I recently had the great fortune and opportunity to re-read and discuss in the setting of a libertarian reading group, Hans-Hermann Hoppe’s A Theory of Socialism and Capitalism. For those of you who haven’t read this important libertarian work, I hope to whet your appetite. Hoppe states in his introductory chapter the following thesis which shows the reader from the start the logical precision found throughout this great work:

“At the end of the treatise it should be clear that only by means of a theory, economic or moral, which is not itself derived from experience but rather starts from a logically incontestable statement (which is something very different from an “arbitrarily postulated axiom”) and proceeds in a purely deductive way (perhaps using some explicitly introduced empirical and empirically testable assumption, in addition) to results which are themselves logically unassailable (and thus require no empirical testing whatsoever), will it become possible to organize or interpret an otherwise chaotic, overly complex array of unconnected, isolated facts or opinions about social reality to form a true, coherent economic or moral conceptual system.”

Hoppe does not disappoint in the logical clarity of his analysis dismantling socialism and empiricism and rationally justifying the non-aggression principle and capitalism. We find Hoppe keeps true to his word and leaves the reader with an excellent resource to justify libertarianism and capitalism and to destroy socialist arguments. To give a brief overview of segments of the book, here are a few highlights from each chapter.

In the Chapter 2, Hoppe discusses the basic concept of property rights.  Setting his analysis in paradise, Hoppe points out the need for property rights due to the obvious reality of scarcity including one’s own body.  Hoppe presents an interesting hypothesis when he considers what would happen in a socialist paradise where someone had a property claim in someone else’s body.  Hoppe notes two effects of such a system: an economic effect and a social effect. The economic effect regards time preference.  If one’s use of the body is limited by someone else, one is restricted to make choices by the disutility of waiting. Therefore, high time preference prevails and there is less investment in human capital.  The social impact is the increase in aggression in society which changes social structures and also causes disinvestment in human capital.

In Chapter 3, Hoppe describes Russian-style Socialism and gives the motivation behind socialism, egalitarianism.  Socialism is characterized by nobody owning the socialized means of production and nobody engaging in private investment or creating new private means of production.  Hoppe gives two observations of socialism: 1) the problem of differences in ownership is solved only nominally since the real underlying problem is differences in the power to control, and 2) socialists try to sell the system based on a superior coordination and efficient capabilities (this is merely illusory as individuals still have their subjective value judgments and the means of production still have to be used in accordance with these different value judgments).  He lists four consequences of socialism: 1) a drop in the rate of investment and capital formation; 2) a wasteful use of the means of production; 3) a drop in the standard of living or increased impoverishment; and 4) a change in the character structure of society.  People shift from developing their productive skills to developing political talent and shift more from work to leisure resulting in decivilization due to the changes with increased consumption. These consequences are further examined in two other types of socialism, in Chapter 4, Social-Democratic Socialism and in Chapter 5, Conservative Socialism.

Social-Democratic Socialism is characterized as a system that doesn’t completely outlaw private ownership in the means of production (except for police, courts, education, traffic/communication, and central banking) but where “no owner of means of production rightfully owns all of the income that can be derived from the usage of his means of production and no owner is left to decide how much of the total income from production to allocate to consumption and investment.” Hoppe explains three general types of redistributive means that these socialist democrats use: 1) equalizing everyone’s monetary income, 2) guarantee of a minimum income amount, or 3) attempts to achieve equality of opportunity. The effects of these attempts create a disincentive to work. They also increase politicization and development of political skill. Conservatism Socialism is a socialism attempting to maintain the aristocracy of the old order. Hoppe notes similarities between the social-democratic style socialism and conservative socialism noting the main difference is the class of people to which the wealth is redistributed. Here, Hoppe asserts that in conservative socialism wealth is distributed from the private property owners and producers to non-producers who are of a higher class of the old order. Hoppe asserts three primary ways conservative socialism operates: 1) price controls, 2) regulations, and 3) behavioral controls. He points out the most distinctive of the policy schemes of conservative socialism is the behavioral controls or laws that ban non-aggressive behavior such as drug laws.

