The churning society and its perversities

The Churning Society and its Perversities Gerard Radnitzky ABSTRACT Central features of the welfare state are described. Since most redistribution now benefits the same persons and strata as it taxes, the “churning society” is a more telling label for modem democracies than is the welfare state. The historical development of the phenomenon is sketched. The Prussian social kingdom is taken as the archetype and point of origin. “Bismarckism” marks the turning of the original social idea into the modem form of the churning society. It affected other countries. Churning is a democracy-induced phenomenon. The explanation of the rise of the churning society focuses on the intellectual factors, in particular on the political theory of liberalism. The decline of liberalism can be in part explained by the looseness of classical liberalism and its successors---l.e., “soft” liberalism. The article inquires: how can liberalism be strengthened? Jasay’s design of strict liberalism is outlined and analyzed. It provides the basis of a system of deqntological moral rules. Is such a system indispensable for a social order that is compatible with the idea of a free society? Or can democracy solve the problem? This question leads to an analysis of the dynamics of the democratic method of collective choice. Remedies are discussed that might help the emergence of a less unfree society.

Contents 1. 2.

3. 4.

5. 6.

Introduction 1.I The Age of De-Civilization The Rise of the Churning Society 2.1 The Old and the New Churning Society 2.2 Similarities and Differences between the Old and the New Churning Societies Causes and Reasons for the Advance of Socialism Liberalism: ‘Soft’ or ‘Strict’ 4.1 Explaining the Decline in Classical Liberalism-Critical Analysis of ‘Soft’ Liberalism 4.2 Explicating ‘Strict’ Liberalism Analysis of Democracy and its Relationship to Strict Liberalism Practical Implications for Friends of the Free Society-and Possible Remedies, If Any 6.1 Educating for Capitalism 6.2 Competition at All Levels through Decentralization, Regionalization

Gerard Rmhitzky, Professor Emeritus, Im MUhlengnmd 12, D-54317, Korlingcn, Germany. JotmzaI ofSocial and Evolurionary Systems 18(1):3.57-39s ISSN: 1061-7361

Copyright 0 1995 by JAI Press, Inc. AU rights of reproduction in any form reserved.

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One of the most remarkable phenomena of our era is the rise of the redistributive society and its concomitant, government growth. Among the myths we have come to accept is the myth that welfare to poor people is the cause of deficits.’ In fact only one out of eight federal dollars of social spending serves to lit poor families above the poverty line, while half of federal entitlements in the United States goes to households with incomes over $30,000 and a quarter goes to households with incomes over $50,000. Intense redistribution thus takes place horizontally, i.e., back and forth within the middle-strata in terms of political organization (Tullock, 1983, calls this “rent seeking”). Redistribution across middle-class groups thus is the major reason for the growth of government budgets. Hence, “churning society’*-a term introduced by Anthony de Jasay in The State (1985, pp. 232243)-is a more telling label than welfare state. The constant churning does not entail a result that is more and more egalitarian2 The only certainty is that the system of transfers and above all of covert transfers through public goods (more accurately, tax-financed goods and services), regulations, protectionist measures including subsidies, and so forth has become so complex and non-transparent that as a rule the government itself is not able to tell who, on balance, has been assigned the role of “suckers” and who the role of “free riders.” The “Churning Society” is seen as a consequence of the advance of social democracy, of the combination of socialism with democracy in any of its many varieties. The two developments have become like the two sides of a coin. Rent-seeking is naturally combined with lobbying, and the Churning Society is largely a consequence of the way we practice democracy. The same result can be achieved in principle either by taxation or by regulation, especially by the state dictating how long people have to work for the state-but this has not been the Western practice. The crossbreed of socialist and democratic precents is put on the political market under various labels: In current European electoral tactics, it calls itself social democracy, Christian democracy, Christian Socialism (e.g., CSU in Germany), and in the United States (ironically) liberalism (big-government liberals). Hayek dedicated his political classic of 1944, The Road to Serfdom, “To the socialists of all parties.” This proved prophetic. Since the publication of that book, the similarities in program and behavior of the various parties has steadily increased. To combat this trend toward the Churning Society, Hayek set about the formation of the Mont Pelerin Society. When in it was founded in 1947, it asked such questions as “What is the nature of liberalism? Why had it declined? How can it be strengthened?” (R. M. Hartwell, 1986). The questions have not lost any of their urgency. In dealing with them, I will focus on analysis, and treat strategy only en passant. 1.1 7%e Age of De-Civilization The 20th century has been the century of socialism. The advance of socialism has been accompanied by the decline of freedom and the retreat of the civil society. This phenomenon is in essence a process of de-civilization. Socialism is basically a constructivist attempt to impose on the large, anonymous society the moral system of the face-to-face group. We can characterize socialism with the help of two ideal types: avowed or fundamentalist socialism, and disguised or creeping

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socialism. In Fundamentalist Socialism, we see most clearly its two key components: egalitarianism and constructivism. Both are associated with the idea of an end-state, a common aim of society. However, as Hayek forcefully argued, a common aim befits the small group but not the large, anonymous society-what Hayek called the Great Society. European history has seen three great socialist revolutions: the French of 1789,3 or more accurately 1791-1793; the Russian of 1917; and the German of 1933.4Fundamentalist socialism in any form is now completely discredited and discarded.5 Mises’ apothegm proved correct: “Socialism is the abolishment of rational economy” (1920). Nonetheless, the rationalist-functionalist idea that conceives of government as a tool of meliorism is a continuing bias in East and West towards the state as curer of all ills. Residues of Marxism continue in the media in the West, the universities, the Churches, and the political debate. However, since socialism in Marxian dress became no longer marketable, it needed new clothes, and now appears in the form of creeping or disguised socialism. I define “socialist” as a comparative concept: Country B is more socialist than Country A if and only if the size of the domain of collective choice relative to that of individual choice in B is larger than in A. For Western type democracies, the proportion of average earnings taken by the state and the share of taxes in GNP are rough but useful measures of the degree of socialism (and of the extent of coercion in that type of society). The share of government expenditures can also be used as a complement, since it takes into account also the deficit. The density of regulations is important but hard to assess, and while taxes hit everybody, regulations typically hurt (or give advantage to) special groups. Today, European states are at least half socialist, since the state, via taxation, controls more than half of the income (this holds even for Switzerland; in Germany, the rate is 56 percent-see Baader, 1991). The state controls education, most of communication, and so forth. In the United States, still better off in this respect, attempts were recently made to introduce a clearly socialist health reform program; and Germany introduced a health care program modeled on the socialized medicine that Sweden recently made great efforts to get rid off. The list could be augmented ad libidum. Europe has a higher public expenditure ratio than the US and the Asian Pacific Rim and correspondingly higher taxation-to-GDP ratios. In addition, it has a particular tendency to tax employment. It has reached extreme conditions in Germany, and so has the range of employment regulations. 2. The Rise of the Churning Society A glance at history may help us better understand the present. Probably the first fullgrown specimen of the welfare state is the state of the Prussian kings in the 18th century. I define “welfare state” as a state the main function of which is to maximize the welfare of the people. (In the Social Kingdom--Soziales Kiinigtum-of the 18th century, the expressions “happiness,” Gliickseligkeit, and “welfare,” Wohlfahrt, were used interchangeably.) The life of the subjects is guided in accordance with the values of the rulers (princes or parliaments). All non-unanimous social choice is characterized by the maxim “To all the values of some,” which stands in contrast to the classical-liberal principle of “To each his/ her own values.” The nature of the welfare state implies that the state has to use coercion, i.e., to dispose of some of the citizens’ liberty and property, to reduce

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the private sphere. There are striking similarities between the Social Kingdom and the modern welfare state, even in a host of details. Already in the Social Kingdom of the 18th century, the tutelage covered minute details of daily life. This feature has been typical of German statism. The state has intervened and even today intervenes in the daily life in innumerable ways6 The submissive mind-set of the populace made this possible (Untertanenmentalitiit, Obrigkeitsstaat). 2.1. The Old and the New Churning Society In essence, the history of the welfare state can be pictured as a changing pattern of freedom and coercion, coercion resulting from state interventions: the more you have of one, the less you have of the other. If we take the Prussian Social Kingdom as the origin of the welfare state, we see that it came under intensive criticism at the end of the 18th century and after. Very likely this criticism was inspired by political philosophies in the Anglo-Saxon world, in particular that of the Scottish School. In the 19th century, this attack was partially successful. But in 1878, the trend towards a less unfree society was suddenly interrupted. Bismarck revamped the paternalistic welfare state of the Prussian Social Kingdom into the modern form of welfare state. (His motive was to stop or split the socialists-a more or less universal right to vote had been introduced in 1871.) Obligatory social insurance as state monopoly-“social security,“in 20th century American parlance-was introduced in 1883. Wilhelm II embarked on an even more progressive social policy. From 1890 on a systematic misuse of social policy has been the rule in Germany. It continued through the Weimar Republic and the 12 years of National Socialism to the Federal Republic. The phenomenon of “electoral cycles”-social policy being misused particularly shortly before general elections-can be documented up to and including the present (Vaubel, 1991). In Germany (which, following Habermann, 1994,7 we have taken as our example) the welfare state has always been the undercurrent. But dramatic events in German history make the continuity of the trend less easy to see. During World War I, the state moved in the direction of totalitarianism, and during World War II the National Socialist German Workers Party (NSDAP) abolished practically all freedom.* In the style of fundamentalist socialism, it aimed at an egalitarian nation and (like Marxism) at the end of the individual.g It introduced “state slavery.“” The NSDAP’s rule was revolutionary only in the sense of a dramatic event; de facto it merely carried to the extreme tendencies already prevalent in Germany: statism and socialism, ’ ’ constructivism and centralism (since Bismarck). The pathological race myth served as a sort of “natural law” legitimization for the criminal acts of the government (Barsch, 1987; Muehlfeld, 1989). In 1948, there was a significant trend break in German history: Ludwig Erhard’s “Economic Miracle.” (Erhard was a great personality favored by historical coincidences, an enormous stroke of luck for Germany, still not sufficiently appreciated. The ideas had been prepared by Eucken and Ropke; Hayek stayed on the sidelines,) However, this liberalization concerned only economic life and left the inherited welfare state practically intact (Habermann, 1994, p. 13). Interventionism comes under various labels (including President Clinton’s “managed trade”). But the current catch phrase is “Social Market.” (It is associated with the “German Miracle,” but the current use of the term has nothing to do with Erhard’s conception.) Ludwig von Mises criticized the idea of a Social Market as early as 1940, i.e., long before

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it became the cynosure for Germany, and then for all of Western Europe. To the second edition of Human Action, the English translation of Nationaliikonomie (1940), he added two chapters devoted to it. He saw the Social Market as the latest version of interventionism-a garbled market order or hobbled market (1966, p. 723).” His prediction proved correct: the social (socialist) component of the Social Market by MuellerArmack grafted upon Erhard’s conception (which was misnamed but in line with classical liberalism)” soon became dominant (Radnitzky, 1995c, pp. 145-157). Erhard registered this development with resignation and warned against its consequences (Habermann, 1994, p. 354), but in vain. The German (Bismarckian) model of the welfare state infected even societies that had been the paragon examples of a free society. Before World War II, England under Lloyd George is an example; in the United States, Roosevelt’s New Deal looms large. (FDR, the founder of the American welfare state, can be seen as a disciple of Bismarck.) After World War II, it inspired the Beveridge Plan and the Swedish model (Gunnar and Alva Myrdal)i4 and reached even Switzerland (Schwarz, 1993).” 2.2 Similarities and Differences between the Old and the New Churning Societies Both old and new renditions of the Churning Society have in common the conception of the state as an entity which is supposed to bring about the happiness/welfare of the people; this aim has to be achieved by redistributive, coercive measures. Welfare is defined by the rulers that be (princes or parliaments); they claim to know the ultimate good for the people. Hence, both accept the coercion that is unavoidable in this project, and both envisage a common aim for society, an end-state. The main difference is in the content of the end-state that legitimizes the coercive measures and in the ‘image of man’underlying the project, on which hinges that content. The original version of the welfare state of the kings had a peculiar long-term vision, which somewhat mitigates its intention: the hope was that in the end this social order would gradually teach people how to use their own reason, and that this would make them lit to lead their own lives responsibly.r6 This is explicitly stated in the Preu@whes Lundrecht (Statute Law of the State of Prussia) of 1794 (Habermann, 1994, p. 353). The idea of an end-state is eschatological. But, since it concerns the human being as an individual, it is the opposite of Hegelian mysticism: the Aujhebung (uplifting) of human-as-species, which inspired Marx (and Hitler). The contemporary version of the Churning Society partakes of a more pessimistic ‘image of man’. The judgement on everyone that today underlies the vision of the welfare state is that the citizen is irremediably incompetent, will never become sufficiently responsible and provident to manage his or her own life; we thus need the help of Big Brother, who knows better what is good for us than we do.17 In summary, people are conceived as irremediably incapable of conducting their lives reasonably. Loft to our own devices, we will not take sufficient precautions for sickness, old age, etc. Human beings (except politicians) are naive, infantile, and irresponsible; so they must be protected against the risks of life. But an insurance against all risks requires total control. Thus, in the advanced welfare state, the state is a provider state (totuler Versorgungsstuut), a public utility state. In such a state the (legally) incapacitated citizen will be completely dependent on the state, responsibility will be socialized (freedom from responsibility), and there will be no need for and no place for freedom. Thus, in the end, the modem version leads again to state slavery.

