Tuesday, October 06, 2015

Horwitz Rides My HobbyHorse

The Center for a Stateless Society's October "Mutual Exchange" symposium covers the question "Do Free Markets Always Produce a Corporate Economy?" I suspect you'll enjoy Cory Massimino's introduction, Kevin Carson's lead essay, and rejoinders from Derek Wall and Steven Horwitz.

In this post, I don't want to cover the whole question, but I do want to point out something from Horwitz that applies to more than just that question:

There is no doubt that the interventions of governments at various levels have subsidized aspects of the current structure of the US economy, as Carson points out. The state's role in building interstate highways and the railways certainly enabled producers to externalize the costs of transportation onto others. Carson concludes from this that such large-scale transportation systems would not exist in a free society (or would not have existed had we been a free society) and that economies would be more regional and local. Perhaps. It is always worth reminding left-libertarians that you can’t prove a counter-factual.

When and where I disagree with Carson (which isn't nearly as often as you might think), it tends to be on that very subject ("what would have happened if A, instead of B, had happened a long time ago?") or on the related subject of predicting, other than in an extremely broad sense, future outcomes from this point ("if we free the market today, what will society look like 50 years from now?) Carson tends to be a little braver than I am on both matters. I consider it hubris to speculate as much as he does, even though we agree on broad outlines.

This caution of mine versus the speculations of others doesn't just apply to matters economic.

We know that the harsh provisions of the Versailles Treaty at the end of World War One contributed in a big way to the rise of Hitler and his Nazi Party to power. However, it is not possible, from that knowledge, to know for certain that Hitler and the Nazis (or people like him and them) would not have risen to power in Germany if the treaty provisions had been less onerous. We can assume that if things had gone differently than they actually did in 1918, things would have looked differently than they actually did in 1938, but we can't know what the particular differences would have been.

We know that in World War Two, the Soviet Union turned back Hitler's forces short of Moscow before the first US Lend-Lease shipment arrived. My own "counterfactual," as Horwitz puts it, is that if the US had not entered the war, Hitler would still have lost but that the Soviets would have been too weak to have extended their rule over all of eastern Europe for 45 years afterward. But I can't prove that, and if I ever claim it as fact, I should be lectured on my hubris. If the US had not entered the war, the outcome would have been different. How different and in what ways? I don't know. Neither do you.

So, let's look at a couple of the questions raised in this mutual exchange:

In the mid-19th century, the US government heavily subsidized the construction of railroads in the American west. Railroad companies were given land grants -- not just for the right of way, but for some distance on either side -- and had their bonds guaranteed by the government. Those bond guarantees artificially made the railroads more attractive than other things as investments. And those land grants meant that the railroads could build, own and control their own towns along routes they chose (and make big money on that fact), rather than having to choose routes that went through existing towns.

There's no doubt whatsoever that government subsidies for the railroads wildly distorted the direction of the American economy in ways that we feel to this very day. Whole cities popped into existence which might not have (or which might have popped up elsewhere) had those land grants not been handed out. Manufacturers located where they did (near the railroads) instead of where they might have. Crop farming and cattle ranching were affected -- it was easier to operate near a railroad and ship your crops or cows out by train than to cart crops long distances in wagons and have cowboys drive your cattle a thousand miles to market.

What would America have looked like absent those railroad subsidies and land grants? I don't know. All I can do is confidently assert that it would look different. How different or in what ways are unprovable.

Sam Walton ran several Ben Franklin stores in northern Arkansas. When the US government began building the Interstate Highway System, he had a bright idea. He rented a plane and started flying over the projected highway routes, looking for towns where he could build stores near highway exits. He did this because he realized that the Interstate Highway System would make it cost-effective to supply a large, maybe even nationwide, chain of stores from central warehouses. In fact, one of the fairly early Wal-Marts was located in the town I grew up in, along I-44 in southern Missouri.

The Interstate Highway System itself was an indirect subsidy to Wal-Mart. I don't blame Sam Walton for taking advantage of the situation. He was just a bright guy who saw an opportunity and exploited it. But government intervention in the building of roads was what created the opportunity. Furthermore, to this very day, there's a direct subsidy to Wal-Mart and other businesses that rely on the Interstate Highway System built into that system. Those big 18-wheelers do a LOT more damage to roadways than passenger cars do, and the gasoline taxes used to finance road maintenance and repair do not capture that cost differential. Every time you fill your tank up, you're paying more than the cost of repair/maintenance costs imposed by your own driving. You're kicking in, like it or not, to subsidize Wal-Mart's system of moving goods on those roads.

Absent the Interstate Highway System and the ongoing gas tax subsidy, would Wal-Mart be the giant enterprise that it is? I don't know. Maybe it would be a small regional chain. Maybe it would have found some other way to get just as big as it is. We know what did happen. We can't prove what might have happened.

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