The most blatant false doctrine is the divine right of government is best explained by King James I of England- the king who “authorized” the King James Version of the Bible. On March 21, 1609, King James declared to Parliament that kings (and by extension governments) can “make and unmake their subjects… [they are] judges over all their subjects, and in all causes, and yet accountable to none but God only.”[2] Surprisingly, this theory has also been recently promoted by the American Government. In the aftermath of Hurricane Katrina, the Department of Homeland Security established “Clergy Response Teams” to quell civil unrest. These teams were composed of local clergy members like Dr. Durrell Tuberville, then chaplain of the Shreveport Fire Department and the Caddo Sherriff Office, who explained that citizens must obey the government, “because the government's established by the Lord, you know.  And, that's what we believe in the Christian faith.  That's what's stated in the scripture.”[3] While Tuberville and King James do not provide any room for disobeying the government, there is a place for disobeying the government. For instance, it is abundantly clear that whenever governments command Christians to perform an action that violates God’s law, in the words of the Apostles John and Peter, “We must obey God rather than men.”[4] So the false teaching of absolute obedience to government is ridiculous and is only held by new or nominal Christians.

The other errant belief is more sophisticated, more prevalent, and therefore more dangerous. This theory holds that it is only permissible to disobey governments when they command Christians to disobey God. Bruce Dickinson for instance, argues that though Christians cannot “[refuse] to obey a law as an act of protest against a government policy,” Christians “must disobey the government when it commands us to do something contrary to God's Word.”[5] This theory is able to account for the Apostles John and Peter disobeying the edict that would stop them from preaching, and most other examples of disobedience that are presented positively in Scripture. It cannot however account for all examples of condoned resistance to governments in Scripture, and is further revealed to false according to the rubric for judging false teachings given by Jesus.

The theory that Christians can only disobey a law when it conflicts with an explicit Biblical command is seen to be false by the conduct of the Prophet Elijah dealing with King Ahab.  King Ahab and his wife Jezebel murdered Naboth- a farmer who would not sell his land- in order to claim possession of it.  After this crime committed by the King, God sends Elijah to rebuke Ahab. Now here is the clincher, though God does tell Elijah that Ahab is in Naboth’s vineyard and though God tells Elijah to meet Ahab- there is no explicit command to enter Ahab’s property.[6] I Elijah could have camped outside Ahab’s land and waited patiently for an opportunity to meet Ahab. Nevertheless Elijah enters the King’s land, and as revealed by Ahab’s less than cordial greeting: “Have you found me, O my enemy?” – Elijah was trespassing.[7] Elijah’s trespassing was not sinful, wrong, or misguided. There are also many more examples of condoned resistance to governments (e.g. Egyptian Midwives v. Pharaoh (Exodus 2), Ehud v. King Eglon (Judges 3), Rahab v. King of Jericho (Joshua 2) et al.) Therefore, the theory that believers may only disobey government laws when these laws conflict with God’s laws cannot explain the justified actions of Elijah.

Furthermore this theory is false as revealed by its fruits. The principle of judging teaching by its results is given in the sermon on mount. There Jesus warns the assembly to:

"Beware of false prophets, who come to you in sheep's clothing but inwardly are ravenous wolves.  You will recognize them by their fruits. Are grapes gathered from thornbushes, or figs from thistles?  So, every healthy tree bears good fruit, but the diseased tree bears bad fruit.  A healthy tree cannot bear bad fruit, nor can a diseased tree bear good fruit.  Every tree that does not bear good fruit is cut down and thrown into the fire. Thus you will recognize them by their fruits.”[8]

The theory that Christians may only disobey governmental edicts when they compel Christians to violate God’s laws has also had devastating effects for the Church’s reputation and the welfare of millions.  So when examining the fruits of the theory that states: “Christians can only disobey the state when it commands them to disobey God,” it becomes apparent that the theory is just as dangerous as ravenous wolves.

The fruits of this theory are most clearly seen in Hitler’s Germany. According to a Census taken in 1925, out of a population of 65 million, 40 million Germans were Lutheran, 21 million were Catholic, and another 620,000 Germans belonged to smaller protestant denominations.[9] In this self-identifying Christian nation, Hitler’s government was able to brutally murder over 6 million innocents. While the absence of Christian resistance to the Third Reich, can in part be explained by the heretical “Reich Church” which “sought to synthesize Nazi ideology and Protestant tradition.”[10] Since this movement only “gained 600,000 adherents,” it is inaccurate to attribute Christian compliance to this movement alone.[11] Rather, as seen by both Protestant and Catholic “attempts to retain control of their respective institutions and the rights of their brethren to worship freely and openly,” most German Christians believed that the State had no right to interfere with worship, and were ready to resist when the Reich attempted to co-opt this worship.[12] Unfortunately, many German Christians were able to rationalize their complacence in other matters because they were not commanded to participate in the atrocities-only to stand idly by as their government murdered millions. This wide-spread failure to act has haunted the Church’s reputation, and even worse- it helped Hitler murder millions. Thus the theory that Christians may only disobey the State when it commands them to disobey an explicit command of God is revealed to be false by its fruits.

A few Christian theologians, such as Martin Niemöller and Dietrich Bonhoeffer, totally rejected the authority of the Third Reich. In 1934, as a response to Hitler’s “Reich Church” Niemöller, Bonhoeffer and a small group of Christian clergymen founded the Confessing Church.[13] At the Confessing Church’s first meeting it issued the Barmen Declaration which affirmed that “Jesus Christ, as he is attested for us in Holy Scripture, is the one Word of God which we have to hear and which we have to trust and obey in life and in death.”[14] Isolated from the historical context this statement seems like standard Christian doctrine, but within its context this declaration rejected the Third Reich’s claims of authority. In a more apparent rejection of Hitler’s authority, Niemöller published a book of sermons titled “Christus ist Mein Führer.”[15] While the straight English literally reads “Christ is my leader,” because of this book Niemöller was imprisoned for seven years in Dachau concentration camp.[16] Since nearly everyone in Germany called Hitler “the Führer,” as Robert Brown notes, to say: “Christ is my Führer” was also to say “Hitler is not my Führer.”[17] Dietrich Bonhoeffer similarly rejected Hitler’s authority in a radio address given only two days after Hitler became Chancellor. Bonhoeffer warned that Germany could be following an idolatrous cult lead by a “Verführer (a mis-leader) and one who mocks God himself. [Bonhoeffer] was cut off the air at that juncture.”[18] Bonhoeffer went on to join the Nazi-resistance movement, and because of his involvement with a plan to assassinate Hitler, “on April 9, 1945, two years and four days after his arrest, Dietrich Bonhoeffer was hanged.”[19] In contrast with the false teachers in many German Churches, Bonhoeffer and Niemöller suffered for doing good; they suffered with Christ in their attempts to resist Nazi brutality and their work to expose Hitler as a “Verführer.” This paper seeks to explain that Niemöller’s and Bonhoeffer’s rejection of Hitler’s authority and their subsequent resistance to his government was in accordance with God’s will. Indeed this paper aims to show that resistance to tyrants is obedience to God.

Romans 13:1-7

This examination of the Biblical doctrine of government will focus on Romans 13:1-7. While 1 Peter 2:12-18 and Titus 3:1 are important, they are discussed more thoroughly after the conclusion of the paper- in the section devoted to objections. This paper focuses on Romans 13:1-7, because it is the section of the Bible that is most often misrepresented in order to support the misguided theory of the divine right of governments. [20] Also, it is often genuinely misunderstood, for the Chapter begins with the Apostle writing:

“Let every person be subject to the governing authorities. For there is no authority except from God, and those that exist have been instituted by God. Therefore whoever resists the authorities resists what God has appointed, and those who resist will incur judgment.”[21]

In the words of T.L. Carter, “in the opening verses of Rom. 13 Paul offers what at first sight appears to be an uncompromising endorsement of political authority.”[22] A more rigorous reading of the text reveals a more nuanced view of political powers.

