“If tolerance means the end of Western civilization, then we cannot be tolerant.” (Elon Musk)

If you tolerate people who seek to annihilate you, then you’re self-destructive — if not suicidal.

The first principle of life for an individual — or a culture — is survival.

Today’s self-anointed intellectual, political and cultural “influencers” are openly committed to anything or anyone who seeks to destroy Western civilization and the original American Constitution generated by that civilization.

It’s as simple as that.

If you tolerate your destroyers, then you’re destroying yourself.

The post You Cannot Ethically Tolerate Your Own Destruction appeared first on Michael J. Hurd, Ph.D. | Living Resources Center.

Editor’s note: This article is adapted from a live talk and has been lightly edited. It retains the cadence and idiosyncrasies of an oral presentation.

Religion taught me how to lie before I knew what honesty is.

I still remember sitting in my Sunday school class when I was about ten years old. The teacher asked the class, “How has God been working in your life?” I heard a variety of responses. One girl said that she had run into a friend at the grocery store. This friend hadn’t been going to church for a long time, and the girl said that God had “placed” her friend at the grocery store so that she could evangelize to her and bring her back to church. There was a boy in the class who also gave a similar story of God “working” in his life. He said that his mother came across a Bible verse that really helped them both through a difficult time. His grandmother had recently passed away, and this verse helped them cope with their grief. He claimed that God “placed” that verse there. As I sat there and listened to these stories, I couldn’t help but wonder: Weren’t these just happy accidents?

I didn’t see how God was working in their lives—I simply saw people acting in the same ways they always had. What would it say about their choices if God were determining their actions? What would it mean if the mother was “pushed” to read the Bible that day? Would it have made any difference if she had found the Bible verse? Also, would her grief, on some level, be ordained by God, too? On the other hand, if the girl’s friend was “placed” at the grocery store by God, what does that say about her friend’s “choices?”

In other words: Do our actions have any meaning at all if we’re not choosing them?

This train of thought was interrupted when the teacher turned to me and asked, “Maddox, how has God been working in your life?” I sat frozen for a bit because I wasn’t sure how to answer.

But I felt compelled to give an answer because, in the church, it was looked down upon to openly doubt or to say, “Well, I don’t really know. I don’t really see how God is working.” I felt as if I had to make up an example because I desperately wanted to fit in—I wanted to conform for comfort. So, I did.

I lied that day. I decided to tell the entire class that I, too, saw God working in my life. I told them that I dropped my Bible on the ground, and it opened on the perfect story to help me through a difficult time, too (I wasn’t very original).

When I shared this, I was rewarded. My teacher affirmed me by saying, “Good job, Maddox. Thanks for sharing that great story. I’m glad to see that God’s working in your life, too.” I had so many experiences like this in which I was thinking something different from what everyone else seemed to be thinking, but I didn’t trust my own thoughts. I conformed because, like many people, I liked to be liked, and I disliked being disliked.

I grew up in the church and went to Christian private school from the ages of four to fourteen. During that time, I was completely immersed in Christianity. I went to “science” class, and I was taught creationism. I attended two services weekly: one on Wednesday and one on Sunday. I also was on sports teams and attended all sorts of other classes—but all baked Christian tenets into what otherwise would be normal activities and subjects.

Christianity was in every area of my life. One time, when I was on the soccer team at my middle school, the teacher told us that anything we achieved on the soccer field was ultimately God’s doing because he’s the one who created us—he gave me my body, and when I scored a goal, it was for the Lord.

So, when I scored a goal or did anything that I felt proud of, I convinced myself that I shouldn’t be proud of it. I discredited my own achievements. I belittled myself so that I could “serve God” by giving him credit for everything “I” did—and this pattern was common in many things I did.

All my achievements were ultimately “justified” if they served God—which often meant serving other people. I went on a mission trip to Houston when I was about sixteen years old. The goal of the trip was to go into poor neighborhoods to give away food, hand out Bibles, and share our testimonies (our stories of how we became Christian).

We were basically put into a child labor camp in the scorching heat. My first tasks were to paint a church wall and give away food. I remember another task pretty vividly: My pastors asked me to knock on people’s front doors in an attempt to give them food and to share my testimony. I wondered why I believed in Christianity in the first place. I started calling myself a Christian in first grade under the guidance of my teacher. I still remember that day vividly: I broke down in tears along with much of the first-grade class because I felt so guilty for being a “sinner.”

