On the cornerstones of civilization

A primitive man whose only objective in life is to collect enough berries to survive would most likely be considered uncivilized today. Developed societies prefer to describe themselves as "civilized". But where is that dividing line between a caveman collecting berries and a salesman selling them?

In short, it is time preference. Our berry collector has a very high time preference - everything he produces (by collecting berries) he immediately wants to consume (by eating them). By not eating all berries and instead trading some for, say, clothes, other foods or weapons, he could increase his health and security and further down the road he might even have the prospect of living in a hut instead of a cave. A man living in a hut is certainly more civilized than one who dwells in a cave. Of course, this only works if at least two people share a time preference below immediate consumption of all goods produced, that is, if at least two people have saved goods to trade them afterwards. Civilization is thus largely dependent on human cooperation; it is individuals interacting in their rational self-interest. It is a community phenomenon also known as "the free market".

Obviously, those who consume all they produce immediately cannot take part in this exchange community. As time passes, an increasing number of producers will recognize the benefits of lowering time preference to save and trade and the market web will expand, thereby enriching every participant. Those with exceptionally high time preferences will soon be a tiny minority, but even these people will benefit from others' capital accumulation, be it through a wealthy man's ability to donate to charity or through surplus production that is given out for free.

Given time, this market process will eventually lead to modern civilization. While ideas, resources and business opportunity all play a role in it, the most important and fundamental prerequisite is low time preference; the willingness of a sufficient number of people to sacrifice present consumption for the sake of future profits that enables others to develop and materialize their concepts and productive endeavors. Henry Ford's ideas on automobile production would've been as valid 3000 years ago as they are today; still, with high time preference being the prevalent attitude, no factory could be built or sustainably run due to a lack of credit (that is, deferred consumption) and also purchasing power.

Productive processes can be reversed and destroyed if time preferences shift upwards again. A famous example would be the Roman Empire where, in its end phase, drinking orgies and corruption on all levels of society were quite common since investing and producing had long become unprofitable due to adverse political circumstances. Sounds strangely familiar, doesn't it? The strong economic foundation of the Roman Empire can still be seen today in its resilient ruins that have endured 2000 years of destructive environmental influences. Still, the productive processes that kept the Empire alive eventually came to a halt. That's when the somewhat intellectually developed world ended and a long dark age set in.

Can this happen again today? Yes, most certainly. Ironically, the Romans suffered from similar problems that we experience today - depreciated currency, nepotism, a burdensome military budget etc - that ultimately raise time preference to unhealthy levels. The rationale has remained the same over the centuries: if production doesn't get me anywhere, I might as well get drunk.

That's how civilizations perish. And that's why we shouldn't fall for the same temptations that have wrecked so many of them before us - because, in my humble opinion, there's something to be said for Western civilization after all.

Free markets and morality II

Today I'll try to counter a somewhat tricky "ought to" argument that is sometimes yielded against free markets. It is often answered by pointing out its subjectivity ("you may consider that to be bad, not everyone does"), but I think there's a better approach to the topic. Anyway, our concern today is this:

Free markets create a dull kind of consumer culture. People lose their intellectual capacity and fall for cheap and quick pleasure. Thus, even if free markets were superior in producing goods, they are bad for humanity and its progress.

Prima facie, the assertion of the argument (free markets create a consumer culture) appears to be valid. After all, we see advertisement, consumption and shopping rushes all around us, and we're constantly being told that our system of trade constitutes a free market.

But free markets generally lack forced expropriation of wealth produced, also known as taxation, especially in the amount it is occuring today. Add to this an increasing insecurity as to when the next expropriation raise will happen and how big it will be.

There's also the state-caused danger of being victimized by a terrorist attack aimed at hurting a certain collective. Let me elaborate. Whenever you hear someone saying that he "hates the West" or "Western values" or whatever, for whatever reason, this includes you. You may never have met that person, nor desired to hurt the person in any way, but your government has or is at least considered to be a threat. Since you cannot withdraw your consent from being subject to your particular government, you'll be associated with it. So, especially in an age of Western imperialism and warfare, the danger of being hit for no other reason than living where you live increases. This sets no incentives for future-orientation either.

Public schooling is hindering the development of farsightedness and forward planning as well. As I pointed out in my last entry, public schools create peculiar kinds of habitats which resemble prisons to a certain extent and which teach students how to be popular and how to worry about short-term goals like the next exam, but rarely about growing up and taking responsibility. You'll notice the difference in self-reliance when comparing a homeschooler and a public school inmate of about the same age.

These three factors are, in my humble opinion, the biggest contributors to a high time preference or present-orientation: great levels of wealth confiscation and legal uncertainty, an increasing number of government-created dangers and perils and institutional depravation.

None of these are the outgrowth of a free market, as my readers may already have noticed. Of course, this attribution may just be my random opinion, an unconvinced opponent of the free market may now say. How can I be sure that free market economies are not the main culprit for social disintegration?

Well, based on the observation that humans act, we have to assume that humans structure their actions since we cannot fulfill all of our goals at the same time. In other words, humans have to prioritize their actions. Highest priority means highest importance, highest incentive or highest inclination.

Contrast the two scenarios:

a) A has complete control over all of his assets. He can be sure that no person X or Y will keep him from investing as he pleases.
b) B has partial control over his assets. He cannot directly influence the distribution of those resources that are taken away from him. He doesn't know how many resources he will be allowed to keep next year.

Which person has a greater incentive to spend and consume right now instead of saving and investing? Thus, which person will be more inclined to engage in consumer culture behavior?

a) A is responsible for his own behavior, not for the attitudes and actions of others. If his neighbor publicly insults any group of people, they will focus their anger on his neighbor rather than him.
b) B, while not being responsible for the behavior of others, will be associated with it as long as they inhabit the same country as B. Since B has little control over the behavior of all of his countrymen, let alone his government, he has to assume to be hated by others without really knowing why.

Which person has a greater incentive to behave irresponsibly since the cost of behaving badly can be partially socialized? Which person will see the future and thus future investment and future-orientation more favorably?

There is little incentive for a person living in a system of free trade and free association to behave irresponsibly, both personally and economically. Carelessness and headless behavior occur when the state mechanism sets in. Frédéric Bastiat said that "the state is the great fictitious entity by which everyone seeks to live at the expense of everyone else". Threatened by such a monstrous devourer, people tend to become present-focused as they figure there might not be much time left before the monster gets too big. They also tend to focus on playing the state game rather than being productive.

All this leads to a dull-minded consumer culture. Who cares about education if you can enjoy yourself? Who cares about farsighted decisions if the future most likely sucks? Rather drive that sports car now than expand your enterprise, can't compete against state-protected corporate giants anyway.

Once again, it is thus the state that is to blame, not the market.