The first question that one should ask when reading the text is: who are these “governing authorities”? Some scholars, most notably Oscar Cullmann, believe that Paul is referring to some sort of angelic power. Cullmann’s claim rests on the observation that the same Greek word translated as “authorities” is used in Ephesians 6:12 to describe demons. Most scholars, however, conclude that Paul is referencing some sort of political power due to the description of these “authorities” given in Romans 13:1-7. These scholars’ reasoning is more convincing, because an author’s meaning is determined not only by the words used, but the context in which the words are used.

A perfect example of this interpreting technique can be seen in Paul’s second epistle to Timothy. Paul congratulates Timothy for his familiarity with Holy Scripture, and then affirms that “all scripture is breathed out by God and profitable for teaching, for reproof, for correction, and for training in righteousness.”[23] While every English version of the Bible (that I have seen) translates “γραφή” as “scripture,” “γραφή” literally means “document.”[24] Paul was certainly using the term “document” in reference to Biblical writings, so using 2 Timothy 3:16 to claim that all documents are inspired by God would be absurd. The description of the term “document” provided in 2 Timothy 3:15-17 is necessary to determine what Paul intends.

Therefore in order to truly understand who Paul means when he writes “governing authorities” in Romans 13:1, one only needs to further read Romans 13:

“For rulers are not a terror to good conduct, but to bad. Would you have no fear of the one who is in authority? Then do what is good, and you will receive his approval, for he is God's servant for your good. But if you do wrong, be afraid, for he does not bear the sword in vain. For he is the servant of God, an avenger who carries out God's wrath on the wrongdoer. Therefore one must be in subjection, not only to avoid God's wrath but also for the sake of conscience. For because of this you also pay taxes, for the authorities are ministers of God, attending to this very thing. Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed.”[25]

After reading these verses we can disregard Cullmann’s contention that Paul is talking about celestial authorities, for Paul states that Christians should pay taxes to the authorities, and taxes are only levied by states-never by angels. As indicated by the imperative to pay taxes to these “authorities,” Paul is describing a form of civil government.

That Paul is referencing a sort of political power is also established when he writes that the governing authorities, “bear the sword.”[26] This is the trademark of all governments: they all claim a territorial monopoly on the use of force. The government alone has the legal power to present landowners with the “fair market value” of their land, and then seize it! The government is the only organization that has the legal power to establish jails to hold those who break its laws! As the Austrian economist Ludwig Von Mises astutely observed government is “the social apparatus of compulsion and coercion.”[27] In fact all laws require the use of force, or at the very least the threat of force (which in turn requires the capability to use force for these threats to be effective). Governments do not suggest that their citizens obey their laws, they pay policemen to ensure that laws are obeyed.  Government and violence are so closely linked that Martin Luther uses “The Sword” as an alternate name for government throughout his essay On Secular Authority: how far does the Obedience owed it extend.[28] Therefore when Paul writes that the governing authorities bear the sword, it is clear that he is writing about a civil government.

This is further shown by the previous chapter in the epistle to the Romans. From Romans 12:15-21, it would be easy to (mistakenly) believe that there should be no government to punish criminals. The Apostle commands believers to “bless those who persecute [them]”, to “never avenge [themselves],” and to “overcome evil with good.”[29] Therefore, according to Matthew Henry “lest it should seem as if [these commands] did cancel the ordinance of a civil magistracy among Christians,” Paul quickly, “[asserts] the necessity of it, and of the due infliction of punishment upon evil doers, however it may look like recompensing evil for evil.”[30] Consequently, in Romans 13:1-6, the terms “governing authorities,” “rulers,” and “authorities,” are alternate names for a specific sort of political power.

It is also clear that not all governments are “governing authorities” in the manner which Paul uses the term. For Paul strongly states that, “there is no authority except from God, and those that exist have been instituted by God.”[31] Paul was aware though, that not all governments were instituted by God. As a “Hebrew of Hebrews,” and a one-time Pharisee, Paul was intimately familiar with the Old Testament, including the book of Hosea.[32] In this God breathed document, Hosea is prophesying about the coming destruction of Israel due to its corruption and one of the sins listed is that Israel “made Kings, but not through [God]. They set up princes, but [God] knew it not.”[33] This passage is not implying that God was unaware of their actions, but rather as Matthew Henry observes the Israelites created these kings “in contempt of [God],” and without “regard of his providence.”[34] That is, while God allowed the Israelites to create their kings, He certainly did not institute them. Therefore not all governments are “governing authorities” in the sense of Romans 13.

Romans 13:3-4 and 1Peter 2:14 Establish the Aim of Just Government

Rather Paul, as revealed by the description of the “governing authorities” given in Romans 13:1-7, is writing about believer’s duty to just government. Indeed while Paul tells Christians to obey authorities, he expounds what authority governments truly have. As John Milton, in his 1650 essay The Tenure of Kings and Magistrates, writes, “[lest] we should be [deceived], [the Apostles Peter and Paul] describe exactly” what powers belong to civil government.[35] In Romans 13 for instance, Paul describes a just civil state as “the servant of God, an avenger who carries out God's wrath on the wrongdoer.”[36] Peter writes that governors are “to punish those who do evil and to praise those who do good.”[37] Given these descriptions Martin Luther writes, “how the secular Sword and law are to be employed according to God’s will is thus clear and certain enough: to punish the wicked and protect the just.”[38] Governments that attempt to use the law beyond this purpose, therefore do so against God’s will. So, as Gene Edward Vieth, observes that “a ruler who protects wrongdoers and punishes the innocent has no calling- and thus no authority.”[39] Governments’ authority to use force is limited by Romans 13 and 1 Peter 2 to punishing wrongdoers and protecting innocents.

Peter and Paul, however, do not mean that whenever a person does something wrong or evil that they ought to be punished by government force. In order to comprehend exactly what the Apostles intended, one must examine the actual Greek text rather than English translations. The term “wrongdoer” is an English translation for those who “Πράσσω κακός,” that is, as Strong’s Greek Dictionary reveals, those who “practice” acts with“(objectively) injurious” effects.[40] A related word “κακοποιός” meaning “malefactor” or performers of objectively injurious crimes, is used in 1Peter 2:14, to describe those who are justly punished by government.[41] The selection of these Greek words by the Apostles lead Isaac Backus, the preeminent Baptist advocate for disestablishment of religion in America, to proclaim that “the crimes which fall within the magistrate’s jurisdiction to punish, are only such as work ill to our neighbor.”[42] Romans 13 and 1Peter 2:14 limit the use of violent government force to the punishment of violent crimes

Indeed the violent nature of human law shows that not all things ought to be legislated- government violence is only justified in response to aggressive criminal violence. This truth, though discernable through mere reason applied to Romans 13 and 1 Peter 2, is found elsewhere in Scripture. In Acts 18, Luke recounts one of Paul’s interactions with a just governor. After spending eighteen months preaching the Good News to the Corinthians, a group of Jews brought Paul to Gallio the Roman proconsul of Achaia and accused him of “persuading people to worship God contrary to the [Jewish law].”[43] Before Paul could defend himself, Gallio dismissed the case saying, "if it were a matter of wrongdoing or vicious crime, O Jews, I would have reason to accept your complaint.”[44] Gallio, a truly admirable governor, understood that legal punishment, a form of violence, is not a tool suited for settling theological disputes.[45] Government violence can properly be used, but only to deter aggression.

