Markets and Discourses #1

Serialized treatise about Prosperity and Politics after the Libertarian Revolution

PREFACE

This is my first political book. It presents a treatise arguing for a radical, emancipatory reset, meant to align our political culture and socio-economic institutions to the new, technology-fuelled prosperity potentials of our civilisation. This treatise is addressed to all who are concerned and actively engaged with societal progress, in business, political parties, think tanks, in civil society associations, and social movements, as well as to intellectuals and academics who share in the project and missionary zeal of the activists. The book is a manifesto with revolutionary intent. However, it is at the same time a scholarly work that develops its theses and arguments via an extensive engagement with social, economic and political theory.

My outlook is decidedly libertarian. I aiming for a world that offers far more life choices and economic freedoms than we are currently accustomed to or permitted. This is not only a personal wish or dream, this too, but my pursuit is motivated by an emancipatory zeal, namely to unleash the human project from its increasingly outmoded political fetters. This requires that world society evolves beyond the current system of strong states and I am therefore committed to undermine statism and discredit state-power, including democratically legitimated state-power, in all its dimensions, everywhere. State power, democratically constituted or not, can and must be dissolved from within via radical political reforms that effect the roll back of the state. The time is ripe for a libertarian revolution, especially in the most advanced arenas of world civilisation. The increasing political polarization of recent years presents an opening for libertarianism. The intensifying ideological battles concerning the direction of world civilisation must be engaged with, also on the level of systematic theory. This treatise is trying to make a contribution here.

To make this clear right from the start: My libertarianism is not about individual solutions or solitary pursuits that deny society, rather it proposes an unfettered flourishing of society via the self-directed flourishing of individuals and voluntary associations, including, importantly, business organisations, and voluntary polities. The proposals and arguments put forward in this treatise are based on a commitment to the common weal, to societal progress and human flourishing for all. The commitment must be presupposed with respect to all contributions to public discourse, no matter from which ideological perspective these are put forward. In this sense this book sees itself, despite all the divergences with respect to means, as working from a unity of final purpose with all who are politically engaged, not only with those committed to the libertarian movement.

Although this treatise is unambiguously libertarian in its political thrust, libertarians will find themselves confronted with, hopefully constructive, surprises. This has to do with the fact that I came to libertarianism relatively late in my theoretical and political development, i.e. I am joining libertarian movement with a lot of alternate perspectives and theoretical resources.

I was first drawn to libertarian ideas in the wake of the 2008 financial crisis, via the compelling explanations and the prior predictions of libertarian economists working in accordance with the paradigm of the Austrian school of economics.

The mainstream account of the 2008 financial crash attributed this scary calamity to rampant, deregulated, free market capitalism. In contrast, the accounts of Austrian economists explained that the vicious system dynamics and excesses that led to the 2008 meltdown should not be attributed to capitalism as such but are rather the result of interventionist distortions that systematically blocked the self-regulating mechanisms of markets.  Let me list here just the most salient points about how state interventionism, as I learned then, precipitated the 2008 crisis:

· central bank easy money encouraging mal-investments

· a community reinvestment act coercing banks to lend prescribed amounts into all communities where they collect deposits

· political pressure on banks to lower their lending standards

· state sponsored mortgage securitization isolating mortgage origination from risk bearing

· imposing rating scores for investments offered to the public corrupting the rating agencies

· state-protected monopoly rating agencies rated securitized subprime mortgages AAA

· sovereign wealth funds and German state banks loaded up with these overrated assets

· imposition of non-recourse loans making defaulting a preferred option for borrowers

· deposit insurance substituting savers’ self-motivated watchful eyes with blasé regulators

· moral hazard via endless bail outs that made otherwise overly risky bets attractive

· and yet more easy money fuelling all these excesses

The Austrians show how none of these factors  - money printing with manipulated super low interest rates, lowered lending standards, fraud fuelling securitization, walking away from non-recourse loans, depositors’ rational ignorance due to deposit insurance, moral hazard with reckless risk taking due to endless prior bail outs etc. -  would exist or could have spiralled out of control in a truly free, self-regulating market. I found these explanations eminently plausible, and much more convincing than the mainstream mantra of capitalism’s inherently vicious dynamics that require a tight leash. It was clear that there had been far too much state interference, creating perverse incentives, and blocking the market’s self-regulation mechanisms. Furthermore, the libertarian economists had seen it coming and indeed had predicted and warned about the crash while the mainstream was celebrating the boom. This was compelling and I started to read intensively.

