Pragmatarianism Disproved

Pragmatarianism is an ideology professed as a solution on which everyone can ostensibly concur: each individual chooses where his or her tax dollars go. So, if Jenna wants to allocate all her money to more EPA regulations, she can decide to do that. If Bill wants all his money to go into the military apparatus, he too can make this choice. Thus, if the tax rate is 15%, each individual can choose into which government agency (or agencies) that 15% goes. According to the founder of pragmatarianism, this would solve a certain “public goods” problem; people could “invest” in whatever “public goods” they please! While this may sound nice, there is a flaw: each individual is forced to pay into this system as Congress deems appropriate and at the rate they deem appropriate; and they are allowed to pay into a list determined by the voters in an idiosyncratic democratic process. This brings up an entire multitude of problems, violating basic economic principles such as Adam Smith’s Invisible Hand, which the founder seems to fallaciously appraise, along with Ludwig von Mises’s economic calculation problem. Pragmatarianism also utilizes a fundamental misunderstanding of Hayek’s concept of partial knowledge and Bastiat’s dichotomy of the seen and the unseen. There are sundry other economic concepts which pragmatarianism neglects like time preference and the intricate structure of production in the marketplace. Moreover, pragmatarianism forces allocation of resources into the government instead of the private sector, which is inexorably detrimental for the economy. The founder also obstinately ignores all moral arguments, claiming that no opinion is absolutely right; yet, of course, he claims that his opinion—that no opinion can be absolutely right—is absolutely correct.

Only in analysing the extreme application of a doctrine can its consequences be wholly conceived and understood; and this is true of any doctrine, including pragmatarianism. Thus, we see that the founder of pragmatarianism states that “[t]he first move in pragmatarianism is by far the hardest. It is to completely embrace the tax rate”¹; he has also stated elsewhere that “I say absolutely nothing about the tax rate.”² Therefore, to fully examine the consequences of his doctrine, we must ponder an extreme scenario: a tax rate of 100%. Now, one could argue, “that is not what we have now!” But this is irrelevant to further analyses. For what is bad in theory is, ipso facto, bad in practise. Thus, in order for a theoretically sound doctrine, there must be a sound theory: not only accounting for what exists or would exist at present, but also for what would exist in a feasible hypothetical. In a feasible hypothetical, there could certainly be a tax rate of 100% determined by Congress, as well as pragmatarian funding to enforce taxes at this level with the IRS (the IRS having been determined as a function by the voters).³ This is not an unreasonable proposition based upon pragmatarianism’s own terms.

We must recognize that this would essentially be socialism: it recalls the economic calculation problem, which clearly ascertains and demonstrates that a socialist society shall inevitably fail. The price of goods can never reach its equilibrium due to the lack of competition, and thus surpluses and deficits are created everywhere in the economy. In an economy of pure socialism,⁴ there can be no economic calculation: for there is no price mechanism. This is true in the pragmatarian socialist model as well. For pragmatarianism, at its core, has a strange conception of democracy: “In a pragmatarian system voters would determine the functions of government and taxpayers would determine which functions to fund.”⁵ This is except for the tax rate, which is a function of government determined by Congress in pragmatarianism; and it is possible that Congress could set a tax rate of 100%, which demonstrates in full the error of having any tax rate. This leads to the classical impossibility of economic calculation under a system of 100% taxed pragmatarianism:

The reason for the impossibility of calculation under socialism is that one agent owns or directs the use of all the resources in the economy. It should be clear that it does not make any difference whether that one agent is the State or one private individual or private cartel. Whichever occurs, there is no possibility of calculation anywhere in the production structure, since production processes would be only internal and without markets. There could be no calculation, and therefore complete economic irrationality and chaos would prevail, whether the single owner is the State or private persons. (Rothbard 615)

In this case, the “one agent” is the majority vote. This is the one agent—or institution—which, in a metaphorical sense, wholly and collectively directs the use of all resources in the pragmatarian economy. There can be no price mechanism, as individuals do not allocate their resources: the collective vote of the voters on government agencies—and the arbitrary tax rate of Congress—performs this necessary function, through the majority “consensus” determining a list of government agencies. This shall inevitably lead to great inefficiency, for it does not produce the maximum wealth—that is, maximum production for minimum cost. Instead, this produces an unknown amount of wealth, which can never reach the amount of wealth that the free market can create. As illustrated by the following graph, government allocation of resources is essentially a price control since it is decided by a collective ruler and does not use the price mechanism:

While the free market always reaches the equilibrium, due to the quintessential axiom of supply and demand, a central planner, or, in this case, Congress, arbitrarily guesses what the price should be in their tax rates, and, therefore, it is almost impossible to hit the spot. As Ludwig von Mises ingeniously wrote, “In the socialist commonwealth every economic change becomes an undertaking whose success can be neither appraised in advance nor later retrospectively determined. There is only groping in the dark. Socialism is the abolition of rational economy” (Mises 26). The competition in the free market is what allows the price mechanism to function; without it, the economy will indubitably fail.