If governments use the strong- arm of the law beyond the limitations that God ordained, then they are tyrannies. Tyrannies and tyrants are not God’s ministers nor are they ordained by God, as King David rhetorically asks in Psalm 94, “can wicked rulers be allied with [God], those who frame injustice by statute?”[46] Indeed rulers who do not rule with justice, do not rule by God, this principle is seen quite easily in Acts 12. At the beginning of this chapter Luke writes that “Herod the king laid violent hands on some who belonged to the church,” James the brother of John is murdered, and Peter is wrongly arrested.[47] Herod intends to punish Peter after Passover, but God has other plans. The night before Herod was to kill Peter, Peter’s sleep was disturbed by and angel of the Lord. The angel leads Peter out of prison and then leaves him, and Peter who had been half asleep, realizes that “Lord has sent his angel and rescued [him] from the hand of Herod.”[48] God sends his angels to thwart the plans of tyrants, so they cannot be allied with Him. As Jesus said in response to those who claimed that He drove out demons with demonic power, “if Satan casts out Satan, he is divided against himself. How then will his kingdom stand?”[49] Satan does not cast out his demons, and neither does God send angels to hamper his ministers. Tyrants that seek to murder members of the church are not ordained by God.

The Removal of Divine Ordination

Actually, governments that seek to murder innocents, Christian or non-Christian, are not ordained by God. This can be seen in the Book of Jeremiah, when the prophet Jeremiah is sent to the house of the king of Judah, to relay a message from God. Through Jeremiah, God commands the king: “Do justice and righteousness, and deliver from the hand of the oppressor him who has been robbed. And do no wrong or violence to the resident alien, the fatherless, and the widow, nor shed innocent blood.”[50] If the king “will not obey” this command God swears by himself that the king’s house “shall become a desolation,” and to “prepare destroyers against [the king].”[51]^{, [52]} Once again, although God may discipline his servants, but he does not prepare destroyers against them. Therefore when God promises to destroy the de-facto king, it is clear that he is not a king ordained by God. Indeed, through Jeremiah, God asks the false-king of Judah, “Do you think you are a king because you compete in cedar?”[53] In a way of answering this question, Jeremiah says that when the false-king dies the people “shall not lament for him, saying, 'Ah, lord!' or 'Ah, his majesty!'”[54] Instead the once-king will be given “the burial of a donkey … dragged and dumped beyond the gates of Jerusalem."[55] When kings cease to rule with righteousness, they lose their authority and the privileges that come with that authority. The “king” of Judah was not an authority in the true sense of the word.

Rather, the destroyer of tyrants acts as God’s avenger to execute wrath on the wrongdoer and therefore has the real right to the title king. Indeed when the king violates the above command, God promises to rise up “Nebuchadnezzar, the king of Babylon, [His] servant” to punish “Jerusalem and the cities of Judah, its kings and officials, to make them a desolation and a waste.”[56] Jeremiah then instructs the people of Judah to “bring [their] necks under the yoke of the king of Babylon, and serve him and his people and live.”[57] While acting as an ordained instrument of divine wrath, the King of Babylon is owed obedience- in accordance with Romans 13.

Nebuchadnezzar, however, is not given unlimited authority. Indeed God promises eventually to “punish the king of Babylon and that nation, the land of the Chaldeans, for their iniquity.”[58] The story of this punishment is found in the book of Daniel. Seventy years after Nebuchadnezzar conquered Judah, his sleep is disturbed by nightmares, and he goes to Daniel for an interpretation of his dreams. Daniel tells the King that his dreams show that God will take his kingdom because of the King’s pride, but not all hope for Nebuchadnezzar is lost. Daniel counsels the King to stop committing “iniquities by showing mercy to the oppressed.”[59] Nebuchadnezzar does not, however, and he loses his kingdom. Nebuchadnezzar had a commission from God to punish oppressors, and when he committed the very crime that he was to punish, he lost the authority that came with that commission.

The sins of fathers are often found in their sons, and unfortunately King Belshazzar follows his father’s example. Belshazzar is giving a large feast for his subsidiary lords, and decides to use the gold and silver cups which Nebuchadnezzar had stolen from Solomon’s Temple. While using the cups dedicated to the Lord, Belshazzar praises the gods of silver and gold. Immediately on the wall a hand “inscribed: MENE, MENE, TEKEL, and PARSIN”[60] Deeply troubled Belshazzar asks for an interpretation for he could not read the words. Eventually Daniel is able to reveal the meaning of the words which literally mean:  “‘Numbered,’ ‘Numbered,’ ‘To Weigh,’ and ‘To Divide:’”[61]

“MENE, God has numbered the days of your kingdom and brought it to an end; TEKEL, you have been weighed in the balances and found wanting; PERES, your kingdom is divided and given to the Medes and Persians”[62]

As seen by this interpretation governments that fail to weigh up to God’s standards cease to enjoy His support. Belshazzar lost his authority because he desecrated the cups of God’s temple. God is zealous for His Temple and He does not give men authority to destroy or desecrate it. God is also zealous for innocent life, after all our bodies are God’s Temple.[63] Therefore governments which destroy innocents created “in the image of God” also lose their authority.[64]

The most explicit instance of a governor losing authority is Israel’s first king: Saul the Benjamite. Saul’s ruled over Israel for a mere two year period, because his rule was cut short by his own corruption. After a victorious battle with the nearby Amalekites, Saul kept their livestock as plunder rather than devoting all the livestock as sacrifice to God.^[65] In so doing, Saul used the blood of Israeli warriors to expand his own wealth, and “rejected the word of the LORD.”^[66] As a result of Saul’s violation of God’s moral law, God “rejected [Saul] from being king.”^[67] Once again as Saul’s rejection displays, governments which intentionally murder innocents- or commit other heinous crimes with full knowledge- do not retain their authority. Saul continued to act as the de facto king of Israel, but he no longer had any right to reign and was a false-king.

With the concept that authority is given from God conditionally, it is not surprising when the prophet Isaiah declares that Israel’s “princes are rebels” because they love “[bribes] and runs after gifts. They do not bring justice to the fatherless, and the widow's cause does not come to them. “[68] Isaiah continues to pronounce “woe to those who make unjust laws, to those who write oppressive laws.”[69] Isaiah describes these tyrants as depriving the needy of justice, robbing the poor, taking widows as their spoil, and preying upon the fatherless.[70] The poor, the widows, and the fatherless were prime targets for the ancient tyrants, but of course robbing anyone or preying upon anyone is a vile violation of the principle of justice upon which society rests. Indeed since “God shows no partiality”, and God denounces governments that rob the poor, He too despises governments that rob the rich.[71] As Leviticus 19 says, there should be no injustice in courts, and the judges “shall not be partial to the poor or defer to the great.”[72] This is important to remember, for in mass democracies tyrants have an easier time preying upon wealthy people. Therefore often the rich members of society are treated inhumanely by modern tyrants- their assets are greedily seized with threat of government violence. Governments that seek to use violence to “redistribute” wealth, from the poor to the rich, or from the rich to the poor- are rebelling against God, and therefore they are not his ministers.

It is important to remember, however, that just as one cake does not a baker make-neither does one act of tyranny make a government tyrannical. This can be seen with King David and King Ahab. David murdered Uriah to steal his wife, and Ahab murdered Naboth to steal his estate. After both of these events, prophets confronted the kings, and they both repented. Even though these rulers horribly corrupted justice, when confronted they humbled themselves and thereafter ruled honorably. Therefore though each of these kings dabbled in tyranny, it would be inaccurate to characterize their rule after their repentance as tyrannical. Tyrannies are those governments whose “long train of abuses and usurpations, pursuing invariably the same object, evince a design to reduce [the people] under absolute despotism.”[73] Tyrannies exist in opposition to the purpose of government as described in Romans 13 and 1 Peter 2, so as John Calvin wrote in his commentary on Romans, “dictatorships and unjust governments are not ordained governments.”[74]

Demonic Powers

Rather just as demons are “angels who did not stay within their own position of authority, but left their proper dwelling” and follow the devil, so too governments that revolt against God’s ordained limits on their power are, in John Milton’s words, “of the Devil.”[75] Indeed if Jesus would worship the devil, Satan promised to give him “all the kingdoms of the world,” for as “the god of this world” Satan has the ability to give the corrupt power of this world “to whom [he] will.”[76] In the end times there will be a tyranny with power “over every tribe and people and language and nation,” this blasphemous tyranny will be empowered by Satan.[77] While present tyrannies are not directly ruled by Satan, they still follow his vicious rule- as his ministers.

