How I Stopped Worrying and Learned to Love the Trade Deficit
Sudha Shenoy, University of Newcastle, will speak on this topic on Thursday, October 26, 2006, 3:00pm, Mises Institute, Auburn, Alabama. Here is Professor Shenoy interviewed in the AEN.
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Comments (20)
Björn Lundahl
The Emperor's New Clothes
People are led to believe that trade restrictions between regions or countries “create jobs at home”, which they certainly do not. If people had the opposite belief that “free trade” between regions or countries “creates jobs at home”, that would also be an incorrect belief. Trade restrictions or free trade does not cause unemployment or cause employment in a region or country. Trade restrictions only lower the standard of living, hamper competition and restrict liberty. If for instance, the EU imposes tariffs on Chinese textiles, the Euro will appreciate against the Chinese Yuan (the value of the Euro will increase relatively to the Chinese Yuan). This depreciation (decrease in value) of the Chinese Yuan against the Euro, in this example, is caused by a smaller demand for Chinese textiles and therefore a smaller demand for Europeans to buy the Chinese Yuan. Because of this change in exchange rates, prices of goods from the EU to China will be generally higher and prices of goods from China will be generally lower (apart from textiles). As you can imagine, this will increase employment in the European textile sector, but decrease employment in other sectors. At the whole, unemployment will not change but trade between the regions will be lower. Specialization, competition and living standards in the EU region will be hampered. The tariffs will only serve special interest that is the textile manufacturers and their employees. Surely, we want our representatives to serve the common good and the common man and not special interests!
Someone might complain that the Chinese are intervening in the exchange markets to keep their currency artificially low and that they are not letting market forces to appreciate their currency, and therefore my statement about free trade, in this case, is not applicable. Free trade, someone might think, is presupposed by freely fluctuating currencies with no Government intervention (also called clean floating exchange rates). Certainly I do not want Governments to intervene in exchange markets, but actually it is the Chinese that are in this case the losers and we are the winners. We should be glad that China is suppressing the rise of its currency, and the Chinese people should be mad about it. When market prices indicate that, for example, a project is unprofitable; investors naturally stop investing in such a project. Otherwise, factors of production such as land, capital, and labour would be wasted. Every government manipulation of market prices is a step toward economic breakdown and chaos. Land, capital, and labour that are invested in the exporting business in China because of a suppressed currency, have changed the economic structure in China and are mal investments, unprofitable for the nation to undertake, and we are getting something free. We don't need to export anything to pay for this "extra importation of Chinese products”. To make my statement more obvious, we could consider that if the Chinese currency would be suppressed to no value at all (which would not be possible to realize), the Chinese would be working for nothing and we would get goods and services from China for free (which is, naturally unprofitable for China to undertake), then the market forces in the EU (if market forces would not be hindered by Governments) would reallocate land, capital and labour for other uses and to those fields which the Chinese are not able to compete (even if the Chinese were working and exporting to full capacity, that will not, by far, be enough to satisfy all our wants, in other words, their GNP is by far, too small). The increases in production which mentioned reallocation of recourses leads to are our extra bonus. We should applaud this and the Chinese people should revolt!
If you want to know more about floating exchange rates, go to; http://www.hooverdigest.org/974/friedman.html
Productivity and trade will flourish more intensively with one currency* than with several different currencies, and even with one currency, market forces will smoothen out any imbalances between regions, cities or countries. We do not worry, for example, about the balance of payments between London and Manchester, Berlin and Munich, Paris and Bordeaux or Stockholm and Göteborg etc. If, for example, London exports more to Manchester than Manchester exports to London, the demand for goods and services will be greater in London relatively to their supply, and also relatively to the situation in Manchester. Because of this, prices will go up in London and therefore will exports from London to Manchester contract, as well as, imports from Manchester to London will expand. This happens all the time and we do not even know about it and therefore do not worry about it. Governments do create problems all the time.
If we really want increased competition, why not adopt free trade between nations. Why does the EU and the USA not follow that path? The reason is that they do not want increased competition.
For an example, I quote from answers.com;
“In the United States, the decade from the mid-1980s to the mid-1990s saw import quotas placed on textiles, agricultural products, automobiles, sugar, beef, bananas, and even underwear—among other things. In a single session of Congress in 1985, more than three hundred protectionist bills were introduced as U.S. industries began voicing concern over foreign competition”.
Go to;
http://www.answers.com/import+quotas?gwp=11&ver=2.0.1.458&method=3
Only Governments can be so silly to reject great offers and bargains. Individuals doing the same thing would be considered mad.
The essence with above statement is that Governments hinders competition, lower our standard of living, promote special interests and they make excuses for this with faulty theories and propaganda.
Björn Lundahl
Göteborg Sweden
* A gold standard. See also “What Has Government Done to Our Money?” by Murray N. Rothbard.
http://mises.org/money.asp
Published: October 24, 2006 1:26 PM
Kent Gatewood
Given the current American trade deficit, what trade restrictions are left and what is the dollar value?
Thanks, Kent
Published: October 24, 2006 4:31 PM
RogerM
A few years ago I was reading a book on the economic history of the Ottoman Empire (I need a life!) and discovered that the Empire taxed exports heavily and encouraged imports throughout most of its existence and it flourished. Then in the 19th century some mercantilists from Europe convinced the Sultan that he had it backwards, so he reversed the scheme and the Empire collapsed. There were other factors beside trade policy involved, but I think the correlation is interesting.
Published: October 24, 2006 4:44 PM
David White
Because central banking is central planning, and because the global financial system is based entirely on central banking, free trade is impossible. Instead, we have "globalization," which in fact is "dollarization" in that the (paper, not constitutional) dollar is the world's reserve currency. Accordingly, it has held the world hostage for the past 35 years (since Nixon "closed the gold window" in 1971) and now has the world so awash in competing fiat currencies that a race to the bottom is on, meaning that it is only a matter of time before this house of cards collapses under its own weight(lessness).
