The Economics and Ethics of Private Property Studies in Political Economy and Philosophy Second Edition Hans-Hermann Hoppe Ludwig von Mises Institute AUBURN, ALABAMA Copyright © 1993 by Kluwer Academic Publishers Copyright © 2006 by the Ludwig von Mises Institute All rights reserved. No part of this book may be reproduced in any manner whatsoever without written permission except in the case of reprints in the context of reviews. For information write the Ludwig von Mises Institute, 518 West Magnolia Avenue, Auburn, Alabama 36832. ISBN 13: 978-0-945466-40-6 ISBN 10: 0-945466-40-4 TO MURRAY N. ROTHBARD CONTENTS Preface to the Second Edition . ix Preface to the First Edition. xi PART ONE - ECONOMICS 1 Fallacies of the Public Goods Theory and the Production of Security . 3 2 The Economics and Sociology of Taxation . 33 3 Banking, Nation States, and International Politics: A Sociological Reconstruction of the Present Economic Order . 77 4 Marxist and Austrian Class Analysis . 117 5 Theory of Employment, Money, Interest, and the Capitalist Process: The Misesian Case Against Keynes. 139 6 How is Fiat Money Possible?—or, The Devolution of Money and Credit . 175 7 Against Fiduciary Media . 205 8 Socialism: A Property or Knowledge Problem? . 255 PART TWO - PHILOSOPHY 9 On Praxeology and the Praxeological Foundation of Epistemology . 265 10 Is Research Based on Causal Scientific Principles Possible in the Social Sciences? . 295 11 From the Economics of Laissez Faire to the Ethics of Libertarianism. 305 12 The Justice of Economic Efficiency . 331 13 On the Ultimate Justification of the Ethics of Private Property. 339 14 Austrian Rationalism in the Age of the Decline of Positivism . 347 15 Rothbardian Ethics. 381 Appendix: Four Critical Replies. 399 Subject Index . 419 Name Index. 429 vii Preface to the Second Edition he first edition of The Economics and Ethics of Private Prop- erty, published in 1993, has been out of print for several years. T For some time and from many sides I have been urged to pre- pare a new edition, and Llewellyn Rockwell has graciously offered the Ludwig von Mises Institute to serve as its publisher. The Economics and Ethics of Private Property was dedicated to my teacher and mentor, Murray N. Rothbard, with whom I had been closely associated during the last ten years of his life, first as a visit- ing scholar at the Brooklyn Polytechnic Institute in New York City and after 1986 as a colleague at the University of Nevada, Las Vegas. The year 2005 marks the tenth anniversary of Rothbard’s death. Thus, it seemed a most appropriate time to honor Murray anew with this second edition. The present edition of The Economics and Ethics of Private Prop- erty is enlarged. It adds four articles written after the original publi- cation of the book but related thematically to its central subject mat- ter of the economic and ethic rationale of the institution of private property—chapters 6, 7, 8, and 15. The opportunity of a new edition has also been used to make significant editorial improvements and revisions. Hans Hermann Hoppe Las Vegas, Nevada, 2005 ix Preface to the First Edition he collapse of socialism across Eastern Europe—as mani- fested most dramatically by the events of the forever memo- T rable November 9, 1989, when the Germans of East and West reunited, moved and overjoyed, on top of the Berlin Wall—has added more support and urgency to the central thesis of this volume than I had ever hoped for. Whether the following studies deal with economic topics such as employment, interest, money, banking, business cycles, taxes, public goods, or growth; with philosophical problems as the foundations of knowledge, and of economics and ethics in particular; or the recon- struction and theoretical explanation of historical and sociological phenomena such as exploitation, the rise and fall of civilizations, international politics, war, imperialism, and the role of ideas and ide- ological movements in the course of social evolution—each ulti- mately contributes to but one conclusion: The right to private prop- erty is an indisputably valid, absolute principle of ethics and the basis for continuous “optimal” economic progress. To rise from the ruins of socialism and overcome the stagnation of the Western welfare states, nothing will suffice but the uncompromising privatization of all socialized, that is, government, property and the establishment of a contractual society based on the recognition of the absoluteness of private property rights. xi xii The Economics and Ethics of Private Property In writing the following studies I received help from many sides. Special thanks go to my wife Margaret, who again took on the task of de-Germanizing my English; to Llewellyn H. Rockwell, Jr., president of the Ludwig von Mises Institute, and to Burton S. Blumert, presi- dent of the Center for Libertarian Studies, for their continuing sup- port of my work; and to my friend David Gordon, for his numerous invaluable suggestions and comments. My largest debt is to Ludwig von Mises and