Tyrants ultimately function as Satan’s servants, as is made clear in the book of Revelation.  John, writing the book to the seven churches in the Roman province of Asia Minor, gives each church its own miniature message before he writes the common prophecy. To the church in the provincial Capital, Pergamum, John writes “I know where you dwell, where Satan's throne is.”[78] In the message to the Church of Smyrna, John warns Christians that “the devil is about to throw some of you into prison”[79] While Satan does not personally arrest Christians for their faith, and does not literally seat enthroned in the provincial Capital- the Roman Provincial government was little more than the human agency by which Satan persecuted the church.

Tyrants are the princes of Satan-operating under his power, as revealed by the prophecy of Ezekiel.  Amongst prophecies against various corrupt kings, Ezekiel begins to chastise the “prince of Tyre.”[80] The prince of Tyre acted as though he was a god, and because of this pride God raised Nebuchadnezzar to punish him. After describing the death of the prince of Tyre, God instructs Ezekiel to lament over the king of Tyre:

"Son of man, raise a lamentation over the king of Tyre, and say to him, Thus says the Lord GOD: "You were the signet of perfection, full of wisdom and perfect in beauty. You were in Eden, the garden of God; every precious stone was your covering, sardius, topaz, and diamond, beryl, onyx, and jasper, sapphire, emerald, and carbuncle; and crafted in gold were your settings and your engravings. On the day that you were created they were prepared. You were an anointed guardian cherub. I placed you; you were on the holy mountain of God; in the midst of the stones of fire you walked.  You were blameless in your ways from the day you were created, till unrighteousness was found in you.  In the abundance of your trade you were filled with violence in your midst, and you sinned; so I cast you as a profane thing from the mountain of God, and I destroyed you, O guardian cherub, from the midst of the stones of fire. Your heart was proud because of your beauty; you corrupted your wisdom for the sake of your splendor. I cast you to the ground.”[81]

Judging from these descriptions of the king of Tyre, John Cobin rightly concluded that the king of Tyre is Satan.[82] While the human head of state seemed to men to be a king, he was in God’s mind the prince of Tyre. The true king of Tyre was Satan, and the human government was a proxy by which Satan could work.

If we are to obey God’s ministers, as Romans 13 commands, then logically we ought not obey the vice-regents of Satan. Paul indeed makes this explicit in his epistle to the Ephesians, where he reminds Christians that they struggle “against the rulers, against the authorities, against the cosmic powers over this present darkness, against the spiritual forces of evil in the heavenly places.”[83] As essentially demonic, unjust governments are to be struggled against, not to be complied with; to be resisted, not to be obeyed. Not that Christians ought to bear any enmity against the actual persons- for Christians were as the tyrants are- but Christians should have enmity with the actual oppressive laws. Though Christians should not fight the brutal, nor the corrupt, nor the robbers- Christians should fight the acts of brutality, the acts of corruption, the acts of robbery. So in dealing with tyrannies, Christians should not scream “sic simper tyrannis!” and then slay Caesar; rather Christians should subvert the structure of oppression and attempt to rescue its victims.

Christian Resistance

Many Christians bristle at the notion of resistance, because Jesus commands Christians: “do not resist the one who is evil. But if anyone slaps you on the right cheek, turn to him the other also.”[84] Martin Luther writes that “the right interpretation” of the preceding command is “that Christians should be capable of suffering every evil and injustice.”[85] This does not mean, however, that Christians should let others suffer every evil and injustice! This confirmed by the New Testament’s positive portrayal of Moses defending the Hebrew slave from the Egyptian task-master.[86] Therefore, Martin Luther continues to state that Christians may resist evil, “for the sake of others.”[87] Tyrannies of course threaten more than individual Christians- so as G. I. Williamson writes in his commentary on The Westminster Confession of Faith, when governments become “bent on aggression, it is the duty of Christians to resist that power because it subverts the ordinance of God.”[88]

Now Christian resistance is a peculiar endeavor: while denying the authority of aggressive states, it does not focus on vengeance or retribution. Instead it focuses on God’s command to “rescue the weak and the needy; deliver them from the hand of the wicked.”[89] The sole Christian motivation for resistance is this: to deliver the unjustly punished from the hand of their oppressors. Therefore Christian resistance is limited to actions that reduce brutality. With that purpose for resistance, as Williamson writes, it is “difficult in many cases to determine precisely when and to what extent a Christian must resist a particular civil government.”[90] Determining how to resist tyrannies is beyond this paper’s scope, however, and will not be addressed. This paper intends solely to affirm that tyrants are rebelling against God’s moral law, and so to obey tyrants is to assist in their rebellion against God’s ordinances. In contrast, to resist tyrants is to hinder their revolt against God.  Resistance to tyrants is obedience to God.

Objections:

Objection #1 What about 1 Peter 2:12-17 or Titus 3:1?

Beginning with 1Peter 2, it is clear that Peter instructs believers to, “be subject for the Lord's sake to every human institution, whether it be to the emperor as supreme, or to governors.”[91] If this was all that Peter wrote, then one would conclude that Christians must always obey their government. Peter, however, in the preceding verse gives another command: “keep your conduct among the Gentiles honorable.”[92] As shown by the specific mention of conduct toward gentiles, Peter is writing to newly converted Jews. Indeed 1 Peter is addressed “To those who are elect exiles of the dispersion in Pontus, Galatia, Cappadocia, Asia, and Bithynia”[93]- that is exiled Jewish Christians.  These Jews were familiar with the parameters for a king given in Deuteronomy 17. Among the various constraints on the king, Moses instructs the Jews that “[they] may not put a foreigner over [them]” as king.[94] Therefore the Jews and the new Jewish Christians, as Matthew Henry writes, “concluded that they were bound to obey no sovereign but one taken from their own brethren” (that is ethnic Jews).[95] Since the Roman occupying force was not Jewish, the Jews and many Jewish converts to Christ sought to overthrow their rule simply because they were ethnically non-Jewish rulers. Ultimately, this  attitude lead to numerous revolts and the destruction of the Jerusalem Temple in AD 70.

These new Christians forgot, or did not know, that in the new covenant “there is no distinction between Jew and Greek; for the same Lord is Lord of all.”[96] When Peter writes “be subject to every human institution,” he is commanding believers to obey just institutions, Jewish, Greek, and indeed of any ethnicity.[97] Peter is not suggesting that Christians ought to obey institutionalized evil. To make this clear, he defines more precisely states that Christians should obey governors “as sent by [the emperor] to punish those who do evil and to praise those who do good.”[98] If governors perform this function, we ought to obey them, even in matters where we do not understand the specific purpose of the law. For then we could have faith that this law serves to perform the same general function as the government: punishing those who do evil and praising those who do good.