My teacher had great power to prime us emotionally to believe anything. But when I went to a stranger’s door, I wasn’t sure how to persuade anyone to believe in Christianity. It had always been an emotional thing for me; I had never considered that I had never embraced Christianity on a rational basis. I had adopted Christianity partly because I was mimicking other children—and all of us were obeying adults who told us what to believe.

At first, I was scared to go up to a stranger’s door. But I also felt guilty not doing it because I saw everyone else going up to doors and knocking.

I felt that I was supposed to because, if I didn’t, what kind of Christian would I be? Eventually, the guilt motivated me to knock on a door. A lady opened it, and after a few minutes of conversation, she revealed that she believed in Allah.

This was a curveball that I hadn’t expected. I didn’t know how to respond. How was I supposed to explain that her faith was wrong? I had no idea what to do. So, I said “OK, have a nice day. Bye.”

In essence, I was taught that I was supposed to serve God—not myself. If I didn’t, then I was guilty and would be sent to hell.

Similar “damned if you do, damned if you don’t” situations recurred throughout my childhood. During my final year of high school, our local government shut down our school to “slow the spread” of COVID-19. As a result, we went remote for the last two months of the year. I remember thinking, Oh, this is great. I can just go home and play video games! Many of my teachers didn’t know what to do. So, I went home and did the minimum coursework necessary to pass my final year of school. Once summer arrived, I fell into a deep depression because I lacked purpose.

During this time, I sensed on some level that something important was either wrong with or missing from my life. On one hand, I resented others setting my schedule and determining my priorities, but on the other, I saw the importance of having some structure in my life. I decided that I needed more structure—but on my own terms.

I considered going into the military; both my parents had been in the air force. If I went, I could learn how to become a radio operator or learn another skill on the military’s dime. But the military didn’t appeal to me because I would have to sign away years of my life.

Another option was college. College is very expensive, although the idea was interesting. I could jump into subjects such as engineering or video game development. But I didn’t want to go into student debt or spend three to four years on a degree program, especially considering that I wasn’t sure what I wanted to do with my life yet.

I sat on my hands until my mother reminded me of Praxis, an online college alternative. Its goal is to help young people build meaningful careers rather than merely find jobs that pay the bills. This really interested me because its website guaranteed a satisfying, well-paying job or your money back. Praxis, which was both shorter and cheaper than college, seemed like a good option. I decided to take the leap.

In Praxis, I learned all sorts of skills. I learned how to manage my time more effectively, maintain a sound financial budget, and improve my communication skills. I also did “value identification exercises” in which I asked myself questions aimed at discovering what I wanted out of life and what actions I would have to take to achieve those values. Through these exercises, I realized that many of the things I spent my time on weren’t things I wanted to value; I prioritized them because other people said I had to.

Right before beginning the job-hunt portion of Praxis, I attended an adviser call. She gave me a simple, very helpful piece of advice: “In order to grow, you have to work hard; you have to do difficult things.” This made sense to me; any time I’d grown, it was always difficult. After providing this advice, she asked me, “Maddox, what is the thing that comes immediately to mind that you see as difficult and that you think you should do?” What came to my mind was sales.

At the time, I was considering a few career options, but sales scared me because I feared getting rejected by prospective customers, most of whom were adults well into their careers. Who was I to try to persuade them? I knew that if I wanted to be someone who could persuade and trade with others effectively, I needed to keep building communication skills. I got a sales job at a software company.

I’m telling you all this because Praxis helped me stop simply accepting the premises I was holding because someone else had told me to. I began examining Christianity as thoroughly as I was my career.

However, I want to emphasize that, at this point, I was only beginning to question Christianity, and only in certain respects. I wasn’t yet questioning the truth of Christianity—only my understanding of it. I thought that I could become better at persuading others of its value if I could first persuade myself in clear and powerful language. To learn how to do that, I went to a class at my church on how to argue “logically” for Christianity.

The teacher of that class affirmed what I already suspected: “In order to convince somebody else, you first have to convince yourself.” I felt that Christianity was true—that was the whole reason I was in this class. But when I reflected on how I knew it was true, I realized that I didn’t.

I began to ask more questions, such as: How can I know anything is true? How is knowledge possible? What even is truth? Where does it come from? Why are some people certain and others uncertain?

Although it wasn’t the teacher’s intention, I began to slowly whittle away at my faith. Due to this class, I decided to temporarily suspend my belief in Christianity. I still felt emotional attachment to Christianity, but I strongly wanted to learn to defend it rationally, and to do that (I thought), I would have to approach Christianity as if I were a nonbeliever.