Bottom line: You can't have free trade without a free market, and you can't have a free market without a free market in the basis thereof: money.
Published: October 25, 2006 9:50 AM
billwald@juno.com
Ultimately, US money can only be spent in the USofA. So China is holding $billions. Bil deal. It is only useful to buy US products, buy US companies, buy US services, US debt or US real estate.
The problem is the internal and external quality of job balance. If the USofA loses 10,000 manufacturing jobs but gains 100,000 hotel maid, cook, waitress, caddy and sales clerk jobs we still lose.
Second, there are two economies extant, one for the rich class and one for the working class. The national economy can be doing just fine while the working class is losing ground.
Published: October 25, 2006 12:12 PM
Björn Lundahl
Free trade, means a strong USA, reliable jobs and high wages.
This might sound untrue if you consider, for example, that workers at General Motors these days are pressured with job cuts and reductions in wages and all those sad, but necessarily actions to become healthy and strong again. Partly, the cause for this is free trade. At the same time Dell, HP, IBM, Apple, Microsoft and so on are doing very well, this also, partly, because of the same phenomenon, free trade.
When free trade is propagated, certain businesses and companies are not considered but what matters is “the whole picture” or the nation. Free trade makes the nation, for example, the USA more competitive and stronger. The stronger companies will dominate the economy and expand and make use of all that capital, labour and land that are otherwise used by the inefficient companies. Productivity increases and therefore also wages. Jobs are more reliable because employments are offered in competitive businesses.
The outcome is that Americans can buy cheap goods with high wages and that the USA will be stronger than ever.
Björn Lundahl
Göteborg, Sweden
Published: October 25, 2006 1:27 PM
M E Hoffer
Bjorn,
With this: "When free trade is propagated, certain businesses and companies are not considered but what matters is “the whole picture” or the nation."
Are you referring to NAFTA, CAFTA, FTAA, WTO, et al, etc.?
If so, How does one explain the mind-bending length of those "bills"/"enforcing documents", replete, as they are, multitudinous Industry specific "carve-outs"?
Published: October 25, 2006 2:13 PM
Yancey Ward
Don Robertson,
I am curious at to what era of human existence you would define as the Golden Age?
Published: October 25, 2006 3:06 PM
Björn Lundahl
Yancey Ward
Thank you for your question.
I am just referring to “What is seen and What is not Seen”.
“One of Bastiat's (Frédérick) most important contributions to the field of economics was his admonition to the effect that good economic decisions can only be made by taking into account the "full picture." That is, economic truths should be arrived at by observing not only the immediate consequences—that is, benefits or liabilities—of an economic decision, but also by examining the long-term consequences. Additionally, one must examine the decision's effect not only on a single group of people (say candlemakers) or a single industry (say candles), but on all people and all industries in the society as a whole. As Bastiat famously put it: an economist must take into account both "What is Seen and What is Not Seen." Bastiat's "rule" was later expounded by Henry Hazlitt in his work Economics in One Lesson, in which Hazlitt borrowed Bastiat's trenchant "Broken Window Fallacy" and went on to demonstrate how it applies to a wide variety of economic falsehoods”.
http://en.wikipedia.org/wiki/Frederic_Bastiat
Björn Lundahl
Published: October 25, 2006 4:50 PM
Björn Lundahl
Sorry!
My above answer should be addressed to M E Hoffer
and not to Yancey Ward.
Björn Lundahl
Published: October 25, 2006 4:58 PM
M E Hoffer
Bjorn,
Thank you for further expounding on your intent and the genesis of your idea(s).
I agree, Bastiat, in the whole, and, especially, his specific gift of: "Seen and Unseen" are tremendously useful Coins to gain the Currency of Economic literacy.
Published: October 25, 2006 7:37 PM
David C
I wish I could believe this, especially about China. Everyone talks about the China boom, but I can not get over that it is communist. Economic progress in the past didn't stop WW1, WW2, and the murder of countless millions under communisim and facisim. Everyone thought germany was so "civil" in 1939. Free markets are not about markets, but freedom as people use and take advantage of that freedom to create wealth and prosperity where there was none before. From teineman square to welfare state politics, freedom sure doesn't seem to be on the rise in the world lately even if it is the general trend. In fact, all this information age growth and global economic growth without all sorts of freedom and liberty growth IMHO is a recipie for instability and disaster.
Published: October 25, 2006 10:51 PM
Björn Lundahl
The EU hinders companies to compete!
When companies compete in separate markets, different competitive measures are often taken by companies in those markets. People in those markets, because of culture, values goods and services differently and are willing to pay for goods and services in accordance with those values. For instance, in Italy, people are very willing to buy cheap cars made by the Italian car manufacturer “Fiat”. Volkswagen, decided to sell their cars in Italy to Italians for lower prices. Volkswagen, thought, that these measures were needed in that market to compete effectively. People from Austria and Germany went to Italy in search for bargains “offered by Volkswagen”. Volkswagen dealers said no. Low prices are only offered to Italian customers! For these “crimes” The European Union's High Court upheld a $110.5 million fine for Volkswagen. This happened in 1998. Now, Volkswagen and other companies must have same prices in all markets to all people, otherwise they risk to get heavily punished. In other words, if people are willing to cross borders in search for bargains, it is better for a company like Volkswagen, to raise its prices in Italy and lose market share. Apart from Volkswagen, the Italians will suffer. Alternatively, they could have the same low prices in all markets, but that might not be profitable or even lead to bankruptcy. In the very end, competition is hindered! This is only an example of Government in action and what it actually does “to promote competition”. For more information about this case, go to; http://www.globalethics.org/newsline/members/issue.tmpl?articleid=09220316204320
And to
http://news.bbc.co.uk/1/hi/business/821620.stm
For some further information, go to;
http://www.businessweek.com/magazine/content/02_19/b3782014.htm
The flexibility of the market is needed.
