The Misesian: Unfortunately, we live in an age of a “mixed economy” and “regulated capitalism.” This means that the private sector and the government sector are mixed together, and it’s not always clear where the state ends and the private sector begins. How can we determine if a private company is a true partner of the state— truly benefiting from state power—or if the private company is really a victim of the state?
Robert P. Murphy: Let me say at the outset that when it comes to evaluating the real world from the perspective of normative libertarian ethics— as opposed to positive Austrian economics—we don’t always end up with crystal-clear answers. This is why legal systems require judges to apply the law to specific cases, and why even unbiased expert judges often disagree with each other’s rulings in particularly messy situations. So before we dive into the particular examples you’d like us to discuss, let me at least try to help the readers by walking through some obvious cases, in order to build up a toolbox of principles (perhaps at times contradicting each other) that can be used to analyze more difficult scenarios.
Also, before walking through some relatively straightforward situations, let me remind people of how Murray Rothbard framed libertarian political thought. In The Ethics of Liberty, Rothbard explains: “We shall be speaking throughout this work of ‘rights,’ in particular the rights of individuals to property in their persons and in material objects. But how do we define ‘rights’?”
Rothbard then reproduces this succinct definition from a 1974 essay by James Sadowsky: “When we say that one has the right to do certain things we mean this and only this, that it would be immoral for another, alone or in combination, to stop him from doing this by the use of physical force or the threat thereof. We do not mean that any use a man makes of his property within the limits set forth is necessarily a moral use.”
In this passage, Sadowsky shows the important—but limited—relationship between libertarian (natural) law and morality. If libertarian property analysis concludes that Smith has the right of self-ownership of his body, and therefore has the right to, say, ingest heroin or work on the Sabbath, these conclusions do not imply that it would be moral for Smith to engage in either of these activities. Maybe it is, maybe it isn’t, but the important point is, libertarian theory as such doesn’t tell us the answer to these questions.
However, we shouldn’t conclude that libertarianism is completely divorced from morality. Even though one may believe (as a devout religious person, perhaps) that it is indeed immoral to ingest heroin or work on the Sabbath, if such a person also adheres to libertarianism—at least in the tradition of Murray Rothbard—then this person would have to also accept that it would be immoral to threaten the use of physical force against other people in order to deter them from ingesting heroin or working on the Sabbath.
I hope the reader forgives my lengthy explanation, but over the years I have seen so many self-professed libertarians botch this simple distinction, arguing for example that “everything is OK as long as you don’t violate anybody else’s rights,” or even chastising other libertarians on social media who complain about a business practice, pointing out to them that “the business has the right to do that.”
To put the matter differently, respecting other people’s rights is a necessary, but insufficient, condition for moral behavior. Different people—even if they are all card-carrying libertarians—can adopt different moral codes and judge others accordingly. There is nothing inherently contradictory about this. (To be sure, if morality is absolute, and actions really are objectively good or objectively bad, then a critic’s moral judgment can either be valid or not. But my modest point is, a self-described libertarian is allowed to say other people’s actions are immoral, even if those actions don’t constitute rights violations. The consistent libertarian just can’t threaten physical force to influence other people’s behavior in this regard.)
Now that I’ve reminded readers of Rothbard’s approach to libertarian legal theory and morality, let’s go through some “easy” cases to get our bearings in this complex terrain of state interaction with private businesses. First and most obvious, the owner of a business can’t be faulted on libertarian grounds if he uses his own property in a way that doesn’t have an obvious connection to rights violations, even if his decisions have been influenced by the state’s threat to violate his rights.
For example, if the owner of a restaurant refuses to sell alcohol because the county government hasn’t granted him a liquor license and armed men will show up to punish him if he serves beer, then there is nothing problematic on the part of the restaurant owner. He certainly has the right to refrain from selling alcohol, and in this context there’s no reasonable way that his decision to avoid punishment from the state leads to rights violations.
