DOCSLIB.ORG

Money, Deregulation and the Business Cycle

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Money, Deregulation and the Business Cycle No. 8601 MONEY, DEREGULATION AND THE BUSINESS CYCLE by Gerald P. O'Driscoll, Jr.* Research Department Federal Reserve Bank of Dallas January 1986 Research Paper Federal Reserve Bank of Dallas This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library ([email protected]) t{o. 8601 }IONEY,DEREGULATIOI{ AI{DIHE BUSI}IESSCYCTE by Gerald P. 0'Driscoll, Jr.* ResearchDepartnent Federal ReserveBank of Dallas January 1986 * Paper pnepanedfor the cato Institute conferenceon lloney, Politics' and the Bulini:ssCycle, tlashington,D.C., January1986. The views expressed'positionsar€ those of the author and do not necessarily reflect the of the Federal ReserveBank of Dallas or the Federal Reserve System. In this paper, I examjnea burgeon'ingliterature on the behavior of unregulatedbanking systems. Its analysis of bankingand moneyhas been dubbedthe legal restrictions theory. lt4anyof the theory's conclusionsare startling, as, for example,the proposition that it is unnecessaryto control the quantjty of depository liabilities in a competitivebanking system. Sjmilarly, the theoryrs modeof analysis is unconventional;for example,its benchmarkfor examiningthe nature of bankingservices is a nonmonetaryeconomy. It is precisely its unconventionalanalysis and startling conclusions,however, which makethe 1ega1restrictions theory both stimulating and worth further cons'ideration. In what fol1ows, I fjrst explicate the newview on banking; I next consider implications of the newview fon controlling economjc fluctuations; I then present a critique and, finally, I suggesthow some of the vaiuable insights of the 1ega1restrjctions theory mjght be integrated with impol'tanttenets of moretraditional approachesto moneyand bank'ing.1 The Legal Restric!ions Theoryof Money The legal restrictions theory examinesthe seemingparadox that individuals simultaneouslyhold governmentcurrency and governmentbonds The currency is noninterest bearing, while governmentbonds bear interest. The paradoxicalaspect of this behavionderives from the fact that both obligations are default-free iiabilitjes of the sameissuen. Assuming rational behavior by transactors, we would expect the interest-bearing securities to dominatecurrency. Accordingly,Wallace (1983, p,1) L investjgates the features of interest-bearing governmentsecuritjes t,that prevent them from playing the samel"ole in transactions as Federal Reserve notes. For if they could play that ro1e, then it is hard to see \rhy anyone would hold non-jnterest-bearingcurrency instead of the interest-bearing securities.'r The newview identifies 1egal restrictions as the sourceof the sjmultaneousdemand for both currencyand bondsand contrasts the current environmentwith an unregulatedor rrlaissez-faire system.'r lr/allace (1983, p. 4) states the view forceful ly and conciseiy. ...Laissez-fajre meansthe absenceof 1ega1 restrictions that tend, amongother things, to enhancethe demandfor a governmentrscurrency, Thus, the impositjon of laissez-faire would almost certainly reducethe demandfor government currency. It could even reduce it to zero. A zero demandfor a governmentrscur"rency should be interpreted as the abandonmentof one monetary unit in favor of another -- for example.the abandonmentof lhe dollar in favor of one ounceof go1d. Thus, my prediction of the effects of imposinglaissez-fajre takes the form of an either/or statement:either nominalinterest rates go Lo zero or existing governmentcurrency becomes worthI ess. Wallace (1983, p. 1) identifies two conditions, the presenceof one of which is necessaryin order that governmentbonds not be substitutable fo" .u""ency.2 Either the bondmust be nonnegotjable(as is tnue of U.S. savingsbonds) or not issued in small denomjnatjons(as is true of Treasurybi 11 s) . As WalI ace ( 1983, pp. 2-3) further observes, neither of these two restrjctions by themse'lvescould prevent arbitrage by 3 fjnancial intermediarjes. Theseintermediaries could purchaselarge denomination,negotiable bonds (i.e., Treasurybilis in multiples of $10,000)and jssue bearer notes in smalI denominations. By matching maturities of these notes and those of the Treasurybills, the intermediarywould be perfectly hedged. Since its assets are default-free by assumption,its bearer notes would also be default-free (fraud aside). Wallacethus identifies a crucial leqal restriction that is sufficien! for the coexistenceof currencyand bonds: governmentis