In Chapter 6, Hoppe dismantles the epistemology of socialism, empiricism, and in the process dismantles socialist engineering.  Hoppe explains the philosophy of empiricism and states that if these empiricists hold that a priori knowledge is not valid then they can ignore all of his prior arguments against socialism. Hoppe points out that the empiricists can ignore variables to try to point to evidence that socialism does work in a sort of ad hoc rescue fallacy. He gives two central tenets of empiricism: 1) the first tenet is that “empirical knowledge, must be verifiable or at least falsifiable by experience; and experience is always of such a type that it could, in principle, have been other than it actually was so that no one could ever know in advance, i.e., before actually having had some particular experience, if the outcome would be one way or another,” and 2) the second tenet “formulates the extension or rather the application of the first tenet to the problem of causality and causal explanation or prediction.” Hoppe points out the self-defeating nature of empiricism as its central tenets cannot be justified by empirical knowledge.  He argues the case against social engineering, defined as the process where social engineers “interfere with the practices of the actual user-owners and determine the uses of these means, thereby restricting their property rights…in order to produce a preferred outcome.” Hoppe notes that the policy is essentially the same as that of social democracy and conservative socialism, taking from producers and giving to non-producers causing impoverishment.  The difference is one of social psychology.

In Chapter 7, Hoppe presents his case for argumentation ethics justifying capitalism over socialism.  Hoppe states that any truth claim must be raised in the course of argumentation and that it is self-contradictory to argue otherwise.  With argumentation, there are certain norms that are presupposed to be valid, are valid a priori, and to argue otherwise is self-contradictory. Hoppe finds that with any norm proposal such proposal must be consistent with these presupposed valid norms for argumentation. Hoppe’s presupposed norms of argumentation are as follows: 1) The universalization principle of ethics (Hoppe grounds this in argumentation as everyone is assumed to be able to be convinced by argumentation due to its force and also notes that this is merely a characteristic of ethics and does not give any positive set of norms); 2) Argumentation is not only a cognitive affair but a practical affair; 3) Argumentation presupposes the scarce resource of one’s own body; and 4) Argumentation is a conflict-free way of interacting. Important to note is that Hoppe grounds the right of self-ownership in argumentation.  He states that in argumentation it is assumed that one has the right of exclusive control of one’s body as an instrument of action and cognition and to argue otherwise of a contradiction. With these presupposed norms seen as valid, Hoppe makes an important conclusion:

“Thus it can be stated that whenever a person claims that some statement can be justified, he at least implicitly assumes the following norm to be justified: “Nobody has the right to uninvitedly aggress against the body of any other person and thus delimit or restrict anyone’s control over his own body.” This rule is implied in the concept of justification as argumentative justification. Justifying means justifying without having to rely on coercion. In fact, if one formulates the opposite of this rule, i.e., “everybody has the right to uninvitedly aggress against other people” (a rule, by the way, that would pass the formal test of the universalization principle!), then it is easy to see that this rule is not, and never could be, defended in argumentation. To do so would in fact have to presuppose the validity of precisely its opposite, i.e., the aforementioned principle of nonaggression.”

Along with this conclusion, any proposed norm that contradicts the principle of nonaggression is also invalid. Hoppe extends this norm to not only one’s person but also goods with which one mixes his labor.  Finally, Hoppe applies these valid ethical norms to socialism and finds socialism contradictory to these norms and thus invalid.