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This image of humanity underlying the welfare state has been proven wrong by history. History is what happened in the context of what might have happened. In the mid-tolate-19th century, various services that addressed welfare needs developed voluntarily and spontaneously: in education, medical care, pensions, insurance against unemployment, and so forth. By their own efforts, families provided themselves with all the main elements of the welfare state. Since this holds for the mass of population, it falsifies the descriptive content of the statist image of people as unable to think and care for themselves, that is, without governmental enforcement. But the spontaneous welfare services were gradually almost displaced by the state. Hence, “the cost of the welfare state has to be judged by the value of the welfare services emerging in the market that the state repressed or suppressed” (Seldon, 1994a, p. 6). Since the market-provided welfare services are customer-oriented, tailored for individual needs and tastes, they provide more and better services than those provided by the state. The difference is basically one of table d’hiite (fixes series of dishes, at fured price and fixed time) versus a la carte. A la carte services are preferable even if they cost more than the centralized, standardized government-provided services-and most of the time, they are also less expensive. The replacement of market-provided by state-provided services had various unpleasant side effects. In the context of the expanding welfare state, politicians acquired widening power, bureaucracy inflated its own empire, and therefore interest groups found easier and more profitable rent-seeking from government. This micro-economical side effect of state welfarism has been momentous. Life became more politicized, electoral cycles more pronounced. Hence, the opportunity cost of the welfare state has to include the value of the slimmer government that would have been attainable without this development. Moreover, the cost of rolling back the welfare state, which no longer can be fmanced, will be high. The beneficiaries of redistributive measures (direct transfers, subsidies, protectionist measures, regulations, entitlements, etc.) eventually come to view them as their enforceable “rights.” This makes withdrawal of such a benefit, once granted, very difficult-and in practice this problem manifests itself as a ratchet effect (witness the strikes in France at the end of 1995). Jasay aptly calls the phenomenon “addictive redistribution” (1985, pp. 208-227). By impeding or precluding competition, the state prevents the market from discovering imperfections of the welfare state and the remedies (Seldon, 1994b, p. 44). Unsurprisingly, more and more people today reject the offensive taxation the state demands for unsatisfactory services. Fortunately, accelerating technological innovations may supply new escapes to international markets in voluntary welfare services, and buyers’ markets in welfare could arise. Strangely, this dialectical weapon against state welfarism is mostly neglected by (classical) liberalsi With respect to its legitimization, both versions of the welfare state rely on the myth of “Divine Rights.” Again, the difference lies in the content, this time in the content of the myth. The old version relied on the myth of the divine rights of kings, the modem version on the myth of the divine right of King Demos. “Welfare of the People”now means welfare of the greatest number, thus invoking a utilitarian ethic, and with it interpersonal utility comparisons which .are a conceptual impossibility. (How can Peter’s grief be balanced against Paul’s joy?)

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There is also a difference in the rhetoric used. As mentioned, in the original version the declared aim was labeled “happiness” (Gliickseligkeit, der Volksbeg&ckungsstaat) or “welfare.” The contemporary rhetoric prefers “social security,““social justice,““solidarity.” The pet formula of the social-democratic propaganda is “justice’‘-equalization of the ‘Ijustice gap.“lg Unequal purchasing power of citizens is unjust. Thus the “Social Charter” of the European Union envisages a European welfare state where transfer payments equalize the living standards in the member states-in the name of justice, solidarity, social peace, etc. Today’s egalitarians thus not only in their rhetoric but also in their practice wish to extend the levelling beyond national borders. Yet, the extension of egalitarianism beyond the borders of individual countries in the European Union is not really an exception to the ideal of intra-national social justice (e.g., the vision of John Rawl?)--for the extenders want to make the EU not an alliance of independent states but one superstate, as is clearly expressed in the Social Charter. Prognosis is risky, but we can fairly predict that the general trend towards more of creeping socialism or social democracy will continue the “Road Back to Serfdom.” But superimposed upon this trend will be a wave pattern to which Jasay has drawn attention (e.g., 1994a, sect. 4 s.f.). Eventually, when the state runs out of other people’s money, and the majority of voters hold socialism responsible for the economic malaise, the erosion of the civil society, and the decline of the small freedoms of daily life, people make attempts to roll back the paternalistic welfare state (thus: England in 1979, the United States in 1980, Sweden in 1991, and Germany, half-heartedly, in 1982). However, the well-known problems of such attempts lead again to a period of more interventionism. In most historical cases, government growth (as an umbrella term for the syndrome) correlates with the extension of suffrage. At the same time, the word “democracy,” which originally had a descriptive meaning, is increasingly used as a word with purely emotive function: the result of a democratic procedure is ipso facto canonized as being worthy of approval and respect (Jasay, 1991b; 1995, Sect. 5,3rd para.). (The topic will be elaborated in Section 5 below.) The above prediction invites a methodological digression. Pattern prediction is an example of Hayek’s “explanation/prediction of the principle”21 (e.g., Collected Works, ZV, p. 103). In physics too we are most often limited to pattern prediction.22 For instance, we know that, given certain initial conditions in a non-linear dynamical system far from thermodynamic equilibrium, a particular kind of spontaneous order cannot help but emerge;23 in other words, we know that a particular pattern will emerge. Hence we can predict the emergence of the type of event, that a certain kind of pattern will appear; while we in principle cannot predict any details.24 Likewise in the human realm we can predict that, if a certain type of historical situation obtains and if people (statistically speaking) act rationally, a certain type of pattern or order will emerge.25 The decisive difference between physics and the social sciences (Handlungswissenschaften, “sciences of action’?26 is that in the social sciences our changing knowledge about the initial conditions changes our power to influence them through our actions.27 And with the changed initial conditions, the predictive pattern can no longer be the same. Moreover, physical processes cannot be influenced just by our knowledge of them or our beliefs regarding them, whereas in the social sciences things are more complicated: understanding cannot exist without contact, and contact changes the parties concerned-as witness the ubiquity of unintended consequences of social action.

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3. Causes and Reasons for the Advance of Socialism Hayek is surely correct in suggesting that much scholarship is needed to explain the dominance of the socialist vision in good minds, to explain why socialism could also have commanded and maintained the moral high ground for so long (Hayek, 1945, p. 519; see also Buchanan, 1993, p. 47). A host of causes, or more accurately, reasons, suggests itself. We can describe them (typologically) as mainly rational ones and mainly non-rational ones (with does not imply that they are irrational). Among the non-rational causal factors are certain personality traits, for instance what could be called a constructivist mind-set. Hayek has always fought against constructivist rationalism (typically combined with scientism-“l’esprit de l’Ecole Polytechnique,” as he called it). Its intellectual basis is a particular Weltunschauung, a particular image of humanity and our knowledge capabilities: what Hayek labeled the “fatal conceit.” It is characteristic also of all Natural Law doctrines, from the religious doctrines of the Good (the religions of the Holy Books) to Marxism (with its canonized texts) to the HumanRights-Declarations (Topitsch, 1994). Marxism is clearly an eschatological doctrine, a secularized salvation doctrine, a re-absorption theology (Rothbard, 1993, p. 227).** All the above-mentioned doctrines simply declare certain premises as sacrosanct, in principle beyond criticism. This mind-set is typically bolstered by holism (basically an ontological doctrine implying that collectives, institutions, etc., can act and can have preferences in the same sense as individuals can, from which in turn a meta-scientific precept is derived: methodological holism).2g A second non-rational factor is egalitarianism (Flew, 1981). Whereas holism is only in part a non-rational motive, egalitarianism is basically an emotional factor, most often fuelled by envy (which often is partly subconscious-see Schoeck, 1966). Basically, it is a plea for a return to the cosiness of the face-to-face group, commending and recommending the introduction of the moral system of the horde into the large, anonymous society. Hayek has often warned that this move, if realized, would destroy that society. Psychologically, beside the envy motive, most often there is also the need to belong to a group. It finds expression in a moral system that centers around the concept of social justice which, if not an empty formula, is but a euphemism for levelling and solidarity, which (since by definition it refers only to voluntary actions) presumably should not be practicable via state-imposed interventions but is nonetheless. Sometimes egalitarianism also involves utilitarianism. And it also harmonizes with, and often presupposes, holism. Among the rational factors, we can distinguish prudential and theoretical-intellectual ones. For instance, intellectuals working in the media, schools, etc. have down-to-earth reasons for preferring an interventionist state over a non-interventionist state. Given the craving for influence and power, which is a psychological motive in many of us, intellectuals sensing that their influence may diminish when economic life is de-politicized will opt for statism. (A similar motive underlies the preference for centralization manifested by EU politicians and EU bureaucrats.) Moreover, intellectuals are often attracted by millenarianist doctrines, by secularized salvation doctrines-the type of doctrine offered by all sorts of socialism, though most pronouncedly by Marxism (cf. Note 28). (The need for belief is also catered to by these theories. This, however, is a psychological motive.) An important intellectual motive is that people tend to be impressed by an elaborate theory that is so complicated that its flaws are not easily visible, enveloped as they are

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in verbal clouds; a related, powerful theoretical reason, rarely mentioned, is that these intellectuals do not see any clear-cut alternative. To some extent this is understandable. Due to the looseness of classical liberalism and its successors, there is indeed a lack of a clearly and precisely formulated alternative to socialism. Indeed, the advance of socialist doctrines is correlated with the decline of classical liberalism. The ground gained by one is ground lost by the other. Jasay has convincingly argued that the decline of liberalism is rooted in the vagueness of its key concepts (1991a, Chs. l-3). A contributing factor is the lack of an adequate explication of the concept of freedom (Bouillon, 1996).30 Ultimately, then, the great intellectual confrontation of our era is between two worldviews: socialist (social-democratic) political theory in its many varieties on the one hand, and classical liberalism with its successor theories on the other. Summary to this Point, and Preview

The preceding considerations suggest how to further narrow down the chosen problem. An explanation of the appearance of non-rational factors tempting people to sympathize with socialism falls into the domains of psychology, history, biographical studies, etc.not political theory. Hence I will focus on the intellectual reasons. Further, since criticizing avowed or Marxian socialism is nowadays like flogging a dead horse, and thus socialist arguments can be theoretically interesting only if posing as liberal, our natural focus will be on three clear-cut problems: 1) a critical analysis of classical liberalism, i.e., what Jasay aptly called “loose” liberalism; 2) an explication of what Jasay labeled strict liberalism; 3) an analysis of democracy, not only because today the dominant socialist theory is social democracy, but also because theorists widely believe that the problem of collective choice has been solved-namely by the democratic method-in a way compatible with liberalism. The final section will reflect on possible remedies, on measures (if any) that may facilitate the passage to a less unfree society. 4. Liberalism: “Soft” or “Strict” 4.1. Explaining the Decline of Classical LiberalismCritical Analysis of “Soft” Liberalism I am following Jasay (1991a, chapters l-3) for the simple reason that his is the best analysis of the causes of the decline known to me. I take the liberty of rephrasing and rearranging the material in the way analytic philosophers are fond of doing. The core of the explanation is the thesis that the main reason for the decline of classical liberalism is the ambiguity and vagueness of its key concepts and hence of its principles. This looseness opened the door to reinterpretation and totalization that are in harmony with consequentialist, redistributionist thinking, in particular with socialist theory. Hence, by

