Economics and the Distinction between Voluntary and Coercive Action

In 2006 there appeared a “raise the minimum wage” statement signed by 659 economists. I wanted to know why they favored the minimum wage, so I wrote up a questionnaire and sent it to them. But I also used the occasion to get their views on a very important matter: Did they view the minimum wage law as coercive?

Ninety-five graciously completed the survey. Very few of them simply accepted that the minimum wage law is coercive. More than half said the law is not coercive in any significant sense.[1]

But the minimum wage law (and concomitant enforcement) threatens the initiation of physical aggression against employers who pay less than the minimum wage. It threatens physical aggression against people for engaging in certain kinds of voluntary exchange. To me, that is coercion. Just imagine if your neighbor decided that he would impose a minimum wage law on us. Wouldn’t we all agree that he was coercing us? If it is coercion when he does it, why isn’t it coercion when the government does it?

Now, you might be muttering, “Yeah, whatever, but I’m interested in economics. I don’t care to ponder semantic issues about moral and political terminology. Let’s leave that to the philosophers.”

Hold on. We need the distinction between voluntary and coercive action to give meaning to “the free market.” We need it to identify an “intervention.” We need it to measure “economic freedom.”[2] We use it to categorize classes of action, to identify and define industries, to formulate theoretical parallels between one industry and another, and between one polity and another. We use it to formulate reform proposals. Our theories about human interaction make key distinctions based on whether the interaction is voluntary. We generally assume that the individual is bettering his situation in voluntary interaction, but we don’t make the same assumptions in coerced interaction. The distinction between voluntary and coercive is built into many of the key analytic distinctions we use in economics.[3] So it is important that we know what we mean by it.

And it is important that we be aware of the extent to which others reject the distinction. The minimum wage issue is very telling. Economists have been surveyed on the minimum wage. On average, economists are neutral, neither for nor against. But what is so striking is that opinion is not a hill in the middle of the spectrum of possible opinion. It is not even uniform across the spectrum. Rather, the pattern of opinion is U-shaped. A lot of economists oppose the minimum wage, a lot support it, and fewer are in the middle.[4] Clearly, there are major cleavages in visions and formulations. I submit that those cleavages relate intimately to the semantic issue raised here. The distinction between voluntary and coercive action lies at the heart of many economic controversies.

Again, most economists who support the minimum wage do not see the policy as an incursion on liberty. No doubt, most opponents of the minimum wage would say the reverse. Clearly, the economics and the semantics are linked.

I think good economics opposes the minimum wage. Good economics places the distinction at the center of the scientific enterprise. It develops understandings of the comparative consequences of freer versus less free arrangements. And the main way we develop our analysis about arrangements in an industry or sector is by analogizing to other industries or sectors, sometimes in other times and places, forming a web of understanding about how arrangements varying in freedom perform.

But not everyone sees it this way. Maybe they have not learned that the minimum wage is bad because they don’t share our semantics.

The Substance of the Distinction

You are coerced when someone brings physical aggression or threat thereof to your property. Your property is your stuff, including your person, and ownership implies a claim to your property good against the world. A claim, a benchmark, not an absolute or inviolable right.

Voluntary interaction is our consenting, in the absence of coercion, to alter our property arrangements and to form agreements such as contracts. As for who owns what, there are rather universal norms, beginning with the soul’s ownership of its person, extending to property acquired within the family and in trade, production, and gift relations.[5] Liberty is freedom from others messing with your stuff. Restrictions on voluntary interaction are diminutions of liberty.

Sure, there are holes and gray areas, and forms vary with social norms. But the basic ideas of tangible property, ownership, and consent are cogent and apply so widely that we may think of the exceptions as exceptions.

Within Liberal Civilization, the Distinction is Natural

The voluntary/coercive distinction is natural in the sense that, within liberal civilization, it is intuitive, emergent, and widely observed. Indeed, within liberal civilization, institutionalized coercion by private (nongovernmental) parties is almost never tolerated. One exception is “range country” rules in Montana and elsewhere, which entitle your neighbors to let their cows tromp and graze on your unfenced land. It’s up to you to fence out cows from coming onto your land. Another exception, in my view, is loud Harley-Davidsons. The idea of extending the principle to government action is natural enough.