Another consequence of this hypothetical society in the economy is that there could be no savings, to any degree! This alone should disturb an economist. There could be no loans in this pragmatarian society; there could be no supply to fulfil any demand for lending. Savings is conducive to long term investments, as well as consumer and producer loans (based on specific time preferences of each individual). These functions are essential for a healthy economy: they are requisite as a determination of how men will spend their monetary resources, or their capital, which is the very lifeblood of free exchange. This is tremendously related to issues of time preference. One man may wish to spend his money forthwith; another man may desire a long-term gain in exchanged resources. The former man has a high time preference; the latter man has a low time preference. Yet, in pragmatarianism, this sensitive function of the marketplace would be destroyed; for people could not truly save and truly decide when to keep—and not spend—their own money. There could be no true savings; there could only be spending, and forced expenses at that. If pragmatarianism in its fullest extent would be highly detrimental to the economy—no savings—the logical conclusion is that a small dose would be that much less detrimental to the economy. In other words, ceteris paribus, if a 100% tax rate in a pragmatarian world causes a specific amount of problems, a 12% tax rate in a pragmatarian system would merely cause a smaller amount of the aforementioned problems.

At this point, our pragmatarian readers may have a response: and a very specific response, which seems a nifty loophole around the heart of the issue. This objection is that “in a pragmatarian society, could there not be a government savings agency”? This is a falsehood for several reasons. Firstly, on semantics, it is not “savings,” in the true sense, if it is not of one’s own free will: it is merely an expenditure. Based solely on this fact, we can conclude that a pragmatarian society, at a tax rate of 100%, would have no savings, unless they be limited and illegal savings, as in the black market. Pragmatarians, of course, presumably would not want to violate their own laws.

To get to a more crucial point, even if we consider a pragmatarian savings agency as a true form of saving, pragmatarianism still ignores time preference! This is a fatal conceit of a typically Keynesian ilk. For it denies the individual absolute control over his monetary resources; it subjugates him to the whims of a vague group of voters’ list, and the government’s tax rate. In essence, even if pragmatarianism is said to allow savings—which it does not—then it still denies the individual investment or savings at whatever rate and point in time he chooses. This, indeed, is an irremediable flaw of the political philosophy. At a tax rate of 100%, when can the individual save his money? When can he take loaned money from others? The answer is simple, to the pragmatarian: whenever the State determines (presuming that taxpayers are paying into the apparatus of taxation). But this is gravely erroneous. Consider a man who wants a loan forthwith; perhaps he is in an emergency and a desperate monetary situation. He must wait until the voters determine to have a loan agency and taxpayers determine to fund a loan agency, rather than when this loaner himself would actually bequeath the money in exchange for future interest. (Which could feasibly be with great immediacy, rather than with the slowness and inexpediency of a collective vote). Knowing the inefficiency of bureaucracy, it is absurd to believe that a majority vote—on behalf of the “majority” and the “minority”—could efficiently operate a time market in the place of rational individual actors, who best know their own self-interest. The collective vote, in summary, shall not reflect the time preferences of the vast multitude of individuals in society; and this error is irreconcilable with economic theory.

Pragmatarians are wont to improperly define terms. For one example, we refer to the pragmatarian conception of the Invisible Hand. The true concept of the Invisible Hand refers exclusively and solely to processes of the market; specifically, it unequivocally refers to processes of self-regulation in the field of catallactics. A common definition of this phrase entails that the “invisible hand is the term economists use to describe the self-regulating nature of the marketplace.”⁶ The key term here is “the marketplace,” which can by no means be interpreted as “the government.” This is unreasonable on an absurd level: for the market simply means free and consensual trade amongst various individuals; in an advanced society, the market is also an unfettered system of indirect exchange, through use of a medium of exchange, known commonly as money. By contrast, the State is a monopoly on coercion, and a gang of thieves write large, which steals from the people.⁷ These two conflicting concepts, the State and the Market, are, in fact, at utter odds with each other. Yet pragmatarians insist that, “If you understand how the Invisible Hand works…and know that the private sector can do X, Y and Z better than the public sector can…then advocating for the abolition of the government organizations responsible for X, Y and Z does nothing but distract people from learning about how the Invisible Hand works.”⁸ But, for simple reasons of definition, this concept is a failure from the beginning! Government organizations have naught to do with the Invisible Hand, pursuant to the definition I provided; instead, government organizations defy the entire concept of the Invisible Hand.