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analyzing soft liberalism we can at least partially answer Hayek’s query as to why the socialist vision has dominated good minds for so long. Apparently none of the classics bothered to explicate the concept of freedom. For instance, Adam Smith considered the ordinary-language concept of freedom to be sufficiently unambiguous and precise (non-vague) for his purpose (cf., e.g., Bouillon, 1996, Conclusions). What about Hayek? In our century, probably nobody has done more for the concept of freedom than Hayek. Yet Hayek’s conception of freedom and the value he attaches to freedom is unclear. Partha Dasgupta (1982, p. 214) points out that despite Hayek’s “well-known libertarian views, he is very much a consequentialist.” This is correct (with the exception that Hayek’s views cannot be classified as “libertarian,” most American Austrian-Economics libertarians would rightly protest). Dasgupta is right in claiming that Hayek appears to value freedom only because of its instrumental value-at least, there are many passages in Hayek that strongly support this claim. Hayek, indeed, values freedom primarily as an enabling condition for progress (undefined, unless it is taken as the capacity of society to feed increasing numbers, to become more powerful) (Hayek, 1960, p. 50). For Hayek, the main concrete reason for valuing freedom is that much knowledge is private; hence, an efficient use of widely dispersed private knowledge is possible only if decision rights are allocated to the individual knowledge keepers, who then interact in the market process: Dasgupta claims that Hayek appears to be willing to renounce individual liberty if such a move were to be found useful to society (Dasgupta, p. 216; Dasgupta’s emphasis). A quotation from Hayek strongly supports that claim: “what is important is not what freedom I personally like to exercise but what freedom some person may need in order to do things beneficial for society” (Hayek, 1960, p. 32). And, even stronger: “if the result of individual liberty did not demonstrate that some manners of living are more successful than others, much of the case for it would vanish” (p. 85). On the other hand, I disagree with Dasgupta’s claim that Hayek, while regarding the concept of “just” as simply not applicable to the results of the market process, “certainly approves of whatever distribution results-for the process, in his mind, is fair”(Dasgupta, p. 216). Indeed, the expression “just” cannot meaningfully be directly predicated on the results of the market process; only in a derived sense could it be applied to the free, private market as a process. “Just” or “unjust” can only be predicated of the actions of responsible individuals, i.e., free in the relevant sense of being able to choose (even if none of the options is palatable). Just or unjust is, however, although only in a derived sense, applicable to the results of redistribution that are due to state interventions in the economy, hence to the results of the social market, because it is directly applicable to the actions of the politicians who have produced these results. From the moral point of view, their acts can be evaluated as responsible or irresponsible. However, in our system, they are in practice not personally accountable for their actions (neither with their income nor with their wealth), and hence they are not held responsible in the ordinary sense of the word. In any event, no evidence is given for Dasgupta’s claim that Hayek approves of the distribution of income resulting from the market process, nor for the claim that Hayek regards it as fair. In my opinion, Hayek would regard the application of “fair” to the market and its results as meaningless, as a category mistake. He values the market for its instrumental value: for being the best hitherto known method to produce material well-being, and because it fosters the

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traditional virtues, above all responsibility (which ex defnitione) is private, since only individuals can have it). However, for our present purpose, what is more important is that the lack of an adequate explication of the concept of freedom has invited all sorts of misinterpretation and perverse uses. So, revenons ci nos moutons. One can describe a real system in innumerably many ways, since one can always invent a new descriptive system. Political theories are often described by means of the concepts of goal and of rule. In the political theory of classical liberalism, the goal is freedom, and the rule is that the exercise of freedom must be constrained to protect the freedom (interests) of others. Neither freedom nor necessary constraints are explicated. This leaves the door open for various construals by interpreters, who claim to be liberals. Declaring the goal, the maximand, to be freedom and only freedom-the “ValueNeutrality Principle”-forbids the government to pursue any other common goal of society. Hayek has always stressed that the small group naturally pursues various common goals, while the abstract, anonymous society in the long run inevitably becomes totalitarian, if it pursues any other goal than freedom. (Given human capabilities, freedom will by itself foster material well-being.) The friends of the “Free Society” opt for the valueneutrality principle by a subjective decision. A genuine liberal will judge a social order according to whether it tends to promote private liberty (Samuel Johnson is an example, but also such diverse thinkers as Burke, Jefferson, Madison, Hayek, and so forth). But, of course, we can support the principle by arguments-for example, by pointing out that comparison of interpersonal satisfactions is a meaningless operation, since, as indicated above, how can we deduct Peter’s pain from Paul’s joy? In other words, we cannot state truth conditions for statements making interpersonal comparisons. But we can point out that a government that fosters common goals other than freedom will in the long run inevitably become totalitarian. But the value-neutrality principle has been perverted by moralists and, in particular, by socialists, to plead for state interventionism (Jasay, 1991a, Ch. 1). Two strategems have been particularly popular: (a) implicit rejection of the principle by moralizing for higher values; the claim here is that a hands-off policy is really a sin of omission; (b) totalization of the idea of value neutrality; this argues that all potential goals merit equal support, which reduces the principle of value neutrality ad absurdum (Raz, 1987). But these strategems appear somewhat crude in comparison to those that exploit the lack of clarity in the concept of freedom. As mentioned above, classical liberalism has been content with the intuitive notion of freedom. In everyday speech, the expression freedom and its near-synonyms have strong emotive force (in Western languages, not in Chinese). Their descriptive content has a broad fringe of vagueness and is far from unambiguous. Since the emotive function is wellestablished, no attempts have been made to change it (no re-emphatic definitions have been proposed). Instead, the expression ‘freedom’ has been persuasively defined: the emotive force is retained and the descriptive meaning is changed to fit the leanings of the interpreter that be. Most such interpreters have been social democrats or egalitarians masquerading as liberals. Two such attempts have been particularly popular: (i) an actor who faces a choice is really free only if the situation is not such that none of the options is palatable; the underlying idea appears to be that a fictitious ‘neutral’ or ‘objective’ observer (or arbiter) appraises the options and concludes that the actor cannot reasonably be expected to choose any of them; (ii) the concepts of freedom and power are

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systematically confounded; this is facilitated by the fact that the ordinary-language concept of freedom is a hopeless mix of individual liberty and power (along these lines, power is sometimes misnamed ‘positive freedom’). Further on the last strategy: it is an example of what Wittgenstein used to call “the bewitchment of our intelligence through language.” Its seduction lies in the loose way we have of speaking: if I have power, financial resources, etc., then I become independent and free to realize my dreams.31 Eventually, in many cases, freedom comes to connote power (the agent’s budget of resources: physical and mental capabilities, time, knowledge, material and financial resources, etc.). Even great thinkers have succumbed to this temptation.” “ Being poor” means being ipso facto unfree; hence “‘to help the poor’ can be declared to be employed to maximize ‘freedom”’ (Jasay, 1991a, p. 20). In the wording of John Rawls, an increase in power, i.e., a reduction of ‘poverty,’ can even be declared to increase the worth of freedom. De facto, it is a clandestine demand for power: access to legislative power or equalization by coercive measures like those of the welfare state.33 Rawls has been particularly successful in countries with a strong socialdemocratic party. This mistake or trick of confounding freedom and power has been the favorite device for demanding more state interventionism in the very service of freedom. In order to increase the value of freedom we must reduce freedom. Thus, in sum, positive freedom has nothing to do with freedom; it is just a misnomer used in a demand for levelling. Of course, clarifying the rule and clarifying the goal of a political theory are interwoven, since goal and rule are interwoven. If one places emphasis on the rule, one gets strategems that mirror those used with respect to the goal. Totalizing free choice leads to absurd consequences. Hence for a political theory of liberalism (which accepts the state), the key problem is to explicate coercion by the state that is necessary for fulfilling its protective function.34 And the only coercion by the state compatible with liberalism is that necessary for preventing harm to others: the “HarmPrinciple.” Disposing of people or their resources is permissible (and mandatory) only for the purpose of stopping them from harming each other.3s Jasay shows that this principle exhaustively describes the class of all possible actions of the government by demarcating two subclasses of actions: those that the state must do and those that it may not do (1991a, p. 23). (At present, in none of the contemporary Western mass democracies is the state capable of fulfilling its classical mandate, the protective function, properly. With respect to external security, the European states have relied on the American shield. During the Carter Presidency, the US defense capability declined and was only restored under Reagan. In all Western democracies, internal security has been neglected-crime has increased in one form or another-and private security forces are a growth industry.P6 In classical liberalism, the concept of “harm” (like freedom) is not explicated. In everyday usage the expression harm has an emotive function, negative semantic overtones. Just like freedom, its descriptive content is vague and ambiguous. But use of the “Harm Principle” in connection with the common-law sense of tort has been reliable (Jasay, 1991a, p. 26). Not surprisingly, the “Harm Principle” has been perverted by means of strategies that correspond to those used for perverting the “Value-Neutrality Principle”: (a) the expression ‘harm’ is persuasively defined so that being poor becomes a harm for which other people are responsible;37 the connection with tort is thereby severed; moralizing (compassion,

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caring, etc.) is used to plead for state interventionism, for redistributive state activities; this corresponds to pleading for common goals other than freedom, from the moral highground of egalitarianism; (b) the expression ‘harm’ is persuasively defined so that it becomes an almost empty formula; with the help of ‘rights’ talk,38 ever new rights are invented, and anything violating such an invented right is declared to constitute ipso facto a harm; thus, ‘rights’ talk can be used to plead for state interventionism; this corresponds to totalizing the idea of common goals for society, which is used, as we saw, to pervert the “Value-Neutrality Principle.” (Note also that the ploy claiming that hands-off policy is a sin of omission has a parallel here: by moralizing that a failing to help is a sin of omission-a ‘harm’-one pleads for state interventionism.) A tentative comment on the “Harm Principle” (HP for short) may be worthwhile. As mentioned, it exhaustively divides the possible actions of the state into those that the state must and those that it may not do. In Jasay’s words: “It (the state) must prevent anyone causing willful damage to another’s life, limb and property, but may not interfere with liberty and property to promote any other end”(1991a, p. 23). Thus, HP presupposes property, defined in a broad sense (body, time, resources of all sorts, etc.), i.e., it presupposes the distinction between private and non-private (public) goods, the concept of a “private domain. ” “Willful damage” emphasizes the intention of the actor, but what matters more appears to be the evaluation by the addressee. Harm, as indicated above, is adequately associated with tort in the common-law sense. Prima facie HP seems to provide a satisfactory answer to the question of what state interventions are compatible with liberalism (assuming that we need a state). Yet there are problems (as witness the aforesaid misinterpretations), problems with interpretation and hence with the application of HP. An explicatum3’ of “harm” that fulfils the necessary condition of sufficient similarity to our intuitive concept of harm cannot apply to actions to which the addressee assents. Hence, it admits active voluntary euthanasia (which is in line with liberalism),40 but also the welfare state, provided the coercees agree to the coercion involved (which is not compatible with liberalism). There are thus such phenomena as voluntary socialism (Block, 1995); and by opting for more and more of a welfare state, people appear to be willing to sell themselves into tax slavery. How can HP tell us about such a development? Further, ‘harm’ appears not to be applicable to non-private (public) goods, i.e., goods that are in principle not privatizable (Bouillon, 1996). If so, HP solves the problem of the legitimate role of the state (compatible with liberalism) only for the private domain. (In a world where there is only free, private markets, non-unanimous social choice is ruled out, and with it, politics-it is a world without politics.) From adequate explicata of the key concepts and premises that liberals may be assumed to accept, we cannot deduce a criterion for distinguishing harm from other actions. (This has obvious implications for the problem of externalities.) There thus appear to be three options: (1) privatizing; and if this is impossible (whether because of logical, empirical, or time-relative technical impossibility), two options remain: (2) fighting, or (3) finding a consensual solution to the problem at hand-an option that is close to Jasay’s concept of “natural method” of collective choice (see Section 5 below). That means in social life there appear to be two aspects of the “Fall from Grace”: nonunanimous choice, which is wrong per se, since it imposes dominated alternatives; and non-private (public) goods, which often turn out to be public evils. And HP does not

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appear applicable to the realm of non-private goods. In summary, then, the lack of adequate explicata of freedom and harm has left classical liberalism almost defenseless against the socialists’ attempts to pervert its key principles. No wonder that intellectuals often saw no clear-cut alternative to the political theory of socialism. The ensuing problem is then: how can classical-liberal theory be improved? 4.2. Explicating “Strict I8Liberalism My point of departure here is Jasay’s series of proposals in Choice, Contract, Consent (1991a, Ch. 4). To assimilate them, I again have had to interpret them (in the way analytic philosophers are prone to do) and to rearrange them somewhat. Jasay introduces strict liberalism by means of an axiom system.41 Lack of space obliges me to limit myself to the key statements. The postulates condense the background knowledge presupposed: in ontology, we have indeterminism and individualism; in methodology, methodological individualism; in philosophical anthropology, we take the human being as one who not only can but must choose, and is inextricably a group being. Our first task is to explicate the concept of “Choice”(Action): (1) the point of choosing is to take the preferred alternative (Jasay, 1991a, pp. 57, 62); this involves means-ends rationality; and this clarifies the explicandum; (2) the explicatum will be predicated only of individuals; only individuals can choose; collectives can perform only quasi-actions, and only with the help of individuals; this helps to introduce the expression denoting the explicatum of the concept of “action”; the descriptive statement that a human being is a group being suggests that most actions occur in a societal context, and hence that this fact has to be taken into account in the explication of “action”; (3) social life means that individuals sometimes also choose for others, i.e., politics; if actors could choose only for themselves, there would be only free, private markets and no redistribution; politics is quintessentially distributional; benefit is directly linked to contribution only in the market; if you eliminate redistribution, you eliminate politics. (The concept of “action” is here explicated in the sense that I propose-in the context of political philosophy-so that the expression “action” is used only in such a way that the three above descriptive statements are satisfied.) Here the key problem comes to the fore: How, if at all, can non-unanimous choice be legitimized? When, if ever, is it compatible with Strict Liberalism? From the premises (l), (2), (3), and the value judgment that I want to live in a Free Society, we can deduce Jasay’s “Non-Domination Principle” (pp. 61-64). The idea of a Free Society could be elucidated by the following description: a social order that goes some way toward letting people choose what they think they would like, “where people are most likely to learn to make themselves better off” (p. 63): A dominated alternative is an alternative that is not at least as good as any other alternative in a set of mutually exclusive options. Dominated choices are intrinsically wrong. Thus, we can give some indications of what the “Non-Domination Principle” stands for. The first approximation would be: Eschew dominated choices whenever possible. Since non-unanimous social choice ipso facto imposes dominated choices on some part of the society, social choice should be used only in an emergency. Law is meant to protect property (body, time, results of effort, etc.), and hence must not restrict people’s admissible and