Different situations in diverse markets need different actions, but Government agencies are guided by rigid rules. Governments do not know how to run an economy, they lack the essential tools; the free market. The more Governments intervene in the economy, the more chaotic will the economy be. Governments decision making is relied upon whims by the electorate, markets, on the other hand, are relied upon prices of supply and demand; recourses are allocated to those ends which are valued most highly by consumers. When mentioned destructive actions bloom, like in the former Soviet Union, the “destructiveness is revealed”. In the case I have mentioned, consumers have not gained anything if Volkswagen raised their prices in Italy because of this verdict. Rigid rules can lead to situations like that. Governments do not know the different circumstances that exist in diverse markets, to apply the same rigid rules in all markets do not gain anybody.
For example, in Sweden car manufacturers guarantee car bodies against corrosion for 6-12 years. Swedish consumers demand this, probably because of our climate. I do not actually know, but I do not think that the same manufacturers offer the same guarantees all over the world.
Naturally, weak companies that do not serve the consumers well will try out every possible way to use those laws to protect them against competition. As the anti trust authorities do not, as mentioned, know all different circumstances, their verdicts will probably be wrong.
If we really want increased competition, why not adopt free trade between nations. Why does the EU and the USA not follow that path? The reason is that they do not want increased competition.
For an example, I quote from answers.com;
“In the United States, the decade from the mid-1980s to the mid-1990s saw import quotas placed on textiles, agricultural products, automobiles, sugar, beef, bananas, and even underwear—among other things. In a single session of Congress in 1985, more than three hundred protectionist bills were introduced as U.S. industries began voicing concern over foreign competition”.
Go to;
http://www.answers.com/import+quotas?gwp=11&ver=2.0.1.458&method=3
Björn Lundahl
Göteborg Sweden
Published: October 26, 2006 1:36 AM
Björn Lundahl
M E Hoffer
Thank you for your comment.
Philosophically, I do believe that if a correct conclusion is derived from “the whole picture” and this contradicts a correct conclusion derived from a “part of a picture”, the conclusion derived from the whole picture is the only true one.
Björn Lundahl
Published: October 26, 2006 6:17 AM
adi
Björn, there is one problem in your assumption concerning overall benefits of free trading; that trade has different implications on different sectors of economy. There is going to be winners and losers and how you can say that in the long run benefits of free trade are greater than in the protectionist scenario. That kind of conclusion demands that you have a some kind of objective criteria to determine that the position of economy now is better than before (formally you suppose that there is a well-defined social welfare function in Bergson/Lange tradition). You seem to import some concepts outside of formal economics. In the New Welfare Economics the existence of social welfare function must be supposed because it's ultimately a normative judgement. After that you can make value judgements and even somehow "compensate" losers (Kaldor-Hicks criteria) to achieve Pareto optimality.
Lionel Robbins wrote ( A Nature and Significange of Economic Science ) that the abolition of Corn Laws cannot be said to have improved economic situation since you have to make value judgements concerning welfare of different agents of economy. It's important to note that Robbins himself made a devastating critique of older tradition where measurable welfare of agents was postulated and used in policy suggestions.
Now my own example; Suppose that there is a certain farmer producing agricultural products. His production is protected by high import tariffs and other consumers must pay extra to purchase these items. Then arrives certain Swedish economist who is going to propose the elimination of these import tolls. How he is going to persuade all different agents?
Little clarification in the end; I'm not a proponent of protectionism, but I must make some remarks concerning the arguments used to justify free trade. Especially it's important to make clear what are normative parts of any presentations.
Published: October 26, 2006 7:19 AM
John Bigelow
Now my own example; Suppose that there is a certain farmer producing agricultural products. His production is protected by high import tariffs and other consumers must pay extra to purchase these items. Then arrives certain Swedish economist who is going to propose the elimination of these import tolls. How he is going to persuade all different agents?
I would think that all the people buying agricultural products at your farmer's price, rather than the lower world price would have an opinion - if only the cost of tariffs was made clear to them.
Published: October 26, 2006 8:50 AM
Björn Lundahl
adi
I do believe that only free markets can tell. There is no other way to measure prosperity than peoples voluntarily actions.
” Property is a naturally arising relationship between human beings and material things. Property and enforceable property rights make possible economic calculation, a wider and more productive division of labor, and therefore increasing levels of prosperity. Indeed, civilization itself is inconceivable in the absence of private property. Any encroachment on property results in loss of freedom and prosperity”.
http://mises.org/quiz.asp
Björn Lundahl
Published: October 26, 2006 3:21 PM
RogerM
"Economic theory does not offer a robust prediction as to how a current account reversal impacts economic growth, asset prices, or the exchange rate." An interesting admission of ignorance from the Fed. This is from http://www.frbsf.org/publications/economics/letter/2006/el2006-29.html
Published: October 27, 2006 12:25 PM
Björn Lundahl
Normative principles
A pure free market is based upon the axiomatic principle "that no man or group of men may aggress against the person or property of anyone else".
This is the very principle which the courts and the legal system should follow.
How do we know that this principle is an axiomatic principle?
I quote from the book “For a New Liberty”, written by Murray Rothbard, page 45:
“THE CENTRAL THRUST of libertarian thought, then, is to oppose any and all aggression against the property rights of individuals in their own persons and in the material objects they have voluntarily acquired. While individual and gangs of criminals are of course opposed, there is nothing unique here to the libertarian creed, since almost all persons and schools of thought oppose the exercise of random violence against persons and property”.
http://mises.org/rothbard/newliberty3.asp
So, generally, all persons and schools of thought oppose the exercise of random violence against persons and property.
