by Bradley Doucet*
Targeting Economic Illiteracy: A Review of Joseph Heath's
Filthy Lucre (Print Version)
Le Québécois Libre, June 15, 2009, No 268.
University of Toronto Associate Professor of Philosophy Joseph Heath did
not write Filthy Lucre with a reader like me in mind. This is
clear from the book's subtitle: Economics for People Who Hate
Capitalism. As a libertarian, I obviously do not hate capitalism. It
is also clear from the structure of the book that I am not its intended
audience. Divided into twelve chapters, devoted to six right-wing and
six left-wing economic fallacies, the right-wing fallacies come first.
This is meant to establish Heath's left-wing bona fides and to soften up
the left-wing reader so he or she will be more receptive to taking a
long, hard look in the mirror in later chapters. Since this is a book on
economics, and I am economically on the right, this structure was
more likely to start off by irritating me for six chapters, making it
unlikely that I would even reach the later stuff.
The fact that I not only finished the book but enjoyed it enough to
recommend it is a testament to Heath's clarity as a thinker and skill as
a writer. Even though I often disagreed with what I was reading, I never
found it stupid or insulting. Indeed, when Heath is wrong, he is often
usefully wrong, clarifying rather than obscuring the debate. Furthermore,
if he manages to reach a substantial portion of people on the left, I
think society as a whole would move several steps in the right
Economics in Twelve Lessons
When was the last time you read a book written by someone on the left
that praised Henry Hazlitt's Economics in One Lesson, a book
explicitly modelled after proto-libertarian Frédéric Bastiat? If you
answered "never," you'll be as pleasantly surprised as I was to read, in
Heath's Introduction, that "Hazlitt's book should still be essential
reading for anyone interested in knowing which way is up and which way
is down in the world of economics."
Heath's main problem with Hazlitt is with his tone, particularly as it
affects someone from the left:
Having one's deeply felt moral convictions about
social justice dismissed as either rationalized self-interest or
unadorned stupidity is unlikely to put many people in a mood that is
receptive to argument, much less create a willingness to follow some
rather abstruse lines of economic reasoning.
I personally did not mind Hazlitt's tone when I read his book, but then, I was
already inclined to agree with him. A friend of mine told me she was put off by
it, while another friend was struck by the lack of humour in Hazlitt—a strange
defect given how consistently funny Bastiat is.
Heath's tone is not grating, and I say this as someone who frequently disagrees
with him. I therefore have reason to hope that when he says "critics of
capitalism have not done nearly a good enough job at learning their economics,"
his target audience will take him seriously. I believe that when he criticizes
cooperatives, or price fixing, his readers will sit up and take notice. When he
questions the usefulness of paper recycling, or the "costs" smokers impose upon
society, or the supposed explosion of cancer rates, or the notion that more
public transit will relieve traffic congestion, I think that people on the left
will at least consider his arguments.
Giving Libertarianism a Hearing
The biggest problem I had with Filthy Lucre came in Chapter One, which is
all about—get ready to be surprised again—libertarianism. Heath's purpose is
clear: once he has shown why a consistent, principled commitment to economic
freedom is unworkable, he and his opponents will be left arguing about the
details of how much regulation the market needs.
His opening volley is to declare that libertarianism, like its opposite,
communism, is now "thoroughly discredited." He grants that it is not merely "a
smokescreen for the expression of crass commercial interests," as many on the
left will argue. Rather, it is "a sophisticated political doctrine, rigorously
developed, based upon a set of very simple and intuitively compelling ideas."
However, "It's also a house of cards, founded entirely upon a fallacy," although
one that is "sufficiently unobvious that generations of very clever people were
able to overlook it."
What is this fatal flaw at the root of libertarianism, according to Heath? It is
the notion that market order could arise spontaneously and promote the good of
society without any guidance at all from above. He writes that "for the market
to function correctly, people have to refrain from all sorts of nuisance
behavior: stealing, defaulting on payment, misrepresenting their goods, coercing
others, and so on." While it is in everyone's interest if everyone refrains from
behaving badly, each individual has an incentive to cheat if he can get away
with it. This is the free rider problem, and it is a real concern, but
reputation is a powerful (if not all-powerful) antidote. It is worth quite a lot
to be known as someone who keeps his promises, or alternately, as someone who
backs up his threats. Heath, however, considers reputation as "far too weak a
mechanism to sustain a system of rights." Reputation, he writes, "will not be of
much use," either in getting people to make credible promises or to in getting
them to make credible threats.
This, Heath thinks, proves that markets cannot function on their own. "[S]ome
kind of conscious guidance is also required, to get the invisible hand going in
the first place." But as Bryan Caplan pointed out recently in his book, The
Myth of the Rational Voter, markets for illegal drugs do function not merely
without government protection or guidance, but in spite of gargantuan government
efforts to eradicate them. Heath in fact recognizes this in a later chapter, but
fails to see how it undermines his case here.