Now consider a different restaurant owner, located in the same city, who does cough up the money and time to obtain a liquor license. Having the ability to sell alcohol gives this owner an advantage vis-à-vis his competitors who lack a license. If there were a straightforward market, with a flat fee and an unlimited supply of licenses, the license might not confer an advantage; in general we would expect that restaurant owners would apply for licenses up to the point at which the total cost of obtaining a license would just about equal the extra income to be obtained from being licensed to sell alcohol. However, in practice the government agency issuing such licenses might restrict their supply such that those obtaining them enjoy a definite boon (or what some economists would call a rent). Even so, as long as the fortunate owners didn’t lobby for the establishment of the licensing system, or use any nefarious means to ensure that they were in the privileged club, it’s hard to find fault with them for applying for a license to sell alcohol to their willing customers. If all of the restaurant owners in the region scrupulously refrained from applying (perhaps fearing that they would unfairly be stealing market share from their competitors, who couldn’t all get licenses), that wouldn’t be helping the community at large. No, it would simply make it impossible for the public to get alcohol at a restaurant.
Things are entirely different if a business owner agitates for the creation of such a government-enforced cartel. For example, in the wake of the 1910 Flexner Report, government coercion was used at the state level to restrict medical licensure to graduates of ostensibly high-standard programs and to exclude practitioners of homeopathy and other approaches. For a more modern example, if the cab drivers in a city lobbied the government to ban Uber and Lyft (only to “protect the public,” of course!), this would be clearly illegitimate from a libertarian perspective.
The big picture is that intent matters. It’s not enough to show me that a particular business benefits financially from state activity. If the people running that business wanted nothing to do with the bureaucrats and played no part in erecting the framework, then their participation in the “rules of the game” might be making the best of a rotten situation. If my answer surprises some readers, let me remind them that in general, when it comes to legal matters, intent matters. If Smith objectively caused the death of Jones, that by itself doesn’t prove there was a crime. First-degree murder requires not just intent but also premeditation.
TM: In some cases, it seems that “private” companies overwhelmingly rely on taxpayer money for their overall revenue model— companies like Dominion, which makes voting machines, and the one formerly known as Blackwater—and then there are weapons manufacturers. What are we to make of companies whose primary customer is the government?
RPM: To answer your question here, I am going to supplement my earlier “obvious” scenarios with one more: In standard legal analysis— and by extension, I think, in any natural law approach—not only is it wrong to directly violate someone’s rights, but at least in certain situations it is also wrong to use voluntary means to directly facilitate a third party’s violation of someone’s rights. For example, in the abstract, there’s nothing dubious from a libertarian perspective about paying wages to a worker. However, most libertarians would agree that it is a crime to hire a hitman to go kill an innocent person. Likewise, making a bogus report to the police that your neighbor is a drug dealer or telling party officials in the days of Stalin that your neighbor was a class traitor are directly linked to clear rights violations, and hence are immoral on libertarian grounds.
In this context, I think it is clearly dubious for a private company to accept government contracts where it is well known that the goods or services being provided will be used by the state to violate the rights of innocent people. On these grounds, I think we can definitely conclude that in today’s world, weapons manufacturers selling to the US government should not be considered part of the voluntary private sector. (In contrast, if a minarchist regime bought firearms from a conventional gun manufacturer in order to equip its weekend militia for genuine defense against external invaders, that would be a much more nuanced situation.)
That said, your question, if I understand it, actually has more to do with the source of the funds than with the purpose to which they are put. So rather than focusing on the ends (such as blowing up foreign civilians in conflicts where the US government has no business), let’s instead look at the means. As the meme informs us, “Taxation Is theft.” So if a company specializes in providing clowns for children’s birthday parties, should a libertarian view it with disdain if its chief customer is actually (say) the local school district, which uses property tax receipts to provide entertainment to the children periodically?