Above statement is an answer why the principle is an axiomatic one. But this is not the only reason. There are rational ones as well.
Life as a value is an axiomatic value that no one in a debate logically can deny as this value is the very condition for the debate and the participators existence.
I quote from the book “The Ethics of Liberty”, written by Murray Rothbard, page 29:
“It may well be asked why life should be an objective ultimate value, why man should opt for life (in duration and quality). In reply; we may note that a proposition rises to the status of an axiom when he who denies it may be shown to be using it in the very course of the supposed refutation. Now, any person participating in any sort of discussion, including one on values, is, by virtue of so participating, alive and affirming life. For if he were really opposed to life, he would have no business in such a discussion, indeed he would have no business continuing to be alive. Hence, the supposed opponent of life is really affirming it in the very process of his discussion, and hence the preservation and furtherance of one’s life takes on the stature of an incontestable axiom”.
http://mises.org/rothbard/ethics/six.asp
This is also confirmed with Ludwig von Mises statement in his book, “Human Action”, page 11:
“We may say that action is the manifestation of a man's will.”
http://mises.org/humanaction/chap1sec1.asp
Which principles are an objective condition for preserving the human race and human life?
To objective examine if something is a condition for something else, we have to mentally grasp a state of things, where the supposed condition doesn’t exist anywhere and at all.
For example, if we suppose that the existence of oxygen is a condition for the preservation of the human race, we grasp a state of things, where oxygen doesn’t exist anywhere on earth. If we would let some oxygen exist somewhere on earth, then we couldn’t make a valid conclusion. We wouldn’t know if oxygen were a condition for preserving human life. To make a valid conclusion we have to grasp where oxygen doesn’t exist anywhere and at all. Under this condition we can, naturally, conclude that no human life would exist. We can, because of this reason conclude that oxygen is a condition for the preservation of the human race. We can also conclude that when we objectively examined as we just did, if oxygen was a condition for preserving human life, we would be bound to take under consideration the whole reality and not only some parts of it. We wouldn’t let oxygen exist somewhere on earth, because if we had done so, we wouldn’t have grasped the effects, under consideration, to the whole situation (the whole reality), and our conclusion would therefore have been invalid.
We can only make one choice, either we take under consideration some parts of reality or we take under consideration the whole reality. Reason and logic tell us that if we take under consideration the whole reality, this will reflect the truth, because we can’t consider anything more absolute and perfect. This procedure is an axiomatic procedure.
Is “the principle of physical violence” a condition for the preservation of the human race?
To examine this principle under consideration of what has already been said about the procedure of finding out conditions, we have to grasp a state of things where the principle of none physical violence doesn’t exist anywhere and at all. If we let some people live by the principle of none violence, a procedure which we have just discarded, then we wouldn’t make a valid conclusion. Logically we are bound to let all people live by the principle of physical violence. Because of this fact the human race and life would immediately exterminate.
We can therefore conclude “that the principle of physical violence” is a condition for the preservation of human extermination and that “the principle of none physical violence” is the condition for human preservation.
We can also conclude, that human life wouldn’t exist, if the principle of “not to have the right to use threat of physical violence” didn’t exist.
If we grasp a state of things where this principle doesn’t exist, anywhere and at all, everyone would be threatening everyone else. Nobody would be able to live and fulfil their needs and dreams. Action to preserve ones life would be an impossible mission.
Not anybody would dare to act because if this anybody did, someone would always be threatening this anybody. A perfect static situation would occur and the human race would immediately exterminate.
Our conclusion will therefore be that “the principle of threat of physical violence” is a condition for the human extermination, and “the principle of none threat of physical violence”, is a condition for the preservation of human life.
As life is an axiomatic value which we want to preserve, it is also logically true that we axiomatically want to preserve the principle which is a condition for life, namely “the principle of none physical violence (including not to have the right to use threat of physical violence)”.
Let us now examine if “the right to steal” is a condition of he preservation of human life.
If we want to define what objective theft is, we will have to define property rights, based on an axiomatic Justice.
If we consider what has already been said in this document, we can also understand that an axiomatic Justice is those principles which are a condition for the preservation of the human race. Unjust are those principles which are a condition for the preservation of the human extermination.
Just property rights are, therefore, those property rights which are conditions for the preservation human life. Unjust are those property rights which are conditions for the preservation of human extermination.
In order to survive, man cannot live alone in an environment which is free from physical violence. To survive and prosper man has to use his reason and energy to transform nature into useful things. Man lives and prospers because he is a creative animal.
We can therefore conclude that creation in itself is a condition for the preservation of the human race.
We can therefore conclude that Just property rights are those rights which preserve man’s creative efforts.
In order to define these property rights we will have to grasp a state of things when man, for the first time, enters this world of ours. This because we want to define original property rights based on Justice. In order to define property rights based on Justice, we don’t want either to be deluded by existing potential unjust property rights. Only, in a state of things where no man, yet, has owned anything, we don’t take the risk of being deluded.
When the first man, for example, broke a branch and made himself a bow, the title of property of this creation was also his. Why does the title of the property (the bow) belong to this man? Because man is a purposeful agent and if man doesn’t own his original creation and the results of his actions, he won’t act.
Let us examine if the last statement is objective and true.
We examine and grasp a state of things, in accordance with the mentioned procedure to examine objectively if something is a condition for something else, through not letting the examined principle be existent anywhere at all.
We grasp a state of things where the following principle is none existent anywhere at all: “the originators right to the objects which he through action, has created”. Everyone would be stealing anyone’s creation and the human race would immediately exterminate.