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Pareto-superior options-i.e., do not stop them from bettering their lot if they can do so without worsening anyone else’s @say, 1995, Section 7, a.i.). In such a schema, interference can neither be accepted in the present nor retroactively justified in the futt.mz4’ In my opinion, the Non-Domination Principle elucidates and elaborates the Harm Principle (which prevents paternalism and moralism), and by making explicit the key premises, it makes them criticizable and thus contributes to clarity. A brief digression: We might think that we can avoid introducing a value judgment (I want to live in a Free Society) and can work with descriptive (scientific) statements only. The following sentence may appear unburdened by the difficult concept of freedom. “Ceterisparibus, a state of affairs where each person can opt for his or her best admissible choice is better than a state of affairs where one or more cannot do so but are obliged to take inferior, dominated alternatives.” (Let’s abbreviate such a statement as A.) However: to explicate “better” we have to appeal to some value system after all. A religious fanatic or totalitarian may reject A via appeal to a lexicographic value. A pure utility maximizer might be persuaded that what would be “best” would be a tradeoff between being dominated in one sphere of action while being compensated in another realm that permits imposition of dominated choices on others. Individuals with a taste for being a slave holder (or for being a slave) will not be convinced by A. Hence, A turns out to be a genuine value judgment-though one that is easy to share, easy to accept given our characteristic intuitions. We may produce arguments in its favor,43 for example, arguments based on the insight that interpersonal comparison of pleasure and pain (“saldo-making” or account balancing) is logically impossible. Subjective value judgments are incommensurable if only because of the uniqueness of each individual. But such (correct) arguments would not change the semantic status of A. Thus, the value judgement explicitly introduced above (“I want to live in a Free Society”) is indispensable, and it is a subjective judgment. It is an expression of a particular way of life, a reaction to an existential theme. The situation is analogous to that which arises with the question “Why should I be moral?” There is no immediately specifiable or fully rational answer to that question-the answer is rather a matter of embracing or gravitating towards a life style. Based on the background knowledge as outlined above, Jasay introduces three undemanding norms which support the Non-Domination Principle: promise-keeping; first come, first served; all property is private (1991a, 57 ff.). I will unpack and rearrange them somewhat, below. In order to have a chance of being implemented in a real-life society, the norms have to be undemanding. They must not require people to become moral athletes, not run counter to our moral intuitions, which will be tempered by our insight into the peculiarities of the large anonymous society (“our” here meaning people with a taste for the free society). Probably a society can exist only if some deontological rules are widely accepted, that is, if not everybody acts all the time as a pure utility maximizer. Jasay’s undemanding norms constitute the basis for such a deontological system. We consider each in more detail: NORM 1: Respect for Property Rights, emanating from first occupation or transfer (by contract or inheritance). Property appears to have a genetic basis. From ethology we know that respect for property is a human constant,44 that a counterpart of it is found in the behavior of our simian ancestors and, in the form of territoriality, even in many lower animals (cf., e.g., Eibl-Eibesfeldt, 1978, 489 ff., 620ff.; Waal, 1982). A geneticallybased disposition would certainly make a principle undemanding. Not only can Norm I

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be transposed from the face-to-face group to the anonymous society, but it is a necessary condition for the evolution of that society. By contrast, the Solidarity Principle, which is constitutive of the face-to-face group, cannot be generalized in this way (e.g., if everybody acted like Mother Teresa,4s humanity could not survive). The litmus test is whether a principle that is useful or indispensable for the small group can be transposed to the anonymous society, without ruining that society. Norm 1 is a good example of an undemanding precept. Even a thief will endorse it with respect to the property he or she has stolen, and which he now emotionally considers to be his property. An adequate explication of the concept of property has to define property in terms of exclusion.46 In a language where the expression ‘property’ has been introduced by a definition taking account of this requirement,47 the sentence “All property is private” is analytic-that is, being a definition or following from a definition, it must not introduce new information (in this case, must not strengthen the postulate system Jasay has outlined). Further, property is inseparable from individuality-the evolution of the two go handin-hand. (This insight belongs to the background knowledge.) And the concept of property belongs to the realm of ethics, if only because of its intrinsic connection with responsibility. NORM 2: Pacta Sunt Servanda. The sentence has the form of a norm, but in many contexts it functions descriptively. Promise-keeping is a necessary condition for social life in the same sense in which truth-telling is a necessary condition for communication. If too many people do not follow the principle, rational expectations cannot be formed, and the group disintegrates. If too many people lie, communication breaks down, because the representative function of language is lost. Promise/contract keeping is also indispensable for the reputation of the individual. Hence, it will be selected in evolution (much as the ability to detect lies will be selected, see Tullock, 1992). In this sense, it is undemanding. It belongs to the core of the moral system that-as Hayek has shown-is indispensable for the anonymous society (the “Honesty System,” cf., e.g., Radnitzky, 1987). To get it internalized by children who do not yet recognize its importance for success in life, the family must provide some extra-intellectual legitimization. In moral education, it is thus taught, presented and transmitted as a deontological norm, as a rule of basic honesty. (The concept of “anonymous society” is really an ideal type-1 wonder whether Hayek fully recognized this. In real life, it is perhaps most exemplified by a department store, a world of cash-andcarry, a world in which enforcement is irrelevant; in contrast, customers who pay with credit cards are already not really ‘faceless,’ since the credit-card company vouches for them. In real life, the large “anonymous’‘-and heterogeneoussociety is composed of many small groups: groups of friends and acquaintances, clubs, associations, colleagues, professions, firms, and so forth. Many groups overlap, and some players participate in several groups; players have reputations to lose; there is a web of communication about prospective partners; hence players have a utility-inspired interest in promise-keeping. Therefore, Jasay points out that when making use of game theory, we must first ask whether the usual game-theoretical assumptions are met by the real system we are examining. If not, game theory is inapplicable, and its use can only be misleading.) NORM 3: Finders-Keepers. This applies to resources that are not yet the property of anyone. It has a a corollary in “creators/inventors-keepers”. The mathematician who comes upon a new theorem48-the entrepreneur who perceives an opportunity that no one before has recognized-has discovered or found (or perhaps even helped create) an abstract entity that hitherto had existed (or subsisted, as a mode of possibility),49 but which

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had not yet been the object of a human intentional act (been “in” some human consciousness). Perhaps the principle has a genetic base. It is, for instance, respected in chimpanzee hordes (Eibl-Eibesfeldt, 1967/ 1978). Whether the principle should be construed as a descriptive or prescriptive sentence depends on the context. It is, in many senses, an undemanding moral precept. Norm 3 is important because it also covers creator and enterpriser-intellectual property and the moral importance of the fact that the enterpriser recognized an opportunity that no other person before had seen. Hence the enterpriser should be rewarded, if only for practical reasons (e.g., for securing future motivation to efforts). And this also harmonizes with our moral intuitions. NORM 4: First Come, First Served. This, too, applies to goods that are not privately owned. I tend to construe it primarily as an economy principle applicable to every type of social order, because it saves resources in preventing infighting, quarrels, etc. (The waiting queuean example of an evolved social order that employs convention as a second-order supporting or enforcing order-has been used as an economic method of rationing in the socialist-communist countries. It supports the view that the polluter should compensate the neighbor who was there before the polluter came.) But the relation between finderskeepers and first-come, first served may be much closer-as Jasay sees it. If first come, first served holds, then the finder who came first, grasped an un-owned object or a new piece of knowledge, is its keeper. This is the case in nature, and (like the above norms) it may even have a genetic base. Thus, to proceed in a parallel way in a societal context, to arrange things that way, appears practical, rational, or reasonable. If viewed like that, Norm 4 may appear as a corollary of Norm 3. At any rate, it is undemanding in the relevant sense. The fact of being undemanding, however, cannot by itself provide a justification for any system of norms. Being undemanding is a descriptive statement, and attempting to deduce a sentence with genuinely normative function (in the context of the argument) from descriptive sentences would be an instance of the so-called naturalistic fallacy. Such a deduction is logically impossible. But we can provide arguments in favor of the principle in question, and the characteristic of being undemanding will have a place in such arguments. Jasay shows that propagating the first principles might generate a disposition for accepting the classical liberal taboos (as deontological rules): these are, of course, taboos on actions (not on questions). Hayek uses the word taboo in this connection and defines taboos as rules that, without regard to the consequences in the particular instance, generally prohibit actions of a certain kind (Hayek, 1978; also 1973, and 1969). In the presence of a taboo, the merits of the choice (cost-benefit analysis) become simply irrelevant. The point of view that regards the right sort of taboos as desirable-in our case those facilitating the passage to a less unfree society-need not be dogmatized. We are free to make it the topic of rational discussion, from the vantage point of the free society or from any other standpoint. However, if a person has internalized such a taboo, possibly no amount of analysis will change this person’s feelings and behavior (a matter of psychology). A change would mean a change in his or her Weltanschauung. Where do the taboos come from? Education, experience of life, etc. will play a role. If they have religious (or pseudo-religious) backing, they have a higher probability of being immune to rational criticism. However, to derive and justify a deontological rule (and rule-utilitarianism) without reference to probable consequences is very difficult. In some

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ultimate sense, we may have to accept “consequentialism’‘-in the sense that consequences are being taken into account and that this is reasonable. To my knowledge, no solution to this difficulty has yet been suggested. A deontological moral system based on the taboos of classical liberalism could provide the core of the software infrastructure of the free, private market order, the order which is a necessary condition for a free society. Hence such a moral system constitutes a kind of social capital. As mentioned above, a presupposition for the acceptance of such a moral system is the subjective wish to live in a free society. Emphasizing that a subjective decision is unavoidable is at the same time an antidote against the natural-law approach to societal problems. Likewise, the taboos that are indispensable for the free society forestall arguments legitimizing political actions having recourse to natural law doctrines. By recourse, I mean the form of the argument-independent of whether or not there is a claim to have access to revealed knowledge, derived from the word of God as in an appeal to God-given Law, or law derived from the essence of humanity, or the “Common Good” kind of “law” of communitarians,‘O or law derived from the divine right of kings, or in its modern form, from the divine right of king Demos, from the Will of the People, that is, from an appeal to popular sovereignty, which is tantamount to a defense of unlimited democracy. In the arguments legitimizing policies, various theorists have appealed to Nuturrecht: absolutists and monarchist, conservatives and liberals, religious believers and atheists, socialistic and anarchistic revolutionaries (Topitsch, 1994, p. 10). Likewise, welfarists and social democrats have done so. At any rate, the idea of popular sovereignty, the claim that the fictitious holistic agent the People is the ultimate source of moral authority, is akin to Naturrechrs-theories. In many historical cases, natural-law theories have proved to be even more dangerous than legal positivism (which is not really substantive and can serve any sort of regime). For instance, natural-law arguments were used to legitimize legislation issued by the German National Socialists (Muehlfeld, 1989). Of course, from a historical description, nothing necessarily follows for the moral evaluation of a political theory (from whatever moral system the evaluation is made). Mentioning popular sovereignty raises the question of how Jasay’s first principles relate to the idea of democracy. Postulate 3 above (“social life means that individuals sometimes also choose for others”) introduced politics, and hence the problem of nonunanimous social choice (Jasay, 1991a, p. 57). Politics-any politics-necessarily involves redistribution. Conversely expressed, if there is no redistribution, then there is no politicsjust free, private markets. Are the above-mentioned taboos indispensable for solving the problem of non-unanimous collective choice in a way compatible with strict liberalism? We all live in states and hence the problem of collective choice is of paramount importance. Never before has civil life been politicized to the same extent as now. Advocates of the welfare state and democrats typically claim that the democratic method of collective choice is at least in principle capable of solving the problem of (non-unanimous) collective choice in a way compatible with the idea of the free society. Not only they, but most people in the Western world believe that this claim is correct, and this claim has become a basic assumption of our political culture. From all of these observations a sequel problem follows: the problem of checking that claim.

