DemocracyThe God That Failed

by Hans-Hermann Hoppe

  16An excellent example of the reform pressure caused by emigration is provided by the case of former East Germany. Having fallen under the control of the Soviet Union and turned socialist in the wake of World War II, East Germany suffered from its very inception from a massive outflow of people leaving for the more liberal and hence prosperous interventionist (social-democratic) West Germany. By the early 1960s, the number of emigrants had swollen to about 1,000 per day. In reaction, on August 13,1961, the East German government felt compelled to erect a border system, with walls, barbed wire, electrified fences, mine fields, automatic shooting devices, and watchtowers almost nine-hundred miles long, for the sole purpose of preventing East Germans from running away from socialism. From 1961 until the spring of 1989 the problem could thus be contained. However, when allied socialist Hungary then began to relax its border controls vis-a-vis Austria, persuaded, as it now turns out, by members of the Paneuropean Union led by Otto von Habsburg, the wave of East German emigration immediately resumed. In fact, within just a few days the number of East Germans escaping to the West via Hungary rose to more than 2,000 per day. It was these events, above all else, that led first to the overthrow of the Honecker regime in East Germany, then, on the forever memorable November 9, 1989, to the dismantling of the Berlin Wall, and finally, in the following year, to the reunification of Germany. See on this Hans-Hermann Hoppe, "De-Socialization in a United Germany," Review of Austrian Economics 5, no. 2 (1991).

  17See on this Mises, Liberalism, pp. 130ff.; Rothbard, Power and Market, pp. 47ff.; idem, The Dangerous Nonsense of Protectionism (Auburn, Ala.: Ludwig von Mises Institute, 1988).

  Moreover, secession also promotes monetary integration. The process of centralization has also resulted in monetary disintegration: the destruction of the former international commodity (gold) money standard and its replacement with a dollar-dominated system of freely fluctuating government paper monies, i.e., a global, U.S.-led government counterfeiting cartel. However, a system of freely fluctuating paper currencies—the Friedmanite-monetarist ideal—is strictly speaking no monetary system at all.18 It is a system of partial barter—dysfunctional of the very purpose of money of facilitating rather than complicating exchange. This becomes obvious once it is recognized that from the point of view of economic theory, there is no special significance attached to the way national borders are drawn. Yet if one then imagines a proliferation of ever smaller national territories, ultimately to the point where each household forms its own country, Friedman's proposal is revealed for what it is—an outright absurdity. For if every household were to issue its own paper currency, the world would be right back at barter. No one would accept anyone else's paper, economic calculation would be impossible, and trade would come to a virtual standstill.19 It is only due to centuries of political centralization and the fact that only a relatively small number of countries and national currencies remain, and hence that the disintegrative consequences and calculational difficulties are far less severe, that this could have been overlooked. From this theoretical insight it follows that secession, provided it proceeds far enough, will actually promote monetary integration. In a world of hundreds of thousands of independent political units, each country would have to abandon the current fiat money system which has been responsible for the greatest worldwide inflation in all of human history and once again adopt an international commodity money system such as the gold standard.

  18See also Murray N. Rothbard, The Case for a WO Percent Gold Dollar (Auburn, Ala.: Ludwig von Mises Institute, 1991); idem, "Gold vs. Fluctuating Fiat Exchange Rates," in idem, The Logic of Action One (Cheltenham, U.K.: Edward Elgar, 1997); idem, The Case Against the Fed (Auburn, Ala.: Ludwig von Mises Institute, 1995); Hans-Hermann Hoppe, "How is Fiat Money Possible?— or, The Devolution of Money and Credit," Review of Austrian Economics 7, no.2 (1994).