This proves that man is a purposeful agent and when his motivation exterminates, he stops acting at once.
This is also the objective reason why theft is a condition for the preservation of human extermination, and that the principle of none theft, the originators creation in accordance with the above reasoning, is the condition for the preservation of human life.
Let us now define Justly owned property rights to land.
Man doesn’t create land but he acts and creates on, in and out of land.
Also here we examine a state of things when man for the first time, enters this world. When, then, the first man enters the untouched land, and creates by action on or in or out of land, then this part of the land which he has now touched, belongs to him. Why the first man? If the first man doesn’t have the property right to this part of the land, nor does individual number two, three, four, five etc have the right to the land, and while they are waiting for the last man who hasn’t yet entered this world, man will quickly perish.
If we grasp a state of things, where the following principle is none existent anywhere and at all (this objective test is, of course, in line with our reasoning about such a procedure for finding out a condition for something else):
“When someone creates by action on or out of land, then this part which he has now touched belongs to him”.
This would mean that everyone would be stealing anyone’s Justly owned land, that is as soon as someone starts creating by action on or in or out of land, someone else would have the right to the land in question and the human race would immediately exterminate.
We can conclude that the condition for the extermination of the human race is to preserve the principle “the right to steal the land which the first man has touched and created on or in or out”. Our conclusion will also therefore only be that the condition for the preservation of the human race is that no man ever should have such a right.
Why must anybody own anything?
In accordance with our objective test to find out if something is a condition for something else, we grasp a state of things where the following principle is none existent anywhere and at all:
“Everybody owns themselves and their Justly owned property rights”.
Nobody would be able to do anything, since nobody has the right to control anything. Not even themselves (see below about property rights in your own person).
This question is not only a contradiction it is also silly. You ask a question which means that you control yourselves (natural disposition), that is owning yourself (see below the excellent writing of Hans-Hermann Hoppe). The other contradiction is that if nobody would own anything, nobody would be able to hinder anyone to own anything either since they would otherwise have an invalid control (having the disposition to) of everyone else, that is having an invalid ownership to everybody else (see below about valid property rights in your own person).
Ownership itself is, therefore, an objective condition for the preservation of human life.
Now, then, we haven’t ended our definition of Justly owned property rights until we have analyzed the right to make contracts. We will have to examine the right to make contracts, because, sooner or later the owners of Justly owned property will trade with each other. Sooner or later disputes will occur among the trading partners and then, we will have to know, the rights the trading partners have to the property and which the dispute among them is all about.
Some economist argues that the Justification for the right to make contracts is that the right promotes economic prosperity.
It is true that most of us want economic prosperity, but this is not an axiomatic Justification for the right o make contracts. “Economic prosperity” is not an axiomatic value. As we want to be objective, this argument is not good enough.
Some individuals argue that trading partners have an “agreement” and this is the reason why contracts should be legally binding. Why should such an agreement be legally binding if one of the partners wants to change his mind? Why shouldn’t we respect such a change of man’s will? Why should an earlier manifestation of a man’s will be considered proper and Just and a later manifestation of a changed will be regarded as improper and unjust? Where is the objective Justification? Where is the logical point of view? To argue that the trading partners “knew what they got into and that is why “agreements” should be legally binding”, is, of course, nonsense. It only proves that agreements are artificial constructions which haven’t anything to do with axiomatic principles founded in the nature of things.
The Justification for binding contracts is not that they are “agreements or for that reason are contracts”, but for the reason that we can derive, because of them, Justly owned property titles. “The right to make contracts” is not a right in itself which can objectively be defended as such, but is an expression which symbolizes the interpretations to derive Justly owned property rights and if theft has been done or not.
This is the title transfer theory of contracts, see also Murray Rothbard´s excellent book “The Ethics of Liberty”, chapter 19:
http://mises.org/rothbard/ethics/nineteen.asp
On what base can this interpretation be related to contracts and Justly owned property titles? This we can conclude because of the reason that contracts only confirm exchange of original Just titles to property (in accordance with above definitions of original Just titles to property), that is the transferring of Just property titles between the trading partners.
The reason that a property title will be transferred from one person to another is that the original property owner has renounced his Justly owned property title to be transferred to another person, and we can only, because of this, make the interpretation that the property title has been transferred. In other words, it is the renunciation of the Justly owned property title in itself, which is the very cause to the ending of the original property owner’s title to the property and the transferring of the title to the new owner, which the original property owner has renounced his property title to.
Logic and reason tells us what has been renounced and transferred, in fact, also is renounced and transferred. For what has been done cannot be undone.
Logically a man cannot renounce his right to self-ownership, since a man in his very nature controls his own mind and body (natural disposition), that is, he is a natural self-owner of his own will and person (having a free will) and he will still be so even if he has “tried” o renounce his natural self-ownership to another person. He cannot renounce something which is a biological and physical fact of his very own life and which will never, as long as he lives, leave him.
In other words, we cannot interpret with the help of reason that the supposed slave’s natural self-ownership has been transferred to another person which the supposed slave has tried to renounce his self-ownership to.
We can therefore conclude that this fact of natural self-ownership, always, logically, neutralizes every attempt to renounce it.
Another logical confirmation of this fact is that when we in this document concluded that none physical violence and none theft preserves human life, we wouldn’t make such a conclusion if we didn’t control our minds and bodies. We wouldn’t be able to make such a conclusion, since we wouldn’t control ourselves and either would life exist, in a state of things, when everyone had the legal right to fully use his self-ownership, that is, in other words, in a state of things where physical violence and theft is none existent at all.
In regard to what has now been said we can conclude that it is objectively true that every man is a Just property owner in his own right. Because of this, slave contracts should not be legally binding, as their existence is only a” legalization” of physical violence. If we would neglect this fact, we would violate the principle of self-ownership and be using physical violence and also, because of this, violating the condition for the preservation of human life.