This experience reignited my dormant passion for discovering truth. From a young age, I wanted to learn truths about the world, but my Christian community often squashed my inquisitive tendencies. They said that the “truth” of the Bible was all I needed.

With my mind primed to look for the nature and source of truth, I found myself drawn in 2021 to a conference called TOS-Con (now called LevelUp). I came across a variety of helpful ideas and articles at and after this event. One article fundamentally transformed my views on a subject I had never thought about before: “Reason vs. Mysticism: Truth and Consequences” by Craig Biddle. It shows how reason and faith are two opposing and incompatible ways of attempting to gain knowledge. By thinking about this article, I realized that I had been trying to go by faith when it came to Christianity, but in many other areas of my life, I was going by reason. I determined that if I were to accept Christianity, I would need to be able to ground it in reality using reason.

As I learned from novelist and philosopher Ayn Rand, “Reason is the faculty that identifies and integrates the material provided by man’s senses.”1 For example, we know that gravity exists. If we hold a ball at arm’s length and let go of it, it will fall to the ground. We see countless other objects obeying the law of gravity every day. With this knowledge, we can assume that anything we let go of on Earth that is heavier than air will fall to the ground. If we then see a magician appearing to levitate, we know he must be counteracting the force of gravity somehow. Perhaps he has a well-hidden wire system, or he is relying on an optical illusion. These answers fit our knowledge of reality—we know that whatever he is doing, it’s not “supernatural”; it’s part of the same reality that we understand through reason. If we see something that doesn’t fit that understanding, we know we’re either mistaken in what we think we’re seeing or missing a piece of knowledge about reality—and we can set about finding out what we need to resolve the conflict. Reason helps us spot the holes in our thinking and form an integrated, noncontradictory view of reality.

On the other hand, there’s faith. Faith is the acceptance of an idea as true without evidence or in direct contradiction to evidence. For example, I used to believe in young earth creationism, the idea that God created the world in six days about six thousand to ten thousand years ago. But young earth creationism contradicts many facts. The fossil record alone—which includes fossils from millions of years ago—demonstrates that the age of the Earth is much older than six to ten thousand years old. Faith requires accepting such contradictory claims as these or rejecting perceptually available evidence.

As I learned more about epistemology (the study of human knowledge), I learned more about what reason and faith are—and how we properly validate our understanding of the nature of each. Regarding more and more issues, I began to ask myself, “Am I going by faith or by reason?” In asking this question, I realized that the vast majority of my religious beliefs could only be accepted on faith.

I realized that I couldn’t use faith to confirm Christianity’s truth because if faith is a valid means of knowledge, then anything goes.2 Recall the Muslim lady I mentioned earlier: We believed in different gods and mutually exclusive religious ideas, and we both believed via faith.

For example: Faith doesn’t solve the problem that under Christianity, Jesus is considered the immortal son of God; and under Islam, Jesus is considered a mortal prophet. Jesus can’t be both immortal and mortal. Faith, if valid, justifies not only contradictions such as this without any evidence—it permits belief in anything without evidence.

These ideas helped me clarify my approach to seeking truth and figure out whether Christianity was true. At this point, Christianity still seemed to have a vestige of value: It seemed to preach great ethics.

Rand’s ideas about morality, alongside my newfound understanding of reason versus faith, helped me begin to deconstruct my Christianity. Morality is a code of values that we use to guide our choices and actions; on this much, Rand and Christianity generally agree. However, Rand identified a crucial element of morality that Christianity explicitly rejects: The purpose of an individual’s life is his own happiness on Earth. Morality can either be rational, irrational, or some mixture of both. In other words: There can be aspects of a moral code that are life-serving and others that are not.

By studying Rand’s ethics, I learned that there are different kinds of moral codes. For most of my life, I had been accepting a kind of morality that I didn’t even know I was accepting. This was the morality of altruism—more specifically, religious altruism. Altruism literally means “otherism.” It’s the idea that being moral requires sacrificing yourself to others. In my case, it meant sacrificing for God. Rand validly criticized altruism; she pointed out that there are no rational reasons we should sacrifice ourselves for others. I tried finding reasons to sacrifice, but I couldn’t. I didn’t see, for example, why I should become a missionary just because God said so.

