Reason

“Man has only one tool to fight error: reason.”

—Ludwig von Mises

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“Reason is not automatic. Those who deny it cannot be conquered by it.”

—Ayn Rand

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“Intellect distinguishes between the possible and the impossible; reason distinguishes between the sensible and the senseless. Even the possible can be senseless.”

—Max Born

Majoritarianism, rationality, political risk etc

Three quotes from an old (TOI) Sacred Space column-

Individual rights are not subject to a public vote; a majority has no right to vote away the rights of a minority.

—Ayn Rand

A democrat need not believe that the majority will always reach a wise decision. He should however believe in the necessity of accepting the decision of the majority, be it wise or unwise, until such a time that the majority reaches another decision.

—Bertrand Russell

The majority is never right… Who are the people that make up the biggest proportion of the population — the intelligent ones or the fools? I think we can agree it’s the fools, no matter where you go in this world, its the fools that form the overwhelming majority.

—Henrik Ibsen

Rand is as clear and concise as ever, Russell captures the essence of democracy but is a fool for suggesting what he does, and Ibsen is bang on target with his cynicism.

Russell’s comment, and the idea behind it, is outrageous. 50% + 1 (in a two horse race) seems to be some magical number which automatically grants legitimacy to any action taken by the mob. If the mob says raping and plundering the remaining people is legal, then it is. The size of the mob is established as the standard of right and wrong. (Russell is so unconcerned about right and wrong that he refuses to apply that value judgment to the decisions, making use of “wise,” “unwise” and “another” instead.) That is what democracy is, the rule of the majority, the rule of the mob. Which doesn’t say much about the convictions of someone who “believes” in democracy and thereby calls himself a democrat. Herbert Spencer’s polemic on the subject, an extract from his Social Statics, is worth reading-

Of the political superstitions lately alluded to, none is so universally diffused as the notion that majorities are omnipotent. Under the impression that the preservation of order will ever require power to be wielded by some party, the moral sense of our time feels that such power cannot rightly be conferred on any but the largest moiety of society. It interprets literally the saying that “the voice of the people is the voice of God,” and transferring to the one the sacredness attached to the other, it concludes that from the will of the people, that is, of the majority, there can be no appeal. Yet is this belief entirely erroneous.

Suppose, for the sake of argument, that, struck by some Malthusian panic, a legislature duly representing public opinion were to enact that all children born during the next ten years should be drowned. Does any one think such an enactment would be warrantable? If not, there is evidently a limit to the power of a majority.

Suppose, again, that of two races living together — Celts and Saxons, for example — the most numerous determined to make the others their slaves. Would the authority of the greatest number be in such case valid? If not, there is something to which its authority must be subordinate.

Suppose, once more, that all men having incomes under £50 a year were to resolve upon reducing every income above that amount to their own standard, and appropriating the excess for public purposes. Could their resolution be justified? If not, it must be a third time confessed that there is a law to which the popular voice must defer…

There is another problem with the “majority” and it is not merely a political one. It will hide behind the “we are not infallible” excuse and perpetuate every kind of atrocity it can dream of. Fifty (or five hundred, the period is hardly relevant) years down the line, it will come to its senses, maybe apologize, and then will overcompensate for its mistakes thereby doing injustice to someone else. And at the same time it will commit some other atrocity which it will apologize for decades later, and so on… ad infinitum. What it can’t get done through politics, it accomplishes through ethics, or religion, or both. As Nietzsche writes in the aphorism I quoted the other day, the individual helps society screw him when he accepts its (flawed) moral standard. A Randian idea which describes this mess is the “sanction of the victim.”

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I haven’t read any Ibsen, and so went looking for the source of the quote. Its from his play “An Enemy of the People.” The words of those of the protagonist, a Dr. Stockmann-

The majority is never right. Never, I tell you! That’s one of these lies in society that no free and intelligent man can help rebelling against. Who are the people that make up the biggest proportion of the population—the intelligent ones or the fools? I think we can agree it’s the fools, no matter where you go in this world, its the fools that form the overwhelming majority. But I will be damned if that means it’s right that the fools should dominate the intelligent. [Uproar and shouting.] Yes, yes, shout me down if you like, but you can’t deny it! The majority has the might—more’s the pity—but it hasn’t right. I am right—I and one or two other individuals like me. The minority is always right.