If the market is not allowed to self-regulate, which pragmatarianism would certainly not fully allow, then the Invisible Hand is not operating. Pragmatarianism’s conception of the “Invisible Hand” is intriguing, yet ultimately proves itself futile. The chief dilemma is that not all results of time are good; whatever happens is not necessarily economically ideal, when simply left to people to determine. For instance, if an arsonist burns down my house, that is indeed economically catastrophic! Yet, if one understands how the Invisible Hand works (according to pragmatarians), the destruction of my house and wealth should not be a cause of any alarm: it is what the people naturally determined, after all. The founder of pragmatarianism, therefore, has quite an odd and idiosyncratic definition of the Invisible Hand: he simply believes that it means “whatever shall transpire.” Fortunately, in economic use of the term, the concept of the Invisible Hand does not include destruction of wealth, but only mutually beneficial trade. The term pragmatarians are looking for is simply “fate”; but, clearly, the definition of the Invisible Hand is much more nuanced, including ideas of self-regulation in the marketplace. And, as for the pragmatarian idea of fate, there is no reason merely to passively accept fate; considering arson, for example, one ought to be rightfully defiant and seek restitution!

In accordance with Hayek’s concept of partial knowledge, it is conceited to think one knows more than an individual about his own money, and that an individual should be forced to invest in a plethora of government agencies, contrary to his own desires and knowledge. This is an even more limited knowledge imposed upon the limited knowledge which already exists. If a man’s knowledge is limited, then one’s knowledge—or the majority’s collectively ascertained knowledge—about another man’s desires and knowledge is even more limited. It is thereby truly conceited to impose a taxation scheme, which forces people to invest in government agencies. Pragmatarianism imposes the desires⁹ of an arbitrary voting collective upon the individual: the individual cannot save all of his money, invest it all in private enterprise, spend it all on consumer’s goods, or whatever else would please him; he is subject to the ruthless whims of a dictatorial group of peers.

Pragmatarianism draws us back to a classical liberal concept in political economy of the seen and the unseen—specifically, the Broken Window Fallacy—originally devised by Frederic Bastiat. The concept gives a hypothetical example: suppose a hooligan throws a rock through a restaurant window. The restaurant owner comes to the restaurant the next day and is mad. Now, he must pay for a new window. A Keynesian economist customer of his comes up to him and explains that this hooligan actually stimulated the economy, and that the owner should look at this in a positive reflection. The Keynesian economist explains that the money used to fix the window will go to a glass man — that glass man will have X amount more wealth, which he will then spend on something else, and so on, and so on. The Keynesian concludes that smashing windows is very good for the economy, and the economy would be better if we simply destroyed the entire city. The restaurant owner looks back at him as if he is out of his mind. The restaurant owner explains that he would have bought a new suit with the same money that he now must spend on the broken window. If he had spent that money on a new suit, the money would have circulated into the economy, just as it would if he had spent it on the broken window. Alternatively, if he decided to save that money, it could have been a loan to someone else. The unseen is what would have happened if the hooligan did not smash the window. The seen is what happens, and is the only factor the Keynesian considers. Bastiat concludes that economics breaks down to common sense: when a hooligan smashes a window, the economy has a net decrease of exactly one window.

At this point, a critical discussion involves goods, and the infeasibility—or at any rate great impracticability—of consumer goods and capital goods in a pragmatarian scheme. We will, for simplicity, once again analyse pragmatarianism at a tax rate of 100%, to show the principles at work here in their full extremity. Pursuant to Bastiat’s concept of the seen versus the unseen, there are unintended consequences of the pragmatarian doctrine. For instance, an individual may wish to spend all his money on consumer goods. In pragmatarianism, the total allocation is not left to the individual; he is forced to allocate money to a given government agency. Thus, there are unseen consequences; what we do not see are the goods an individual would have purchased, or the private (non-governmental) investments the individual would have made. These are all unseen actions that could have happened if the individual’s money was not stolen from him. Stealing the money is breaking a window. If the money had not been stolen and forced into this pragmatarian scheme, it is unseen what would have happened, and there are unintended consequences—high opportunity costs—associated with this. When I talk about opportunity costs, I am defining it how Rothbard used the term in his economic treatise:

There is always open to each actor the prospect of improving his lot, of attaining a value higher than he is giving up, i.e., of making a psychic profit. What he is giving up may be called his costs, i.e., the utilities that he is forgoing in order to attain a better position. Thus, an actor’s costs are his forgone opportunities to enjoy consumers’ goods. [emphasis added] (Rothbard 71)

Every time a man is forced to invest something in pragmatarianism, there are opportunity costs—and no benefits—with this; for the man is aggressed upon, and this aggression benefits others at his own expense. In order to reveal the nuanced consequences of this pragmatarian ideology, we must first become acquainted with the structure of production in a free market capitalist economy:

As one can see, this production structure is highly intricate, with many stages of production and sundry capitalists serving as intermediaries, to advance the worker’s (or land owners) present goods in exchange for potential future goods and profit (i.e., the Austrian economic concept of interest). In a purely socialist pragmatarianism, at a tax rate of 100%, these various stages of production would not work, to any extent. For there would needs be a vote¹⁰ to determine every capitalist intermediary, as well as investment in each intermediate stage itself. In fact, there could not truly be capitalists or entrepreneurs: only “investment” in the dark at various stages of production, determined by the State or a vague “collective”. This, of course, would have no degree of efficacy, and the structure of production would be utterly distraught; for, in the real world, with hundreds and thousands of stages of production and capitalist intermediaries, this programme would be entirely infeasible.

Of chief import in the capitalistic economy are the concepts of profits, loss, and bankruptcy. Pragmatarianism seems to have this issue covered: the taxpayers can bankrupt any company they please. But, essentially, this is a false dichotomy. For pragmatarianism is, by necessity, propping up these agencies, and giving them a secured source of income, as determined by coercion. In this argument, we will presume that, in the pragmatarian plot, people have not boycotted the IRS. (We are assuming the existence of the IRS as a constant in which the taxpayers have continuously chosen to invest their money). Or, in other words, we hereafter presume that there is still the coercive instrument of taxation. What shall happen in this scheme? Well, at least one agency must necessarily be permanently sheltered from bankruptcy. The taxpayers are not allowed to pay nothing; thus, they must pay something into a specific government programme of their “choice.” Consider that out of a choice of 50 programmes—as determined by voters—taxpayers as a whole decide not to pay into 37 programmes. There are 13 left, with a relatively secured source of income. Presume that all 13 of these agencies begin doing egregious things, and that taxpayers want to pull out of them. What will happen? In the pragmatarian society, the most agencies from which they could remove funding is 12. In the end, due to the coercive nature of the scheme, there would necessarily be (at the very least) one agency with a coercively secured income: in other words, the best result if taxpayers pull out is one government monopoly, which they are forced to pay into, by virtue of having to pay for something on the Pragmatarian List of Acceptable Agencies. In reality, rather than the hypothetical I proposed, pragmatarianism would likely tend toward an oligopoly of government agencies, each of which would have income secured by the apparatus of the State. This is not the market, much less a free one: this is merely the government playing business.

Pragmatarianism attempts to offer a compromise between both parties: allow each person to allocate their resources as desired, as long as the government or majority gives it to them as an option. While advocates of pragmatarianism will argue that the system gives choice of allocation of resources, they tend to ignore the fact that this is actually only giving them a list generated by the government, or the voters. Essentially, then, pragmatarianism makes no value judgements; it is, in short, a political philosophy best known as “pragma-nihilism,”¹¹ which is, at any rate, a contradiction in terms. Nihilism is not pragmatic. Indeed, pragmatarianism is so very nihilistic that it makes no judgement on political agencies which the people may vote for and spend on: “If enough people would voluntarily fund Gulags…ie…if enough people are “evil”…then what’s the point in promoting anarcho-capitalism?” Or, in summary, he questions that, if people are abducted by the Gulag, why should we advocate Liberty? Pragmatarianism is thus utterly nihilistic, making no judgement on peoples’ means and ends. By analogy, the founder of pragmatarianism plays the role of a sort of amoral deity: concerning morality, he says that we ought to make no judgement. Yet, contrary to the God of Christian tradition, he merely says, “if a man cause a blemish in his neighbour; as he hath done, so shall it be.” He does not conclude the statement aright: “if a man cause a blemish in his neighbour; as he hath done, so shall it be done to him” (Lev. 24:19, KJV). Or, in other words, a potentially fictitious deity is more rational than a pragmatarian!