a monopolistjc provider of curre ncy. Absent 1ega1restrictions, arbitrage would drive downthe yield djfferential betweenbonds and currency to the costs of intermediating betweenthem. l/lallace(1983, pp. 3-4) estimatesthat these might be less than one percent. As an approximation,one could ignore the difference. Accordingly, Wallaceconcludes that either interest rates on bondsare driven to zero or currencydisappears. Anotherway of statjng the conclusion is that moneywould not exist as a distinct financial asset.3 Thjs restatementbrings into sharper rel ief the clear connectionbetlreen Wal lace's statementof the legal restrictions theory and Fischer Black's earlier analysis of howan unregulatedfinancial systemwould operate.4 Black assunesthat depository institutions havecomplete freedom to create ljabjlities and to purchase financial assets as they see fit.5 Banks' incomederives from the spread betweentheir borrowjngcosts -- chiefiy interest on deposit liabilities -- and their revenue-- chief1y interest on loans. Black envis'ionsthat loans wi'lI take the form of negative bank balances,or, in other words, + overdrafts on deposit accounts. Indeed, h'is description of the hypothetical systemof positjve and negative bankbalances r eads like a virtual foretel ling of the moderncash managementaccount at brokerage houses(B1ack [1970], pp. 10-11). B'lackpresents an evolutionarymodel of financial innovation, which beginswith a commoditymoney and ends in a money'lesswor1d. Early in the evolutionary process real goods, as well as the commoditymoney, becomepriced in lerms of an abstract unjt of account. Biack hypothesizes, however,that the meansof paymentwill likely be a portfol io of common stocks. He thereby invokes an assumptionthat characterizes subsequent presentatjonsof the newvjew: the separationof the meansof paymentand the unit of account. Black (1970, p. 9) is also responsiblefor first articulating another characteristjc proposition of the 1ega1restrictions theory: in a deregulatedfinancial environment,I'it would not be possib1eto give any neasonabledefinition of the quantity of money. The paymentsmechanism in such a world would be very efficient, but moneyin the usual sensewould not exist.rr" In other words, havingmerged money and other financial assets, Black cannot readily quantify the formenseparately. Wallace(1983, p.a) takes a different tack and anaiyzes open-marketpurchases and sales of TreasurybiIls by a central bank in a laissez faire regime. He assumesthat there is a constant-costtechnoiogy for producingcurrency, whjch is sharedby private and government intermediaries (a situation of rrtechnologicalsymmetry'r). In other words, g0vernmentand private notes are perfect subst'itutesproduced under 5 identical cost condjtions. In l;lallacers example,there i s a given private-sector demandfor currency. Thus, an expansionin the production of one type of curr"encyresults jn the contraction of other types. An open-marketpurchase of bills by the central banksconstitutes just such a change. As the central bank increasesits assets (Treasuryb'i lls), it will issue moreliabilities (including currency). Sjnce indjviduals nowhold central bank currency, they will curtai I their demandfor commercialbank currency. In the process, resourcesare reallocated from pl-ivate- to public-sector pnoducersof currency. Wa'llace (1983, pp. 4-5) concludes that: . UnderLai ssez-fa ire and technologi cal symmetry, the openmarket purchase does no morethan change the location from the private sector to the governmentof a given quant'ity of economic activity, the production of small-denomination notes. Nothingelse is affected, neither interest rates nor the price Ievel nor the Ievel of economicactjvity. ., A similar argumentapplies to ' openmarket, sa1es. In a laissez faire system,then, there are no macroeconomic effects of banks' issuing their ownI iabilities to purchasefinancial assets. Th'is conc'lusjon,which holds for central banksand private i ssuersal i ke, i s i n starl j ng contrast to conventional wisdom and constilutes the most importantpolicy conclusionof the 1ega1restrjctjons theory. The contention will be lhe focus of most of the rest of the DaDer. 0nce again, Black suggestshow a laissez faire bankingsystem might operate. The world js a far cry from a monetarist environment containing a well-defined transactjon money,h,hose Lota'l quantity js linked to an exogenousmonetary base by a stable moneymultiplier. In Black's wor'ld, debits and credits would be created and extinguishedwith every transactjon. In terms of Wallacersexample, under competitiVe conditions expansionby one intermediarywould comeat the expenseof contraction by others. Both analysesconclude that, in a lajssez faire system,the provision of paymentservices by bankswould have no special effects on prices or output (Cf. Fama[1980], pp. 45-47). Fconomjststraditionally modelbanks as creators of money. Certain liabilities of private banksare addedto those of central banks with the resulting magnitudeconstituting the moneystock. The money-creationfunction is the benchmarkfor analyzing banks; of
