf.

[xxvii] Erik Angner, The History of Hayek’s Theory of Cultural Evolution, p. 3, http://institutoamagi.org/download/Angner-Erik-The-history-of-Hayeks-Theory-of-cultural-Evolution.pdf.

[xxviii] Erik Angner, The History of Hayek’s Theory of Cultural Evolution, p. 3, http://institutoamagi.org/download/Angner-Erik-The-history-of-Hayeks-Theory-of-cultural-Evolution.pdf.

[xxix] Bruce Caldwell , The Emergence of Hayek’s Ideas on Cultural Evolution, p. 6, http://www.gmu.edu/depts/rae/archives/VOL13_1_2000/caldwell.pdf.

[xxx] Linda C. Raeder, The Liberalism/Conservatism Of Edmund Burke and F. A. Hayek: A Critical Comparison, HUMANITAS, Volume X, No. 1, 1997. National Humanities Institute,  http://www.nhinet.org/raeder.htm.

[xxxi] What Is Capitalism?” Capitalism: The Unknown Ideal, 19, http://aynrandlexicon.com/lexicon/capitalism.html.

[xxxii] Social Democracy For The 21st Century: A Realist Alternative To The Modern Left, http://socialdemocracy21stcentury.blogspot.mx/2012/08/rescuing-menger-from-austrians.html, accessed October 23, 2016.

[xxxiii] Nicholas  Wapshott,  Hayek on health care, social safety nets and public housing (quoting from Road to Serfdom) https://sites.google.com/site/wapshottkeyneshayek/hayek-on-health-care-social-safety-nets-and-public-housing  accessed October 23, 2016.

[xxxiv] Ludwig Von Mises, Human Action, The Scholar’s Edition, p. 741, https://mises.org/sites/default/files/Human%20Action_3.pdf.

[xxxv] Textbook of Americanism,” The Ayn Rand Column, 90, http://aynrandlexicon.com/lexicon/utilitarianism.html.

[xxxvi] Calories make a convenient catch all for all human requirements including air, water, micronutrients etc.

May 10, 2017 Posted by | -Economics, bioeconomics, philosophy | , , , , , , | Leave a comment