It is true that the possibility to make contracts and to trade is the very foundation for specialization and spurs creative processes which accounts for a very large part of man’s creative efforts. To “legally” hinder the enforcement of contracts and therefore also trade, would not only mean extreme poverty, but also death to most individuals on earth.
The enforcement of contracts, in accordance with our definition, we can conclude, is the condition for preserving these creative processes among individuals. Other definitions of contracts, which are only some sorts of agreements, (really, only different grades of slave contracts) should not, as have been pointed out, be legally binding. These illegitimate contracts include only those destructive seeds that violates the condition for the preservation of the human race, namely the “principle of none physical violence and none theft”, and because of this fact alone, they don’t include those productive processes which account for a very large part of man’s creative efforts.
We have now ended our definition of Justly owned property rights.
We have established that human life is preserved by the condition “that no man shall have the right use physical violence and theft”.
Our conclusion will therefore be that the principle “that no man shall have the right to use physical violence and theft” is synonymous with our definition “that no man shall have the right to violate the rightful ownership in person and property”.
We can establish that the absolute and perfect condition for the human extermination is the none existence of the principle “that no man shall have the right to violate the rightful ownership in person and property”, and we can also conclude that the absolute and perfect condition to preserve the human race is the none existence of any violations.
Isolated violations of the principle are therefore absolutely perfect, destructive actions which undermine the condition and the preservation of the human race, since the very existence of these destructive actions deviate from the absolutely perfect condition for the preservation of the human race.
Ethical conclusions in this document, I believe, are in agreement with some ethical conclusions that the giant Hans-Hermann Hoppe have done.
Please read some of his excellent writing from the book “The Ethics and Economics of Private Property”:
http://mises.org/etexts/hoppe5.pdf
Björn Lundahl
Göteborg, Sweden
Published: October 28, 2006 6:00 PM
Björn Lundahl
Normative principles
A pure free market is based upon the axiomatic principle "that no man or group of men may aggress against the person or property of anyone else".
This is the very principle which the courts and the legal system should follow.
How do we know that this principle is an axiomatic principle?
I quote from the book “For a New Liberty”, written by Murray Rothbard, page 45:
“THE CENTRAL THRUST of libertarian thought, then, is to oppose any and all aggression against the property rights of individuals in their own persons and in the material objects they have voluntarily acquired. While individual and gangs of criminals are of course opposed, there is nothing unique here to the libertarian creed, since almost all persons and schools of thought oppose the exercise of random violence against persons and property”.
http://mises.org/rothbard/newliberty3.asp
So, generally, all persons and schools of thought oppose the exercise of random violence against persons and property.
Above statement is an answer why the principle is an axiomatic one. But this is not the only reason. There are rational ones as well.
Life as a value is an axiomatic value that no one in a debate logically can deny as this value is the very condition for the debate and the participators existence.
I quote from the book “The Ethics of Liberty”, written by Murray Rothbard, page 29:
“It may well be asked why life should be an objective ultimate value, why man should opt for life (in duration and quality). In reply; we may note that a proposition rises to the status of an axiom when he who denies it may be shown to be using it in the very course of the supposed refutation. Now, any person participating in any sort of discussion, including one on values, is, by virtue of so participating, alive and affirming life. For if he were really opposed to life, he would have no business in such a discussion, indeed he would have no business continuing to be alive. Hence, the supposed opponent of life is really affirming it in the very process of his discussion, and hence the preservation and furtherance of one’s life takes on the stature of an incontestable axiom”.
http://mises.org/rothbard/ethics/six.asp
This is also confirmed with Ludwig von Mises statement in his book, “Human Action”, page 11:
“We may say that action is the manifestation of a man's will.”
http://mises.org/humanaction/chap1sec1.asp
Which principles are an objective condition for preserving the human race and human life?
To objective examine if something is a condition for something else, we have to mentally grasp a state of things, where the supposed condition doesn’t exist anywhere and at all.
For example, if we suppose that the existence of oxygen is a condition for the preservation of the human race, we grasp a state of things, where oxygen doesn’t exist anywhere on earth. If we would let some oxygen exist somewhere on earth, then we couldn’t make a valid conclusion. We wouldn’t know if oxygen were a condition for preserving human life. To make a valid conclusion we have to grasp where oxygen doesn’t exist anywhere and at all. Under this condition we can, naturally, conclude that no human life would exist. We can, because of this reason conclude that oxygen is a condition for the preservation of the human race. We can also conclude that when we objectively examined as we just did, if oxygen was a condition for preserving human life, we would be bound to take under consideration the whole reality and not only some parts of it. We wouldn’t let oxygen exist somewhere on earth, because if we had done so, we wouldn’t have grasped the effects, under consideration, to the whole situation (the whole reality), and our conclusion would therefore have been invalid.
We can only make one choice, either we take under consideration some parts of reality or we take under consideration the whole reality. Reason and logic tell us that if we take under consideration the whole reality, this will reflect the truth, because we can’t consider anything more absolute and perfect. This procedure is an axiomatic procedure.
Is “the principle of physical violence” a condition for the preservation of the human race?
To examine this principle under consideration of what has already been said about the procedure of finding out conditions, we have to grasp a state of things where the principle of none physical violence doesn’t exist anywhere and at all. If we let some people live by the principle of none violence, a procedure which we have just discarded, then we wouldn’t make a valid conclusion. Logically we are bound to let all people live by the principle of physical violence. Because of this fact the human race and life would immediately exterminate.
We can therefore conclude “that the principle of physical violence” is a condition for the preservation of human extermination and that “the principle of none physical violence” is the condition for human preservation.
We can also conclude, that human life wouldn’t exist, if the principle of “not to have the right to use threat of physical violence” didn’t exist.