The distinction sits plainly on the tabletop in our cultural living-room, and it has for centuries. It is available for analytic deployment even if the particular arrangements actually around you are highly coercive.

Natural Maxim versus Natural Axiom

Again, when it comes to private-to-private matters, the liberty principle comes close to being an absolute. It is just about 100 percent. But not so in governmental matters.

Government is a unique player in society, and rules and norms have emerged that recognize that uniqueness. We tolerate governmental coercion that we would not tolerate from private parties, and not only because the government is more resolute and better armed.[6] The liberty principle does not work as an axiom. Instead, it works as a maxim: In a choice between two policies (or reforms), choose the one that entails greater liberty. But it is only a rule of thumb, a presumption, something that we expect to be right ninety-something percent of the time.

The voluntary/coercive distinction spells the liberty principle, and, the liberty principle has often been represented as a moral axiom. In consequence, one of the great handicaps of making the voluntary/coercive distinction explicit and prominent in one’s economics is that it arouses suspicions and accusations of maintaining liberty as an axiom. It puts free-market economists into the position of having to explain that the distinction does not carry a necessary rejection of coercion. One can favor the distinction and some coercion.

Walter Block eloquently exclaims: “Coase, get your cattle off my land!”[7] Block is right about “my land.” But he is not necessarily right about “get off.” Maybe range country rules are good policy and good norms.

If we can diminish the close association of the distinction with the necessary recommendation of liberty, we will be in a better position to use the distinction as an analytic engine of inquiry into that central question: When should we endorse the liberty maxim and when not?

Many Dislike the Distinction

So, if an economist deploys the distinction he faces the problem of people mistaking maxim for axiom. But there is an even bigger problem. Even when clearly understood as a maxim, the distinction makes for a reading of the status quo that most economists find offensive. The distinction says that we live in a polity of pervasive coercion. The minimum wage, occupational licensing, FDA restrictions, gun control, drug prohibition, all forms of taxation, and myriad other government regulations are coercive. The distinction says that the New Deal was a watershed in institutionalized coercion. It exposes this fact to sunlight. The distinction-deploying economist might reassure his listeners, “Now, realize, just because I say the policy is coercive doesn’t necessarily mean I think it’s bad,” but nonetheless people will be offended. In everyone’s lexicon, “coercion” has a strong negative connotation.

Those who dislike the distinction try to get around it by redefining the key vocabulary: property, consent, freedom, rights, justice, equality, and equity. The central idea of their worldview is that the polity is one large voluntary organization, and its rules are entered into by consent. No one is forcing you to stay. Thus, when the government imposes a minimum wage law, it is not treading on your property or freedom, it is merely rearranging the rights that define your property. Your property, in this view, is the bundles of rights that the government says you have. The presumption behind this philosophy is that whatever stuff you have really belongs to the government, the organization, the state, and it is ‘yours’ only in the sense that they delegate to you certain powers over it. The state is the encompassing overlord, the real owner of all property in the polity, and we are just tenants.

The polity-as-voluntary-organization viewpoint allows many economists to dispose of the distinction. If an economist openly invokes the distinction as a fundamental analytic category, and hence implies that we live in a society of wholesale coercion, he runs the risk of being shut-out by the other types of economists. Sometimes they use the term “ideologue” and shut him out of their journals and institutions.

Vying Conceptions of Economics

The deep tensions between free-market economics and the broad political culture help us understand why even free-market economists have promulgated conceptions of economics that skirt the distinction. Lionel Robbins championed the idea that economics is about the pure logic of choice, the efficient way of achieving exogenously given ends. In the same vein, George Stigler and Gary Becker assert that economics is about individual utility maximization within a theoretical framework of equilibrium. In my view, these conceptions teeter between vacuity and inhuman artificiality, and have contributed to the miscarriage of economics. One reason they have nonetheless been maintained is that they help market-oriented economists navigate the culture. George Stigler not only downplayed the distinction, but directly attacked it, arguing that wealth, utility maximization and efficiency have superseded any concerns about liberty, rendering the latter a meaningless and unimportant idea.[8]

“Spontaneous” Means Voluntary

Appreciation of the distinction helps to clarify good economics. Hayek is famous for developing ideas of local knowledge and spontaneous order.[9] His lessons against central planning have been taken to heart. But while people concede that the government should not centrally plan, they go along with a thousand forms of government tinkering, like the minimum wage. Let people act spontaneously, but alter the range or types of actions they may choose. That way we can utilize local knowledge but still ameliorate externalities, asymmetric information, and the like.