  19See on this in particular Rothbard, The Case for a 100 Percent Gold Dollar. "One problem," explains Rothbard,

  that every monetary statist and nationalist has failed to face is the geographical boundary of each money. If there should be national fluctuating fiat money, what should be the boundaries of the "nation"? Surely political frontiers have little or no economic meaning.. . . Logically, the ultimate in freely fluctuating fiat moneys is a different money issued by each and every individual.... I think it would be instructive if some economist devoted himself to an intensive analysis of what such a world would look like. I think it safe to say that the world would be back to an enormously complex and chaotic form of barter For there would no longer be any sort of monetary medium for exchanges. Each separate exchange would require a different "money." In fact, since money means a general medium of exchanges, it is doubtful if the very concept of money would any longer apply.... In short, fluctuating fiat moneys are disintegrative of the very function of money itself They contradict the essence of the monetary function, (pp. 55-61)

  Secessionism, and the growth of separatist and regionalist movements throughout the world represent not an anachronism, but potentially the most progressive historical forces, especially in light of the fact that with the fall of the Soviet Union we have moved closer than ever to the establishment of a "new world order." Secession increases ethnic, linguistic, religious, and cultural diversity, while centuries of centralization have stamped out hundreds of distinct cultures.20 Secession will end the forced integration brought about by centralization, and rather than stimulating social strife and cultural leveling, it will promote the peaceful, cooperative competition of different, territorially separate cultures. In particular, it eliminates the immigration problem increasingly plaguing the countries of Western Europe as well as the U.S. Presently, whenever the central government permits immigration, it allows foreigners to proceed—literally on government-owned roads—to any of its residents' doorsteps, regardless of whether or not these residents desire such proximity to foreigners. Thus, to a large extent "free immigration" is forced integration. Secession solves this problem by letting smaller territories each have their own admission standards and determine independently with whom they will associate on their own territory and with whom they prefer to cooperate from a distance.21

  Hence, Rothbard concludes:

  The more general the money, the greater the scope for division of labor and for the interregional exchange of goods and services that stem from the market economy A monetary medium is therefore critical to the free market, and the wider the use of this money, the more extensive the market and the better it can function. In short, true freedom of trade does require an international commodity money . . . gold and silver. Any breakup of such an international medium by statist fiat paper inevitably cripples and disintegrates the free market, and robs the world of the fruits of that market, (pp. 58-61)

  20See on this theme also Adolf Gasser, Gemeindefreiheit als Rettung Europas (Basel: Verlag Biicherfreunde, 1943).

  Lastly, secession promotes economic integration and development. The process of centralization has resulted in the formation of an international, U.S.-dominated government cartel of managed migration, trade, and fiat money, ever more invasive and burdensome governments, globalized welfare-warfare statism and economic stagnation or even declining standards of living. Secession, if it is extensive enough, could change all this. The world would consist of tens of thousands of distinct countries, regions and cantons, and of hundreds of thousands of independent free cities such as the present-day "oddities" of Monaco, Andorra, San Marino, Liechtenstein, Hong Kong, and Singapore. Greatly increased opportunities for economically motivated migration would result, and the world would be one of small liberal governments economically integrated through free trade and an international commodity money such as gold. It would be a world of unheard of prosperity, economic growth, and cultural advancement.22

  21See on this also Murray N. Rothbard, "Nations by Consent: Decomposing the Nation State"; Peter Brimelow, Alien Nation (New York: Random House, 1995); Immigration and the American Identity, Thomas Fle
ming, ed. (Rockford, Ill.: Rockford Institute, 1995); also chaps. 7,9, and lObelow.