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O&M quotes Krugman-

[Economists] turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets — especially financial markets — that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation. . . . When it comes to the all-too-human problem of recessions and depressions, economists need to abandon the neat but wrong solution of assuming that everyone is rational and markets work perfectly.

In Krugman’s universe, being rational means being able to exactly predict who your great-great-great-great-great-grand-son will marry when he turns twenty five and also whether it will rain that day. No wonder he’s angry about economists building models based on the idea of man’s omniscience. They should replace it with models where its the bureaucrats, politicians and Krugman who benefit from such omniscience.

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The Mises blog has a post on hyperinflation, and a warning-

The Dollar Meltdown include[s] several chapters on how Americans can preserve their wealth and personal sovereignty by converting their US dollars to hard assets such as various forms of gold, silver, and crude oil investments. But beware something like the Gold Reserve Act of 1934 where the Government made it a felony to possess gold and mandated that Americans turn it in for $20.67 – and then commanded that gold not be worth less than $35.00 – thereby fleecing Americans of $3 billion.

That’s something one would expect in a banana republic. Sudden diktats, edicts, or coups, which could wreck all calculations overnight. Political risk, it is called. But who says the USA isn’t one? Or India for that matter? A banana republic.

Exchange economy

An excellent post (actually an excerpted chapter from a book) on the Mises blog on how markets function that uses Crusoe-nomics to make its point. Somewhere in the middle of the article, the author says-

Exchange does not arise from a “propensity to trade.” In order for an exchange to take place, both parties must feel that they will be better off after the exchange. That is the prerequisite for all action — the actor must feel that the action will improve his state of satisfaction when compared to not acting. He is attempting to move from what is to what ought to be.

Both Hayek and Adam Smith seem to have placed less emphasis (understatement) on human rationality in their theories. I presume that’s what Callahan hints at with that paragraph of his. There is always a “purpose” behind all exchange, all human actions. Like Mises says in his Human Action (I am lifting the following from a comment of mine on another post)-

Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life. Such paraphrases may clarify the definition given and prevent possible misinterpretations. But the definition itself is adequate and does not need complement of commentary.

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Many champions of the instinct school are convinced that they have proved that action is not determined by reason, but stems from the profound depths of innate forces, impulses, instincts, and dispositions which are not open to any rational elucidation. They are certain they have succeeded in exposing the shallowness of rationalism and disparage economics as “a tissue of false conclusions drawn from false psychological assumptions.” Yet rationalism, praxeology, and economics do not deal with the ultimate springs and goals of action, but with the means applied for the attainment of an end sought. However unfathomable the depths may be from which an impulse or instinct emerges, the means which man chooses for its satisfaction are determined by a rational consideration of expense and success.

[…]

Human action is necessarily always rational. The term “rational action” is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man. Since nobody is in a position to substitute his own value judgments for those of the acting individual, it is vain to pass judgment on other people’s aims and volitions. No man is qualified to declare what would make another man happier or less discontented. The critic either tells us what he believes he would aim at if he were in the place of his fellow; or, in dictatorial arrogance blithely disposing of his fellow’s will and aspirations, declares what condition of this other man would better suit himself, the critic.

Forcing people to be ‘rational’

David Gordon of the Mises blog has reviewed a book – Peter Ubel’s “Free Market Madness: Why Human Nature Is At Odds With Economics — And Why It Matters.” Gordon writes-

Ubel, a physician trained in economics and psychology, uses behavioral economics to advocate restrictions on the free market. The market, he thinks, has its place: he quotes Adam Smith on the benefits of the division of labor and enthusiastically agrees. But market fanatics have gone too far. They defend the shocking contention that people should be free to choose as they wish, so long as they do not use or threaten force against others. Accordingly, these misguided people defend an unlimited free market: in it, the choice of consumers determines what will be produced.

Ubel agrees, at least to a large extent, that the market does exactly this. (Like most economists except Austrians, he makes an exception for public goods and externalities, but his attack on the free market in this book lies elsewhere.) But he dissents from the view that this justifies the free market. It would do so only if people chose rationally in their self-interest, and this by no means always holds true.