If we grasp a state of things where this principle doesn’t exist, anywhere and at all, everyone would be threatening everyone else. Nobody would be able to live and fulfil their needs and dreams. Action to preserve ones life would be an impossible mission.
Not anybody would dare to act because if this anybody did, someone would always be threatening this anybody. A perfect static situation would occur and the human race would immediately exterminate.
Our conclusion will therefore be that “the principle of threat of physical violence” is a condition for the human extermination, and “the principle of none threat of physical violence”, is a condition for the preservation of human life.
As life is an axiomatic value which we want to preserve, it is also logically true that we axiomatically want to preserve the principle which is a condition for life, namely “the principle of none physical violence (including not to have the right to use threat of physical violence)”.
Let us now examine if “the right to steal” is a condition of the preservation of human life.
If we want to define what objective theft is, we will have to define property rights, based on an axiomatic Justice.
If we consider what has already been said in this document, we can also understand that an axiomatic Justice is those principles which are a condition for the preservation of the human race. Unjust are those principles which are a condition for the preservation of the human extermination.
Just property rights are, therefore, those property rights which are conditions for the preservation human life. Unjust are those property rights which are conditions for the preservation of human extermination.
In order to survive, man cannot live alone in an environment which is free from physical violence. To survive and prosper man has to use his reason and energy to transform nature into useful things. Man lives and prospers because he is a creative animal.
We can therefore conclude that creation in itself is a condition for the preservation of the human race.
We can therefore conclude that Just property rights are those rights which preserve man’s creative efforts.
In order to define these property rights we will have to grasp a state of things when man, for the first time, enters this world of ours. This because we want to define original property rights based on Justice. In order to define property rights based on Justice, we don’t want either to be deluded by existing potential unjust property rights. Only, in a state of things where no man, yet, has owned anything, we don’t take the risk of being deluded.
When the first man, for example, broke a branch and made himself a bow, the title of property of this creation was also his. Why does the title of the property (the bow) belong to this man? Because man is a purposeful agent and if man doesn’t own his original creation and the results of his actions, he won’t act.
Let us examine if the last statement is objective and true.
We examine and grasp a state of things, in accordance with the mentioned procedure to examine objectively if something is a condition for something else, through not letting the examined principle be existent anywhere at all.
We grasp a state of things where the following principle is none existent anywhere at all: “the originators right to the objects which he through action, has created”. Everyone would be stealing anyone’s creation and the human race would immediately exterminate.
This proves that man is a purposeful agent and when his motivation exterminates, he stops acting at once.
This is also the objective reason why theft is a condition for the preservation of human extermination, and that the principle of none theft, the originators creation in accordance with the above reasoning, is the condition for the preservation of human life.
Let us now define Justly owned property rights to land.
Man doesn’t create land but he acts and creates on, in and out of land.
Also here we examine a state of things when man for the first time, enters this world. When, then, the first man enters the untouched land, and creates by action on or in or out of land, then this part of the land which he has now touched, belongs to him. Why the first man? If the first man doesn’t have the property right to this part of the land, nor does individual number two, three, four, five etc have the right to the land, and while they are waiting for the last man who hasn’t yet entered this world, man will quickly perish.
If we grasp a state of things, where the following principle is none existent anywhere and at all (this objective test is, of course, in line with our reasoning about such a procedure for finding out a condition for something else):
“When someone creates by action on or out of land, then this part which he has now touched belongs to him”.
This would mean that everyone would be stealing anyone’s Justly owned land, that is as soon as someone starts creating by action on or in or out of land, someone else would have the right to the land in question and the human race would immediately exterminate.
We can conclude that the condition for the extermination of the human race is to preserve the principle “the right to steal the land which the first man has touched and created on or in or out”. Our conclusion will also therefore only be that the condition for the preservation of the human race is that no man ever should have such a right.
Why must anybody own anything?
In accordance with our objective test to find out if something is a condition for something else, we grasp a state of things where the following principle is none existent anywhere and at all:
“Everybody owns themselves and their Justly owned property rights”.
Nobody would be able to do anything, since nobody has the right to control anything. Not even themselves (see below about property rights in your own person).
This question is not only a contradiction it is also silly. You ask a question which means that you control yourselves (natural disposition), that is owning yourself (see below the excellent writing of Hans-Hermann Hoppe). The other contradiction is that if nobody would own anything, nobody would be able to hinder anyone to own anything either since they would otherwise have an invalid control (having the disposition to) of everyone else, that is having an invalid ownership to everybody else (see below about valid property rights in your own person).
Ownership itself is, therefore, an objective condition for the preservation of human life.
Now, then, we haven’t ended our definition of Justly owned property rights until we have analyzed the right to make contracts. We will have to examine the right to make contracts, because, sooner or later the owners of Justly owned property will trade with each other. Sooner or later disputes will occur among the trading partners and then, we will have to know, the rights the trading partners have to the property and which the dispute among them is all about.
Some economist argues that the Justification for the right to make contracts is that the right promotes economic prosperity.
It is true that most of us want economic prosperity, but this is not an axiomatic Justification for the right o make contracts. “Economic prosperity” is not an axiomatic value. As we want to be objective, this argument is not good enough.
Some individuals argue that trading partners have an “agreement” and this is the reason why contracts should be legally binding. Why should such an agreement be legally binding if one of the partners wants to change his mind? Why shouldn’t we respect such a change of man’s will? Why should an earlier manifestation of a man’s will be considered proper and Just and a later manifestation of a changed will be regarded as improper and unjust? Where is the objective Justification? Where is the logical point of view? To argue that the trading partners “knew what they got into and that is why “agreements” should be legally binding”, is, of course, nonsense. It only proves that agreements are artificial constructions which haven’t anything to do with axiomatic principles founded in the nature of things.
