Things That Ain’t So: A Response to Dworkin’s Review of Murray

Will Rogers is supposed to have said, “The trouble with most folks isn’t their ignorance, but that they know so many things that ain’t so.” Ron Dworkin’s disapproving review of Charles Murray’s What it Means to Be a Libertarian, published in the spring 1997 issue of Calvert News, is based on some ideas about economics and economic history that ain’t so.

Let us begin with economics. Dr. Dworkin takes the view that a libertarian society is not viable because fully free markets are unworkable, even ugly. The problem with this view is that it confuses the so-called “perfect” markets of textbook theory with free markets. Dr. Dworkin suggests that, in order for a free labor market to exist, people must be guided by price and price alone, even in deciding where to work. “According to theory,” he says, “a man should constantly uproot in order to find the best market in which to sell his labor…. The perfect labor market, according to the theory of market capitalism, is a society of hoboes.”

Dr. Dworkin is here confusing textbook models of labor markets with actual free labor markets. By “perfect labor market,” he evidently means the simple models of labor markets found in price theory textbooks. Those models assume that workers respond to price alone. Why? Because everyone responds to wage levels in some degree, and it is too difficult to model people’s other major considerations, such as how far they must commute, how interesting the work is, how well they like the values of the company, etc. Accordingly, in the textbooks’ artificially “perfect markets,” the one-dimensional labor units respond to wage levels alone.

Libertarians do not advocate “perfect labor markets” in Dr. Dworkin’s textbook sense. They advocate, rather, perfectly free labor markets in the real world. A free labor market does not require that people make wage rates their only criterion in choosing a job. On the contrary, the essence of a free labor market is people’s freedom to offer their labor services at any jobs they choose, for any and all reasons important to them, on any terms they see fit. Similarly, it leaves prospective employers free to hire as they choose, on whatever criteria they choose. The key is freedom of association: Any mutually agreeable arrangements are allowed; no one else’s permission is needed.

Many distrust freedom in labor markets, of course, and not without some reason. They fear, for example, that wealthy industrialists would hold wages down for impoverished workers who lack equal bargaining power. Or that racist and sexist employers would systematically discriminate against minorities and women. Certainly employers prefer to pay lower wages rather than higher (the quality of work being equal), and certainly racists will prefer to hire people of their own color. The libertarian response to these concerns is, first, that freedom of association is a right. That right should be respected for all, even for racists and sexists. Second, to the economic point, competition in a free labor market does a much better job of steadily raising wages and countering the effects of racism than government intervention can do. In fact, the government intervention is commonly used by the politically powerful to suppress the positive effects of market competition. Occupational licensing law, for example, has systematically been used to exclude minorities from a variety of trades.1 And labor law has been used, not only to exclude minorities from certain occupations,2 but also to let union members get higher than average wages by violent intimidation on the picket lines. And bear in mind that Jim Crow laws were laws, statutes passed by governments. Why were such statutes “needed” by racists? To counter the liberalizing effects of the competitive market process.3

Another economic error in Dr. Dworkin’s critique is that “Mr. Murray does not include such social insurance [as unemployment benefits, welfare, and social services] in his model libertarian society.” This is inaccurate. Murray’s model includes a wide variety of institutions for social insurance. As Murray points out, before the large-scale governmental take-over of provision for those in need, privately-funded, voluntary organizations did a very good job of such provision, even at a time when economic productivity and overall living standards were far below what they are now. Libertarians believe that modern incarnations of such institutions could and would do a better job of providing for those in need than governments do today, if only government would stop displacing private efforts.

By the end of the 19th century America’s philanthropic system showed us a glimpse of how vital and effective private philanthropy might be today. American charity for the poor did not consist of a few Lady Bountifuls with food baskets; it formed an extensive and sophisticated system of private charities, friendly societies, private insurance and mutual-aid associations that did an extraordinary job, given the level of national wealth, of dealing with the problems of poverty and economic security.4

One may argue that private social welfare efforts would not be able to do enough if government got out of the welfare business. That is a reasonable objection, although, when one considers the waste and fraud in governmental welfare, the billions of tax dollars that would be released for private efforts and the way today’s welfare system perpetuates dependence by drawing the most vulnerable into welfare as a way of life, it seems plausible that private, voluntary alternatives would be superior overall. One may not argue, however, that Murray “does not include…social insurance in this model libertarian society.”

Dr. Dworkin’s main concern about the viability of a consistently free society seems to stem from a very common misunderstanding of the Great Depression, namely, that it occurred as a result of unregulated capitalism, in the absence of government intervention. He writes that “between the two world wars [the western democracies] were teetering on collapse…because the market in its pure, pristine, self-regulating form was not able to respond to the fears of the little people in their everyday lives…. Whole lives hung on the price of rubber or a bushel of wheat. The self-regulating market wrenched apart those…small networks of ordinary folk that Mr. Murray speaks so fondly of” [emphasis added].