Load more

Recommended publications
  • Labor Scarcity, Finance, and Innovation: Evidence from Antebellum America∗
    Labor Scarcity, Finance, and Innovation: Evidence from Antebellum America∗ Yifei Mao Jessie Jiaxu Wang SC Johnson College of Business W. P. Carey School of Business Cornell University Arizona State University March 9, 2018 Abstract This paper establishes labor scarcity as an important economic channel through which access to finance shapes technological innovation. We exploit antebellum America, a unique setting with (1) staggered passage of free banking laws across states and (2) sharp differences in labor scarcity between slave and free states. We find that greater access to finance spurred technological innovation as measured by patenting activities, especially in free states where labor was relatively scarce. Inter- estingly, in slave states where slave labor was prevalent, access to finance encouraged technological innovation that substituted for free labor, but discouraged technologi- cal innovation that substituted for slave labor. Keywords: antebellum America, free banking laws, finance and innovation, labor scarcity ∗We thank conference participants at WAPFIN@Stern, and brownbag participants at Arizona State Uni- versity and Cornell University for helpful comments. Contact information, Mao: [email protected]; Wang: [email protected]. 1 Introduction While technological innovation is important for economic growth (Solow, 1957) and firms’ competitive advantage (Porter, 1992), it is difficult to achieve. Pioneered by Schumpeter, a large literature has established a well-functioning financial market as a driver of technological innovation (King and Levine, 1993; Brown, Fazzari, and Petersen, 2009; Hall, 2010; Hsu, Tian, and Xu, 2014; Kerr and Nanda, 2015). However, the role of finance is rarely examined in connection with the fundamental incentive of innovation|reducing production costs.
    [Show full text]
  • Regulation and Deregulation After 25 Years: Lessons Learned for Research in Industrial Organization
    Regulation and Deregulation After 25 Years: Lessons Learned for Research in Industrial Organization PAUL L. JOSKOW Elizabeth and James Killian Professor of Economics, MIT, Cambridge, MA 02139 USA. E-mail: [email protected] Abstract. This paper is based on a keynote address given at the 2004 International Industrial Organization Conference in Chicago, April 2004. I draw selectively on the literature from the past 25 years on regulation/deregulation to provide important lessons about the attributes of good research in empirical industrial organization. I. Introduction When I first began doing research on issues related to government regulation of industry in the early 1970s, a significant slice of the economy was subject to some form of government price and/or entry regulation. The affected industries included (a) airlines, (b) trucking, (c) railroads, (d) electric power, (e) natural gas production, (f) pipeline transportation and distribution of natural gas, (g) crude oil and refined petroleum products, (h) cable television, (i) automobile insurance, (j) hospital services, and others. The share of these industries in GDP, while substantial, understates their potential impact on overall economic performance of the economy since they generally supplied important intermediate goods and services to downstream commercial and industrial users. Beginning about 25 years ago legislative and regulatory actions began a process of deregulation, vertical and horizontal industry restructuring and regulatory reform that has now affected, to varying degrees, all of these industries. Many of these industries have been completely transformed during this period of time (e.g. airlines, trucking, and telecommunications). Others are in the midst of more lengthy transitions that involve 2 restructuring and deregulation of major industry segments and the application of new regulatory mechanisms to those segments that continue to be regulated (e.g.