Rand also clarified the concept of selfishness as the rational alternative to altruism. She called her morality “rational egoism.” Egoism gets a bad rap; many people assume that egoism necessarily advocates preying on others and sacrificing them to yourself to “benefit” in the immediate moment. There are some people whose ethical codes amount to this, but this isn’t what Rand advocates. She condemned such behavior because it violates rights or otherwise destroys the conditions on which human life depends. She pointed out that preying on others is actually selfless—it harms and destroys the self in addition to harming others. It is much more profitable (in every sense of the word) to be kind and generous to others by default unless a specific person’s actions warrant different treatment.3

If I hurt someone (except in self-defense or defense of others) or steal from him without just cause, there are many negative consequences for both of us. The police might catch me and put me in prison. Psychologically, I would be tormented. I’d forever have to wonder, Will I get caught? Moreover, if I don’t respect rights, why should anyone respect mine? Such behavior would damage my self-esteem, too. How could I respect myself if I do disgraceful things?

Rand advocated rational self-interest (“rational” is redundant once we truly understand what self-interest is and why, but this is a topic for another day). This requires looking at all the relevant facts of reality, and it requires integrating all such facts into a noncontradictory code of ethics.

In part, morality is a matter of surviving. If we don’t have water, food, or air, then we will wither away physically. Morally, we must achieve these values—if we want to continue to exist. Morality is also a matter of thriving. If we don’t have good friendships or meaningful work, we’ll wither away emotionally and psychologically. Morally, we must achieve such kinds of spiritually fulfilling values—if we want to live life to the fullest.

With my newfound understanding of epistemology and ethics, I went to my pastors hoping to understand why they believed everything the Bible said. Like a curious three-year-old, I asked them “why” repeatedly. One time, we discussed the “virtue” of unconditional love. I didn’t understand how loving somebody who isn’t deserving of it could be just. Doesn’t justice involve giving people what they deserve, including love? You should reward the good for being good, and you should not reward bad people for being bad, right?

They answered, in part, by saying that God justifies unconditional love. He loves us no matter what we do. I wasn’t satisfied; how does God justify this? Such a question always received the same kind of response: “Sorry, but God’s ways are higher than our ways. There’s just no way of knowing why he says some of the things he does. You just need to have faith, Maddox.”

What this meant was: “You need to give up your mind. You need to stop looking at reality and obey God without questioning and without understanding. You need to blindly accept.” But this was not acceptable to me. I realized that my pastors weren’t the moral authorities I’d once thought they were. In fact, God wasn’t the authority I thought he was. I became seriously disillusioned with Christianity. Everyone at church held values that I no longer saw as values. When I went to church, it felt like everyone knew I was doubting my faith and was no longer a Christian.

I didn’t renounce Christianity overnight. Despite knowing that Christianity didn’t make sense, I kept flip-flopping between it and this “scary” thing called atheism. I didn’t want to call myself an atheist—in fact, I called myself agnostic for a long time because it was easier to say, “I’m on the fence.” But there is no “fence” when all you have is a binary choice: Believe or don’t. I became a de facto atheist, even if I wasn’t yet ready to accept the label.

I continued to outwardly deny this. Because I was afraid to say otherwise, I kept telling other Christians that I still believed. I was worried that others would consider me immoral for being an atheist. Part of me still sought their nods of approval, but I now knew that others’ approval doesn’t change reality.

Religion reinforces and requires dishonesty. In the first story I shared with you, my teacher encouraged me to lie. She encouraged me to give a certain kind of answer to her question regardless of whether that answer had any correspondence to reality. The fact is: There’s no evidence for God—or him “working” in our lives.

Second, embracing religion produces a lot of guilt, shame, and fear. I was afraid that if I questioned Christianity or told people in my religious community what I thought, they wouldn’t accept me. So, I lied. Being part of the community was comfortable and familiar even if it was intermingled with fear, shame, and guilt.

Third, embracing religion requires sacrificing one’s life to God—which means giving up one’s highest and most precious value in exchange for something that doesn’t even exist. There is no worse trade—but it is required of a serious Christian.

On the other hand, embracing reason offered many good things. First, reason is our only means of discovering what is true. Using it, we can identify whether an idea is supported by facts or not. If it is, it may be true. If it is not, it can’t rationally be accepted as true.

Embracing reason has also helped me build my self-esteem. Even if we are worthy of respect and capable, we can’t know that except by reason.

Embracing reason also put me in direct control of my choices. When I fully accepted that I am capable of knowing things, I put myself firmly in the driver’s seat—and ejected God through the roof.

Given these two basic alternatives—faith or reason—what was I going to choose? I had been trying to “get serious” about Christianity, but every conclusion I came to via reason showed me that Christianity doesn’t make sense.

I ultimately chose reason.

I was finally freed from religion. I felt as though I could think for the first time.