  22With respect to the cultural advancement which can be expected from this development, it is appropriate to conclude with some pertinent observations by the greatest German writer and poet, Johann Wolfgang von Goethe (1749-1832). On October 23,1828, when Germany was still splintered into thirty-nine independent states, Goethe explained in a conversation with Johann Peter Eckermann (Gesprdche mil Goethe in den letzten Jahren seines Lebens) on the desirability of German political unity, that

  I do not fear that Germany will not be united;... she is united, because the German Taler and Groschen have the same value throughout the entire Empire, and because my suitcase can pass through all thirty-six states without being opened. . . . Germany is united in the areas of weights and measures, trade and migration, and a hundred similar things. . . . One is mistaken, however, if one thinks that Germany's unity should be expressed in the form of one large capital city, and that this great city might benefit the masses in the same way that it might benefit the development of a few outstanding individuals A thoughtful Frenchman, I believe Daupin, has drawn up a map regarding the state of culture in France, indicating the higher or lower level of enlightenment of its various "Departments by lighter or darker colors. There we find, especially in the southern provinces, far away from the capital, some "Departments painted entirely in black, indicating a complete cultural darkness. Would this be the case if the beautiful France had ten centers, instead of just one, from which light and life radiated? ... What makes Germany great is her admirable popular culture, which has penetrated all parts of the Empire evenly. And is it not the many different princely residences from whence this culture springs and which are its bearers and curators? Just assume that for centuries only the two capitals of Vienna and Berlin had existed in Germany, or even only a single one. Then, I am wondering, what would have happened to the German culture and the widespread prosperity that goes hand in hand with culture. . . . Germany has twenty universities strewn out across the entire Empire, more than one hundred public libraries, and a similar number of art collections and natural museums; for every prince wanted to attract such beauty and good. Gymnasia, and technical and industrial schools exist in abundance; indeed, there is hardly a German village without its own school. How is it in this regard in France! .. . Furthermore, look at the number of German theaters, which exceeds seventy.... The appreciation of music and song and their performance is nowhere as prevalent as in Germany,... Then think about cities such as Dresden, Munich, Stuttgart, Kassel, Braunschweig, Hannover, and similar ones; think about the energy that these cities represent; think about about the effects they have on neighboring provinces, and ask yourself, if all of this would exist, if such cities had not been the residences of princes for a long time. . . . Frankfurt, Bremen, Hamburg, Liibeck are large and brilliant, and their impact on the prosperity of Germany is incalculable. Yet, would they remain what they are if they were to lose their independence and be incorporated as provincial cities into one great German Empire? I have reason to doubt this.

  6

  On Socialism and Desocialization

  I

  Wealth can be brought into existence or increased in three and only three ways: by perceiving certain nature-given things as scarce and actively bringing them into one's possession before anyone else has done so (homesteading); by producing goods with the help of one's labor and such previously appropriated resources; or by acquiring a good through voluntary, contractual transfer from a previous appropriator or producer. Acts of original appropriation turn something which no one had previously perceived as scarce into an income-providing asset; acts of production are by their very nature aimed at the transformation of a less valuable asset into a more valuable one; and every contractual exchange concerns the exchange and redirection of specific assets from the hands of those who value their possession less to those who value them more.1

  1It should be noted that each of these activities fulfills the requirements of a so-called Pareto-superior move, i.e., of enhancing the welfare of at least one individual without diminishing that of another. Hence, even in the absence of the possibility of interpersonal comparison of utility, every one of these activities can be said to increase social welfare. On Vilfredo Pareto's strictures regarding the meaningful use of the term social welfare see his Manual of Political Economy (New York: Augustus M. Kelley, 1971), where he writes:

  Consider any position, and assume that we move away from it by a very small amount, consistent with the restrictions [of achieving the greatest possible welfare of the individuals of a collectivity]. If in so doing the welfare of all individuals of the collectivity is increased, it is obvious that the new position is more advantageous to each one of them; and vice versa, it is less so if the welfare of all the individuals is decreased. Moreover, the welfare of some of them can remain the same, without changing these conclusions. But on the other hand, if this small movement increases the welfare of certain individuals and decreases that of others, we can no longer state positively that it is advantageous to the entire collectivity to carry out this movement, (p. 451)