All these toxic government provisions had been and are being argued for in terms of safeguarding the interests of the public. However, the Austrian libertarian economists explain how all interventionist government powers invite heavy lobbying efforts that insure that the rules and regulations are rigged in favour of special big business interests. I learned that free market libertarians are not pro-business, they are pro-market, for the sake of the prosperity potentials of all.

The Austrians also had a position diametrically opposed to mainstream politics about what to do next. They argued steadfastly against the rescue operations organized by the implicated governments, namely to double down on the bailouts, guarantees, subsidies, protective rules and the easy money. The libertarians argued that the losses and bankruptcies must be suffered by those who made the reckless bets, rather than throwing other people’s good after their bad money, and that the great recession that had started to set in was a necessary cleansing process that should be allowed to run its course. In any case the calamity was largely a Wall Street calamity and the danger for Main Street was probably deliberately exaggerated to scare the general public into accepting once more the socialisation of the losses. As David Stockman later wrote “the bonfires would have largely burned out in the canyons of Wall Street”[i] and should have been allowed to burn out there, to give capitalism’s inherent energies a fresh start. Instead we witnessed over a decade of drip feeding a languishing zombie economy, extending the great recession into a great stagnation. (The self-reinforcing interventionist spiral is still, increasingly, squeezing the life out of the economy.) I was ready to say: Kick away the brakes and crutches, one by one, and let’s see where this leads us. Let’s risk more freedom and self-responsibility. Thirteen years of stagnation should open up the debate to finally discuss other, more radical recipes, the libertarian recipe of a truly self-regulating capitalism.

The 2008 financial crisis, including its predicted build up and its predictably drawn out unresolved aftermath, is a negative historical experience that delivers compelling arguments for the relief and new lease of life a libertarian revolution could bring. More recently we are making a positive historical experience that is also pointing us firmly into the direction of a libertarian revolution, namely the fantastically productive flourishing of research, design, entrepreneurship and market activity around blockchain technology. What we are witnessing here in the new free-wheeling space of crypto currencies and smart contracts is a veritable explosion of intellectual and entrepreneurial energy, delivering a new thrilling industry ecosystem of amazing originality, with an amazing speed of innovation, speed of adoption and indeed speed of market capitalisation. What needs to be emphasized here is that all this entrepreneurial investment and market activity is happening without any prior need for the state to secure these platforms, frame these markets, and enforce these contracts. This refutes all those theorists, including many free market classical liberalists, who insist that the state, at least a minimal state, is an absolute requirement for any orderly productive market activity. Moreover, it is precisely the initial absence of the state’s regulatory interference that allowed this amazingly productive new economic ecosystem to happen and take off as it did. Decentralised finance (DeFi) is taking off because it delivers financial products that are far superior to what the legacy financial institutions offer, and DeFi offers its superior products to global audiences that hitherto had been excluded from direct utilisation of most financial instruments. A similar crypto-led democratisation is now opening up the hitherto exclusive-elitist art market. What is also important to recognize is that libertarian theoretical insights and libertarian political ideas have been essential inspirations at the origin of bitcoin, as well as of crypto in general, and continue to inspire many crypto and DeFi entrepreneurs and early adopters.

The flourishing crypto landscape shines in stark contrast to the moribund bleakness of the wider economic landscape that everywhere becomes ever more life-less under the ever-tighter controlling grip of the state. It is indeed the black cloud of the diffusely anticipated regulatory onslaught that already casts a compromising and distorting shadow over the crypto landscape too. The ignorance, misinformation, disrespect, conspiratorial backroom flavour and clumsy crudity with which the political and regulatory state machinery is gearing up to assert its controlling grip over the crypto ecosystem stands in stark contrast to the creative and self-critical intellectual sophistication, openness and eloquence of the discourse within the crypto and Defi ecosystem. Crypto-projects thrive through open source transparency, with white papers, economic plans (tokenomics), incentive structures, road maps, and governance structures, all open for critical scrutiny within the discourse of a well-informed community of intellect. Most crypto projects are original, innovative, complex ventures that not only require advanced computer science knowledge but also integrate advanced understanding of financial economics as well as advanced game theory and mechanism design (reverse game theory). Indeed, the unique sophistication, openness, intensity and crucial importance of discourse within the whole crypto adventure supports the author’s thesis of markets and discourses as the equally crucial, complementary global societal systems that together can deliver progress and prosperity, without any need for a fast degenerating traditional nation-state democracy.