Science, Ubel tells us, has demonstrated people’s irrationality beyond reasonable doubt. Ubel’s tale here has three principal heroes: the psychologists Daniel Kahneman and Amos Tversky, who performed pioneering experiments that show how unreasonably people decide, and the economist Richard Thaler, who developed similar ideas and brought the work of these psychologists to the attention of the economics profession. Their research explodes market fundamentalism

How does it do so? For one thing, our heroes say, people often make mistakes in reasoning. If people reason wrongly, how can they hope to get what they really want?

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Regardless of its causes, though, obesity unquestionably poses health risks to many people, and Ubel wants to bring in the state to rectify matters. If you object to him that people ought to be free to decide how much to eat, or whether to smoke, for themselves, he will answer that their choices, marred by cognitive mistakes, cannot be considered the outcome of rationally self-interested deliberation. This contention, I have endeavored to show, he has failed to prove.

But he also says something else. Why, he asks, should one exalt freedom as the supreme political virtue? Must not freedom be balanced against other components of the good life? Ubel invokes Aristotle, who

viewed one of the major functions of society as being to create an environment that develops virtuous actions in its citizens. We could do worse than to follow his advice. (p. 224)

Ubel for once is right. In order to decide on correct social policy, one must posses a sound philosophy of ethics and politics, one that will consider how various goods can be achieved. Despite this bow to philosophy, though, Ubel shows no awareness that state paternalism is a controversial issue. For him, once we know that a choice has bad results, we can at once legitimately ask what the state can do to improve matters. To think otherwise makes a fetish of freedom; and he quite readily describes his proposals as paternalist.

This is a dangerous – very dangerous – position to take, and is a classic “positive liberty” position (S.E.P) – claiming that people are not “really free.” And that society or government should adopt paternalism and become a “nanny state” to guide people. From the Stanford Encyclopedia of Philosophy article-

[B]erlin, himself a liberal and writing during the cold war, was clearly moved by the way in which the apparently noble ideal of freedom as self-mastery or self-realization had been twisted and distorted by the totalitarian dictators of the twentieth century — most notably those of the Soviet Union — so as to claim that they, rather than the liberal West, were the true champions of freedom. The slippery slope towards this paradoxical conclusion begins, according to Berlin, with the idea of a divided self. To illustrate: the smoker in our story provides a clear example of a divided self, for she is both a self that desires to get to an appointment and a self that desires to get to the tobacconists, and these two desires are in conflict. We can now enrich this story in a plausible way by adding that one of these selves — the keeper of appointments — is superior to the other: the self that is a keeper of appointments is thus a ‘higher’ self, and the self that is a smoker is a ‘lower’ self. The higher self is the rational, reflecting self, the self that is capable of moral action and of taking responsibility for what she does. This is the true self, for rational reflection and moral responsibility are the features of humans that mark them off from other animals. The lower self, on the other hand, is the self of the passions, of unreflecting desires and irrational impulses. One is free, then, when one’s higher, rational self is in control and one is not a slave to one’s passions or to one’s merely empirical self. The next step down the slippery slope consists in pointing out that some individuals are more rational than others, and can therefore know best what is in their and others’ rational interests. This allows them to say that by forcing people less rational than themselves to do the rational thing and thus to realize their true selves, they are in fact liberating them from their merely empirical desires. Occasionally, Berlin says, the defender of positive freedom will take an additional step that consists in conceiving of the self as wider than the individual and as represented by an organic social whole — “a tribe, a race, a church, a state, the great society of the living and the dead and the yet unborn”. The true interests of the individual are to be identified with the interests of this whole, and individuals can and should be coerced into fulfilling these interests, for they would not resist coercion if they were as rational and wise as their coercers. “Once I take this view”, Berlin says, “I am in a position to ignore the actual wishes of men or societies, to bully, oppress, torture in the name, and on behalf, of their ‘real’ selves, in the secure knowledge that whatever is the true goal of man … must be identical with his freedom” (Berlin 1969, pp. 132-33). (all emphasis mine)

The idea of positive “liberty” is crazy, and so are its proponents – negative liberty is the way to go – the absence of coercion. To the Ubels of the world (his book is after all an attack on capitalism first), Ludwig von Mises had this to say-

If one rejects laissez faire [capitalism] on account of man’s fallibility and moral weakness, one must for the same reason also reject every kind of government action.

One more thing – Aristotle is not the final word on ethics or politics; for example, in his Politics, he presents a (n unconvincing) defense of slavery.