    [Show full text]
  • A Short History of Financial Deregulation in the United States  I
    A Short History of Financial Deregulation in the United States Matthew Sherman July 2009 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington, D.C. 20009 202-293-5380 www.cepr.net CEPR A Short History of Financial Deregulation in the United States i Contents Timeline of Key Events....................................................................................................................................1 Introduction........................................................................................................................................................3 Background.........................................................................................................................................................3 Usury Laws .........................................................................................................................................................5 Removing Interest Rate Ceilings .....................................................................................................................6 Repealing Glass-Steagall....................................................................................................................................8 Hands-Off Regulation.....................................................................................................................................10 Inflating the Bubble.........................................................................................................................................12
    [Show full text]
  • Unemployment and Labor Market Institutions: the Failure of the Empirical Case for Deregulation
    September, 2004 Unemployment and Labor Market Institutions: The Failure of the Empirical Case for Deregulation Dean Baker, Andrew Glyn, David Howell, and John Schmitt We thank the International Labor Organization and the Centre for Economic Policy Analysis at the New School University for their financial support for the project 1 I. Introduction It has become widely accepted that poor employment performance can only be effectively addressed with fundamental reforms of national labor market institutions. Prominent economists and leading international organizations have argued that these institutions have produced rigidities that account for the relatively slow employment growth and persistent high unemployment experienced by much of the developed world over the last two decades. In particular, wages for the less-skilled must be made more flexible, reflecting the interplay of demand and supply in local labor markets. This rigidity account has long been a central tenet of orthodox economics, but has attained increasing prominence with the rise in unemployment since 1973. But there is an equally long, if less influential, dissenting position, most famously illustrated by Keynes’ attack on economic orthodoxy during the Great Depression. A great deal of research effort has been devoted to providing empirical support for the orthodox rigidity explanation. Leading multi-national institutions began to aggressively promote the need for large-scale labor market deregulation in the early 1990s, most notably in the OECD’s massive Jobs Study (1994). The OECD’s subsequent Implementation of the Jobs Strategy reports (OECD 1997, 1999) took, if anything, an even stronger position. The same call for deregulation appears in the very title of the IMF’s Unemployment and Labor Market Institutions: Why Reforms Pay Off (2003).
    [Show full text]
  • 73 on Feminist Economics J
    Indira mva/ Art No. ppl_fr_9400065 1^17 73 j on feminist economics Wilfred Dolfsma and Hella Hoppe abstract Feminist economics rightfully draws increasing attention from professional, mainstream economists. In this paper, we argue that one of the reasons for this is its increasingly coherent perspective on economic phenomena, challenging what is often perceived to be the staid mainstream of economic thought. We discuss methodological issues, some theoretical developments – notably on the household – and issues of economic policy. Feminist economics is argued to make important contributions, not least in the potential to provide suggestions for policy. We point to parallels between feminist economics and institutional economics, and argue that these relations might be strengthened to the benefit of both. keywords feminist economics; review; institutional economics; methodology; economic policy; economics of the household; institutions of the labour market feminist review 73 2003 1 (00–00) c 2003 Feminist Review. 0141-7789/03 $15 www.feminist-review.com introduction Over one and a half centuries ago, Charles Fourier ventured the view that the position of women in a society is an indicator of the general quality of its social system (Fourier, 1846: 132). He seems to have been somebody with insight, or at least foresight. Over the last few decades, according to Fourier’s index, many Western societies have progressed substantially. The progress has not been uni- directional, however. In more recent times, however, some deterioration can perhaps be observed. This article looks at the recent development of feminist economic thought and the extent to which government policy seems to have paid heed.
    [Show full text]
  • Deregulation--Facets of a New Trend in Politics
    DEREGULATION-FACETS OF A NEW TREND IN POLITICS ULRICH KARPEN I. THE END OF NEO-LIBERALISM AND SOCIALISM: THE SOCIAL MARKET ECONOMY AT A CROSSROADS It seems that the neo-liberal project failed in many countries with the United States being an exception. The socialist experiment, however, failed completely except in North Korea and Cuba. The social market economy, the liberal model with a social basis, seems to be the model which has succeeded world-wide. Open markets, chances for competition for everybody, participation of the individual: that is what people wanted in Warsaw, in the Baltic States, in Prague and in Moscow! The point which has to be stressed in the following text is, that one has overstretched the social basis of the social market economy. The social state has put on too much weight. People have become used to social security, public services, subsidies, health care, old age care, and so on. One might not go as far as some people do by saying that the politics of our states is bankrupt, but there is no doubt that the social services cannot be afforded any longer. Some economies have almost collapsed: Sweden in recent years took a sharp turn, Great Britain did so before Margaret Thatcher, the United States Reaganomics. The social budget of the Federal Republic of Germany is at the moment more than 30 per cent of its GNP and still increasing. Following reunification, Germany faced the need to bring a quarter of its territory up to the same level of development as the remaining three- quarters, which is a major reason why it seems to be at a financial crossroads.
