Mises Institute Explains How The State Destroys Social Cooperation

0 Shares

This article, written by Pepperdine University economics professor Gary M. Galles, was originally published by the Mises Institute on September 3. 

Many of our present economic difficulties, while blamed by politicians on freedom and markets, are in fact the long-run effects of government policies emphasizing short-run, visible benefits that mask hidden or delayed costs. In particular, our economic woes reflect government’s reliance on coercion, whose harmful effects expand over time, in contrast to voluntary cooperation, whose beneficial effects expand over time.

Voluntary market cooperation expands because the more time sellers have to respond to increases in demand, the more their incentives lead to better ways of accommodating buyers with improved output. Similarly, the more time buyers have to respond to increases in supply, the more profitable uses are discovered. That is, when you give individuals better incentives to voluntarily cooperate in the marketplace, over time, they discover and implement more effective ways to do so, expanding cooperation and the mutual benefits that result.

We see this everywhere in personal computing and technology in which convenience, computing power, and portability of devices increase constantly, at rates much faster than most ever anticipated in earlier times. In contrast, when the state employs coercion, it encourages buyers and sellers to act against what would be in their self interest in a free economy. Over time, those who would otherwise spend time thinking about their trading partners, instead respond to coercive measures by expanding the ways they can evade the burdens imposed. In such a situation, social cooperation contracts.

Taxes (including deficits, which are delayed taxes), subsidies, and mandates all illustrate coercion’s progressive undermining of social cooperation. For example, when government raises taxes on income earned by benefiting trading partners, those who provide the benefits earn less over time. In response, those burdened with the new taxes have incentive to do less to benefit others while substituting more effort to avoid taxation.

Moreover, when government mandates employer-provided “free” benefits, employers then reduce other parts of compensation that many workers may actually value more than the mandated benefits, to “pay” for them. Or employers may simply hire fewer workers. We see this already in Obamacare’s mandated increases to employers’ labor costs. Employers have cut jobs and hours (the mandates don’t apply to under-30-hour-per-week workers), or employers squeeze other parts of employee compensation, including on-the-job training, which is a crucial mechanism through which workers learn their way to success.

Price ceilings such as rent control, and price floors such as the minimum wage, also illustrate coercion’s increasing erosion of social cooperation. In response to such mandates, people increasingly find ways to do less of what violates their self-interest, which entails cooperating less well with others. As Friedrich Hayek noted, “Any attempt to control prices or quantities of particular commodities deprives competition of its power of bringing about effective coordination of individual efforts.”

When government holds apartment rents artificially low, they reduce landlords’ incentives to continue supplying dwellings. Over time, fewer units are constructed (seen under every rent control regime) and owners find other ways to leave the rental housing market. This takes place through a variety of mechanisms, including condo conversions, which removes units from the available rental stock in order to evade restrictions imposed on rent, but not on mortgage payments. Owners might also respond by reducing maintenance and upkeep of units which rent controls make unprofitable. The end result is less social cooperation and long-term deterioration of the existing housing stock.

When government holds the price of low-skill workers artificially high, as with the minimum wage, government reduces employers’ incentives to use low-skill workers in production. Over time, employers find more ways to conserve on that artificially scarce input, reducing employment via changing production processes and products, substituting capital for labor, reducing output, moving jobs elsewhere, and to generally cooperate less with low-skill workers. For instance, restaurant industry responses to minimum wage hikes have included moving to buffets, which require fewer workers, expanding slow-cooked menu choices (essentially substituting crock pots for workers), and self-serve soda dispensing. Similarly, the higher the price of a worker relative to a computer, the more employers will substitute computers for labor.

Furthermore, the constant prospect of endless and arbitrary changes in taxes and regulations and other forms of coercion increases the risks involved in trying new and innovative ways of cooperating with others in search of profits. And because coercion expands evasion efforts over time, more and more resources go to enforcement, taking resources away from productive uses and violating principles of equity (since enforcement is inherently selective and unequal) that can be upheld only when arrangements are voluntary.

Since there are very few areas where coercion is necessary to achieve social cooperation, there are very few areas where government advances it. Instead, the massive expansion of government beyond such bounds has undermined cooperation and violated justice. Yet still more intrusion is constantly offered as a solution. That is why Ludwig von Mises’s recognition that “Those who ask for more and more government interference are asking ultimately for more compulsion and less freedom” is important and ominous today. Each expansion of government’s reach shrinks freedom and restricts otherwise expanding social cooperation, with effects that worsen progressively over time.