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5. Analysis of Democracy and its Relationship to Strict Liberalism Beside its descriptive meaning connoting a class of methods of collective choice making, the word ‘democracy’ has acquired an emotional function, even a moral function. Democracy is assumed to be not only obvious and unambiguous, but unquestionably good. The expression ‘democratic’ has almost become a synonym of good.” This phenomenon, while it has progressively penetrated our era, is not new. Thus, John Dewey writes in his Reconstruction in Philosophy that, “once we commit ourselves to pursuing democracy, it will take on religious value” (p. 210). This was written in 1920, shortly after World War I, the war that was conducted “To make the world safe for democracy” and to end all wars.52 Democracy had thus become ideological and missionary. Dewey’s dictum proved prophetic. Today the word democratic has become a God Word, and a ‘democratic decision is ipso factor regarded as justified. But Dewey’s maxim is not very conducive to clear thinking. Since conceptual confusion about democracy is no less today than in Dewey’s time, we need to have a dispassionate look at the concept. Hayek sometimes voiced misgivings about democracy (e.g., 1979a; see also Streit, 1993). As to the relationship of democracy to freedom, Samuel Johnson said it best: “Political liberty is good only so far as it produces private liberty.” For the life of the ordinary citizen, what matters is whether government is limited or unlimited,53 protective or intrusive-not whether it is elected or non-elected. And for the economy what matters is whether it is free or hampered, not whether it is legal or illegal, for markets, whether they function or do not function, not whether they are inside or outside the law (unofficial markets). Compare Hong-Kong with Sweden.54 The hypothesis is well-supported that, assuming unqualified franchise and rational utility maximizers, the dynamics of the democratic method lead to unlimited democracy, that is, bare majority rule and unrestricted domain. Democratic constitutional rules (rules for rule making) necessarily create a redistributive social order (see Jasay, e.g., 1985, 1990a).55 A democratic system is also a rare, if not a unique instance, where competition cannot improve the situation. Since politicians externalize the costs of their election gifts, competition among parties cannot lead to cost reduction. On the contrary, such competition increases the progressive excess burden resulting from redistribution. The long-term result is a severe testing of the maximal squeezability of the taxpayer, the severity of which will depend upon the degree of competition among states at the time. Democracy cannot solve the agent-principal problem. The democratic method is recommended primarily as a principle of succession. If a peaceful overthrow of oppressive or incompetent rulers is possible only by a particular method, then that method, which is less costly, is rationally preferred to all other methods of succession. In the case of the democratic method, the fallacy with such a recommendation is that the structures (the institutional arrangements with the incentives they create) are by far more important than the persons. Changing the staff, the rulers, will not have the expected effect, if the incentive structure for the rulers (princes or politicians) remains unchanged. And as a principle of peaceful settlement of conflicts, democracy has serious defects, as we shall explain in more detail presently.

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H.-H. Hoppe (1994) draws attention to the basic distinction between “private and public ownership” with respect to government. Since the distinction between private and public ownership is central in every aspect of social order, let me digress to mention some examples. Take, for instance, coercive redistributive activities. There are two ‘ideal’ types: private crime or ‘free-lance socialism,’ and institutionalized, government interference.‘6 Or take serfdom, for example, the distinction between private ownership of slaves and state slavery (e.g., USSR, GDR, and the milder cases of tax slaves). Roman slaves had a market price and a capital value. Treating them badly implied a reduced rate of return on investment.” By contrast, the manager of a Soviet gulag had no incentives to take into account the prisoners’ (literally state slaves’) capital value, since the inmates had not even a shadow price. Mutatis mutandis, this applies to prisoners of ~ar.‘~ It applies also to soldiers-conscripted soldiers as distinct from mercenaries paid by the king. When in 1793, in the aftermath of the French Revolution, conscription was introduced in France, nationalism (chauvinism) was necessarily invoked in order to motivate soldiers (see, e.g., Radnitzky, 1992b, 35 ff.). This led to a brutalization in the now-democratized wars that was unknown in the monarchical wars. Moreover, with conscripted soldiers, the ruling elites had to make concessions to the common man, which engendered the phenomenon of war-sprung socialism (examples ranging from Bismarck to Roosevelt, who needed World War II to fulfill the promises of the New Deal). Or take, as another example, law. When public law erodes private law, law becomes progressively unpredictable; law begins to be replaced by legislation; the private law state (Privatrechtstaat, as per Franz Bohm) fades away and with it the Rule of Law. (Witness the example of the social-democratic Swedish model, in which property rights have officially been declared to be but a “functional concept” that the parliamentary majority of the day fills with content (&ten UndCn, etc.) (see, e.g., Sundberg, 1987, p. 973; Radnitzky, 1993d, p. 31). Hoppe’s (1994) distinction between private and public ownership of government illuminates the above-mentioned incentive structure for politicians in democracies. The distinction is one of ideal types, approximate exemplifications of which are 19th century monarchy and modern mass democracy. If we assume that a king “ideal-typically” wants to pass his possessions onto his personal heirs (and assume that he acts rationally), we are entitled to predict (or retrodict) that he will have a long-term view, which implies moderation in taxation59 and in borrowing in order not to reduce the future earning potential of the royal estate. In a democracy, the counterparts to the monarchical rulers are caretakers controlling the government apparatus. The incentive structure of the system in which they operate predisposes them to confiscatory taxation in order to pay for election gifts (increases of public expenditures to win the electorate’s favor in election times), etc. Short-term oriented politicians have little inhibition against ruining the economy. The outcome is government growth, a web of new legislation-in particular, legislation favoring powerful interest groups-and the expansion of the welfare state (see Note 1). In a monarchical system, the entry barriers to the ruling class are extremely high, hence the distinction between rulers and ruled is clearly visible to all, and the ruled will tend to be more critical of the rulers. In a democracy, everybody can, at least in principal, become a member of the ruling class. The distinction thus gets blurred and may eventually disappear from public consciousness. Public resistance to government power will be weakened. In democracy, power is exercised anonymously, responsibility is collectivized;

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sometimes government and parliament got almost totalitarian power (e.g., Sweden). In Hoppe’s view, both monarchy and democracy have lost the natural authority they once possessed. From experience we have learned that, at present, political democracy does not correspond to Lincoln’s vision of “government of the people, by the people, for the people.” Rather, to put the matter in Arthur Seldon’s (1994a, pp. 277,312) memorable wording, it has become “government of the busy, by the bossy, for the bully.” The busy are people who are active in organizing the election of government, the political activists; the bossy are political managers, who make a living from being elected and have a taste for power (with a few exceptions, the incentive structure of the job must influence the self-selection); the bully consists of the vote-providing interest groups who have the power to blackmail the politicians. The question is: Is this development due to the particular way we have conducted democracy or to its inherent dynamics? Jasay claims (in my opinion correctly) that it is due to the inherent dynamics. In addition, we must remember that different kinds of problems require different methods of decision making. We would be crazy to apply any method of collective choice, for instance, to problem solving in science, in military operations, etc. If an aggregate of individuals whose interest are not identical wish to live together, or must do so, it faces the problem of what method should be used in non-unanimous social choice (‘social choice’ for short). The set of possible methods of social choice can be exhaustively divided into two subsets: natural and artificial methods (Jasay, 1995, Section 3). The natural method is based on estimates of the power of the contesting subgroups. Its main advantage is that it makes clear that collective choice is costly (moreover some subgroup will have to live with an outcome they do not like). This suggests sparing use. Further, in the long run the real power relations will prevail. The artificial method is based on the idea of a mechanical procedure. Liberals have usually assumed that-presupposing unanimous prior consent to non-unanimous decisions subject only to procedural conditions-any procedural method is compatible with liberalism. This assumption is based on the antecedent assumption that the problem of social choice can in principle be solved by a procedural method-in other words, that it is not a substantive problem. If this assumption is not fulfilled, no procedural method can offer an adequate solution to the problem of collective choice. Jasay (1995) has shown that the problem is indeed a substantive one. The possible procedural methods can be exhaustively divided into voting and nonvoting methods. Contemporary Western societies have opted for voting methods. The voting methods can be described by indicating their position on a dimensional scale ranging from a committee of two to a “committee” of all persons in the set for which decisions are made. Hence the question arises of what selection criteria6’ should be used in allocating voting rights. Various schemata, or, more precisely, equality axioms, suggest themselves: the joint stock company model of one share, one vote; vote weighted in proportion to the risk that the individual voter bears; vote weighted on the intensity of preference, or, for some questions, on the voter’s relevant experience, knowledge, etc. The West has opted for a peculiar equality axiom: membership in the biological species Human. It has the advantage of simple handling, and it has become the key element in the contemporary concept of democracy.

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However, the main rationale for resorting to that selection criterion is that it pretends to make incommensurables commensurable, a smart gambit that sets the scene for the democracy game. The gambit works by describing the incommensurables in terms of a higher category in a classificatory system. Five apples and three plums cannot be added in those terms; but described as fruits, they are amenable to various meaningful arithmetical operations. Now, a corollary of the selection axiom is the majority requirement-the decisive subset (since there can be only one) must be more than 50% (50% -I- at least 1 vote)-and the very first step is to make the voters, not necessarily equal, but homogeneous in the relevant sense, and this is achieved by defining them as all part of a single, more general category. (A truly qualified majority would lead to slower changes.) In the long run (if we presuppose rational utility maximizers), the dynamics of democracy based on unqualified franchise inevitably leads to unlimited democracy: bare majority rule and unrestricted domain. (Jasay, 1993, provides a convincing gametheoretical underpinning for this hypothesis.) And unlimited democracy is in principle incapable of solving the problem of how to protect our freedom from the guardians of our right to protection of our freedom. Such reflections should make us sceptical of any claim that the problem of social choice has been solved in a way compatible with strict liberalism. The first gambit of the social game of democratic decision making, “one-person-onevote,” sets the scene.61 In the end it will lead to unlimited democracy, and an acceptance (whether deliberate or not) that the resulting social order will be redistributive (Jasay, 1995, pp. 35 ff.). Hence, the marriage of socialism and democracy (under unqualified franchise). Today, social democracy informs the mind-set of all political parties (except fundamentalist communists and libertarians). Anyone who dares to critically examine the modem myth becomes an ‘unperson’ (undemocratic, impervious to social justice, fascist, or worse). The rule of one-person-one-vote is individualistic. However, the arguments used to legitimize the democratic constitutional rule are tied to a holistic perspective (in ontology and epistemology). They center around the claim that the democratic method is the right (if not the only) method of ascertaining the will of the People, what the People really want. The myth of the divine right of kings has been replaced by the myth of the divine right of king Demos, as indicated above, and has been protected by a taboo against critical scrutiny. If what the People apparently will has perverse consequences, so be it (thus arises value relativism-one of the ways of perverting the Value-Neutrality Principle). (See also Jasay, 1990a.) Usually, the difference between what the people want politically in the political process, and what the people want as consumers in the market process, is ignored; but they may want opposite outcomes. In the market, the individual tends to act as a consumer with normally long-term motivation (wide choices, low prices, and high quality). In the political process, the same individual acts as a producer with short-term motivation conditioned by the duration of legislatures (choice restricted to the individual’s firm or brand, high prices for the individual’s services). The more the state controls or dominates economic life (or life in general) the more each individual is thus induced to act against his/ her long-term interests (Seldon, 1990, p. 349). As outlined above, the more a democratic system approximates the ideal type of unlimited democracy, the more the resulting order will be redistributive. With respect to redistribution, two hypotheses are well corroborated. (1) Redistribution is a negative sum social game with respect to GNP, if only because by changing the incentives it reduces

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efficiency,62 and hence GNP growth per capita. Whether it is negative or positive in other respects depends, of course, on the value system used in the evaluation. (2) The degree of redistribution determines the size of the government and the rate of government growth. (This holds independently of what measures of relative size of government are used: whether one compares tax payments as percentage of GNP-growth of tax payments to the growth of economic activity-or growth of government employment to the growth of the total labor force.) Conceptualized as ideal types, pure majoritarian democracy would thus produce the pure Churning Society (Jasay, 1995, pp. 37 ff.). Under one set of redistributive measures, it takes all of everyone’s income and returns the same income to everyone under a different set of measures, so that the average-productive voter is indifferent to the tax rate. In reallife cases approximating the ideal types-the Swedish social-democratic model would be the choice example-most people are paying dearly for most of their own redistributive benefits. Nonetheless, many of them, deceived by socialist propaganda, believe that even a la longue they can live at other people’s expense. This illusion holds until the benefits can no longer be financed by the state: the well-known socialist disease of running out of other people’s money. Under an optimistic scenario, redistribution would stabilize, at some point, at a level that society could bear and would have to support indefinitely. This situation would obtain, if we presuppose that the players are rational utility maximizers (valuing prosperity) and are better informed than as what is the case at present (additional assumptions in the model are unqualified franchise and that taxation is proportional). If so, then the question arises as to whether (under these assumptions), in a democratic system there is an endogenous, a utility-inspired barrier to redistribution. Prominent researchers (Meltzer, Richardson, etc.) have argued that there is such a built-in barrier to increased redistribution in the democratic method, and this comforting view has become widely accepted. The gist of their argument is as follows: Since redistribution is a negative-sum game, the median voter faces a tradeoff. Being rational, one balances one’s personal gain from redistribution (posttax real income and non-budgetary advantages from redistributive policies) against one’s personal share in the smaller GNP due to redistribution, and is in equilibrium. Jasay has contended that this argument can be transposed from the median voter to the winning coalition (the poorer half plus the median voter) if and only if the winning coalition is treated, on the whole, as a holistic agent that correctly balances “his” (the winning coalition’s) marginal gain from redistribution against “his” marginal loss from lower GNP (Jasay, 1995, p. 38). Moreover, since the poorer members of the winning coalition can bribe the median voter, the gain of the winning coalition is constrained only by the fact that loss to the losing coalition has some finite maximum (Jasay, 1995, p. 38 and fn. 13).63 If we conclude that in mass democracy based on unqualified franchise a built-in, utility-inspired barrier to increased redistribution does not and cannot exist, can we then further conclude that these democracies will progressively approximate the ideal type of the pure Churning Society? This follows only if the relevant initial conditions remain unchanged-a large assumption. More plausible is Jasay’s hypothesis predicting a historical wave pattern. The mechanism underlying this wave pattern has been touched upon in Section 2.1. above. At the risk, long since incurred, of being repetitious, let me elaborate the following reasons or causes: Eventually the churning becomes insupportable to a decisive part of the population. They react by explicitly or implicitly withdrawing