In Chapter 8, Hoppe considers the psychological foundations on which socialism rests.  He lists three psychological foundations of socialism as aggressive violence, corruption through taking from natural owners and giving to non-owners, and corruption by letting the public participate in the expropriation. The state uses the systems of education, law and the courts, control of traffic and communication, and control of money in a strategic role to secure its existence. Democracy helps to facilitate the state’s strategy by seemingly allowing anybody to wield the power of the state. Finally, Hoppe gives an analysis of what it takes to overcome socialism. He talks about two assumptions that are against nature: 1) the state can generate support for its role by providing certain goods and services to favored groups of people. Hoppe notes that this is realistic since states exist everywhere but that there is no law of nature saying this is always so. He states that “a change in general public opinion must take place: state-supportive action must come to be regarded and branded as immoral because it is support given to an organization of institutionalized crime,” and 2) “a change in public opinion which would lead people away from using the institutional outlets for policy participation for the satisfaction of power lust, but instead make them suppress any such desire and turn this very organizational weapon of the state against it and push uncompromisingly for an end to taxation and regulation of natural owners wherever and whenever there is a chance of influencing policy.”

In Chapter 9, Hoppe sets out the economic case for capitalism. He sees three structural reasons for capitalism’s superiority: 1) capitalism rationally allocates the mean of production; 2) capitalism ensures the quality of output reaches an optimal level as judged by consumers; and 3) capitalism guarantees the value of production factors is conserved over time.  Hoppe answers the myth of the problem of monopoly in a capitalist market stating four points:

“First, available historical evidence shows that contrary to these critics’ thesis, there is no tendency toward increased monopoly under an unhampered market system. In addition, there are theoretical reasons that would lead one to doubt that such a tendency could ever prevail on a free market. Third, even if such a process of increasing monopolization should come to bear, for whatever reason, it would be harmless from the point of view of consumers provided that free entry into the market were indeed ensured. And fourth, the concept of monopoly prices as distinguished from and contrasted to competitive prices is illusory in a capitalist economy.”

Hoppe then, and quite rightly so, turns the monopoly problem back on to socialism noting how the state produces monopoly and monopoly prices which is distinguishable from market prices and practices and can be objectively determined by comparison to the market.

In Chapter 10, the final chapter of his masterpiece, Hoppe considers the mythical distinction of public and private goods and the private production of security.  Hoppe notes:

“If there is one well established truth in political economy, it is this: That in all cases, for all commodities that serve to provide for the tangible or intangible need of the consumer, it is in the consumer’s best interest that labor and trade remain free, because the freedom of labor and trade have as their necessary and permanent result the maximum reduction of price. And this: That the interests of the consumer of any commodity whatsoever should always prevail over the interests of the producer. Now, in pursuing these principles, one arrives at this rigorous conclusion: That the production of security should, in the interest of consumers of this intangible commodity, remain subject to the law of free competition. Whence it follows: That no government should have the right to prevent another government from going into competition with it, or require consumers of security to come exclusively to it for this commodity.”

Hoppe then notes there is only one way out of this argument for the socialist and that is the production of public goods where such economic reasoning does not apply. Hoppe then dismantles the fallacy of the distinction between private and public goods noting among other things that history has shown that the market can and has provided so-called public goods and that changes in subjective valuation blur the distinction between what may be considered public or private goods.  Hoppe makes an excellent observation with respect to the reasoning of the public good argument:

“For one thing, to come to the conclusion that the state has to provide public goods that otherwise would not be produced, one must smuggle a norm into one’s chain of reasoning. Otherwise, from the statement that because of some special characteristics of theirs certain goods would not be produced, one could never reach the conclusion that these goods should be produced. But with a norm required to justify their conclusion, the public goods theorists clearly have left the bounds of economics as a positive, wertfrei science. Instead they have transgressed into the field of morals or ethics, and hence one would expect to be offered a theory of ethics as a cognitive discipline in order for them to legitimately do what they are doing and to justifiably derive the conclusion that they actually derive. But it can hardly be stressed enough that nowhere in the public goods theory literature can there be found anything that even faintly resembles such a cognitive theory of ethics.”

And so, we find in all forms of socialism, a system that is wasteful, impoverishing, irrational, unethical, immoral, and completely without justification as opposed to capitalism which is justified economically, rationally, and ethically.  Has ever a book been written that sets out these arguments so precisely? This is the only one to my knowledge and thus should be read by all.

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