Christians are to do good, however, regardless of the governor’s commands. As Peter teaches in the same breath, Christians should “live as people who are free, not using your freedom as a cover-up for evil, but living as servants of God.”[99] Living as a servant of God, can be summarized as follows: “love the Lord” and to “love your neighbor as yourself.”[100] Hating God or our neighbors, in our thoughts or in our deeds, violates God’s commands. So servants of God cannot obey, or be subject to, institutions that ask us to hate God or to hate our neighbors, for as Jesus says “no one can serve two masters.”[101]

That subjection to governments is contingent upon the manner in which they use their power is further revealed by the command for servants to “be subject to your masters with all respect, not only to the good and gentle but also to the unjust.”[102] Peter, who was familiar with Paul’s epistles to the Colossians and Ephesians, knew that Paul commanded masters to treat their servants “justly and fairly.”[103] So, in stark contrast with the command to be subject to governors as sent to punish wrongdoers, Peter pointedly instructs believers to be subject to their individual masters (in modern society analogous to employers) who fail to live up to their duty. The reason for this distinction is plain enough: while cruel individual masters may cause believers to suffer; cruel governors cause all to suffer. So while Christians may nobly suffer under their individual masters- they cannot allow governments to brutalize their people. Hopefully it is clear that 1 Peter 2:12-17 does not command believers to obey all governments, rather it commands believers to obey all just rulers regardless of their ethnicity.

Now in Titus 3:1, Paul does tell Titus to “remind [the believers in Crete] to be submissive to rulers and authorities, to be obedient, to be ready for every good work.”  When Paul instructs Titus (probably between AD 63 and AD 65) in to remind the believers to submit to rulers and authorities is Paul referencing his earlier teaching in his earlier letter to the Romans (probably written around AD 57.) The rulers and authorities in Titus 3:1 are the same rulers and authorities from Romans 13- who are indeed owed obedience and submission.

Objection #2 Pilate received authority from God to execute Jesus, doesn’t that show that even tyrannical governments are instituted by God?

First Pilate did not receive authority from God to execute Jesus- Satan gave Pilate that power. Observe the actual text that those who make this objection must be referencing, John 19:10-11,

So Pilate said to him, "You will not speak to me? Do you not know that I have authority to release you and authority to crucify you?" Jesus answered him, "You would have no authority over me at all unless it had been given you from above. Therefore he who delivered me over to you has the greater sin."

Notice Jesus actually says the power has been given to Pilate, not “from God,” but “from above.” Remember the “spiritual forces of evil in the heavenly place” mentioned in Ephesians 6:12, it seems like these forces gave Pilate his authority.  Yet, some further object, Acts 2:23 says that Jesus was delivered to be crucified “according to the definite plan and foreknowledge of God.” Well yes this is true, but the plan was for the defeat of the Devil. Genesis 3:15 reveals that plan, “[Christ] shall bruise [Satan’s] head, and [Satan] shall bruise [Christ’s] heel.” God was aware that Satan would, through human agency, bruise Christ’s heel- and allowed it so that Christ would defeat Satan by his resurrection. So Pilate was being empowered by the spiritual forces of evil in the heavenly realms, used as Satan’s tool to strike Christ’s heel.

Objection #3 What about the Old Testament Legal System? King Hezekiah of Judah for instance destroyed the pagan shrines in Judah with divine support (2 Ki 18:4). Indeed Deuteronomy 13:5 commands that false-prophets be put to death to purge Israel of evil, indeed the same punishment is given for those who refuse to obey priests(17:12), children who refuse to obey parents (21:21), adulterers (22:22), kidnappers (24:7), all with the purpose to “purge evil” from Israel. Therefore don’t governments have an obligation to promote morality?

The Old Testament legal system does not apply directly under the new covenant- as seen by the clear completion of dietary and Sabbath laws. These laws ended, because the Word is going from Jerusalem to the ends of the earth, so their purpose of distinguishing the Hebrew people as a chosen race is no longer necessary. Now while the obvious moral issues of adultery or idolatry are not absolved by the New Covenant – the method of “purging evil” from God’s people is significantly different in the New Covenant. Observe Paul’s treatment of this subject in 1 Corinthians 5:9-13:

I wrote to you in my letter not to associate with sexually immoral people-- not at all meaning the sexually immoral of this world, or the greedy and swindlers, or idolaters, since then you would need to go out of the world.   But now I am writing to you not to associate with anyone who bears the name of brother if he is guilty of sexual immorality or greed, or is an idolater, reviler, drunkard, or swindler--not even to eat with such a one. For what have I to do with judging outsiders? Is it not those inside the church whom you are to judge? God judges those outside. "Purge the evil person from among you.”

Those who advocate for the state to punish idolatry, homosexuality, greed or other such “victimless” crimes would do well to think about the distinction Paul makes here about those inside the Church and those outside. Christians may discipline Christians, but even then not with violence- but rather with a gentle rebuke. Then if they refuse to repent and proudly continue all while claiming to be Christians- Christians should refuse to associate with them. This is the completion of the command to “purge the evil person from among you.”

Paul is quite clear, however, that Christians should still associate with unbelievers who are sinners in need of a savior. How then can Christians seek to jail, fine, or in other ways violently punish sinners for their sins?   Such legal theory is totally opposed to the Gospel of Grace and Jesus revokes such punishments when he protects the adulteress from the mob recorded as in John 8:3-11.

Paul does still maintain that sinners will be judged- but by God. This further shows that the state should not be in the business of punishing moral depravity. Observe Jesus’ parable in Matthew 13:24-30 regarding God’s Judgment:

He put another parable before them, saying, "The kingdom of heaven may be compared to a man who sowed good seed in his field, but while his men were sleeping, his enemy came and sowed weeds among the wheat and went away. So when the plants came up and bore grain, then the weeds appeared also. And the servants of the master of the house came and said to him, 'Master, did you not sow good seed in your field? How then does it have weeds?' He said to them, 'An enemy has done this.' So the servants said to him, 'Then do you want us to go and gather them?' But he said, 'No, lest in gathering the weeds you root up the wheat along with them. Let both grow together until the harvest, and at harvest time I will tell the reapers, Gather the weeds first and bind them in bundles to be burned, but gather the wheat into my barn.'"

If governments are to be God’s servants to bring wrath on the wrongdoer- it is only to prune those weeds which attempt to grow over the good seed (punishment for crimes that objectively harm others). Ripping out all the weeds (punishing every evil-deed), invariably does more harm than good. While Jews or Pagans might be mistaken in their religious convictions- Christians should not seek to convict them because of these erroneous beliefs. Dietrich Bonhoeffer astutely warned German Christians that “"If the synagogues are set on fire today,it will be the churches that will be burned tomorrow."[104] Christians who promote government policies with the aim of punishing forms of decadence that do not directly injure others, are unwittingly building the gallows for their own execution! Therefore, not only are these attempts to punish vice with the State incompatible with Christian love- they are incredibly unwise.

Objection #4 What about the fact that just governor, according to 1 Peter are to praise those who do good, and Romans 13 says that if one does what is right one will receive just government’s “approval [or praise]” because just government is “God’s servant for your good,” therefore governments have a commission to praise those who do good. Due to this commission, governments should engage in social engineering: providing positive reinforcement for every good deed.

While Governors should praise those who do good, governments should not, in order to praise those who do what is good, extend the violence of the law beyond the purpose of punishing injurious criminals. While governments can praise those that do good; they must do so without harming others. After all since there is a universal command to love our neighbors, and Romans 13:10 tells us that “Love does no wrong [κακός] to a neighbor,” in seeking to praise those that do good- governments must not harm[κακός] citizens who have done no wrong[κακός.]  Government praise should therefore consist of literal and not metaphorical praise: for example citations for exemplary conduct.

Objection #5 What about government production of “public goods”? Roads, bridges, etc are often created and maintained by governments. In fact, the United States Constitution claims that the U.S. Congress has the justified right to establish “post Roads” (Article 1 Section 8).Also it is hard to imagine private organizations managing roads, shouldn’t the government provide that which the free-market is incapable of supplying?