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their cooperation in the redistributive social game. The withdrawal of consent may take various forms. For instance, defensive measures against being overly exploited by confiscatory taxes range from tax avoidance to (illegal) tax evasion (without any guilt feelings-tax ‘avoision’), from transferring one’s capital or manufacturing basis to more hospitable countries, escaping into the unofficial economy or reducing effort, to emigration, or voting with one’s feet. Exit is more important than voice. The evolutionary, snowballing effect of technological innovation, above all in communication64 and transportation, has led and will lead to increasing mobility of factors, especially of capital. International commerce is a shining example of a nicely functioning ‘anarchy,’ of a voluntary order, and so are markets outside the law as well as the off-shore banking industry, which takes place in a legal limbo between nation-states. In the end, the ideas and values underlying the transfer society will be questioned; social-democratic values will lose their appeal. Eventually, consent to majority rule will be withdrawn, i.e., the democratic method itself will be de-legitimized, thereby breaking a taboo-a taboo even on questions. The attitude towards the State itself may become hostile, as in Albert Jay Neck’s classic (1992) Our Enemy the State. If the climate of opinion changes sufficiently, attempts are made at rolling back the state and re-privatizing responsibility. (As indicated above, England in 1979, the U.S. in 1980,65and even Sweden in 199166qualify as examples.) In Jasay’s terminology, these attempts at slowing down the trend towards more redistribution and, if possible, even at reversing it, could be described as the “natural” method of social choice winning out over the artificial method. Eventually, the de facto power relations between contesting opinions and groups surface and win the day. This can be seen as a healthy process of evolutionary selection. However, attempts at rolling back the share of the public expenditures in the GNP, the size of the government, etc. are beset with serious problems. These difficulties lead to re-forming, regrouping of redistributive coalitions. Therefore, we may expect periods where the redistribution game again gathers momentum (with redistribution becoming more and more complex and-per impossible-even more intransigent than what it is now) periodically interrupted by periods in which attempts are made to return to more free, private market and to get on the road to a less unfree society (Jasay, 1995, sect. 4). Hence, we may expect the aforesaid historical wave pattern. But we also need to keep in mind that the future is open and that no historical process, however well understood, is inevitable. Further, as suggested above, we can hope that technological advances will enlarge the range over which the various voluntary orders like international commerce, offshore banking, etc. (which have arisen spontaneously) extend. Nonetheless, there is not much likelihood that the underlying core problem, the problem of majoritarian democracy based on unqualified franchise, will cease to be a taboo area in public discussion, or that the squabbling about ‘social justice’ and the rights talk (the proliferation of welfare rights, i.e., of claims on the money of other people) will loose its popularity. Most of the intellectual class, the media people, the culture workers (Kulturarbeiter), etc., who all get ‘rents’ from having a heart for the poor (meaning: subsidies for a wide variety of things, from agriculture to theaters, from protectionist measures to regulations of all sorts) will do their best to prevent public discussion of the perversities of the Churning Society and a fortiori an analysis of its causes.

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6. Practical Implications for Friends of the Free SocietyAnd Possible Remedies, If Any Are there, notwithstanding the above pessimistic (or realistic?) scenario, any remedies against government growth and the rise of the Churning Society? The unresolved problem of collective choice by itself shows the libertarian what intellectual battles must be won, if contemporary societies are to be moved in the direction of a less unfree society, if the tax system is to be reformed on free-market principles, and so forth. But, besides the theoretical task, there is the practical task creating institutional arrangements that may, perhaps, improve the situation. Two lines of approach appear important. 6.1. Educating for Capitalism So far this task has been carried out only by free-market think-tanks-for example, the London Institute of Economic Affairs, the Liberty Fund, the Ludwig von Mises Institute, and so forth (see also Seldon, 1990). This education should be addressed to the educable section of the population, above all to opinion makers, not or not primarily to politicians, because they have to react to the incentives as they are at the moment. It should not only impart knowledge about the working of an economy and the institutions that are a precondition for the possibility of a free society and the source of civilization (property, contract, individual responsibility, etc.), but also present arguments in favor of a deontic ethic based on the principles of strict liberalism (sketched in Section 4.2 above). Part of the educational task is outlining the difference between the moral system indispensable for the face-to-face group and that necessary for the large, anonymous society-one of Hayek’s achievements. It should show why introducing the moral system of the face-to-face-group into the complex, anonymous society would ruin that society. But of even greater practical and immediate importance is working for more competition. 6.2. Competition at All Levels through Decentralization, Regionalization In the long run, a government’s ability to pursue redistributive policies is a function of its ability to restrict the international movements of goods and factors. If a government indulges too much in transfer activities (and today a large part of the transfers will be via “public” goods), the tax payers will take defensive counter measures. Counter-counter measures on the part of the government can be successful only to the extent that it is capable of closing its border, of erecting a literally closed society.67 To the extent to which the citizens’ defensive measures are successful (which reflects the de facto power relations in the society), redistribution loses its appeal, because it becomes more and more costly to pursue. Investment of resources of time and effort in the political process (lobbying, rent seeking, etc.) become correspondingly less profitable, and hence interest groups lose influence. In other words, the freer the markets, the more competition at all levels, the less interventionist activities within a state. The virtue of free trade is to transfer control over resources from governments to individuals (including the individual’s time and effort). More promising than all other possible remedies is competition-competition at all levels. It is the only way that in the long term is effective in restricting the power of governments to abuse their citizens. Advances in communication technologies will facilitate

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competition among states and competition at other levels. They may also make state monopolies of information and related services obsolete (see Levinson, 1994). With respect to practical remedies, efforts should concentrate on facilitating competition among systems and within systems. Taking as point of departure the insight that non-coercive social orders (like markets) are logically and, hence, historically prior to coercive social orders, to statelike structures, we should search for factors that may help to increase competition. Regionalization is one such instrument. It should be complimented by “functional federalism” or “competitive federalism”-what Gordon Tullock in his latest book (1994, Ch. 4) calls “sociological federalism”: roughly, the formation of voluntary, club-like associations that can take over some of the functions and services (like education, health care, etc.) that have hitherto been considered to be a natural state monopoly.68 Besides affording healthy competition within the state, this would help to roll back the state by reducing its scope. And, since the regions and small units as well as the associations would compete with each other, this would be an antidote against centralism: competition at all levels. New constitutions of course on their own cannot do this. Constitutions are created in the political process, not outside it; and, as examples, the U.S. Supreme Court and the German Constitutional Court-putative guardians of the respective constitutions of their societies-are not non-political. Quite the contrary. Small wonder, then, that these high courts have eroded the constitutions they were supposed to protect. In the long run, then, a “Constitution of Liberty” can remain intact only so long as the public opinion is pro liberty; a constitution is thus at best a short-term help. But as such it can of course still be valuable. A constitution is something like a chastity belt, of which the lady herself has the key (Jasay’s well-taken metaphor); but it may, in certain circumstances, also have some similarity to a fortress: ceteris puribus, a garrison with a good fortress may be better off than the same garrison without it. The objection is often made that designing a constitution smacks of constructivism. However, this need not be the case. If you can give an explanation of the principle (Hayek, e.g., 1988, p. 103) then you can predict the type of event, make a pattern prediction (as mentioned in Section 2.1.). From evolutionary theory we know that, given certain initial conditions, certain rules will (by means of the institutions embodying them) facilitate freedom. Once this causal nexus has been observed (and explained in terms of motivating reasons), one can arrange things so that a certain pattern will emerge-always presupposing that the relevant initial conditions have remained unchanged. Applied to constitutions or to the market order, this means that we should be able, in principle, to arrange things in such a way that a spontaneous order of a particular type is likely to emerge. (For instance, if property rights are secure, markets-if they do not yet exist-will spring up spontaneously.) Hence, we should be able to construct a model of a constitution of liberty which at least should be more conducive to a free society than competing constitutions. Freedom will then in turn be an enabling condition for the free, private market order.6q What has been said about competition within a state applies, mutatis mutandis, also to an association of states (MiguC, 1993). (The U.S. originally was a confederation of states and is today a big nation state-and hence a warning example.) The freer the movements of goods, capital, and people, the less will be the state interventions in the domestic affairs of the member states of a single-market association. Also the converse holds: the more the member states of such an association indulge in interventionism at home, the stronger

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will be the tendency towards centralization in the association. At the level of national government, the preferred methods of erecting barriers to competition are protectionist measures such as regulations, currency control, etc. On the level of an association of states, the main tool is cartelization, first and foremost by creating a taxing cartel of states, for the exploitation of the citizens (see, e.g., Salin, 1995, pp. 61-72). The quest for power by the center and a strong socialist undercurrent have promoted centralization also in nation states. Centralization is the main tool for cartelizing national and regional governments. It makes the citizen’s defensive measures more costly and may even make some of them impossible. However, even in a totalitarian system, some defensive measures remain as possible options-for instance, reducing effort (absenteeism, low quality of work, etc.), barter transactions, shifting to the unofficial economy (which works on the principles of free, private market, creates wealth, and teaches people some of the conventions of free markets). Let us apply these considerations to the European Union as an illustration. (The terms “European Union” and “European Community”-EU and EC-are often used interchangeably, with EU stressing the political intent. The term EU, on its own, may be premature.) The advocates of artificial harmonization and hence of centralization in the EC/EU claim that this is required to stem the tide of nationalism. This argument is either insincere or foolish. What is needed as per Hayek, is a “catallactic” Europe. He has always stressed the essential role of the market in promoting cooperation across cultural divides, pointing out that exchange turns strangers into people interacting harmoniously while learning from and profiting from their diversity. Civilization began to arise with the emergence of property, the recognition of the legitimacy of the defense of property, and individual responsibility as the basis of all morals. The “European Miracle,” the Rise of the West, was made possible only by evolutionary competition at all levels, by its diversity (as per E. L. Jones, Douglass North, Erich Weede, etc.-see Radnitzky, 1992b, for an overview). The European idea has undergone a deplorable transformation. The Rome Treaty envisaged economic liberalization for the EEC. By contrast, the Maastricht Treaty is inspired by the vision of constructing an artificially harmonized Europe in the service of Euro-socialism, a rent-seeking community, a cartel of states for maximally squeezing its tax slaves. The Maastricht Treaty will turn out to be a vast transfer machine in the service of “closing the prosperity gap” (Migue, 1993, p. 18). Thereby resources are discouraged from moving to their most productive locations, and the Community’s competitiveness vis-a-vis the rest of the world is reduced.70 This in turn invites protectionist measures, reinforcing the trend towards “the Fortress Europe,” and it further reduces competitiveness. This reduces also the wealth of the citizens of the more efficient member states who are coerced to pay for the transfers. And it obviously diminishes the citizens’ freedom and whets the tax appetite of the Euro-Leviathan. The hardline socialist regimes of the East Bloc collapsed-just as Mises and Hayek had predicted. Mises also predicted that the “social-market” in the long run will lead to the same result as the command economy. He saw the main difference between the two in the tempo of the decline-creeping socialism working like a slow-working potion. Hayek later endorsed Mises’ opinion.7’ From a Misesean and a Hayekian viewpoint, we can predict that, with increasing internationalization of economies, a European welfare state will not be viable in the long run. It too will implode, like the block of the hardline socialist states. But before it does, it will have caused considerable damage, not to speak of the