Let me tell you a bit about what my life has been like since embracing reason.

Embracing reason has helped me be more at peace. I feel like I’m no longer in conflict with myself—I can be content. Before, I would experience conflicts between what “God wanted” and what I wanted. Such conflicts would discourage me from acting and put me into analysis paralysis. After embracing and acting consistently from reason, I no longer experience such conflicts.

Embracing reason also enabled me to see and achieve the ultimate goal of my life: to live it. I learned that I have only one life and that I should make it the best it can possibly be.

Embracing reason also led me to become a part of a team that I love to work with at Objective Standard Institute. They embrace reason. I think we’re doing so much good by spreading ideas that help others to do the same.

By acting independently using reason, I’ve met many new friends, colleagues, and people interested in the same ideas and hobbies as I am—the kind of people who expand one’s view of the world. I would never have been open to building relationships with these kinds of people before; as a Christian, I would have immediately judged them negatively.

When I was a Christian, I thought I knew the truth. Instead, dogma was stopping me from connecting with beautiful people. Not anymore. By embracing reason, I became more open to alternate perspectives.

I also had new experiences. For example, I performed in a musical called Fiddler on the Roof as a Russian dancer and a Jewish bottle dancer. Ironically, this is a somewhat religious play. I signed up for it because (a) it’s fun to dance and (b) I didn’t want to be afraid of religion anymore.

I want to leave you all with this: Embrace reason, be honest, and serve yourself.

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That distinction gets lost because political arguments tend to begin with a snapshot of the world as it exists today: some people have more, some have less, businesses possess capital, workers earn wages, houses have prices, and resources are distributed unevenly.

Then comes the question: How should we divide it?

But that question quietly assumes the most important part of the story away.

Where did it come from?

Wealth isn't simply sitting in nature waiting for politicians to determine its rightful distribution. A smartphone isn't a naturally occurring resource. Neither is a power grid, antibiotic, airplane, supermarket, computer chip, tractor, refrigerator, streaming service, or heated home.

Natural resources exist. Economic value has to be created.

Someone has to think, discover, invent, invest, build, organize, produce, trade, and improve.

That is where capitalism begins.

The Question Before Distribution

Socialism tends to focus on the distribution of existing wealth. Capitalism focuses first on the individual's freedom to create it.

That doesn't mean capitalism promises everyone wealth. It promises something much more fundamental: the freedom to pursue it.

You may start a company. Sell your labor. Invest your savings. Invent something. Buy property. Fail. Try again. Become wealthy. Remain comfortable. Give your money away. Save it. Spend it. Leave it to your children.

The essential principle is that what you create or voluntarily acquire is yours.

And that principle changes human behavior.

When people are permitted to benefit from creating value, they have a reason to create more of it. When investors are permitted to profit from taking risks, capital becomes available for new ventures. When businesses must persuade customers rather than command them, they have an incentive to offer something people actually want.

Profit, properly understood, isn't merely money extracted from society. In voluntary exchange, it is evidence that someone found a way to offer something others considered worth purchasing.

Socialism Starts With the Pie

Socialist thinking commonly begins somewhere later in the process.

The pie already exists.

Now the political question becomes who deserves which slice.

But an economy isn't a pie with a fixed circumference.

Human beings can make the pie bigger.

A society can have more food, more housing, better medicine, faster transportation, cheaper communication, greater productivity and entirely new industries than existed before.

The central economic achievement of modern civilization isn't that humanity discovered increasingly sophisticated methods of dividing scarcity.

It's that human ingenuity repeatedly created abundance where scarcity once existed.

The danger of organizing society primarily around redistribution is therefore deeper than arguing over tax rates.

You gradually replace the question:

What can I create?

with:

Who gets what already exists?

Politics increasingly becomes a competition between groups attempting to control distribution. Producers become resources to be managed. Success becomes a taxable reservoir. Every new government promise requires someone else's production to fulfill it.

Eventually the system becomes remarkably good at distributing claims against wealth while becoming progressively worse at encouraging the creation of the wealth those claims depend upon.

You Cannot Redistribute What Nobody Produces

This is socialism's fundamental dependency.

Before wealth can be redistributed, someone has to create it.

Before government can guarantee an income, someone has to earn taxable income.

Before government can provide housing, someone has to build housing.

Before medicine can be declared a right, someone has to discover, manufacture and administer medicine.

Before anything material can be distributed, somebody has to produce it.

Political declarations cannot repeal that fact.

You can redistribute a loaf of bread.