In fact, the American economy leading up to the Great Depression was far from a “self-regulating market” system. It was highly interventionist, as just a few details will make clear.5 Through the Federal Reserve System, a major intervention in banking initiated in 1913, the federal government was able to manipulate the supply of money.6 And it did so. Between June of 1921 and June of 1929, the money supply increased by an estimated 62 percent.7 That increase constitutes a massive intervention into the lifeblood of the economy that could never have occurred under laissez-faire. It induced a boom that necessitated extensive business liquidation and readjustment, especially in respect to prices. After the crash, did President Hoover allow markets to adjust? No. “The administration at Washington was dead set against any such readjustment. It turned instead to frantic governmental economic planning.”8 Hoover took dramatic steps, for example, to keep prices high. He urged businessmen not to cut wages and prices (despite falling incomes for consumers) and intervened in agriculture markets to (try to) support prices there. Such actions hindered necessary market readjustments.

What Benjamin Anderson calls the “crowning folly of 1930″ was the Smoot/Hawley Tariff Act. By preventing foreigners from selling in the U.S., the act prevented them from earning dollars to spend here. Foreigners had been buying massive quantities of American grain. Now they could not. “Unemployment in the export industries all over the world grew with great rapidity, and the prices of export commodities, notably farm commodities in the United States, dropped with ominous rapidity.”9 Dr. Dworkin is correct that lives in the ’30s hung on the price of a bushel of wheat, but he is incorrect to imply that “the self-regulating market” destabilized that price so badly. Government intervention did.

As farmers saw their markets collapse after the tariff increases, they found themselves unable to pay off their loans to banks. But banks – “arguably under-regulated,” according to Dr. Dworkin – were forbidden by regulation from operating across state lines. Hence they were unable to diversify their holdings across a variety of different markets. Rural banks collapsed by the score.

In 1932, concerned about budget deficits, Hoover chose to raise taxes rather than cut spending, passing the Revenue Act of 1932, “one of the greatest increases in taxation ever enacted in the United States in peacetime. The range of tax increases was enormous.”10

All these interventions occurred before Franklin Roosevelt was even elected, five years before the New Deal ground the economy down to its deepest point.11 Clearly, the American economy leading up to the Great Depression was not a “self-regulating market.”

In closing, a word about Murray’s book proper: I thought it superb. It is lucid, pleasant to read and concise. Its arguments are powerful and grounded in fundamental concern for justice, freedom and quality of life for all. For those who like libertarian ideas, it clarifies many points well. For those wary of, but curious about, the libertarian approach, it serves as an excellent primer.

Dr. Baetjer is visiting assistant professor of economics at Towson University and a member of the Calvert Institute’s board of trustees.

End Notes

[Top] 1. See Walter Williams, The State Against Blacks (New York, N.Y.: McGraw Hill, 1982), esp. chs. 5-7.

[Top] 2. Williams, The State Against Blacks, chs. 7, 8; also David Bernstein, “The Davis/Bacon Act: Vestige of Jim Crow,” National Black Law Journal, Vol. 13, No. 3, Fall 1994, pp. 276-297.

[Top] 3.See Jennifer Roback, “Exploitation in the Jim Crow South: The Market or the Law?” Regulation, Sep./Dec. 1984, pp. 37-43.

[Top] 4. Charles Murray, What it Means to Be a Libertarian: A Personal Interpretation (New York, N.Y.: Broadway Books, 19970, pp. 136-137. On the remarkable variety and effectiveness of fraternal organizations, which cannot properly be called charity, see David Beito, “Mutual Aid for Social Welfare: The Case of American Fraternal Societies,” Critical Review, Vol. 4, No. 4, Fall 1990, pp. 709-736.

[Top] 5.Scholars have persuasively argued that in fact government intervention was the cause of, not the solution to, the Great Depression. See especially America’s Great Depression, by Murray Rothbard (Mission, Kans.: Sheed and Ward, 1975) and Economics and the Public Welfare, by Benjamin Anderson (Indianapolis, Ind.: Liberty Press, 1979 [orig., 1949]).

[Top] 6. For a clear presentation of the case against government intervention in money and banking, see Free Banking in Britain: Theory, Experience and Debate, 1800-1845, by Lawrence H. White (New York, N.Y.: Cambridge University Press, 1984) and The Theory of Free Banking, by George A. Selgin (Totowa, N.J.: Rowman and Littlefield, 1988).

[Top] 7. Rothbard, America’s Great Depression, p. 86.

[Top] 8. Anderson, Economics and the Public Welfare, p. 225.

[Top] 9.Anderson, Economics and the Public Welfare, p. 229.

[Top] 10. Rothbard, America’s Great Depression, p. 253.

[Top] 11. According to Anderson, “the trough of business depression, as measured by the Federal Reserve Index of Industrial Production, was reached in May [of 1938],” well into the New Deal. See Economics and the Public Welfare, p. 459.

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