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enormous opportunity costs: what these countries could have achieved in terms of wealth and freedom, if instead of a European welfare state they had created a confederation of non-interventionist sovereign states, a voluntary order based on free trade and open to the world. The vision of a Europe harmonized from above by Brusselian politicians and bureaucrats is a choice example of constructivism and of a coercive-constructed order. Hayek’s warning against the fatal conceit can hardly be overestimated.72 In sum, only a combination of free trade and decentralized national governments (with regional and local devolution for local public goods)-and with respect to an association of states, a confederal structure of sovereign states with explicit secession rights (also for regions)-can work for the general well-being and for the passage to a less unfree society, because only such a combination is based on the principle of competition. Obviously, competition can produce more immediate and more tangible results than education and enlightenment can do. In both cases, the aim is a reprivatization of responsibility. In concrete, this could mean such things as replacing non-wage labor costs by a system where employees get what these cost the employer and pay themselves for such insurances, where the state leaves employees free to choose among various competing private insurance companies; a system where employees pay their taxes directly, instead of tax at the source, which forces firms to serve as tax collectors; and similar reforms. The welfare state has created a new sort of individualism, individualism without responsibility. What education should do is to restore the moral basis for individualism with responsibility. (Whether it can do so if financed in the political process is an open question.) At any rate, education should place solidarity where it belongs, to wit, in the small group; it should demask demagogical rights talk, and restore the concept of justice by revealing the empty formula of ‘social justice’ as a quest for leveling; it should clarify the distinction between freedom and power, acknowledge that the problem of collective choice has not been solved by the democratic method and cannot be solved by any procedural method (as per Jasay), dispel the illusion that democracy possesses a moral authority, but also make proposals about how the way we practice democracy could perhaps be improved, which may be helpful at least in the short run.73 With respect to the realizability of these measure, we should heed the late Murray Rothbard’s recommendation: be “short-term pessimists” and “long-term optimists,” because: Why devote oneself to the cause of liberty, if you believe that we are destined to live under state tyranny for ever? Notes 1. In 1993, Germany spent 34 percent of GNP on social expenditures (Sozialkirungen), i.e., mainly on churning activities. Public debts are high: for instance, in Germany, 60 percent of GNP, Belgium, 140 percent; Italy, 120 percent. Pension liabilities for which no funds have been set aside total 158 percent of GDP in the US, 217 percent in Japan, and 355 percent in Germany (figures are from UBS London on the basis of OECD report for 1994). Thus, national debts are far less important than pension liabilities, a fact often ‘forgotten’ by politicians and media. 2. Certainly the middle class does tend to get better service from state education and health services than do the lower orders. But progressive taxation does surely tend to equalize down, whereas the provision of state handouts must tend to equalize from the bottom up. And this is surely consistent

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with there being a vast amount of unprincipled, un-egalitarian churning-and with this therefore being more important than all other measures taken together. In the US, for instance, most of the billions of dollars of agricultural subsidies goes to the richest farmers, and likewise in the EU the richest farmers profit most from the lavish subsidies from Brussels (agricultural policy constituting the largest item in the EU budget). In Germany in 1995 each job in the coal industry costs the taxpayer in subsidy (including taxes on electricity, Kohlepfennig) DM 120,000 (at the current rate about $SS,QOO) per year, and subsidies to theaters totaled DM 3.3 billion in 1991 (the latest figures available); these taxes are progressive, whereas in all countries taxes on beer and tobacco tend to be regressive. 3. As we all know, the French Revolution was a complex sequence of events. In 1789, it began as a bourgeois revolt; from 1791, the socialist tendency became dominant, graduated to become the cachet of the revolution taken as whole. It reached its apogee in 1793, l’annte de la Terre& (et du genocide vendben), with its socialist Welfare Committees and ‘Ethic’ Committees. 4. The Stalinist regulation of language, which is still adhered to by almost all of the European media people, is to call German National Socialism “fascism,” ‘Fascist’ is used as a near-synonym for ‘not socialist.’ However, Mussolini’s fascism was, as the first national socialism, a significant landmark-but it was never a horror on the scale of the other three events (French Revolution, Nazi Germany, the Soviet Union). Before being occupied by the Germans, the Italians did not deliver a single Jew to the Germans. Placement of the NSDAP in the same category as various sorts of authoritarian South American governments makes it appear much less of a horror than it really WaS. 5. However, socialism is perfectly viable at very low levels of economic development and also as the command economy of wartime economy. 6. For instance, even today, it dictates the closing time of shops (a regulation introduced by Wilhelm II in 1900). 7. Gerd Habermann’s Der Wohlfahrtsstaat. Geschichte eines Zrrwegs, 1994, shows this in a well-documented historical investigation and comparative analysis of the two versions of the welfare state. 8. Incidentally, these two cases of a tightening of state control are also examples of warsprung socialism (as per Robert Nisbet, Stanislav Andreski), a phenomenon that hit the US as well, in both wars-although, of course, to a lesser degree. 9. Party slogans can illustrate this: “We no longer have any private individuals” (Privatleute haben wir nicht mehr), “Only sleep is private” (Privat ist der Schkzj). Likewise a famous Goebbels pronouncement in 1944: “The bomb raids also have a positive side effect: They not only level walls, but also class boundaries.” 10. Again a party slogan can illustrate the mood: “You are nothing, your People is everything” (Du bist nichts, dein Volks ist al/es). 11. Significantly, the regions where the NSDAP had the best election results were those regions where before and after the war the Social Democrats achieved the best election results (as per Kuehnelt-Leddihn, 1985, pp. 494,495). 12. “Social Market”could be symbolized by the image of Gulliver after his landing in Liiiput: the giant lying on the beach and being fettered during his sleep, immobilized by innumerably many tiny threads-by regulations and all sorts of interventions. For a criticism of the idea of “conforming to the market” see, e.g., Radnitzky, 1993a. 13. Erhard regarded the expression ‘social market’ as a pleonasm, useful in political rhetoric (conveyed to me by Hayek in a personal communication). 14. In the 3Os, the Myrdals--maitre Apenser for the Swedish Social-Democratic Partyadmired the National Socialist conception of Volksgemeinschaft (an egalitarian-statist system with a dominant welfare-state element), and used it as source for the Swedish folkshem (folk home) (Radnitzky, 1993~).

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15. Ironically, Sweden made a turn about in 1991 (lasting only to 1994), while Germany is now going the way of Sweden, i.e., of Sweden before 1991. 16. The idea of self-realization of reason was used as an instrument for legitimizing power in the name of salvation: Selbstverwirklichung der Vemunji als Instrument der Heilsherrschaft. 17. Bismarckism (which marks the beginning of the modem welfare state) was somewhat mitigated by the fact that government was privately owned (monarchism) and hence the incentive structure of the rulers favored long-term planning, moderate taxation, and property rights violations not institutionalized on the scale we are used to today. (On the difference between “privately-owned” and “publicly-owned” government, see Hoppe, 1994). 18. An exception is the June 1994 issue of Economic Affairs, which is devoted to this topic and contains the two papers by Arthur Seldon referred to in the text. 19. The “justice gap” (GerechtigkeitsZuecke) and such grotesque phrases as gerechter Kinderlastenausgleich (just equalization of the burden of children) figure prominently in today’s German media. 20. John Rawls, a Rousseau redivivus, cautiously avoids saying anything about the realm of application of his version of egalitarianism. 21. The logical structure of an explanatory argument and a predictive argument is equivalent. 22. We have learned that only few physical systems can be treated as if they were deterministic, isolated-although within broad regions of the initial conditions, chaotic systems behave in a fairly orderly way. See, e.g., Radnitzky, 1992a, pp. 221 ff. 23. Physical law statements state what is physically impossible: they exclude certain cases. The more they exclude the higher their empirical content of information, and hence the more falsitiable (a logical relation) (as per Karl Popper). 24. The canonical example is the Btnard cells: convection cells with a characteristic form arise spontaneously when a fluid is heated from below. Another example is the laser. 25. This position must not be confounded with apriorism: e.g., with the Misesean view that economic hypotheses can be inferred from the postulates of praxiology, which are Kantian synthetic a priori propositions. 26. The expression ‘behavioral sciences’obfuscates the difference between behavior and action. The Italian scienze morali e sociali comes much closer to a suitable catch-all term. 27. Any workable explication (clarification) of the concept of action has to take into account the fact that only individuals can act and cannot but act (methodological individualism). Action implies that the actor could have behaved otherwise. The main difference between the natural and the social sciences is that-because of this-the social sciences cannot contain nomologicals (universal laws, applying everywhere, at all times, i.e., general sentences that can be falsified by a single data statement). Hence, the social sciences cannot contain counterfactuals either. (See, e.g., Flew, 1981). 28. The main difference between the great monotheistic religions (Judaism, Christianity, and Islam) and Marxism appears to be that in the center of the former is each individual’s salvation, whereas in Marxism the salvation is only on a species-collectivist level (for human-as-species); see Rothbard, 1993, p. 229. In addition, Marxism is a materialist-atheistic doctrine. German National Socialism is a theistic salvationist doctrine-a little known fact. It is a revival of the ideas of the Czech (collectivist) Hussites of the 15th century (see E. v. Kuehnelt-Leddihn, e.g., 1985, pp. 223 ff.), and likewise a reabsorption theology. This theological aspect of German National Socialism is rarely discussed-seems almost taboo to consider. Yet Goebbels wrote: “fighting the Jews I am fulfilling the will of the Lord” (see, e.g., Btirsch, 1987, p. 400). The eschatological theme runs like red thread also through the doctrines of Ernst Bloch, Herbert Marcuse, and so forth. Apparently, a part of the attraction for the populace resides-in National Socialism no less than in Marxism-in its irrationality, mysteries, and verbal clouds.

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29. The precept is that we need never (nor are we able to) reduce and explain the action (pseudo-action) of a collective in terms of the actions of individuals, the individuals which make up the collective entity. Certain collectives are claimed to be sui generis such that statements about them in principle cannot be explained by a set of statements about individuals. The “as/ if’ character of the holistic account is implicitly denied-leading to an absurd position in the philosophy of science. 30. Bouillon, 1996, especially Chapter 3, is the best clarification, or more accurately, explication of the concept of freedom known to me. 3 1. That this idea has nothing to do with freedom can be easily seen if you think of Robinson Crusoe. In his situation the concept of individual freedom is not applicable, while the idea of power certainly is. 32. For instance, Max Weber, massively (see Bouillon, 1996, Sect. 3.6), and even Hayek, e.g., 1960, p. 136. (One is tempted to add: “Even Homer sometimes nods.“) 33. You find such claims even in moderate social democrats like Helmut Schmidt as German Chancellor. 34. The requirement “necessary to secure equal freedom for all others” is not very clarifying so long as we lack an adequate explicatum for the concept of freedom. 35. The business of the state is not to protect people against themselves, against their wills. From the Harm Principle, we see also that criminal law must not be applied to mundane transactions between willing participants in which no public harm is involved (e.g., regulations on opening hours, prostitution, coercing women to function as incubators against their will, etc.) (although the question of whether and at what stage the fetus is a human individual in its own right makes the question of abortion much more complex than the others). 36. For instance in 1993 in Germany, there were about 490,000 police personnel financed by the taxpayer and about 510,000 security personnel privately employed. 37. Kant comes close to this mistake; cf. Note 45 below (the Mother Teresa case). 38. The choice example is the UN0 declaration of rights. New rights are proclaimed, placing a corresponding obligation on addressees that typically are left unnamed, and without asking whether the addressees, if any, are willing or even capable of fulfilling the invented obligation (as per Anthony Flew). 39. That means an improved, refined version of the intuitive concept used in everyday language. 40. Coercion is coercion even if the coercee assents to it. ‘Voluntary’or ‘assent’must not occur in the deflniens of freedom, otherwise the definition would be circular. Bouillon (1996, Sect. 3.3.) solves the problem by introducing a distinction between two levels of choice: that between at least two alternatives (object level) and that between ignoring or not ignoring the object level choice thrust upon the person (meta level choice). Roughly, a person x is free to the extent that ignoring the meta level choice in the situation does not lead to costs in terms of change in x’s private realm (i.e., taking away at least one option). 41. The point of working with axiom systems is that the axioms condense an enormous amount of information. The number of theorems is in principle infinite (in this sense we do not really know what we are saying, when proposing an axiom system). Logic functions (viewed semantically) as a sort of information-selector. With its help we extract bits of information that are sufficiently small to make empirical testing possible: the test of experience. In connection to descriptions, the relevant experience is perceptual experience (and reproducibility). This is the primary and ordinary-language sense of experience. (It must not be problematized in this context-otherwise there is a problem shift.) In connection to a genuinely normative sentence/value judgement, there is no strict counterpart to that-the only experience that can be relevant here is intuition (moral, aesthetic, etc.). This harmonizes with the subjectivistic value theory (Austrian Economics)-the individual’s Weltunrchauung provides the background. It includes one’s deontological moral system, if any. Most people do have some such deontological rules internalized; they make up part of their personality