You cannot redistribute a loaf that was never baked.

And incentives matter precisely because human beings aren't interchangeable production units whose effort can simply be assumed regardless of the conditions imposed upon them.

People respond to ownership, reward, risk and freedom.

Punish production and you tend to get less of it. Protect the ability to benefit from production and you give people reasons to produce more.

Capitalism's Most Radical Promise

The strongest argument for capitalism isn't that billionaires exist.

It isn't even that capitalism produces more consumer goods.

It's that capitalism begins with the sovereignty of the individual.

Your life isn't raw material for someone else's political project.

You are free to pursue your own happiness, create according to your own judgment and exchange with other people when both sides voluntarily agree.

That freedom inevitably produces differences.

Different ambitions.

Different abilities.

Different decisions.

Different risks.

Different successes.

And therefore different outcomes.

But inequality created through voluntary production and exchange is fundamentally different from political subordination.

Someone becoming richer by producing something millions of people voluntarily purchase hasn't made you poorer merely by surpassing you.

The existence of another person's success doesn't constitute a claim against it.

More importantly, their achievement demonstrates something socialism routinely underestimates:

wealth can be created.

Creation Beats Distribution

The greatest economic question isn't how perfectly society can divide today's wealth.

It's what conditions allow human beings to create tomorrow's wealth.

The poorest person living today doesn't need a political philosophy telling him that somebody else possesses more.

He can see that.

What he needs is a society in which his circumstances aren't his destiny.

A society where he can learn, work, save, trade, invest, build, own and rise.

Where achievement isn't treated as evidence of guilt.

Where prosperity isn't regarded as a communal resource waiting for political permission to be distributed.

Where individuals aren't taught to measure their lives against someone else's possessions, but against their own unrealized potential.

Capitalism doesn't promise that everyone will succeed.

Freedom never could.

What it offers is the right to try—and the right to keep, use and enjoy what you create when you do.

That is the difference between managing wealth and creating it.

Between fighting over yesterday's value and producing tomorrow's.

Socialism asks how existing wealth should be divided.

Capitalism asks a far more powerful question:

What will free human beings create next?

In 2009, the Mises Institute published Property, Freedom, and Society: Essays in Honor of Hans-Hermann Hoppe, a project Guido Hülsmann and and Stephan Kinsella spearheaded to honor Hans Hoppe on the occasion of his 60th birthday. Only a few of the pieces were published independently; we are posting some of them here in this Bookstream.

The first entry was republished at Property, Freedom, and Society Bookstream: Introduction, Hülsmann and Kinsella. Links to the remaining chapters may be found at the book’s landing page here, which will be updated as the book is streamed here. Here’s the next entry. It was also republished at Mises Daily (1/8/2010).

30
Hoppe in One Lesson, Illustrated in Welfare Economics

Jeffrey M. Herbener^*

Every schoolboy learns that, to reach a true conclusion, one must start with true premises and use valid logic. The lesson, unfortunately, is largely forgotten later in life. Most lack the intelligence, interest, or courage to apply the lesson rigorously. Many break or bend the rules to further their own agendas or careers. Others can only muster the will to follow the rules in some part or in some cases. Rare is the person who masters the lesson.

Hans-Hermann Hoppe has demonstrated the intellectual heights that can be reached by employing the lesson with a brilliant mind, fervent devotion to the truth, and unflagging moral courage. What follows is a brief account of how he set right the entire field of welfare economics.¹

Old-welfare economics attempted to overturn the laissez-faire conclusions of the Classical school on the basis of the theory of marginal utility ushered in by the marginalist revolution. If utility can be compared interpersonally, by various assumptions such as cardinal utility or identical utility schedules or utility of money among people, the old-welfare economists argued that diminishing marginal utility implied a social-welfare gain from, among other interventions of the state, redistributing wealth from the rich to the poor. This line of argument was brought up short by the demonstration that the subjectivity of value precludes interpersonal-utility comparisons. Therefore, social welfare can only be said to unambiguously improve from a change if it makes at least one person better off and no one else worse off. This Pareto rule forbade economists from claiming social-welfare improvements from state interventions since they do make some better off and others worse off.

New-welfare economics tried to weave a case for state intervention within the constraints of the Pareto rule. The conclusions of new-welfare economics can be drawn from its main theorems. The first welfare theorem states that a perfectly competitive general equilibrium is Pareto optimal. From this theorem, the new-welfare economists conclude that a divergence of the real economy from this hypothetical condition justifies state intervention to improve social welfare. Economics journals are replete with cases demonstrating how the market economy fails to achieve a perfectly competitive general equilibrium and what interventions the state should make to remove the market’s inefficiency.