First, while the Constitution does establish the legal scope of American government- it does not set ethical principles- if it did set ethical principles there would be no provision for amendments. Now, the notion that it is ethical to collect taxes for the creation or maintenance of roads, bridges, hydroelectric plants, or other “public” goods, is predicated on the belief that it is permissible for some men to forcibly seize that which belongs to other men for the promotion of the “common good.” Taxes are forcibly taken- they are indeed a form of extortion! If a citizen- such as Ed Brown- refuses to pay his taxes- then that citizen is thrown into prison. So in deciding whether or not it is just to levy taxes for a project- one is deciding when it is just to throw men into prison! Should men be threatened with jailers over bridges or roads?

While the obvious answer to that question should be a resolute “no!” perhaps mere human reason is not sufficient. In that case, consider the words of Habakkuk 2:12, “woe to him who builds a town with blood and founds a city on iniquity!” When governments threaten violence to raise money for road construction- they are building a town with blood. There is no essential difference between individual burglars, who for their own “personal benefit” threaten bank tellers to obtain money, and a group of men who for the “common good” threaten every household to obtain money.

As to the supposed inability of the free-market to provide roads- or other “public goods,” this complaint is a mere distraction!  While Walter Block may answer these “pragmatic” complaints in depth, what is “pragmatism” but the worship of the stomach- ethics are sacrificed to “pragmatism” in order to fulfill any desire of the pragmatist. If roads could not exist without theft- then so much the worse for roads! Unfortunately, many Christians see problems with the world and then turn to the State to solve any potential issue. These Christians would do well to remember that trusting in oppression is a false-hope (Isaiah 30:12-13.)

Objection # 6 Paul might be saying that governments, as a whole, are a global good. In that case, Paul's argument might have the following structure: "Obey all governments, because governments as a whole are good.

First even if government was a global good, it does not follow that obedience should give to all governments. Cars in general might provide transportation, but one should not try to use a vehicle with flat tires!

Secondly, it is doubtful that governments are a global good. Nor was Paul likely to believe that governments were a general good: every King of Israel and roughly half of the Kings of Israel were described as evildoers . Indeed after analyzing every government policy in the Bible John Cobin found that “government acts were evil 78.4% of the time.”[105] Martin Luther wrote that “from the beginning of the world, a prudent ruler has been a rare bird; much rarer still is one that is godly. Ordinarily they are the greatest fools or the worst rascals on earth, and little good is to be expected of them”[106]

[1]Dreisbach, Daniel L. Mr. Jefferson, a Mammoth Cheese, and the “Wall of Separation between Church and Sstate”: A Bicentennial Commemoration. Journal of Church and State Aut 2001: 725-745

[2]Cobin, John M. The Bible and Government Alertness Books 2003: 117

[3] Ferrel, Jeff. Homeland Security Enlists Clergy to Quell Public Unrest if Martial Law Ever Declared. KLSA-12.com Accessed on August 15, 2009 from: http://www.ksla.com/Global/story.asp?S=6937987

[4] Acts 5:29 ESV

[5] Davidson, Bruce. “Is Civil Disobedience Biblical?” Searching Together Winter 1991.

[6] It could be argued that Ahab did not have legitimate ownership claims over the land because of the manner in which he seized the land, and after all God still calls the land “the vineyard of Naboth” (1King 21:18.) That is however, irrelevant for the discussion since legally Ahab owned the land as revealed by Elijah’s rebuke “Have you killed and also taken possession?”(1 Kings 21:19.)

[7] 1Kings 21:20 ESV see above foot-note if you believe that Ahab did not legitimately own the Vineyard.

[8] Matthew 7:-15-20 ESV

[9] United States Holocaust Memorial Museum. GERMAN CHURCHES AND THE NAZI STATE. Last updated May 4, 2009, Accessed August 15, 2009: http://www.ushmm.org/wlc/article.php?lang=en&ModuleId=10005206

[10] Ibid.

[11] Ibid.

[12] Ibid.

[13] United States Holocaust Memorial Museum. GERMAN CHURCHES AND THE NAZI STATE. Last updated May 4, 2009, Accessed August 15, 2009 http://www.ushmm.org/wlc/article.php?lang=en&ModuleId=10005206

[14] Brown, Robert McAfee. 1984: Orwell and Barmen Christian Century August 15-22, 1984, p.  770.  Accessed on August 15, 2009 from http://www.religion-online.org/showarticle.asp?title=1415

[15] Ibid.

[16] Ibid.

[17] Ibid.

[18] Nelson,  F. Burton. Kelly , Geffrey B. Bonhoeffer, Dietrich. A Testament to Freedom: The Essential Writings of Dietrich Bonhoeffer. Harper Collins 1995. P.14

[19] Gonzalez, Justo L. The Story of Christianity: The Early Church to the Present Day Prince Peabody Mass. 2008. p.367

[20] For further elaboration on how Rom. 13 has been used to hinder Christian opposition to tyranny, cf. N. Elliott, Liberating Paul: The Justice of God and the Politics of the Apostle (Sheffield: Academic Press, 1995)3-24.

[21] Rom. 13:1-2 ESV

[22] Carter, T.L. The Irony of Romans 13, Novum Testamentum XLVI, 3 2004,  209

[23] 2 Timothy 3:16 ESV

[24] Strong’s Greek Dictionary reference G1124

[25] Romans 13:3-7 ESV

[26] Romans 13:4 ESV

[27] Mises, Ludwig von. Human Action Mises Institute, Auburn 2008  71

[28] Luther, Martin. On Secular Authority: How far does the Obedience owed it extend? Quoted from Windows on the World Gary Scott Smith and P.C. Kemeny Editors, Copley Custom Publishing. Acton, Mass. 2004. P114.

[29] Romans 12: 14-21 ESV

[30] Matthew Henry’s Commentary on 13:1-6

[31] Romans 13:1 ESV

[32] Philippians 3:5 ESV

[33] Hos 8:4 ESV

[34] Matthew Henry’s Commentary on Hosea 8:1-7

[35] Milton, John. The Tenure of Kings and Magistrates p.7

[36] Romans 13:4 ESV

[37] 1Peter 2:14 ESV

[38] Luther, Martin. On Secular Authority: How far does the Obedience owed it extend? Quoted from Windows on the World Gary Scott Smith and P.C. Kemeny Editors, Copley Custom Publishing. Acton, Mass. 2004. P115.

[39] Vieth, Gene Edward. Authority in Vocation

[40] Strong’s Hebrew and Greek Dictionary reference: G2556. Throughout Romans 13:1-4 κακός is the Greek word used to describe the behavior that the “governing authorities” are to punish. Κακός is the primary word  that is the base of the verbs κακόω “to injure” and κακουχέω “ to maltreat or “to torment.”

[41] Strong’s Hebrew and Greek Dictionary reference: G2557.

[42] Backus, Isaac. " 11: Isaac Backus, AN APPEAL TO THE PUBLIC FOR RELIGIOUS LIBERTY - Political Sermons of the American Founding Era. Vol. 1 (1730-1788)." Online Library of Liberty. 1773. http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=816&chapter=69242&layout=html&Itemid=27 (accessed March 2, 2009).

[43] Acts 18:13 ESV

[44] Act 18:14 ESV. The King James Version poorly translates “πονηρός ῥᾳδιούργημα” as wicked lewdness, when (as the ESV reads) the most direct translation is “hurtful crime,” or in more vibrant English “vicious crime.”

[45] Indeed from the context of Acts 18, Gallio seems to be sent as a minister of God (like the ideal governing authorities described in Romans 13) to protect Paul from the blood-thirsty mob.

[46] Psalm 94:20 ESV David proceeds to answer his own question by writing that God will destroy wicked rulers.