The distinction helps us see, however, that “spontaneous” principally means free. Even though restrictions like the minimum wage cannot be called central planning, they are in fact incursions on spontaneity. Hayek’s insights also have power in criticizing interventions. What the interventionists neglect is that the very problem posited to justify intervention would generate concern, awareness, and opportunity for new practices and institutions. The aberrations create new opportunities for mutual gains, opportunities that summon our entrepreneurial propensities to resolve or avoid the initial aberration. Occupational licensing, for example, is rationalized as consumer protection from quacks and charlatans. Yet we witness myriad private institutions and practices to certify practitioners and assure the quality of their services. Economists who study occupational licensing agree that, rather than protect consumers, the requirements hurt consumers by restricting the range and competition of spontaneous developments.

Behind our scientific sensibilities lies an educated, defensible faith in the potentiality of coincidence of interest, and that principle is defined in part by the distinction we are discussing. Hayek indeed made the distinction central in his economics, but it should be noted that he did so very diplomatically, often leaving it “between the lines.” To smooth things over, Hayek often employed “competition,” “decentralized action,” “the market,” and “spontaneous order.” Moreover, in his treatise on political philosophy he avoided the sound definition of liberty (rooted in ownership/property) and instead characterized liberty by reference to some of its important and appealing correlates.[10] Sometimes, in some discourse situations, obfuscation is appropriate, but in other situations we must propound the sound definition of liberty and the central role it plays in good economics.

Scientific Judgment Is a Matter of Sensibilities

Relinquishing liberty as 100 percent means that you have to judge whether this or that intervention is an exception. On what basis do you decide when to contravene the liberty maxim?

Here we draw on our broad sensibilities about consequences, including moral and cultural consequences. We make reasonable efforts to characterize our sensibilities, but we do not attempt to set out any complete or definitive characterization, any algorithm of desirability. Sometimes others demand a “foundation” or complete standard. It is good to articulate and clarify our deeper values and criteria, as best we can. But the deeper we go, the vaguer and more platitudinous our “foundations” become. You can’t characterize your sensibilities on economic policy any more explicitly or definitively than you can characterize your sensibilities on aesthetics. No one demands “foundations” in judging movies or poems. You should get used to a similar looseness in judging economic policies.

These Thoughts Agree with Adam Smith

The character of economics offered here could be called Smithian economics, for every important point finds support in the writings of Adam Smith:

  • George Stigler criticized Smithian economics for not being sufficiently Stiglerian.[11] Indeed, as Ronald Coase explained, Smith would have frowned on the characterizations of economics as utility maximization, “rational choice,” and the like.[12] Rather, Smith tended to see political economy “as a branch of the science of a statesman or legislator”.[13]
  • Central to Smith’s analysis in The Wealth of Nations is “the obvious and simple system of natural liberty,” which he closely associated with justice. Smith maintained the classical, intuitive “exclusion” idea of property, and his idea of liberty is built on the idea of property and freedom of voluntary agreement.[14] Natural liberty has a conceptual status quite independent of what the government rules actually are.[15] The conceptual system of natural liberty “establishes itself of its own accord.” [16]
  • The Wealth of Nations surveys policy issues quite comprehensively. Issues are formulated in terms of their conformance to natural liberty. Smith’s general scheme is to explain when to follow the liberty principle and when not to. Natural liberty is brickwork in Smith’s economics.
  • For Smith, the liberty principle was a maxim, not an axiom. In The Wealth of Nations he pauses to make explicit that he endorses certain specific contraventions of natural liberty (incidentally, J.B. Say did likewise).[17] Effectively, Smith emphasizes that the distinction is compatible with some endorsements of coercion. Smith said that the rules of commutative justice are analogous to the rules of grammar, and he implied that sometimes situations call for improper grammar—and being called for doesn’t make them proper grammar.
  • Smith would have been appalled by the subversion of the liberal lexicon and its implicit premise of government as encompassing overlord. Smith imputed a kind of legal positivism to Thomas Hobbes, and explained the errors of “so odious a doctrine.”[18] He also condemned Colbert’s management of the French economy “upon the same model as the departments of a public office,” and contrasted it with “allowing every man to pursue his own interest in his own way, upon the liberal plan of equality, liberty, and justice.”[19]
  • Smith’s scientific judgment supported the case for a culture holding a strong presumption of liberty. The liberty maxim holds ninety-something percent of the time, and it makes sense to use it as an analytic distinction and engine of criticism, and to develop theoretical categories in light of the possible exceptions to the maxim. Even when an intervention is established policy, its supporter should bear the burden of proof. The presumption of liberty—as opposed to a presumption of the status quo—is a feature of Smith’s economics. Smith sometimes supports status quo interventions (particularly, I notice, of the Scotland of his day), but he feels obligated to give good reasons. (Whether he always succeeded is another matter.)
  • Smith also would have upbraided demands for a definitive characterization of our sensibilities. Such sensibilities are not simple rules like the rules of grammar, but rather are like the rules of sublime and elegant writing, which necessarily are “loose, vague, and indeterminate.”[20] Yes, Smith saw commutative justice as analogous to the rules of grammar, but the warrant for a general adherence to and strong presumption of that justice lies in the loose, vague, indeterminate—but not arbitrary or meaningless—realm of aesthetio-political sensibilities. Smith wrote and rewrote two large books to develop and express what his sensibilities are like.

Concluding Remark

Smith saw clearly that economics had purpose: to address the most important things in economic policy and to edify the practitioner. Judgment about the most important things is, naturally, part of the science. How to formulate those things is also a paramount task of science. Again, he saw liberty as a natural concept with a status quite independent of judgment on any particular policy issue, so there was nothing irregular in using the concept in the formulation of issues and development of analysis.

Judgment enters into one’s analysis of the minimum wage and other economic policies. But, further, there are different ways to structure and develop the entire science of economics. The choice to use the voluntary/coercive distinction — both as brickwork and as engine of inquiry — flows in part from a judgment about the comparative value of the overall science that results. That judgment is all-important, and hence, too, a part of the science.

In my view, economic understanding, by experts and the general public alike, would gain by economists doing more of the following: (1) using the voluntary/coercive distinction in their formulations, analysis, and discourse; (2) making that utilization explicit and unabashed; (3) thinking hard about the content of that distinction, particularly by clarifying the holes and gray areas; (4) making it clear that, while they may promote a presumption of liberty, they do not mean to suggest that the distinction carries a necessary condemnation of coercion.

If the Smith-Hayek economists will admit that sometimes coercion is our friend, weakening the absolute negativity of “coercion,” then they might be able get others too to embrace the distinction. It would be very fruitful to have economic discourse agree on the distinction — to agree, for example, that the minimum wage is coercive — and then debate just where, why, and how much coercion is our friend.

Notes

[1] Daniel B. Klein and Stewart Dompe, “Reasons for Supporting the Minimum Wage: Asking Signatories of the ‘Raise the Minimum Wage’ Statement,” Econ Journal Watch 4, no.1 (January 2007): 125-167.

[2] James Gwartney and Robert Lawson, Economic Freedom of the World: 2006 Annual Report, (Vancouver: Fraser Institute, 2007); Tim Kane, Kim R. Holmes, and Mary Anastasia O’Grady, 2007 Index of Economic Freedom, (Washington, DC: Heritage Foundation, 2007).

[3] Jack High, “Is Economics Independent of Ethics?” Reason Papers 10, no. 1 (1985): 3-16.

[4] Daniel B. Klein and Stewart Dompe, “Reasons for Supporting the Minimum Wage”: 132.

[5] David D. Friedman, “A Positive Account of Property Rights,” Social Philosophy and Policy 11, no. 2: 1-16.

[6] Ibid.

[7] Block’s quip is reported and discussed in Gary North, “Undermining Property Rights: Coase and Becker,” Journal of Libertarian Studies 16, no. 4: 75-100 and developed in Walter Block, “Coase and Demsetz on Private Property Rights,” Journal of Libertarian Studies 1, no 2 (1997): 111-115.