Murray N. Rothbard, the twentieth century’s two greatest—though much neglected—econ- omists and social philosophers. While I never met Ludwig von Mises, and indeed had not heard of his name until after his death, I am for- tunate to have been closely associated with Murray Rothbard for the past six years, first in New York City, and since 1986 as colleagues at the University of Nevada, Las Vegas. Apart from the intellectual debt that I owe him, words cannot express my personal gratitude. His wis- dom, insight, kindness, enthusiasm, and unflagging encouragement have been a continuous inspiration to me. It is, therefore, to him that this volume is dedicated. Hans-Hermann Hoppe Las Vegas, Nevada, 1993 Part One ECONOMICS 1 Fallacies of the Public Goods Theory and the Production of Security n 1849, at a time when classical liberalism was still the dominant ideological force and “economist” and “socialist” were generally Iconsidered antonyms, Gustave de Molinari, a renowned Belgian economist, wrote, If there is one well-established truth in political economy, it is this: That in all cases, of all commodities that serve to provide for the tangible or intangible need of the consumer, it is in the con- sumer’s best interest that labor and trade remain free, because the freedom of labor and trade have as their necessary and permanent result the maximum reduction of price. And this: That the inter- est of the consumer of any commodity whatsoever should always prevail over the interests of the producer. Now, in pursuing these principles, one arrives at this rigorous conclusion: That the pro- duction of security should in the interest of consumers of this intangible commodity remain subject to the law of free competi- tion. Whence it follows: That no government should have the right to prevent another government from going into competition [Reprinted from the Journal of Libertarian Studies 9, no. 1 (Winter 1989).] 3 4 The Economics and Ethics of Private Property with it, or require consumers of security to come exclusively to it for this commodity.1 He comments on this whole argument by saying, “Either this is logi- cal and true, or else the principles on which economic science is based are invalid.”2 There is apparently only one way out of this unpleasant (for all socialists, that is) conclusion: to argue that there are particular goods to which for some special reasons the above economic reasoning does not apply. It is this that the so-called public goods theorists are deter- mined to prove.3 However, I will demonstrate that in fact no such special goods or special reasons exist, and that the production of security in particular does not pose a problem any different from that of the production of any other good or service, be it houses, cheese, or insurance. In spite of its many followers, the whole public goods theory is faulty, flashy reasoning, riddled with internal inconsisten- cies, non sequiturs, appealing to and playing on popular prejudices and assumed beliefs, but with no scientific merit whatsoever.4 What, then, does the escape route that socialist economists have found in order to avoid drawing Molinari’s conclusion look like? Since Molinari’s time it has become more common to answer yes to 1Gustave de Molinari, The Production of Security, trans. J. Huston McCulloch (New York: Center for Libertarian Studies, Occasional Paper Series No. 2, 1977), p. 3. 2Ibid., p. 4. 3For various approaches of public goods theorists, see James M. Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor: University of Michigan Press, 1962); James M. Buchanan, The Public Finances (Homewood, Ill.: Richard Irwin, 1970); idem, The Limits of Liberty (Chicago: University of Chicago Press, 1975); Gordon Tullock, Private Wants, Public Means (New York: Basic Books, 1970); Mancur Olson, The Logic of Collective Action (Cambridge, Mass.: Harvard University Press, 1965); William J. Baumol, Welfare Economics and the Theory of the State (Cambridge: Harvard University Press, 1952). 4See on the following, Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1970), pp. 883ff.; idem, “The Myth of Neutral Taxation,” Cato Journal (1981); Walter Block, “Free Market Transportation: Denationalizing the Roads,” Journal of Libertarian Studies 3, no. 2 (1979); idem, “Public Goods and Externalities: The Case of Roads,” Journal of Libertarian Studies 7, no. 1 (1983). Fallacies of the Public Goods Theory and the Production of Security 5 the question of whether there are goods to which different sorts of economic analyses apply. As a matter of fact, it is almost impossible to find a single contemporary economics textbook that does not stress the vital importance of the distinction between private goods, for which the truth of the economic superiority of a capitalist order of production is generally admitted, and public goods, for which it is generally denied.5 Certain goods or services (including security) are said to be special because their enjoyment cannot be restricted to those who have actually financed their production.