Elongated stagnation is a historical tragedy. The importance of economic growth figures is often underestimated, because we tend to overlook or misapprehend the power of compounding. Due to the cumulative, compounding nature of economic growth, differences in annual growth rates that are nearly imperceptible in a single year result in very conspicuous difference after operating and compounding cumulatively over a period of several years. (Due to the compounding effect, economic growth with a steady growth rate describes an exponential growth curve.) An annual per capita growth rate of 10% would lead to 400%, i.e. to a quadrupling of the original GDP per capita in less than 15 years. Everybody, on average, could consume four times as much of everything, or choose to work only half the time and still earn double. Given the individual lifetime income progression most experience, the subjective experience of growth would, for most, be enhanced much further. In contrast, the GDP per capita growth rates we have been witnessing in the best performing European countries in recent years, about 1% per annum, deliver in the same period of 15 years only a 16% overall uplift, hardly a life changing, if at all noticeable, increase. The economist Paul Romer is right when he emphasises growth and suggests that “For a nation, the choices that determine whether income doubles in one generation or two dwarf all other economic policy concerns.”[ii]

For me the Financial crash and subsequent stagnation was the beginning of an intensive engagement with the works of Ludwig von Mises, Friedrich von Hayek, and Murray Rothbard. I also engaged with many more recent and current adherents of the burgeoning intellectual tradition Mises, Hayek and Rothbard had initiated, as well as with the wider economic and political discourse of the wider liberty movement. At the end of this decade I am a confirmed, convinced and committed libertarian (who has been applying libertarian thinking to his profession as architect and urbanist in published articles and public lectures).

But what about my prior intellectual life and political commitments?  Including my current libertarian period, I can identify three distinct ten year periods. The first decade of my adult intellectual life was dedicated to Marx and Marxism. While this outlook, in terms of political coclusions, was diametrically opposed to what I believe now, Marxism and Libertarianism share many philosophical foundations that allowed me to evolve from the former to the latter: both are revolutionary political projects based on deeply probing socio-economic insights. During the intervening middle decade I was intellectually invested in the oeuvres of Juergen Habermas and Niklas Luhmann, and that implied politically a more mainstream stance. I had started with Habermas and over the course of this period I gravitated more and more to Luhmann, which implied that I was moving away from my prior left-leaning outlook and, due to Luhmann’s influence, ended up being rather sceptical with respect to democratic processes and government capacities, trusting much more in evolutionary processes of self-organisation, albeit steered by discourses. My intensive Luhmann studies had thus prepared me well for receiving the insights of Hayek and the libertarians. Most recently my interest in Habermas’ philosophy (but not his politics) was re-ignited.

With reference to Habermas’ extensive oeuvre this treatise is trying to foreground the importance of discourse, and indeed of open, critical, public discourse, as an important institution and progressive societal force that stands as much at the origin of modernity, as the modern institution of the capitalist market. Markets and discourses together delivered the historically unprecedented leap in prosperity humanity witnessed in the last 300 years, and both are sui generis institutions that need to be liberated, strengthened, and expanded for progress to continue at pace. The reflection upon the societal conditions of flourishing discourses are as urgent and pertinent as the reflection upon the conditions of flourishing markets. However, while the latter occupies centre stage in the libertarian movement, a deep reflection upon the former, beyond the mere insistence upon free speech, has been rather neglected. The key thesis of ‘Markets and Discourses’ is that public critical discourses will be of continuing and indeed of increasing importance for societal development after the libertarian revolution, and that the currently prevalent libertarian vision of a purely private, apolitical society of market exchanges cannot deliver the next stage of global civilisation.

This treatise contains many more theses and indeed it’s hard to condense a treatise that is both sprawling in its drive for comprehensiveness and at the same time continuously trying to cohere and systematize, into a set or list of theses. However, that’s what is offered at the end too, as a device, however partial in its ability to summarize, intended to aid comprehension, retention and the translation into actionable propositions.