The second-welfare theorem states that any Pareto-optimal solution can be brought about by a perfectly competitive general equilibrium. For each pattern of initial endowments of income among persons, the perfectly functioning market economy would reach a different Pareto-optimal outcome of production and exchange. From this theorem, new-welfare economists conclude that the state can distribute income, in whatever pattern it wants, e.g., to achieve a particular conception of equity, without impairing the social-welfare-maximizing property of the perfectly functioning market economy.

In his article on utility and welfare economics in 1956, Murray Rothbard demonstrated that new-welfare economists were wrong to think that a case against laissez-faire could be constructed on the ground of the subjectivity of value.² He argued that new-welfare economists were correct to infer the impossibility of interpersonal-utility comparisons from the subjectivity of value. Value is a state of mind without an extensive property that could be objectively analyzed. As such, no common unit of value exists among persons in which their mental states could be measured and, thus, compared.

Having accepted the subjectivity of value as the reason for the impossibility of interpersonal-utility comparisons, which they made a pillar of their welfare economics, new-welfare economists commit themselves to other corollaries of subjective value. In particular, Rothbard contended, they must embrace the concept of demonstrated preference. Because preferences exist solely in a person’s mind, another person can acquire objective knowledge about them only by inferring them from his actions. Since no other objective knowledge of a person’s preferences exists, only demonstrated preference can be used in the analysis of welfare economics.

Both the impossibility of interpersonal-utility comparisons and demonstrated preference are deduced directly from the subjectivity of value, and therefore, new-welfare economists cannot, validly, accept one and reject the other. The impossibility of interpersonal-utility comparisons constrains welfare economics by the Pareto rule, making it harder to justify state intervention than otherwise, but demonstrated preference raises the bar for justifying state intervention that much higher. According to new-welfare economists, the level set by the Pareto rule is determined by the market’s deviation from the optimal result of a perfectly competitive, general-equilibrium model, but demonstrated preference eliminates any use of hypothetical values, including the utility functions of economic agents that underlie such models. To be scientific, welfare economics must confine itself to statements about preferences that actual persons demonstrate in their actions. Rothbard wrote,

Demonstrated preference, as we remember, eliminates hypothetical imaginings about individual value scales. Welfare economics has until now always considered values as hypothetical valuations of hypothetical “social states.” But demonstrated preference only treats values as revealed through chosen action.³

The first welfare theorem, reconstituted along Rothbardian lines, does not refer to the general equilibrium state of models invented by economists. It refers to the actual economy, for which it is more difficult to demonstrate social-welfare improvements from state intervention. If market outcomes are compared to other realizable conditions reached in actual economic systems, instead of unrealizable outcomes of perfectly functioning, fictitious models, then market failure seems unlikely. And, as Rothbard showed, the market does surpass the levels of social welfare reached in other, actual economic systems.

The second welfare theorem, however, seemed unscathed by Rothbard’s critique. New-welfare economists could still advocate one intervention of the state. Without impairing the efficiency of the market in bringing about a Pareto-optimal point, the state could still distribute income to achieve its conception of equity. Rothbard responded that private property was the proper initial distribution of wealth from which market activity renders a Pareto-optimal outcome. And, because the initial distribution of private property is not arbitrary, but follows the lines of self-ownership of labor, homesteader ownership of land, and producer ownership of goods, state intervention in property ownership could not produce an outcome commensurate in social welfare with the Pareto-optimal outcome of laissez-faire.

New welfare economists, however, not being adherents to Rothbard’s natural-rights theory of property, denied that state distribution of property ownership would lead to a market outcome inferior in social welfare to that of the unhampered market. Even some economists who favored laissez-faire agreed that the pattern of property ownership in society is arbitrary with respect to the market achieving a Pareto-optimal outcome, and hence, the state can rearrange it without detrimental consequences on social welfare.

It was left to Hoppe to work out the logic of Rothbard’s argument and reach a definitive conclusion about the effect on social welfare of state distribution of property ownership.⁴ In so doing, he reoriented welfare economics to its true course. Although latent in Rothbard’s analysis, Hoppe was the one who demonstrated that the Pareto-rule approach to social-welfare economics leads, not to an optimization end point, but to a step-by-step Pareto-superior process with an objective starting point.