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at a given period. Since Jasay develops a theory of strict liberalism, the relevant intuition is that the consequences deduced from the postulates appeal to the moral sense of the friends of the Free Society. 42. This addition appears necessary, since coercing someone for his or her “own good” obviously implies coercion in the period preceding the coercee’s experiencing (with the benefit of hindsight) gratefulness for having been coerced. 43. Not more-compelling arguments can occur only within a particular system. The premises are subject to pervasive fallibiism, the only reasonable position in epistemology. Outside of such a system (e.g., a religious doctrine assumed to be true), we eventually come to the end of the rope, when all possible arguments are exhausted. Then we may turn to persuasion. If that fails, there remain only two options: to separate or to fight (as per Wittgenstein in On Certainty). 44. Clearly exhibited in human infants as cross-cultural studies have documented (see, e.g., Eibl-Eibesfeldt, 1967/ 1978). 45. The Mother Teresa case, because it is an exception, clearly makes the point regarding the problem of the Kantian universalizabiity criterion. If everyone devoted their lives to distributing handouts to be provided by others, no one would survive, since there would be no producers. Kant had a peculiar opinion about the working of the market. He declared in his lectures on ethics (around 1785): “When . . . one does a miserable a favor, one has not given it for nothing; rather one has given to him what one has helped to withdraw from him by the general injustice. For if nobody wants to attain the goods of life more than the other, there would be no rich, but also no poor (quoted from Menzer, 1924, p. 246, trans. GR). The first half of Kant’s dictum is true (there would be no rich); the second is patently false: there would be only poor (Bouillon, 1993, p. 103)~if, I would add, humanity would survive at all. If no one survives, both parts of the sentence are true (though, obviously, not in the sense Kant intended). 46. When people in Locke’s time talked of life, liberty, and “property,” property was an inclusive term that included the body of the property owner as well as the owner’s land, bank deposits, etc. (Locke defined “property” as “life, liberty, estate” in his Second Treutise, and body is entailed in life.) 47. It is necessitated already by the requirement of sufficient similarity between explicandum and explicatum. 48. Since an axiom system has an indefinite set of theorems, the creator of the system literally does not know what exactly has been created. Hence, discovering a new theorem may be a mathematical achievement of great importance. In this sense we often do not know what we are saying, and mutatis mutandis, because of the phenomenon of unintended consequences, we often do not know what we are doing (as per Popper, W. W. Bartley III; see, e.g., Radnitzky & Bartley, 1987). 49. For instance, in Karl Popper’s “World-3,” where to find and to invent @tden/er-finden) are closely related. Sometimes how we describe the act even depends on our ontology For example: were natural numbers invented, or were they discovered on the basis of universals (singularity, twoness, etc.)? The answer depends on your ontology. 50. Communitarians operate with the concept of the “Common Good.” Often they attempt to give the formula content by reference to the “Will of the People,” which can be discovered by means of a majority test. 51. When one hears journalists in the mass media talk about democracy, in particular in connection with the ex-Communist countries, one gets the impression that democracy has become a cargo cult. The journalists seem to suggest that if only these countries became democratic, as by a magic stroke, the shops would fill with merchandise. 52. Incidentally, Kant’s view about the relationship of democracy to peace appears to be no better than his view about the market process (see Note 37 above). In his Perpefuul Peace (1795)two years after the French had introduced enforced conscription-he claimed that a republican, i.e., a democratic, constitution is a prerequisite for perpetual peace.

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As Hoppe (1994, p. 51) points out, there is a strong positive historical correlation between democracy and militarization (as measured by the share of military expenditure in the total government expenditures). The explanation of this correlation appears to be that the wars conducted by democratic government (beginning from 1798) have been ideological wars-not wars about conflicting interests like, e.g., territorial resources, etc., that were typical of the periods of privatelyowned governments (e.g., the wars between Bismarck’s Prussia and the casa d’Austria). 53. Strictly speaking, ‘limited’ is meaningless; it provides no criterion of good or bad; all government is limited in the sense of less than all-embracing. 54. Sweden is a model of practically unlimited democracy (one-chamber system, and the power of government plus bureaucracy practically unrestricted). Yet it is a society with little freedom. The situation may be epitomized as: big enterprises are free, individuals are socialized. In practice, the citizen has not even a free choice of doctor or dentist; at least before the turnabout of 1991, founding a new school or radio station was practically impossible. The state invades almost every crevice of daily life. 55. Small wonder that the democratic method of collective choice and creeping socialism appear to be inseparable. Levelling of living standards within a society may be desirable from the viewpoint of certain moral systems, but in any social order it will constitute a negative sum social game with respect to GNP. 56. In both cases, the measures entail violence or threat of violence. The state measures include tax on property and income, fraudulent expropriation of capital holders through inflation and public debts, etc. A main difference appears to be that the robber takes the victim’s money, but does not occupy the moral high ground-and does not make the victim a slave (Hoppe, 1994), as states do when they prevent their citizens leaving (USSR, GDR, etc.), or when they make their citizens at very least tax slaves, as in Sweden, where rich citizens could not move their capital out of the country, if the sum involved was substantial (e.g., the Wallenberg case). See the writings of Jacob Sundberg (1987, 1993) for more. 57. One source of Irish American hostility to blacks in the US during the 19th century was the fact that slave owners, valuing their property, preferred to give dangerous jobs to ‘Micks’ rather than to their own valued slaves. 58. See the historical case studies in Frey BEBushofer, 1988. 59. Of course, there are also historical counter-examples. For instance, in France before 1789 taxation was confiscatory. Hence Hoppe’s hypotheses have to be taken as tendency statements, or as referring to ideal types. 60. In the face-to-face group and also in the small group, selecting the leader(s) by direct democracy normally functions well. Selection criteria are capabilities that are essential for the survival of the group. Past performance of the potential candidates serves as basis for the choice. In mass democracy, the problem is complicated by the fact that the properties that are important for winning an election are not the same as those required of a good president, representative, etc. In 432 BC, Athens, the classical model of democracy, had about 40,000 citizens (not counting women, children, “metics,” and slaves). Most of the relevant people knew each other, last but not least through their participation in the frequent theatrical performances (with an audience of about 17,000) and people’s assemblies; politicians were integrated in the society, participated regularly (as actors) in the various dramatic performances. This was more a tribal society than an abstract, anonymous society. In the beginning of American democracy, about one fifth of the population had voting rights. At that time, democracy was direct and practical, not ideological. It functioned well-thanks to the many private fortresses (as per Schumpeter), which did not want the government meddling in their affairs. And the government had little funds, hence there was no benefit in lobbying and blackmailing the government for subsidies, regulations favoring one’s group, etc.-investment of resources in such activities bore no dividends.

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61. John Locke himself had no notion in mind that democracy should-as he put it“enfranchise the propertyless, who might use democracy as an instrument of plunder.” 62. Under a subjectivist value theory, comparisons of efficiency can be made only if we imply that tastes and income are supposed to be in the ceteris paribus. However, in the case under consideration, comparisons seem meaningful, because, in general, people living a Western lie style prefer more material well-being to less; if major changes in popular tastes should occur, they would concern more or less all of the industrialized countries. In spite of this, the impression remains that the concept of efficiency is often used without realizing its basically subjective nature. 63. Moreover, there is also the possibility that the winning coalition does not act as if it were a rational utility maximizer. It may be inspired by fundamentalistic egalitarianism, willing to force greater equality of outcomes for all groups even at the price of a drastic reduction in GNP. A reallife specimen of that mind-set is the Swedish Social Democratic Party, in whose rhetoric and practice (since the 40s) equality has become a supreme value, a lexical value. The result has been disappointing: the decline of the economy was achieved, but not much of the greater equality. 64. First radio and then television broadcasting became appendages of central government, in all places except the US, where broadcast media fared slightly better. But technological innovations have a way of outwitting even the most far reaching of government controls (as per Paul Levinson, 1994). As Levinson observes, the most impressive decentralizing powers are now emanating from the personal computer: millions of individuals and numerous firms are connected via modem and the system of phone lines. As we would expect, government-with democracies in the forefrontare beginning to make efforts to control the new Internet and its users. They legitimize these efforts with the claim that states have a duty to protect the people from themselves; whereas, from the viewpoint of freedom, what is urgently needed is protection of the people from the government encroaching on their freedom. Our hope, as Levinson claims, is that technological innovations have a way of outwitting even the most elaborate government control. 65. However, we should remember that, under Reagan, federal spending nearly doubled, and Reagan did not repeal a single important socialist gain of the previous half century. 66. In pre-1991 Sweden, public expenditure exceeded 70 percent of GDP (estimate for 1994 is 73%), the highest marginal tax rate was over 90 percent (in the early 7Os, it exceeded 100 percent in some cases, which got international attention). (On the Swedish tax system see, e.g., Sundberg 1993.) After the turn about, the new government succeeded in reducing it to under 50 percent; inheritance tax has been halved, property tax abolished, capital tax is being reduced to 25 percent, and as from 1993 it is proportional. Of course, Sweden is still in a severe crisis-50 odd years of social-democratic rule cannot easily be repaired. The social-democrats in the parliament have continued to propose the old recipes that have so spectacularly failed. In 1994 they returned to power, and it will be interesting to see how they will curtail the welfare state, which they cannot finance. Sweden remains probably the best illustration of the predicament of the advanced churning society: majority rule in concert with a majority of voters supported by tax money, with an absolute majority of the franchised voters deriving their livelihood from public funds. Further figures: 36 percent of the adult population productively employed (7% self-employed, 29% privately employed); 27 percent employed in the public sector, in the tax-financed welfare complex of state education, health, social services, public transport, etc; 34 percent are clients of the state (students, pensioners, the unemployed, etc.); and three percent are clients of civil society, i.e., they cover most of their outlays with the help of husband, wife, or other close relative (once a larger group, they are fewer and fewer). This means that just over two-fifths of the population over 17 and under 65 are gainfully employed (Zetterberg, 1995, pp. 53ff). Never had so many to thank so few for so much. Meanwhile, in contrast to the 1991-1993 interlude in Sweden, Germany is going the way of social-democratic pre-1991 Sweden. While Sweden has abolished property tax, Germany in 1994 doubled it. The highest marginal tax rate is 53 percent (in 1993 it was 56%, but now the tendency is increasing). As indicated in Note I above, social expenditures (Sozialleistungen) in 1993 amounted

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to 34 percent of GNP, some 1063 billion Deutschmark. For 1994, the share of all sorts of taxes is estimated to total 56 percent of GNP. (In 1960, the figure was 33%, in 1984 42%.) However, this figure is always less than the total take, because to the taxes one must add what the state borrows from its citizens by means of budget deficits. In the case of Germany, this has increased at an alarming rate: the total deficit is now over seven percent of GNP (more than double the so-often denounced US deficit); the state debt (staaliche Schuldenquote) in percent of GNP was 20 percent in 1970, 35 percent in 1981,45 percent in 1993, and in the next few years it is expected to reach 55 percent. Perhaps most significant of all, in 1991, for the first time in the history of the FRG, the total of taxes and social insurance contributions paid by the average employee exceeded 50 percent of his/ her total income (the non-wage labor costs that the employer has to pay included). We can estimate that by 1997, the total burden (Abgabenbekzstung) will reach 56% of the medium income of employees (on pension liabilities-355% of GNP) (see Note 1 for more). 67. Arthur Seldon convincingly argued that “the significant difference in the domain of government between the now rejected socialist dictatorships of East Europe and the capitalist ‘democracies’ of the West has been far less than is commonly presented in public debate or scholarly writing. . . n- only around 10 to 15 percent (if the unofficial economy is taken into account) (Seldon, 1993, pp. 13 ff.). 68. The members would pay taxes to the associations for these services, which is unproblematic since they joined voluntarily and can opt out if they wish to do so; and the state would release them from paying that part of the taxes that is used for providing the services now provided for them by the associations in question. Of course, the state might provide a fallback system for those not joining any voluntary association. 69. On the issue of Hayek and evolutionary theory, see Petroni, 1992, especially p. 486. 70. The best example is the CAP (Common Agriculture Policy) with heavy subsidies and protectionist measures, burdening European taxpayers and consumers with extremely high costs. 71. In the Preface to the 2nd ed. of The Road to Se$dom (1976), p. xx. 72. Take, for instance, the “Industrial Policy.” It is based on a fundamental misunderstanding of the market process. In a Hayekian perspective, competition in the market leads to discovery of new opportunities, innovations. It thus helps to cope with the inherent limitations of human knowledge But the EU authorities think that competition must be conditioned by their policy. They believe they can use what they call ‘market’ as an instrument to achieve specific results. 73. For instance, along the lines of “No taxation without representation” and “No representation without taxation,” for voting rights requiring some experience of life (including tax paying) that has been acquired in activities other than making a living from being elected, and so forth.

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Acknowledgements The first version of this paper was delivered at the Mont Pelerin Society General Meeting in Cannes, France, 15-30 September 1994. My thanks for constructive criticism go to Anthony de Jasay, Arthur Seldon, and Antony Flew. About the Author Gerard Radnitzky was Professor of Philosophy of Science at the University of Trier in Germany, and since 1989 has been Emeritus Professor there. He is Membre Titulaire of the Academic Intemationale de Philosophie des Sciences, Member of the Sudetendeutsche Akademie der Wissenschaften und Ktinste, and a Member of the Mont Pelerin Society. He has had two Festschrifts published in his honor-Rationality in Science and Politics (1984) and Wissenschaften und Wissenschaftstheorie (1991)-is the author of more than 200 scholarly papers, and author or editor of more than a dozen books, including Contemporary Schools of Metascience (1968), Progress and Rationality in Science (1978), Universal Economics (1992), and Values and the Social Order (1995). He is on the Editorial Board of the Journal of Social and Evolutionary Systems.