Creative Commons License

Personal Liberty

The Ludwig von Mises Institute

was founded in 1982 as the research and educational center of classical liberalism, libertarian political theory, and the Austrian School of economics. It serves as the world's leading provider of educational materials, conferences, media, and literature in support of the tradition of thought represented by Ludwig von Mises and the school of thought he enlivened and carried forward during the 20th century, which has now blossomed into a massive international movement of students, professors, professionals, and people in all walks of life. It seeks a radical shift in the intellectual climate as the foundation for a renewal of the free and prosperous commonwealth.

Join the Discussion

Comment Policy: We encourage an open discussion with a wide range of viewpoints, even extreme ones, but we will not tolerate racism, profanity or slanderous comments toward the author(s) or comment participants. Make your case passionately, but civilly. Please don't stoop to name calling. We use filters for spam protection. If your comment does not appear, it is likely because it violates the above policy or contains links or language typical of spam. We reserve the right to remove comments at our discretion.

  • Bill

    Great article.
    As always, government intervention always creates more problems than it solves

  • Dave

    Yawn, benefits from the Gov and Companies are not “free”… Taxes go to pay for those benefits in society from the Gov and benefits from the company is part of your total compensation package.

    Lets review America before Social Security…

    http://www.nber.org/aginghealth/summer04/w10466.html

    Before SS, the incidence of poverty among the elderly was much higher than it was after SS… That is just one example of the Gov doing something positive for society…
    Veterans… How many of you were helped by the GI Bill?
    How popular is Medicare, it is one of these most popular and successful gov programs out there… Not even the most nutty conservatives will even try to abolish the program because they will be voted out of office. The program works….
    Unfortunately there are many salespeople here for Mises and their narrow-minded and theory filled opinion of what Gov’s role is and should be. Gov should never be a solution to all that ails society or the marketplace but they do have a positive role to play in society, if we demand that gov work for the people and not corporations… But the Von Mises robots who draw upon the 1800’s for much of their economic theory simply do not understand how societies work in the industrial global marketplace with multiple currencies…

    • DON THE BRITTON

      If a person had a choice between SS and private investment of the same amount their retirement income would be as much as tens times more even with the most conservative investment strategy.

      Medicare has been responsible for increasing medical costs to a level that only the rich can afford. Before medicare a middle income family did not even need medical insurance, by comparison all of the expense of having a baby including hospital stay only cost about two weeks average wage.
      The GI bill helped banks more than GI’s
      So yes the government is great at raising costs, rewarding friends, destroying competition and driving businesses out of the country. What more could you ask from a government?

      • Dave

        Private investment? You mean like what Madoff talked people into who lost everything due to greed? You are too smart for that huh?
        Don, prove your assertion about Medicare
        The GI bill helped returning soldiers get education, homes and set the stage for the golden era of American business after WW2.
        Apparently you have selective reading skills… Gov is great at rewardsing friends because of what? Big money in the political process and who supports big money in the political process? Von Mises advocates like Bob Livingston and DaveH.
        If you hate Gov, give Somalia a go and see how well that works out for you.

    • ibn insha

      The point is, benevolence with other people’s money is immoral, if that word mean anything to you. Social Security and Medicare are government’s 2 greatest scams. These 2 programs are going to be bankrupt soon. Ever wonder why every presidential candidate claims that he can fix Social Security and Medicare? If there is no problem then why fix it? Few workers have to support more and more seniors with more and more deductions from their paycheck. Don’t you think it is wrong? A worker has right to take 100% of his wages home. It is not other people’s responsibility to support us in our old age. We have to take care of it when we are still young. You are right that nobody would ever abolish these programs because corrupt population would never vote for them. ‘Majority is not always right’ that is why our founding fathers gave us a constitution.

      • Robert Messmer

        “Corrupt population”? The population is not corrupt just for not voting in someone who wishes to destroy SS/Medicare, maybe immoral in wanting someone else to pay their bills. You need to remember that “tax deferred” IRA’s did not always exist, that for many years only uninformed citizens had money in savings accounts, and that the government implemented tax hikes year after year by keeping personal exemptions and standard deduction at the same level. The government was conducting a campaign to prevent/discourage individuals from saving.

  • Alex

    Run as fast as you can from anything uttered by the Mises Misery Mob!

  • Speedy

    What a load of B.S.