[47] Acts 12:1 ESV

[48] Acts 12:11 ESV

[49] Matthew 12:26 ESV

[50] Jeremiah 22:3 ESV

[51] Jeremiah 22:5 ESV

[52] Jeremiah 22:6 ESV

[53] Jeremiah 22:15 ESV Compete in cedar: the king’s house was made of cedar. It seems to be an expression along the lines of: “do you think you are a king because you live in luxury”?

[54] Jeremiah 22:18 ESV

[55] Jeremiah 22: 19 ESV

[56] Respectively Jeremiah 25:9, 25:18 ESV

[57] Jeremiah 27:12 ESV

[58] Jeremiah 25:12 ESV

[59] Daniel 4:27 ESV

[60] Daniel 5:25 ESV

[61] Strong’s Hebrew and Greek Dictionary reference  H4484, H8625, H6357

[62] Daniesl 5:26-28 ESV

[63] 1 Corinthians 3:16-17, 6:19, 2 Corinthians 6:16, John 2:21

[64] Genesis 1:27 ESV

[65] 1 Samuel 15:9

[66] 1 Samuel 15:23 ESV

[67] 1 Samuel 15:23 ESV

[68] Isaiah 1:23

[69] Isaiah 10:1 NIV The ESV uses the word : “iniquitous” instead of “unjust” that is way I deviated from ESV. This pronouncement of woe is very significant because Romans 8:28 informs us that “all things work together for good, for those who are called according to [God’s] purpose.” This verse shows that tyrants are not called according to God’s purpose, for if they were God’s prophet would not be pronouncing woe upon them.

[70] Isaiah 10:1-4 ESV

[71] Romans 2:11, Gal 2:6 ESV

[72] Leviticus 19:15 ESV For more verse showing the importance of impartiality see: Exod. 23:3, Deut. 1:17, Deut 10:17, Deut 16:19, 2 Chron. 19:7, Job 13:10, Job 34:19, Pro 8:15, Pro 24:23, Pro 28:21, Mal 2:9, Luke 20:21, Act 10:34,  Eph 6:9, 1 Tim 5:21, James 2:1, James 2:9, James 3:17, 1 Peter 1:17.

[73] Jefferson, Thomas. The Declaration of Independence Continental Congress 1776. p.1

[74] Calvin, John. Calvins NewTestament Commentaries: The Epistles of Paul to the Romans and Thessalonians Traslated by R. Makenzie Edieted by David W. Torrance and Thomaas F. Torrance EerdmansPublishin Grand Rapids 1976

[75] Jude 1:6 ESV;  Milton, John  The Tenure of Kings and Magistrates p.7

[76] Respectively Luke 4:5, 2 Cor 4:4, Luke 4:6 ESV

[77] Rev 13:7 ESV As far as being empowered by Satan, the beast- or tyrant is given authority by the Dragon (Rev 13:4) and the Dragon is Satan (Rev 20:2)

[78] Revelation 2:13 ESV

[79] Revelation 2:10 ESV

[80] Ezekiel 28:2 ESV

[81] Ezekiel 28:12-17 ESV

[82] Cobin, John M. Bible and Government: Public Policy from a Christian Perspetive AltertnessBooks 2003, p 89

[83] Ephesians 6:12 ESV

[84] Matthew 5:29 ESV

[85] Luther, Martin. On Secular Authority: How far does the Obedience owed it extend? Quoted from Windows on the World Gary Scott Smith and P.C. Kemeny Editors, Copley Custom Publishing. Acton, Mass. 2004. P.124

[86] See Hebrews 11:24-26 and Acts 7:20-29

[87] Ibid.

[88] Williamson, G.I. The Westminster Confession of Faith: For Study Classes P&R Phillipsburg, NJ.  2004 p.312

[89] Psalm 82:4 ESV

[90] Williamson, G.I. The Westminster Confession of Faith: For Study Classes P&R Phillipsburg, NJ.  2004 p.312

[91] 1 Peter 2:13-14 ESV

[92] 1 Peter 2:12 ESV The NIV uses “pagan” as the translation for “ἔθνος” (ethnos), this is really only an implication of the word- and then only in Jewish communities. So the  best translation is “Gentiles”

[93] 1 Peter 1:1 ESV

[94] Deuteronmy 17:15 ESV

[95] Matthew Henry’s Commentary on Romans 13:1-6

[96] Romans 10:12 ESV

[97] 1 Peter 2:13 ESV

[98] 1 Peter 2:14 ESV

[99] 1 Peter 2:16 ESV

[100] Mark 12:30-31 ESV

[101] Mat 6:24, Luke 16: 13 ESV

[102] 1 Peter 2:18 ESV

[103] Colossians 4:1 ESV

[104] Steve, Argo. Bonhoeffer's Message: No Compromise With Evil. Madison Capital Times. February 4, 2006

[105] Cobin, John M. The Bible and Government Alertness Books 2003: 98

[106] Luther, Martin. On Secular Authority: How Far does the Obedience Owed it Extend? As quoted in Martin Luther, the Hero of the Reformation by Jacobs, Henry Eyster. G.P.Putnamn’s 1898, p. 224

Unfortunately corporations are not the only group capitalizing on the Climate Crisis. The State is entering the fray. From the City Government of San Francisco banning plastic bags, to the Energy Independence and Security Act of 2007, the environment is the pretense of choice to expand the power of the Federal Government. Even incandescent light-bulbs will eventually become contra-band in the land of the free and of the brave (without light-bulbs we won’t be able to be scared of the dark anymore). Tragically the increase of governmental powers due to the plight of the environment is not limited to the comic. The bill also includes provisions which greatly enhance the level of the Government’s involvement with almost all sectors of the economy.

The true threat to freedom posed by the global warming hysteria is more significant than the nationalization of the American economy. The most totalitarian systems strife to unite the citizenry into a common struggle, in the past ethnic or religious minorities were often the target of these evil states. However, after the scapegoat was sacrificed the government usually had a hard time maintaining control over the populace. The beauty of global warming (from a Statist perspective) is that all people groups can be united for an indefinite period. The sophistry employed by Gore and his cohorts is a renewable resource. For theories can always be expounded upon. New and terrible effects of almost any product can be “discovered”, the Statist dream of never-ending war is finally realized in the age of pseudo-science.

Corporations, business, CEOs, these are terms that in the modern context conjure up images of greed and corruption.  Gone is the layman who risks everything to build an industrial empire for the benefit of the consumer.  Richard Sears, Henry Ford, and Thomas Edison have been replaced by Ken Lay of Enron and Dennis Kozlowski of Tyco.  Populism has defined business ethics as a contradiction in terms, with ignominy replacing ingenuity in today’s corporate image.  The Corporate Social Responsibility (CSR) movement is no different than yellow journalism.  CSR minimizes the role of corporate owners (stockholders) and lends authority to political and special interest organizations who seek to gain by destroying the competitive market.

CSR theory is based on the mantra “doing well by doing good.”[i] It is structured around the idea of the stakeholder.  The stakeholder is anyone who will be affected by the policy decisions of the copany.[ii]  Stakeholders are often divided into five categories: customers, employees, suppliers, shareholders, and communities.  The case is made by Edward Freeman of the University of Virginia that business policy can benefit both business and society when managers serve those who have a stake in the firm.[iii]  Emphasis is placed on the modern corporate social responsibility framework more than just the shareholders.  It is this aspect of CSR that makes it so dangerous for the modern firm.

    This conception of the proper role of business has wide popular appeal.  Tony Blair promised Great Britain a “Stakeholder Society”[iv] during his campaigns for political power.  Blair and other advocates of the stakeholder theory claim the moral superiority of elevating the employees, customers, suppliers, and communities to the level of the owners of the company for the determination of business policy.  This interpretation of ethical behavior misses the mark; it is the shadow cast by a perverse understanding of man’s inherent rights.