    [Show full text]
  • Gender and the New Economy: Regulation Or Deregulation? Sylvia Walby Presented to ESRC Seminar
    On-Line Papers – Copyright This online paper may be cited or briefly quoted in line with the usual academic conventions. You may also download them for your own personal use. This paper must not be published elsewhere (e.g. to mailing lists, bulletin boards etc.) without the author's explicit permission. Please note that if you copy this paper you must: • include this copyright note • not use the paper for commercial purposes or gain in any way • you should observe the conventions of academic citation in a version of the following form: ***,***, published by the Department of Sociology, Lancaster University, at http://www.comp.lancs.ac.uk/sociology/papers/***.pdf Publication Details This web page was last revised on 26th September 2003; the paper was previously published at http://comp.lancs.ac.uk/sociology/soc****** Department of Sociology, Lancaster University, Lancaster LA1 4YL Gender and the New Economy: Regulation or deregulation? Sylvia Walby Presented to ESRC seminar ‘Work, life and time in the new economy’ LSE October 2002. Department of Sociology at Lancaster University 2 Gender and the New Economy: Regulation or Deregulation? Introduction Globalisation has been implicated in two divergent processes. On the one hand, there is concern about the detrimental effect of globalisation on employment, which has been focused on the impact of de-regulation of working conditions (Crouch and Streeck, 1997; Standing, 1999). On the other hand, there has been enthusiasm for the development of a new knowledge based economy, which might have the potential to provide higher skilled jobs that are co-ordinated through flatter hierarchies and networks.
    [Show full text]
  • Do Ends Justify Means? Feminist Economics Perspectives on the Business Case for Gender Equality in the UK Labour Market
    e-cadernos CES 05 | 2009 As fundações institucionais da economia Do Ends Justify Means? Feminist Economics Perspectives on the Business Case for Gender Equality in the UK Labour Market Emily Thomson Electronic version URL: http://journals.openedition.org/eces/298 DOI: 10.4000/eces.298 ISSN: 1647-0737 Publisher Centro de Estudos Sociais da Universidade de Coimbra Electronic reference Emily Thomson, « Do Ends Justify Means? Feminist Economics Perspectives on the Business Case for Gender Equality in the UK Labour Market », e-cadernos CES [Online], 05 | 2009, Online since 01 September 2009, connection on 30 April 2019. URL : http://journals.openedition.org/eces/298 ; DOI : 10.4000/eces.298 DO ENDS JUSTIFY MEANS? FEMINIST ECONOMICS PERSPECTIVES ON THE BUSINESS CASE FOR GENDER EQUALITY IN THE UK LABOUR MARKET EMILY THOMSON DIVISION OF PUBLIC POLICY GLASGOW CALEDONIAN UNIVERSITY Abstract: This paper intends to explore a feminist economics perspective on business case arguments for gender equality in the UK labour market, where there are significant inequalities between men and women. Policy discourse on gender equality has moved from one which emphasises ‘equal opportunities’ and notions of fairness and equal treatment to one which focuses on increasing economic efficiency in the wider economy and viewing female employees as a competitive advantage for individual firms. Developments in the policy discourse of gender equality in the labour market have been heavily influenced by mainstream, neoclassical economics. An example of this is the current UK government aim to encourage private sector employers to take action on gender equality voluntarily on the basis of ‘business case’ arguments. The business case itself has been critiqued by many authors but has yet to be considered from an explicitly feminist economics perspective.
    [Show full text]
  • Introduction To" Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5"
    This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5 Volume Author/Editor: Takatoshi Ito and Anne O. Krueger, Editors Volume Publisher: University of Chicago Press Volume ISBN: 0-226-38671-6 Volume URL: http://www.nber.org/books/ito_96-1 Conference Date: June 15, 1994 Publication Date: January 1996 Chapter Title: Introduction to "Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5" Chapter Author: Takatoshi Ito, Anne O. Krueger Chapter URL: http://www.nber.org/chapters/c8556 Chapter pages in book: (p. 1 - 5) Introduction Takatoshi Ito and Anne 0. Krueger One of the striking trends in the international economy over the past several decades has been the increased mobility and volume of capital flows. It is esti- mated that the daily volume of international financial transactions now exceeds the annual value of global GNP. Increased financial mobility has been both a cause and a result of increasing financial integration of the global economy. With greater integration, domestic financial markets are increasingly affected by world events. Dialogue among the major countries’ governments increasingly focuses on the appropriateness of each others’ policy stances with regard to monetary, interest rate, and ex- change rate policy. Capital flows motivated by interest rate differentials used to be limited to industrial countries. However, in the 1990s, some developing countries, now called “emerging markets,” became a popular destination for direct and portfo- lio investment from industrial countries. For example, net capital flows from industrial countries to developing countries are estimated to have increased from less than $15 billion in 1990 to more than $100 billion in 1993.
