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People deserve uncertainties

Published on May 29, 2012 by: in: Thought

“From freedom and science came rapid growth and change. From rapid growth and change came insecurity. From insecurity came demands which ended growth and change. Ending growth and change ended science and freedom.”

C. Wright

It is a fact of life, however sad, that a large number of economic findings are counterintuitive. This state of affairs is grist for the political mill. It is a rich source of demand for politicians. Another, perhaps even sadder, fact is that it is relatively difficult to assess ex post if a certain political measure succeeded or failed. However, all errors must eventually be paid for. To err in the realm of physics and other “exact” sciences is usually quite painful and most people will quickly learn from their mistakes. It is different in the realm of economics. To match original cause with resulting consequences may present a difficult intellectual feat and an inexperienced observer stands before a complicated task. In economics we will never be able to perform proof by contradiction. Every historical event can be interpreted according to one’s own beliefs.

This implies that there is a great chance that a bad policy will be implemented and on the other hand a small chance that it will be detected as bad. This is how we can explain the existence of so many popular yet harmful and counterproductive governmental policies such as protectionism, minimal wage laws, price controls, inflationary policy etc.

Let us now take a closer look at what is nowadays popular (although not new) policies promoting security and stability. It is not necessary to contemplate their origin or the psychological reasons behind their popularity. Every change of course forces people to accommodate to new circumstances and disturbs their way of living, producing, employment or consumption. Some people might not like that just like some people do not like living in a world of scarcity. Analogically to the way economics deals with human action in the world of scarcity and attempts to establish laws describing how means arrive at ends, let us now analyze the world of uncertainty.

Let’s start with the classic Robinson Crusoe case. Uncertainty for him represents a technical problem. He does not know when it will rain and therefore he must find a way to store enough drinking water for himself. Nor does he know how many berries there are on the island that he could eat or how long it will take him to catch a fish. This technical kind of uncertainty – in relation to the nature around him – can be mitigated and it is only up to Robinson and his surrounding how large the uncertainty will be. Let’s move on. The moment Friday appears on the island, a new thing arises – besides the problem of ethics – a new kind of uncertainty [1]. This new kind of uncertainty is due to the birth of division of labor and dualistic exchange. Through these two phenomena dependency arises on the part of individuals specializing in certain areas in which they achieve comparative advantage [2]. On the other hand, the original technical kind of uncertainty is now diminishing – more specialized and thus more productive individuals are now better equipped to deal with the hardships presented by nature. In the modern economy characterized by a high degree of division of labor and with millions of “castaways” the first kind of uncertainty is relatively of minor importance; thanks to the price system people are generally well aware of how available different economic goods are and modern technologies help to overcome formerly insurmountable obstacles. However, there is now a new type of uncertainty associated with the fact that there are now many highly specialized individuals dependent on each other due to division of labor. We will call this type of uncertainty “social uncertainty” [3].

picture: takomabibelot

Let us ask this question: “Is it possible to diminish or dispose of this kind of uncertainty altogether with the help of a government monopoly, i.e. via political means? Will engineers and technical specialists help us as in the case of technical uncertainty?” To answer this question means to analyze the origins and causes of these two types of uncertainties. The original technical uncertainty deals with nonhuman objects which do not act and whose movements can largely be explained by Newtonian mechanics. In this area engineers and technicians can use experiments to arrive at quantitative relationships between various causes and their consequences and thus help to limit technical uncertainty. On the other hand, the social type of uncertainty deals with human beings and their purposeful behavior. This kind of uncertainty has arisen because people have been blessed with their own inalienable will, their own ego. It is individual people alone who are the creators of their own value judgments which for political economists and social engineers represent ultimate unanalyzable givens [4]. No-one can predict someone else’s action and it is even less possible to predict the action of millions of people. The only way for the aforementioned scientists to acquire knowledge about someone’s action is during demonstration of the action itself – which is already too late for the uncertainty to be diminished. Therefore social uncertainty will exist even in a world where we know of all the sources, understand all technical procedures and all phenomena of the nonhuman part of nature [5]. The degree of social uncertainty rises as specialization, division of labour, co-operation and the size of the market grow. It is at the same time the reason why there is no such thing as a perfectly safe investment and why every action is a type of speculation. This fact cannot be changed by any statist’s rhetoric about supposedly secure investments in government bonds. The near future will reveal that these assertions are a mere bunch of nonsense.