Here things get a lot murkier. Given that the government funds certain enterprises that would definitely exist even in a free market, how should the conscientious libertarian interact with these enterprises? And how should we wish the people in charge to operate them? Dave Smith did an excellent job making the case to me on The Human Action Podcast that government officials should run state-controlled property the way private owners would. (Here Dave was drawing on the writings of Hans Hoppe.) He argued that it was reasonable for libertarians to urge government officials to (say) keep drug addicts out of playgrounds and to exercise discretion at the border by allowing only some people to enter the country. So the difference between arms manufacturers and (say) road builders is that (in the current US context) the former are facilitating downstream rights violations while the latter aren’t.
Once we go down this path (which I think is reasonable from a libertarian perspective), it’s conceivable that a business could accept funding from the government. For example, in an outright socialist regime, I wouldn’t expect everyone to drop dead from starvation out of fealty to the nonaggression principle. For a less obvious example, I don’t begrudge economists who choose to be professors at state universities in so-called mixed economies. After all, I think colleges would exist in an anarcho-capitalist society, and that tax money (which is partially used to pay the employees of state schools) was going to be taken whether, on the margin, a particular libertarian economist took a teaching post or not. (To avoid confusion: I personally decided when I entered academia that I would not take tax dollars as salary; I had been writing that it was stolen money, and so how could I? But again, I wouldn’t fault teachers in the Soviet Union for accepting government money, so this isn’t a black-and-white principle.)
So to give a formal answer to your question, I think it’s possible for a company to receive a majority of its funding from the government and still be legitimate, so long as its products/ services would exist in a free market and its private-sector demand is simply being displaced by the government. However, without the mooring of genuine market competition and voluntary patronage from customers who have the option of withholding their funding, this is a very slippery slope in practice. If a business relies largely on government sales, and especially if there are no privately funded peers with which to compare it, I think the presumption should be that such a business is operating against the public’s interest.
TM: In recent elections, we’ve heard a lot about how social media companies have worked closely with government agencies to control what can be said or shared on social media platforms. How much responsibility should be placed on the private-sector companies that assist in this sort of thing?
RPM: Here I think we should distinguish between our feelings about the individuals running such companies and our justification of their behavior because of its (alleged) basis in private property. Specifically, to the extent that government officials either implicitly or explicitly threatened the staff at Twitter and Facebook to “moderate” content (for covid misinformation, Russian election interference, and other alleged dangers), and if we believe that the staff would not have done so in the absence of such threats, I don’t think we should be upset with those individuals, because in such a scenario, they too were the victims of government coercion.
However, even if this is the case (and the reality was probably somewhere between complete coercion and enthusiastic compliance), libertarians still shouldn’t defend such practices by saying, “Well, hey, it’s a privately owned platform, and they can set whatever content rules they want.” For an analogy, the standard libertarian position is that a hotel owner can deny service to any individual he wants, even if it’s for reasons of bigotry. But if the government, behind the scenes, pressures the hotel owner to deny service to a group of people it considers subversive, then those targeted individuals are victims of government aggression. It would be obtuse to argue that the only victim is the hotel owner. If we want to think in terms of rights violations, it would definitely be a violation of a nonaggressive individual’s rights if the government declared, “You are not allowed to rent a hotel room or post on Twitter.” It is also definitely a rights violation if the government tells a hotel, “You are not allowed to rent to this person” or tells a social media company, “You must censor this person’s posts.” I am not sure the latter activities violate the individual’s rights, but even so, the government is violating rights, and in the process is causing harm to the individual even in these scenarios.
TM: Another big issue in this arena has been the close relationship between the banking sector and the federal government under the pretense of “too big to fail.” When the federal government chooses specific banks to benefit from special loans and easy access to cash, is it not propping up specific politically connected companies?