[8] George J. Stigler, “Wealth, and Possibly Liberty,” Journal of Legal Studies 7, no. 2 (1978): 213-217.

[9] Friedrich A. Hayek, Law, Legislation and Liberty, Vol. 1, Rules and Order, (Chicago: University of Chicago Press, 1973).

[10] Friedrich A. Hayek, The Constitution of Liberty, (Chicago: University of Chicago Press, 1960); Daniel B. Klein “Mere Libertarianism: Blending Hayek and Rothbard,” Reason Papers 27 (2004): 7-43.

[11] George J. Stigler, “Smith’s Travels on the Ship of State,” History of Political Economy 3, (1971); reprinted in Stigler’s The Economist as Preacher and Other Essays, (Chicago: University of Chicago Press, 1982), pp. 136-145.

[12] Ronald H. Coase, “Adam Smith’s View of Man,” in Essays on Economics and Economists, (Chicago: University of Chicago Press, 1994), pp. 95-116.

[13] Adam Smith, The Wealth of Nations, (Indianapolis: Liberty Fund, 1981), p. 138.

[14] Thomas W. Merrill and Henry E. Smith, “What Happened to Property in Law and Economics?,” Yale Law Journal 111, no. 2 (November 2001): 357-398.

[15] Adam Smith, The Theory of Moral Sentiments, (Indianapolis: Liberty Fund, 1982), p. 80.

[16] Smith, The Wealth of Nations, p. 687.

[17] Smith, The Wealth of Nations, p. 324.

[18] Smith, The Theory of Moral Sentiments,, p. 318.

[19] Smith, The Wealth of Nations, p. 664.

[20] Smith, The Theory of Moral Sentiments, p. 327.

Daniel Klein is professor of economics at George Mason University and chief editor of Econ Journal Watch.

Also from This Issue

Response Essays

  • Coercion as a Political Concept by Liam Murphy

    NYU philosopher and legal theorist Liam Murphy responds to Daniel Klein’s lead essay by questioning the relevance of the general concept of coercion to the defense of market institutions and disputing Klein’s particular characterization of coercion. Murphy observes that arguments in defense of markets generally appeal to pre-institutional rights or a conception of good consequences. In neither case does the idea of coercion play a key role. Further, Murphy suggests that Klein’s particular account of coercion is loaded with contestable moral baggage. But, Murphy writes, “The concept of coercion … is deeply indeterminate, with disagreement about correct usage tracking exactly the fault lines that have political significance; so there is simply no right answer to such questions as whether a labor contract for below a minimum wage, or its prohibition, is coercive.”

  • Coercive Regulation and the Balance of Freedom by Edward Glaeser

    Harvard economist Edward Glaeser agrees with Dan Klein that economic regulations, such as minimum wage laws, are coercive, and that this ought to give us pause. “For millenia, governments have abused their control over the tools of violence,” Glaeser writes. “The historical track record insists that we treat any governmental intervention warily.” However, that does not rule out coercion. “The ultimate job of the state is to increase the range of options available to its citizens,” Glaeser maintains, and well-targeted coercion can increase total freedom in this sense. “Certainly, redistribution reduces the freedom of the taxpayer but it increases the options of the recipient of governmental largesse,” Glaeser says. He goes on to argue that laws that restrict the liberty to contract, such as the minimum wage, generally are not freedom-enhancing overall and tempt government abuse.

  • Voluntary and Coercive Action: A Key Distinction in the Overall System of Liberty by Richard A. Epstein

    In his reply, University of Chicago law and economics guru Richard A. Epstein attempts to lay out an account of “justified coercion.” Taking the minimum wage as an example, Epstein sets forth and then rejects several grounds on which the minimum wage may be seen as non-coercive. He then sets forth and rejects several arguments that might justify the coercion in economic regulations such as the minimum wage. According to Espstein, state coercion in support of market institutions “is justified because it expands the envelope for gains from trade through voluntary exchange.” In general, coercion may be justified when “it is to the long-term advantage of all,” but detailed and systematic analysis of particular institutions – such as the one Epstein provides for the minimum wage – is required to establish when this is, and is not, the case.

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