  Now, if a man uses his body ("labor") in order to appropriate, i.e., bring under his control, some other nature-given things (unowned "land"), this action demonstrates that he values these things. Hence, he must have gained utility in appropriating them. At the same time, his action does not make anyone else worse off, for in appropriating previously unowned resources nothing is taken away from others. Others could have appropriated these resources, too, if they had considered them valuable. Yet, they demonstrably did not do so. Indeed, their failure to appropriate them demonstrates their preference for not appropriating them. Thus, they cannot possibly be said to have lost any utility as a result of another's appropriation. Proceeding from the basis of acts of original appropriation, any further act, whether of production or consumption is equally Pareto-superior on demonstrated preference grounds, provided that it does not affect the physical integrity of the resources appropriated or produced with appropriated means by others. The producer-consumer is better off, while everyone else is left in control of the same quantity of goods as before. As a result, no one can be said to be worse off. Finally, every voluntary exchange of goods proceeding from this basis is a Pareto-superior change as well, because it can only take place if both exchange parties expect to benefit from it, while the supply of goods controlled in action (owned) by others remains unchanged. See further on this Murray N. Rothbard, "Toward a Reconstruction of Utility and Welfare," in idem The Logic of Action One (Cheltenham, U.K.: Edward Elgar, 1997); Jeffrey Herbener, "The Pareto Rule and Welfare Economics," Review of Austrian Economics 10, no. 1(1997).

  From this it follows that socialism can only lead to impoverishment.

  First of all, under socialism, ownership of productive assets is assigned to a collective of individuals regardless of each member's prior action or inaction relative to the owned assets. In effect, socialist ownership favors the nonhomesteader, the nonproducer, and the noncontractor and disadvantages homesteaders, producers, and contractors. Accordingly, there will be less original appropriation of natural resources whose scarcity is realized, there will be less production of new and less upkeep of old factors of production, and there will be less contracting, for all of these activities involve costs. Under a regime of collective ownership the cost of performing them is raised, and that of not performing them is lowered.2

  Second, since means of production cannot be sold under socialism, no market prices for factors of production exist. Without such prices, cost-accounting is impossible. Inputs cannot be compared with outputs, and it is impossible to decide if their usage for a given purpose is worthwhile or leads to the squandering of scarce resources in the pursuit of projects with relatively little or no importance for consumers. Because he is not permitted to take offers from private individuals who might see an alternative way of using a given means of production, the socialist caret
aker of capital goods does not know what his foregone opportunities are. Hence, permanent misallocations of production factors must ensue.

  2See Hans-Hermann Hoppe, A Theory of Socialism and Capitalism: Economics, Politics, and Ethics (Boston: Kluwer, 1989).

  Third, even given some initial allocation, since input factors and the output produced are owned collectively, every single producer's incentive to increase the quantity and/or quality of his individual output is systematically diminished, and his incentive to use input factors so as to avoid their over- or underutilization is reduced. Instead, with gains and losses in the socialist firm's capital and sales account socialized instead of attributed to specific, individual producers, everyone's inclination toward laziness and negligence is systematically encouraged. Hence, an inferior quality and/or quantity of goods will be produced and permanent capital consumption will ensue.4

  Fourth, under a regime of private property, the person who owns a resource can determine independently of others what to do with it. If he wants to increase his wealth and/or rise in social status, he can only do so by better serving the most urgent wants of voluntary consumers through the use he makes of his property. With collectively owned factors of production, collective decisionmaking mechanisms are required. Every decision as to what, how, and for whom to produce, how much to pay or charge, and whom to promote or demote, is a political affair. Any disagreement must be settled by superimposing one person's will on another's view, and this invariably creates winners and losers. Hence, if one wants to climb the ladder under socialism, one must resort to one's political talents. It is not the ability to initiate, to work, and to respond to the needs of consumers that assures success. Rather, it is by means of persuasion, demagoguery, and intrigue, through promises, bribes, and threats that one rises to the top. Needless to say, this politicalization of society, implied by any system of collective ownership, contributes even more to impoverishment.5