    [Show full text]
  • Information Libertarianism
    Information Libertarianism Jane R. Bambauer & Derek E. Bambauer* Legal scholarship has attacked recent First Amendment jurisprudence as unprincipled: a deregulatory judicial agenda disguised as free speech protection. This scholarly trend is mistaken. Descriptively, free speech protections scrutinize only information regulation, usefully pushing government to employ more direct regulations with fewer collateral consequences. Even an expansive First Amendment is compatible with the regulatory state, rather than being inherently libertarian. Normatively, courts should be skeptical when the state tries to design socially beneficial censorship. This Article advances a structural theory that complements classic First Amendment rationales, arguing that information libertarianism has virtues that transcend political ideology. Regulating information is peculiarly difficult to do well. Cognitive biases cause regulators to systematically overstate risks of speech and to discount its benefits. Speech is strong in its capacity to change behavior, yet politically weak. It is a popular scapegoat for larger societal problems and its regulation is an attractive option for interest groups seeking an advantage. Collective action, public choice, and government entrenchment problems arise frequently. First Amendment safeguards provide a vital counterpressure. Information libertarianism encourages government to regulate conduct directly because when the state censors communication, the results are often DOI: https://dx.doi.org/10.15779/Z38Z31NN40 Copyright
    [Show full text]
  • The Redistributive Effects of Financial Deregulation: Wall Street Versus Main Street
    BIS Working Papers No 468 The redistributive effects of financial deregulation: wall street versus main street by Anton Korinek and Jonathan Kreamer Monetary and Economic Department October 2014 JEL classification: G28, E25, E44, H23 Keywords: Financial regulation, distributive conflict, rent extraction, growth of the financial sector BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2014. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISSN 1020-0959 (print) ISSN 1682-7678 (online) The Redistributive Effects of Financial Deregulation: Wall Street Versus Main Street Anton Korinek Jonathan Kreamer Johns Hopkins University and NBER University of Maryland September 2014 Abstract Financial regulation is often framed as a question of economic effi ciency. This paper, by contrast, puts the distributive implications of financial regula- tion at center stage. We develop a formal model in which the financial sector benefits from financial risk-taking by earning greater expected returns. How- ever, risk-taking also increases the incidence of large losses that lead to credit crunches and impose negative externalities on the real economy. We describe a Pareto frontier along which different levels of risk-taking map into different levels of welfare for the two parties, pitting Main Street against Wall Street.
    [Show full text]
  • The Contradictions of Libertarianism
    Etica & Politica / Ethics & Politics, XIII, 2011, 2, pp. 365-382 The Contradictions of Libertarianism Joseph Grcic Indiana State University Department of Philosophy [email protected] ABSTRACT Libertarianism is an ideology which reveals its contradictions when it is implemented. The libertarian denial of the right to what Rawls calls fair quality of opportunity, especially to the right to education, would negatively impact any libertarian society in adapting to its environment. Further, a libertarian society would lead to a caste society and the domination of the political system by an elite primarily interested in protecting its own privileges, not the freedom of the masses. KEYWORDS Libertarianism, liberty, equal opportunity, Rawls, adaptation 1. Introduction Many political philosophers of the left, right and center have built their theories on arbitrary assumptions, intuitions or prejudices. Some start from the assumption of liberty, others equality, still others virtue and so on. Not surprisingly, they all develop inconsistent theories which cancel each other out. What these philosophers are seemingly oblivious to is the fact that all governments and societies must meet empirical challenges to survive and flourish. Proponents of these theories indulge in abstract conceptual argument and tend to ignore empirical and social science data which is vitally relevant in the field of political philosophy. Since political philosophy is developed to be implemented, facts, social conditions and tendencies must be considered. Political theorists seem to have forgotten the generally agreed principle that “ought implies can”: if some act or theory of government is presented as 365 JOSEPH GRCIC morally correct then it must be possible to do the act or implement the theory in a sustainable manner.
    [Show full text]