It should be clear by now that uncertainty and human action are two sides of the same coin. The opposite of the world of uncertainty is not a world of certainty but a world of the living dead and mechanized agents with no personality [6]. To ask of the government monopoly to provide certainty and stability is an impossible and contradictory task. It is impossible to reach such a state because of the nature of man and of this world. Furthermore, if the goal itself is an impossible and nonsensical one, it also makes no sense to make any steps towards that goal. The opposite is true. Any attempts to take that road have ended up, or are yet to end up, as disasters with unexpected consequences.

Every attempt of the state monopoly to reduce or remove social uncertainty necessarily implies an infringement upon property rights because the state only gets its funding through taxation (or hidden forms of taxation such as inflation or borrowing). Therefore to provide social certainty for person A it is necessary to aggress against the property or body of person B. It then follows that the state cannot achieve certainty for everybody. This further discredits the original goal which does not meet the criterion of universality, i.e. a rule can only be just if it is equally valid for everybody. One of the most widely spread promises of the government is to provide social security. This is not the place to deal with all the tragedies that this policy brings about. Punishing productivity, subsidizing vices, creating real class conflicts, destroying original voluntary solidaristic institutions and replacing them with unsustainable, artificial and bureaucratic solidarity – all this dismantles the society and ultimately actually creates far more uncertainty. What is worse is that this governmental policy of social security actually creates more demand for itself. Similarly to the policy of stable prices and stable bank sector which creates business cycles, policy of job security and privileges for trade unions increase costs of labor, minimal wage laws create unemployment, subsidizing bankrupt companies and creating obstacles to technological progress enhance poverty, etc.

Every artificial, government-induced institutional element whose stated goal is to reduce social uncertainty represents a static factor in a necessarily dynamic world. It results in either the need for another intervention which is also unstable from the very beginning or in the whole construction coming crashing down and creating unexpected events and thus a lot more uncertainty. Government pensions, the 20th century flagship of government guaranteed certainties, will equally end up in this unavoidable crash.

[1] On the introduction of the ethical problem, see argumentation of M. Rothbard in The Ethics of Liberty. For a new type of uncertainty to arise, Friday and Crusoe must know about each other and they must understand the advantages of division of labor, co-operation and voluntary exchange. If they don’t, rather than a new type of uncertainty there will be a higher degree of the original technical uncertainty when each of them will need to secure himself against the new “intruder”. It is the same type of uncertainty introduced when either Crusoe or Friday come upon a predatory beast.

[2] See D. Ricardo and his theory of comparative advantages.

[3] The term social uncertainties means a change in people’s values and new ways of thinking which affect value of goods, labor, property, social status etc.

[4] L. Mises explained the difference between the subject matters in the following way: “If you throw a rock into water it sinks; if you throw a stick into water it floats; if you throw a man into water he must decide whether to sink or swim.”

[5] It would disappear only if the whole system of human co-operation collapsed, e.g. if everybody found himself a deserted island to live on. Or if natural scientists completely elucidated the way people form their values and decisions and could therefore predict them.

[6] In this kind of world it would be possible to centrally plan and manage the society. It would fulfill the ideal of the Plato republic where all kinds of social engineers and technocrats would find their dreams come true.

Originally article was published (in Czech) here.

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About Robert Chovanculiak

Student of Economy and Territorial Administration at the Faculty of Economics of the Matej Bel University and supporter of the Ludwig von Mises Institute Czech Republic and Slovakia.

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