As Rothbard had done before him, Hoppe confronted new-welfare economists with a logical inconsistency in their argument. They had accepted a basic principle, this time self-ownership, from which they inferred social-welfare consequences of voluntary exchange, i.e., they pronounced on the social-welfare consequences of voluntary exchange from the viewpoint of the traders themselves. But, in embracing self-ownership, they must also accept its logical corollary, namely Lockean property acquisition. Hoppe pointed out that self-ownership is a necessary precondition to all acquisition and use of property and not just voluntary exchange. Therefore, it is the starting point for each succeeding step of social interaction.

In critiquing Kirzner’s view of welfare economics, Hoppe writes,

If, however, the Pareto criterion is firmly wedded to the notion of demonstrated preference, it in fact can be employed to yield such a starting point and serve, then, as a perfectly unobjectionable welfare criterion: a person’s original appropriation of unowned resources, as demonstrated by this very action, increases his utility (at least ex ante). At the same time, it makes no one worse off, because in appropriating them he takes nothing away from others. For obviously, others could have homesteaded these resources, too, if only they had perceived them as scarce. But they did not actually do so, which demonstrates that they attached no value to them whatsoever, and hence they cannot be said to have lost any utility on account of this act. Proceeding from this Pareto-optimal basis, then, any further act of production, utilizing homesteaded resources, is equally Pareto-optimal on demonstrated preference grounds, provided only that it does not uninvitedly impair the physical integrity of the resources homesteaded, or produced with homesteaded means by others. And finally, every voluntary exchange starting from this basis must also be regarded as a Pareto-optimal change, because it can only take place if both parties expect to benefit from it. Thus, contrary to Kirzner, Pareto-optimality is not only compatible with methodological individualism; together with the notion of demonstrated preference, it also provides the key to (Austrian) welfare economics and its proof that the free market, operating according to the rules just described, always, and invariably so, increases social utility, while each deviation from it decreases it.⁵

Hoppe showed that the Pareto rule needed to be applied to the social-welfare consequences of the acquisition of property and not just its use. Self-ownership is the immutable starting point for the process of acquiring and then using property. State distribution of income to achieve an ostensibly more equitable “initial” endowment of income among persons fails to satisfy the Pareto rule. In other words, the second welfare theorem, reconstituted along Hoppean lines, is false. Only one initial endowment, the Lockean one, is capable of producing a Pareto-optimal outcome.

Moreover, Hoppe’s argument dispatches entirely the notion of Pareto optimality as a social-welfare-maximizing end state. Welfare economics starts with the objective fact of self-ownership and then demonstrates that each step of voluntary acquisition and use of property satisfies the Pareto rule and thereby, improves social welfare. Moreover, each instance of state intervention into the voluntary acquisition or use of property benefits some and harms others and, thereby, fails to improve social welfare. The actual market, then, is not compared to some end point it may eventually reach but has not yet achieved. If that were the case, it might be claimed that some interventions of the state could facilitate the actual market in achieving the higher level of social welfare at its end point. Instead, welfare economics is constrained to comparing the actual market to actual state intervention. No room is left for the claim that the market fails to attain some ideal which might be used to justify state intervention. Hoppe definitively established that the unhampered market is superior in improving social welfare.

Welfare economics is arguably the least of Hoppe’s accomplishments in employing the lesson. In every field that has drawn his attention, he has, like Ludwig von Mises and Murray Rothbard before him, exemplified sound reasoning in social analysis. He improved the edifice they constructed by clarifying first principles and relentlessly and fearlessly tracing out the logical implications of these premises to their conclusions. He is an exemplar for all those who love the truth.  ❧

Endnotes

^*Jeffrey M. Herbener (jmherbener@gcc.edu) is professor of economics and chairman of the economics department at Grove City College. He is a Senior Fellow of the Ludwig von Mises Institute and associate editor of The Quarterly Journal of Austrian Economics.

1. On the development of Welfare economics, see Mark Blaug, “The Fundamental Theorems of Welfare Economics, Historically Considered,” History of Political Economy 39, no. 2 (2007): 185–207 and Jeffrey M. Herbener, “The Pareto Rule and Welfare Economics,” Review of Austrian Economics 10 (1997): 79–106.
2. Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” The Logic of Action, One (Cheltenham, U.K.: Edward Elgar, 1997), pp. 211–54 [and in Economic Controversies (Auburn, Ala.: Mises Institute, (2011)].
3. Ibid., p. 240.
4. Hans-Hermann Hoppe, “Review of Man, Economy, and Liberty,” Review of Austrian Economics 4 (1990): 249–63.
5. Ibid., pp. 257–58.

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