Morally, and as a parallel example, let us suppose one is thinking of starting one of three businesses: (a) a hot dog stand, (b) a gym, or (c) a hardware store. He realizes that he does not have the funds for any of these businesses, so he knocks on people’s doors and “asks” for money, and gives them the choice of investing in any one of these three businesses. He does this around the town, and jots down the address of everyone who rejects him. He continuously sends bills to the houses that refused. They do not pay him. A few months of this transpire, and the man sends armed people to these houses. These cohorts give the people who refused to pay one more chance, and then, if they further refuse, they shall handcuff and cage those people who refuse.

In retrospect, to any rational person, this sounds quite ridiculous: of course I do not have the right to do any of this. Indeed, it would be an utter violation of individual rights to do anything of this sort. The fact that I am initiating force outweighs the aspect that they have a “choice.” The “choice,” in this context, is irrelevant: there is still the initiation of force to participate in this matter, so to claim that this is “choice” is quite simply incorrect. While pragmatarianism employs the fallacious thought that this system is moral because of choice, it is deeply a contradiction: true choice in the allocation of resources is for each individual to spend his money however he pleases, so long as that spending does not initiate force or fraud on any other individual. In other words, pragmatarianism, as a philosophy, has qualms with neither immoral means nor ends, particularly as related to the desires of the majority.

Now, our readers may query: to what extent can a Libertarian embrace Pragmatarianism? The answer is simple: to the extent that pragmatarianism is conducive to the aims and ideals of Liberty. Phrased differently, this can be stated that Libertarians give support to the extent to which pragmatarian thought allows for a reduction of the State. Pragmatarianism, therefore, may serve as a Libertarian means in some specific cases, while not in others. Libertarians can support being able to opt out of the IRS; but we would not support Congress determining a tax rate of 75% and voters determining a giant list of government agencies, upon which the individual is imposed to spend his money. Whatever the case, pragmatarianism is certainly, as we have examined, not an end in itself. Pragmatarianism forces spending a variable of money, and does not actually reflect individual choice of resource allocation. Anarcho-Capitalism allows each person to allocate his resource as he desires, and also allows the freedom of desired time preferences. Thus, we can conclude that—as an end in itself—Anarcho-Capitalism is the superior system.

Revision 3/19/2012- Evidently, Xerographica, the pragmatarian, has stated paradoxically that the tax rate is the only function of government which the voters DO NOT determine; rather, this is left to Congress. This was never stated in any of his former works, so I merely applied his idea that “voters determine the functions of government” consistently. Hence, I have revised the essay accordingly.

Footnotes

¹http://pragmatarianism.blogspot.com/2011/10/aikido-dune-and-taxes.html

²http://board.freedomainradio.com/forums/p/33138/254624.aspx

³Thus, see Rothbard’s critique on the arbitrary nature of all taxes.

⁴We define socialism in the Rothbardian conception of the term: “ government ownership of the ‘means of production’” or “that system in which the State forcibly seizes control of all the means of production in the economy” (MES 615).

⁵http://www.libertariansforum.com/cgi-bin/freedom/YaBB.pl?num=1330150356/76#76

⁶http://en.wikipedia.org/wiki/Invisible_hand

⁷On the definition of the State, see Rothbard’s timeless lecture, “Society Without a State.”

⁸http://pragmatarianism.blogspot.com/2012/01/unglamorous-but-important-things.html

⁹Technically, this is a metaphor for the various wills of specific individuals. For more on methodological individualism, see pages 2-3 of Man, Economy, and State.

¹⁰Or, at any rate, each intermediate stage would necessarily be requisite on the Pragmatarian List of Acceptable Agencies.

¹¹In the Oxford English Dictionary, nihilism is defined as “negative doctrines in religion or morals; the total rejection of current religious beliefs or moral principles.” In this section, as religion is irrelevant, we shall focus on the rejection of moral principles, and the negative pacifism of pragmatarianism toward immoral happenings.

Works Cited

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“Economic Calculation Problem.” Wikipedia. Wikimedia Foundation, 14 Mar. 2012. Web.                15 Mar. 2012. .
Mises, Ludwig Von. Socialism: An Economic and Sociological Analysis. Indianapolis:                LibertyClassics, 1981. Print.
Rothbard, Murray N. Man, Economy, and State; A Treatise on Economic Principles.                Princeton, NJ: Van Nostrand, 1962. Print.
Simpson, J. A., and E. S. C. Weiner. The Oxford English Dictionary.
               Oxford: Clarendon, 1989. Print.
Xerographica. “Pragmatarianism.” Pragmatarianism. Web. 15 Mar. 2012.                http://pragmatarianism.blogspot.com