The Justification for binding contracts is not that they are “agreements or for that reason are contracts”, but for the reason that we can derive, because of them, Justly owned property titles. “The right to make contracts” is not a right in itself which can objectively be defended as such, but is an expression which symbolizes the interpretations to derive Justly owned property rights and if theft has been done or not.
This is the title transfer theory of contracts, see also Murray Rothbard´s excellent book “The Ethics of Liberty”, chapter 19:
http://mises.org/rothbard/ethics/nineteen.asp
On what base can this interpretation be related to contracts and Justly owned property titles? This we can conclude because of the reason that contracts only confirm exchange of original Just titles to property (in accordance with above definitions of original Just titles to property), that is the transferring of Just property titles between the trading partners.
The reason that a property title will be transferred from one person to another is that the original property owner has renounced his Justly owned property title to be transferred to another person, and we can only, because of this, make the interpretation that the property title has been transferred. In other words, it is the renunciation of the Justly owned property title in itself, which is the very cause to the ending of the original property owner’s title to the property and the transferring of the title to the new owner, which the original property owner has renounced his property title to.
Logic and reason tells us what has been renounced and transferred, in fact, also is renounced and transferred. For what has been done cannot be undone.
Logically a man cannot renounce his right to self-ownership, since a man in his very nature controls his own mind and body (natural disposition), that is, he is a natural self-owner of his own will and person (having a free will) and he will still be so even if he has “tried” o renounce his natural self-ownership to another person. He cannot renounce something which is a biological and physical fact of his very own life and which will never, as long as he lives, leave him.
In other words, we cannot interpret with the help of reason that the supposed slave’s natural self-ownership has been transferred to another person which the supposed slave has tried to renounce his self-ownership to.
We can therefore conclude that this fact of natural self-ownership, always, logically, neutralizes every attempt to renounce it.
Another logical confirmation of this fact is that when we in this document concluded that none physical violence and none theft preserves human life, we wouldn’t make such a conclusion if we didn’t control our minds and bodies. We wouldn’t be able to make such a conclusion, since we wouldn’t control ourselves and either would life exist, in a state of things, when everyone had the legal right to fully use his self-ownership, that is, in other words, in a state of things where physical violence and theft is none existent at all.
In regard to what has now been said we can conclude that it is objectively true that every man is a Just property owner in his own right. Because of this, slave contracts should not be legally binding, as their existence is only a” legalization” of physical violence. If we would neglect this fact, we would violate the principle of self-ownership and be using physical violence and also, because of this, violating the condition for the preservation of human life.
It is true that the possibility to make contracts and to trade is the very foundation for specialization and spurs creative processes which accounts for a very large part of man’s creative efforts. To “legally” hinder the enforcement of contracts and therefore also trade, would not only mean extreme poverty, but also death to most individuals on earth.
The enforcement of contracts, in accordance with our definition, we can conclude, is the condition for preserving these creative processes among individuals. Other definitions of contracts, which are only some sorts of agreements, (really, only different grades of slave contracts) should not, as have been pointed out, be legally binding. These illegitimate contracts include only those destructive seeds that violates the condition for the preservation of the human race, namely the “principle of none physical violence and none theft”, and because of this fact alone, they don’t include those productive processes which account for a very large part of man’s creative efforts.
We have now ended our definition of Justly owned property rights.
We have established that human life is preserved by the condition “that no man shall have the right use physical violence and theft”.
Our conclusion will therefore be that the principle “that no man shall have the right to use physical violence and theft” is synonymous with our definition “that no man shall have the right to violate the rightful ownership in person and property”.
We can establish that the absolute and perfect condition for the human extermination is the none existence of the principle “that no man shall have the right to violate the rightful ownership in person and property”, and we can also conclude that the absolute and perfect condition to preserve the human race is the none existence of any violations.
Isolated violations of the principle are therefore absolutely perfect, destructive actions which undermine the condition and the preservation of the human race, since the very existence of these destructive actions deviate from the absolutely perfect condition for the preservation of the human race.
As life is an axiomatic value which we want to preserve, it is also logically true that we axiomatically want to preserve the principle which is a condition for life, namely “that no man shall have the right to use physical violence and theft” or in other words,” that no man shall have the right to violate the rightful ownership in person and property”.
If we take under consideration what has been concluded in this document, we can also conclude that another meaning of the principle of none violations, is that the principle also brings an absolutely perfect opportunity for the survival of human life. This means that the principle brings a totally perfect opportunity for the survival of all human beings.
As it is true that the principle is a totally perfect condition and a totally perfect preservation of human life, it also logically follows that the principle brings a totally perfect opportunity for the survival of all human beings.
This can also be proved by the fact that everyone’s violation of the principle (total physical violence and theft) brings an absolutely perfect impossibility for the survival of any human beings.
In the “philosophical debate” Liberty, as all values, is seen as a subjective value. This opinion may seem as a confirmation of the reality. There are vast political values. Liberty seems to be only one of these subjective values. But it is a superficial believes.
The reason for this is that we have established that everyone’s violation of the principle brings an absolutely perfect impossibility for the survival of any human beings. This means that we all would be, by objective means coerced to die that is objectively coerced to not “value and wanting to preserve our own lives”.
Isolated violations of the principle are totally destructive because they totally undermine by objective coercion our possibilities and opportunities to “value and wanting to preserve our own lives”.
Ethical conclusions in this document, I believe, are in agreement with some ethical conclusions that the giant Hans-Hermann Hoppe has done.
Please read some of his excellent writing from the book “The Ethics and Economics of Private Property”:
http://mises.org/etexts/hoppe5.pdf
Björn Lundahl
Göteborg, Sweden
Published: November 8, 2006 4:56 PM