Does Capitalism Need the State?

Some guy named “William R Gillies” has been trying to troll CMR on Twitter for the past week or so.

He is failing, because he doesn’t know what’s he’s talking about. He is a “Cartographer, Psychogeographer, Historicist.” All historicists struggle with understanding economics.

Mr Gillies is no different. He does not understand economics and the nature of markets. What is his problem? He believes that capitalism and markets can only exist if there is a state to enforce private property rights. This basically sums up his position:

He is completely wrong. Since this is a widely held view, however, it is worth discussing.

Firstly, let’s define our terms. Generally, capitalism is taken to mean “private ownership of the means of production.” This is a reasonable definition. We can elaborate a little bit by saying capitalism is the social order characterized by respect and recognition of private property. The market is the outcome of capitalism — essentially, people producing stuff and trading with each other. And the state? It is a territorial monopoly on the use of force.

Capitalism exists despite the state, not because of it. There are four basic arguments that refute the notion that capitalism depends on the state to exist.

(1) TRADING WITHOUT THE STATE

A simple thought experiment can helpfully highlight Mr Gillies’ basic error.

Robinson Crusoe, alone on an island, doesn’t have to worry about issues like “private property” or “markets.” It’s just him and maybe a few animals. He cannot trade with anyone. His use of resources affects no other economic agents on the island, because there are none. It is an autarkic economy. He spends his days catching fish and eating them. Property rights are literally a non-issue.

The arrival of Friday considerably changes the situation. Suppose Robinson Crusoe decides to trade some of his fish for some of Friday’s berries. This would literally create a market economy. It’s just a small and simple one.

The only way trade is possible is if both recognize the property rights of the other. Transferring ownership is what trade means. Otherwise there can be no trade. Either no exchanges will take place, or a hegemonic relationship will arise if one actor uses violence against the other.

If trade is possible in this situation, and there is no state, then a market economy does not depend on the state. Since trade clearly is possible in this situation, then it follows the market economy depends not on the state, but something else A modern economy is more complex and its division of labor much wider than the “two people on an island” economy, but in principle nothing changes between them.

(2) CATEGORICAL ERROR

The idea that the market economy depends on the state gets things entirely backwards. The state depends on the market, not the other way around. To say otherwise is to say the host depends on the parasite, rather than the parasite depends on the host. It just makes no sense.

The state literally cannot exist unless there is something to tax (because it produces nothing). The market, on the other hand, can arise spontaneously and exists anywhere people are trading goods and ideas with one another. The state depends on the market. The market does not rest on “state violence” as Mr Gillies claims. The state rests on state violence, the way the robber depends on robber violence. Just because there might be property rights violations where there is no state does not mean property rights depend on the state, because the state has property rights violations too. If the market must exist before the state, and the market depends on private property, it’s hard to understand how only the state can establish property rights.

It is simply incoherent to claim that the state, the very nature of which necessitates interference with property rights, is the source of property rights. All states without exception tax their subjects and outlaw competing institutions of compulsion. To say that the greatest, most systematic violator of private property rights is the only way to protect private property rights is simply absurd, and reveals a level of cognitive dissonance so severe it must cause migraines. The state fails the number one requirement of a valid lawgiver: that it follow its own laws.

The very idea of the state as a protector of property rights is contradictory. Hoppe writes:

Yet how can there be better protection for A and B, if S must tax them in order to provide it? Is there not a contradiction within the very construction of S as an expropriating property protector? In fact, is this not exactly what is also—and more appropriately—referred to as a protection racket? To be sure, S will make peace between A and B but only so that he himself in turn can rob both of them more profitably. Surely S is better protected, but the more he is protected, the less A and B are protected from attacks by S.

We should at this point offer some other remarks on the Hobbesian thesis, that there cannot be peaceful relations without a Sovereign to enforce agreements. Hobbes’ argument asserts that in the “state of nature”, A and B cannot cooperate, so they must agree to have S tax them and resolve their disputes. If this is true, then ostensibly property rights depend on the state.