And Another Thing…
Heath's next move, once he thinks he has dealt with the no-state libertarians,
is to address the minimal-state libertarians. Here, he argues that even a
minimal state that was restricted to protecting individual rights would still
need to be funded by taxes, which would have to be mandatory to avoid generating
another free rider problem. He thinks that once libertarians concede this point,
we have no principled basis for preferring a minimal state.
There are two, complementary responses a libertarian can make, however. First, a
minimal state would require far fewer taxes than current states, and so generate
a far smaller free rider problem. Heath tries to argue that the amount would
still be substantial, quoting a figure of $73 billion spent by the U.S.
government in 1992 just on "police protection and criminal corrections," but he
provides no context for this number. Even ignoring the fact that this figure
includes funds spent on the massively wasteful injustice known as The War on
Drugs, total U.S. government budgets
lately have been in the $3-4 trillion range. In this context, $73
billion represents just 2 to 2.5 percent, a tiny fraction of current
The second response is to point out that taxes, at least in more reasonable
amounts, can be voluntary. State lotteries are one example of voluntary
taxation. Another, proposed by Ayn Rand in an essay entitled "Government
Financing in a Free Society," collected in The Virtue of Selfishness, is
for the government to collect voluntary premiums for the service of enforcing
contracts and only enforce those contracts which have been insured in this
manner. Rand stressed that this example was for illustration purposes only, and
that voluntary taxation would be "the last, not the first, step on the
road to a free society." Needless to say, Americans would not voluntarily cough
up three or four trillion every year.
Heath supports his inadequate arguments against libertarianism with a pretty
standard, but mistaken, reading of history. He writes that "the problem with
nineteenth-century capitalism is that it didn't work very well. It
certainly was not the well-oiled wealth-producing machine that we are familiar
with today." In fact, the problems he focuses on—boom and bust business cycles—were
created by government-backed fractional reserve banking, which Austrian
economists, at least, have always criticized. The Federal Reserve system made
things worse, not better as Heath claims, paving the way for the Great
Depression, which was far worse than any nineteenth-century business cycle.
Federal Deposit insurance and other government guarantees are mere band-aid
solutions to a government-created problem. They may patch up a symptom, but only
at the cost of encouraging even riskier banking behaviour, as our current crisis
Still Worth Reading
On the basis of the kinds of arguments and historical backup Heath provides, his
report of the death of libertarianism is greatly exaggerated. There are other
problems with his book, too. Take his discussion of time preference, which takes
up an entire chapter in Part II. The fact that he devotes so much space to this
much-neglected topic is commendable in and of itself, and most of what he says
is informative. People with high time preference prefer to satisfy their present
wants and needs than invest in the future, a problem which leads to poverty, and
explains why poverty is such an intractable problem. Merely taking money from
the rich and giving it to the poor will not help them escape poverty if they
have high time preferences, which many of them do.
Heath, however, concludes that instead of simple cash transfers, what the poor
really need is more paternalism. He writes, "Many social policies that force
people to act in their own best interests can be understood not as the high-handed
intervention of the 'nanny state,' but rather as a self-binding strategy that
individuals themselves may be perfectly happy to support." Well, some of them
may be perfectly happy to support it, and some of them may not. Why must those
who want "self-binding" bind the rest of us in the bargain? Why not simply have
them enter into binding commitments on the open market? Heath does not even
consider this option.
Still, overall, Heath has many worthwhile things to say and he says them well.
In the other chapters on right-wing fallacies, his propositions range from
wrongheaded (government is efficient at providing public goods) to
unobjectionable (pecuniary interests are not the only incentives that matter) to
downright excellent (the right-wing tendency to see international trade as a
competition undermines the comparative advantage case for free trade). In
the chapters on left-wing fallacies, he attacks price fixing; the idea that
profit is evil; the fear (hope?) that capitalism is doomed; the "equal pay for
equal work" notion that ignores the laws of supply and demand; the idea that
spreading wealth around will cure poverty (see above); and the pursuit of
levelling at the expense of efficiency and growth.
I have indicated some of the areas where I disagree with Heath. There are others.
But if the left could read this book and absorb its message, there are a whole
slew of arguments that we could move beyond. The left would become a more
credible opponent on economic matters, but that would be all for the good. The
more fallacies we can leave in the dustbin of history, the more useful our
debates will be in helping us perceive reality more clearly.
Doucet is a writer living in Montreal. He has studied
philosophy and economics, and is currently completing a novel on
the pursuit of happiness. He also is QL's English Editor.