RPM: Yes, this is why many of us warned, in the wake of the financial crisis of 2008, that the Fed’s “extraordinary” programs were a very bad precedent. By engaging in massive purchases of mortgage-backed securities, the Fed lulled the public into accepting Fed purchases of all sorts of assets, so long as the activity could be described as “shoring up the financial markets.” Here too, though, the situation in the real world is very nuanced, and intent matters. For example, Treasury Secretary Hank Paulson forced the major banks to accept capital infusions after the 2008 crisis (who pointed out that their chief regulator, Ben Bernanke, was sitting in the room with them), and more recently JPMorgan Chase’s Jamie Dimon has publicly criticized the overregulation of US banks. So I wouldn’t fault any individual bank CEO for taking bailout money that he literally couldn’t refuse.
TM: One particularly sticky issue is “tax breaks,” which are more of an issue at the state and local levels. In many cases these tax breaks are given to specific companies chosen because they will allegedly help the local economy. It is often said that tax breaks given to specific companies are fine because a tax break is always good. But if only one or two politically favored companies receive these tax breaks, isn’t the government essentially doling out favors and circumventing the competitive market? What is your take on this?
RPM: In terms of pure economics, I think tax cuts are always beneficial on average, in the same way that reducing tariff barriers (which after all are just a specific kind of tax) delivers a mix of gains and losses, but in the case of tax cuts, the total gains to the winners outweigh the total losses to the losers.
However, we need to be crystal clear here on what the relevant comparison is. Let me illustrate with an exaggerated example to drive home the point: If the choice is between (a) the current tax code and (b) the current tax code with a new $1,000 credit granted to people who slap a “Coexist” sticker on their bumper, then I would favor the latter. It clearly helps people to have the option of snatching back $1,000 of their tax payments in exchange for putting a goofy bumper sticker on their car. If people don’t think it’s worth it, they can continue to pay their original tax liability and be no worse off than if we had gone with option (a). However, why do we have to confine ourselves to these two choices? If the government is thinking about handing out $1,000 tax credits, then it would be even better for it to allow option (c), where people get the credit simply for going to the IRS website and requesting it, making it universal, or—if it is insisted that the credit be tied to some type of socially beneficial activity—become eligible by demonstrating an ability to do ten push-ups.
Murray Rothbard argued that the libertarian should always accept a movement toward liberty, even if it’s only a partial victory. For example, if the government reduces the tax rate from 40 percent to 30 percent, that is to be cheered; the libertarian shouldn’t pout in the corner because “we still have a 30 percent tax.” So in general, yes, any tax credit is a good thing, in that it gives individuals more options to retain their property. However, during the public discussion over introducing such a tax credit, I think libertarians should be urging broad-based tax rate reductions rather than clamoring for one-off credits.
TM: Finally, back to the healthcare issue. One of the most complicated markets in the United States is the healthcare market because— thanks to Medicare, Obamacare, and other government regulations and programs—the whole healthcare market is dominated by government spending. On the other hand, we know that private health insurance companies were very much involved in writing the Obamacare legislation. So, are there really private healthcare markets at all at this point? Or are we dealing with something else?
RPM: I think the entire apparatus of healthcare in the United States is a perverse creature of the state, with only limited pockets of entrepreneurial innovation. (See my Human Action Podcast interview with Dr. Keith Smith, who formed the insurance-free Surgery Center of Oklahoma, which delivers quality surgeries at tiny fractions of what conventional hospitals charge and posts all its prices online.) Imagine if Americans had to buy a new car by picking out the vehicle at the dealership, signing the paperwork agreeing to be on the hook for the purchase, and only then being informed of the price! Yet that is literally the state of medical care in the US.
Here I think the quickest relief would be for the government at all levels to open up competition. By all means, the medical licensing boards could still provide recommendations as to which doctors they think are qualified, but it shouldn’t be illegal for others to sell medical services to willing clients. By allowing for drastic and immediate drops in prices, this type of reform would make it feasible for more patients to switch away from reliance on their insurance to instead paying out of pocket for their routine care. This would restore the healthcare industry to a genuine market, where businesses have to please their customers while watching costs.