But who enforces the agreement between S, A and B? After all, S is still a human and unable to form agreements without a Sovereign according to the Hobbesian thesis. So there would need to be another enforcer, S*. But then who enforces this agreement? You would need another enforcer, S**. And then you would in turn need to enforce this with S***, and S****, and so on into an infinite regress. To escape this conclusion, it must be conceded that agreements and property relations are possible without the state, otherwise no agreement or trade could ever arise (this argument comes from Anthony de Jasay).

(3) EMPIRICAL EXAMPLES

The essence of Mr Gillies’ position is private property rights are “not natural” and “must be enforced.” Sure, rights need to be enforced. So what? It is a non sequitur to take that claim then say it follows that only the state can enforce rights. There is nothing inherent in private property rights that require enforcement to come from the state.

There are historical cases in which the enforcement of property rights occurs with the state. Yet there are also examples without the state. This is extremely important. Basically, all legal systems deal with property rights, and if there have been non-state legal systems, Mr Gillies must be wrong. A legal system of enforcing rights does not inherently require the state at all.

Remember, the state is specifically a territorial monopoly on the use of coercion. Yet throughout history there has been enforcement of rights without such monopolists. Most of the Anglo-Saxon law grew out of voluntarily adopted norms, rather than authoritarian decree. Off the top of my head, here are some other random examples of customary, non-monopolistic legal systems: ancient Ireland, the Law Merchant, many other forms of commercial law, the Yurok Indians, the Ifugao, the Kapauku Papuans, medieval Iceland, and eBay.

(4) THE A PRIORI OF COMMUNICATION AND ARGUMENTATION

Most critically, the proposition “Private property rights depend on the state” is proven wrong by the act of saying it. For it is not possible to argue anything without presupposing that one has private property in one’s body. This is logically antecedent to the formation of any system of rights enforcement. It’s what makes it possible to have a rational standard by which to judge a system of rights enforcement in the first place.

CONCLUSION

Mr Gillies simply doesn’t understand the relationships between capitalism and the state. He relies on a tissue of fallacies believed by those whose understanding of reality is completely distorted by historicist nonsense. His confusion is so profound that he doesn’t even come close to understanding property rights, capitalism, or markets. He doesn’t understand the foundations of the market economy at all.

For further reading:

Hans-Hermann Hoppe — A Theory of Socialism and Capitalism

Jörg Guido Hülsmann – The A Priori Foundations of Property Economics

Follow Canadian Market Review on Twitter here.

UPDATE: For the record, Mr Gillies has seen this article. After reading it, he swiftly retreated from the debate. He was clearly in over his head.

I didn’t want him to think I was being unfair, so naturally I offered him a chance to reply. Instead, he went crying to his friends on Twitter for support. To them he made made a bunch of inane comments, like “Austrian School econ also underpins a fair bit of the neoliberal consensus” (lol wut), and “Must be a Randian.” Right. Because anyone who defends free market anarchism from an rationalist, objective idealist position — pretty much the opposite of statist, egoist, empiricist Rand  — must be Randian. Which… makes no sense at all.

He also said that “plenty” of “economists” have “refuted” everything I wrote. Of course, he provided no names or links or anything. I am pretty confident I have seen those arguments and anticipated them. Otherwise, I would gladly respond to any specific arguments. His behavior is to be expected from someone who understands nothing about economics and history.

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2 Responses to Does Capitalism Need the State?

  1. toddkuipers says:

    The State is merely a potential method of property rights enforcement and market protection – one that is general sub-utilitarian. David Friedman is currently working on a book related to alternative legal systems – be worth a read to add more options counter the state-is-the-only-way-to-keep-us-safe.

  2. CMR says:

    Hi Todd,

    The “property rights presuppose states” crowd really fails to understand what you’ve pointed out: The State is just one way to enforce property rights, and it isn’t even particularly good at it. Not to mention in order to protect property rights, the nature of the state’s existence necessitates violence against property rights. The whole argument from their side is just really confused and bad overall.

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