During the last five years during which I had quite a few occasions to lecture and debate at libertarian conferences, I realized that my extensive prior intellectual investments turned out to be source of perspectives and insights that were perhaps uncommon but thereby also potentially productive of original combustive insights within the libertarian context. The treatise presented here grew out of various contributions and papers I had delivered in the context of these conferences.

While theorizing does not lead to consensus[iii], debate can. What I bring to the libertarian debate and movement will initially be very controversial, perhaps divisive (if not simply ignored). However, no debate and movement is a closed circle, and my ambition and intuition is that my contribution can enlarge the libertarian circle and engender a larger convergence.

This treatise is a manifesto; but also much more than a manifesto: it is a scholarly tour de force with respect to social theorizing. The unifying force here is the unity of the activist agenda: to inform and inspire everybody who is able to contribute to the progress of world society at its technological, cultural and intellectual frontier. While catch up development from behind the frontier is far from being trivial, as the frustrating stories of so many ‘developing’ countries attest to, there are at least current best practice models to emulate. In contrast advancement at the frontier has nothing but theoretically informed speculation to go by. This treatise focusses exclusively on progress at the frontier. That is why theory is so very important here. To be sure, theory is also required when trying to identify the most important ingredients of catch-up development and the causes of the failures to develop. However, there theory can stay very closely connected to empirical investigations. In contrast, the theoretical exploration of a potential libertarian future without precedents is much more theoretical and inevitably far less empirically grounded.

Again, to be sure, any social science, even with less revolutionary aspirations and with the more modest agenda of understanding how the current status quo evolved and is maintained, requires theory, notwithstanding the appearance of simple matter-of-factness of much of empirical social science. Further, there is no doubt that any credible theoretical speculation on new future potentials of societal development must build on a theory that can successfully account what has been achieved up to now.

The theory-ladeness of all advanced sciences is evident enough and it is only in the social sciences (where theoretical approaches proliferate and remain controversial) that theory often seems less crucial. But this is an illusion. As Alfred Marshall once stated with unmistakeable bluntness: “The most reckless and treacherous of all theorists is he who professes to let the facts and figures speak for themselves.”[iv] That even the very identification, selection and establishment of facts, not to speak of their explanation or prediction, requires general theory, as well as even more general constitutive principles, is no longer controversial. It should be equally uncontroversial that explicit theory, thereby opening itself up to criticism, is to be preferred over implicit or unacknowledged theory. Keynes’ memorable dictum that “practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist” should be burnt into every activist’s consciousness. To be sure, theory can also be treacherous and misleading in its explicit form, and it is often all too easy, especially for novices, to be impressed and captured by any given theory, in the absence of alternative propositions or perspectives. There is only one way out of this dilemma, namely to try to scan the whole range of theoretical approaches that have been put forward in recent decades, and to trace the debates between them. No stone must remain unturned, and all approaches are being probed down to their deepest purposes, premises and concepts, where a science and/or project bleeds into philosophy.  In a controversial field like the social, economic and political sciences this is a massive task, albeit one without substitutes or shortcuts. As it turned out, the initially perplexing multiplicity of approaches and theories are more compatible and complementary than irreconcilable, even if the polemical self-differentiations of authors and schools seems to suggests otherwise. When it comes to appraising the potential effects and advantages of radical political change the stakes are high enough to merit a most thorough scholarly investment. This is why this treatise is a rather expansive, ramifying journey in theory exploration, with an agenda to absorb and integrate all perspectives and insights that might be relevant to the theoretical anticipation and appraisal of the general prosperity potentials of a radical libertarian transformation of advanced societies at scale. With my task on the horizon in firm sight, each step of the journey is thereby energized, and any advance a thrill. I hope this energy jumps off these pages and becomes infectious.

Patrik Schumacher, London 2022

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[i] Stockman, David, The Great Deformation: The Corruption of Capitalism in America, PublicAffairs, New York 2013, p.544

[ii] Paul Romer, The Deep Structure of Economic Growth, blog post, February 5, 2019

[iii] David Schmidtz. The Elements of Justice, Cambridge University Press, Cambridge 2006

[iv] Marshall spoke this is an address at Cambridge University, account given by A.C. Pigou (ed), Memorials of Alfred Marshall, quoted in Talcott Parsons, On Institutions and Social Evolution, University of Chicago Press, Chicago 1982