When corporations focus on the stakeholders they “legitimize the subordination of the shareholder interest.”[v]  Stakeholder theory holds that employees have the right to be employed, that suppliers have a right to sell, that customers have a right to a product and that communities have a right to the business created by the local corporation. This theory implies an obligation on behalf of the corporation to maintain employment and to maintain production because that is what is just. When deciding whether or not to close a factor, CSR would have the company move beyond cost/benefit analysis and consider everyone else that will be affected.[1]  CSR creates an obligation to the stakeholders where no natural obligation exists.

Stakeholder theory and CSR advocates overlook the basic principles of economics.  CSR assumes a great deal of power to corporations.  Namely that these corporations are in a position of power, able “to do good” by all the various stakeholders simply through choice.  It is not market constraints that keep corporations from acting with the stakeholder ethic, rather it is the whim of the executives and governing boards.  Corporations are not in such a position. CSR assures the people that corporations could keep the plant open in their town if they were willing to make the sacrifice for everyone’s benefit.  Unfortunately, reality contrasts sharply with this understanding. 

What CSR advocates neglect is the truth that corporations are not kings of the free market.  Corporations are “simply a reflection of consumer demands and priorities.”[vi]  Corporations exist because of consumer value.  The raison d’être of a factory is the consumer’s desire to possess the widget being produced in that factory.  The purpose of a factor isn’t to employ people are raise awareness for social issues.  The purpose of the factor is to satisfy the consumer whose value is imputed to the factor through the good produced.  Industry services the consumer and reflects consumer value.  CSR advocates seek social change through the alteration of corporate structure, but the only sustainable social change can occur when there is an alteration in consumer structure.  If the consumer valued more socially responsible production techniques then they would be willing to pay a higher premium for goods produced in that manner.  Businesses would then actively pursue the production method desired by the consumer.[vii]  Without a change in consumer preference, CSR is unsustainable.

 Consider the example of two firms provided by Andrew Coors and Wayne Winegarden in Regulation Magazine.  One firm focuses on all five groups representing the stakeholders while the other only concerns itself only with the shareholders.  If consumer value for both goods is equal, then the consumer is only willing to pay one price for either good. At this price the CSR firm makes less of a profit than the shareholder focused firm.  With its greater profits, the shareholder firm is able to lengthen its structure of production, creating an economy of scale, while at the same time attracting more investors with higher returns on equity.  Without profits for investment or new shareholders, the CSR firm would either have to borrow to remain competitive with the shareholder firm or it would be put out of business as the other firm’s capital investments lowered their costs of production even more.

Once this scenario has played out it is easy to see why CSR is flawed in its very assumptions.  At the end of this illustration the “socially responsible” business no longer exists.  What CSR doesn’t consider is that businesses are not the driving force of the economy.  Corporations don’t decide what gets produced and how much of it, consumers do.  It is the consumers who are king of a free market.  Consumer demand creates profits which act as signals to investors.  Capital is invested where profits are made.  If it is profitable to be socially responsible, then those businesses will thrive first on profits, then upon the investors profits bring.  The irresponsible businesses will fail.

Corporate Social Responsibility is a misleading and loaded term.  The movement that is needed is Consumer Social Responsibility.  That is the only way true reform can last.  It should not be considered the social responsibility of the corporations to concern themselves with stakeholders to any degree that reduces profits.  The socially responsible corporation seeks profits for the shareholders over the desires of the stakeholders. Without profits the business will fail, and people don’t invest in failing businesses.  Consumer Social Responsibility is the rational theory.

                Al Dunlap, nicknamed Chainsaw Al by the press for the mass lay-offs during the turnaround of Scott Paper, warned that “if you see an annual report with the term ‘stakeholder’ put it down and run, don’t walk, away from the company.  It means the corporation has it priorities upside down.”[viii]  This is true in many respects.  However, when the consumer wants to see stakeholders considered it becomes profitable to do so.  This is a consumer driven Corporate Social Responsibility that is much different than any “triple bottom line” system.   CSR, when treated with the cost/benefit analysis of any other advertising method can be effective.

                If the corporation engages in socially responsible activity voluntarily to advertise its behavior, and thereby differentiate its product, it does so to increase market share and boost profits.[ix]  When CSR is used in this manner it is no different than an advertisement. When CSR affects the consumer’s opinion of the company and increase its likelihood of attracting business the corporation will invest in “socially responsible” activities and projects.  If no additional revenue gained by CSR activities the company would not and should not bother with CSR because it isn’t what the consumer wants.  CSR by consumer is sustainable, unlike hardnosed stakeholder theory.

                Many corporations have adopted Corporate Social Responsibility plans and feature them prominently on their websites.[x]  The high profile nature of these CSR pledges indicates the perceived benefit of CSR to the consumer.  General Electric proudly proclaims a $2.1 million aid package to Darfur.  It also features links declaring GE’s dedication to protecting the environment.[xi]  The Ford Company alerts any would be investor or consumer on their website that they saved 8.8 billion gallons of water last year.[xii]  GE and Ford are conducting this stakeholder conscience policy with the belief that it will benefit the shareholder.  These companies are advertising themselves as firms dedicated to helping the world. Why? To increase its profits and to attract investors.  Here we see CSR falling within the realm of the profit loss framework.  In this instance it is ethical to engage in CSR because it increases corporate profits.   

        One of the problems with corporate adaptation of formal CSR plans is that they distract from the original purpose of the firm.  Coors and Winegarden ask: What should a company value in its pursuit of social responsibility? Should it attempt to minimize the negative impacts of its business activity, or maximize its positive impacts, or find some optimal combination of positive and negative impacts? And how much do various stakeholders’ preferences matter? Do the opinions of environmentalists count more than those of labor activists? Or shareholders? Or consumers? Those questions can become so overwhelming and convoluted that they quickly distract a company from its original purpose—to provide profits to shareholders while supplying consumers with goods and services that add tangible benefits to their lives.[xiii]

The danger always exists for companies to become overly concerned with stakeholders, beyond the profit earning potential.  Companies do not form to serve the stakeholders, they form to serve the consumers.  Profits for the shareholders show that the combined factors of production are serving their more valued ends to the consumer than some other capacity.        

        The Toyota Corporation is in danger of succumbing to this same error.  On their website they offer a commitment statement that includes three areas of dedication. "Toyota is dedicated to philanthropy, the environment, and diversity." claims their website.[xiv]  Who thought they were dedicated to making cars?  Toyota built its company by offering the consumers what they wanted: Cars built better, cheaper, faster.  Today the company is offering everybody everything.  Frank Easterbrook and Daniel Fischel comment on the problem of this in their 1991 book, The Economic Structure of Corporate Law: "A manager told to serve two masters (a little for the equity holders, a little for the community) has been freed of both and is answerable to neither. Faced with a demand from either group, the manager can appeal to the interests of the other."[xv]  Only the profit structure can hold mangers accountable to their decisions.

       How can the mangers of Toyota be held accountable if they can play one side off the other.  A plant can be built anywhere.  One location justified by profit, another justified by image.  Without the profit/loss structure economic calculation is impossible.  So long as Toyota is maximizing their profits they are conducting business in a responsible manner.  However they are clearly flirting with the line of CSR that moves beyond profit into the realm of stakeholders, where there is no tangible way to measure progress.    

        When individuals argue for stakeholders as the proper focus of business strategy they are destroying the free market system.  No longer does the consumer dictate through voluntary exchange when and where the goods are produced.  When profits/losses are ignored then the factors of production will be allocated not to their most valued ends, but to simply somewhat valued ends.  CSR as a policy provides the structure for mediocrity.  The profit seeking firm however is providing the most valued goods to the consumer for the least valued factors.  If CSR is worth more to the consumer than the additional cost, every corporation in the world would be institutions of social justice.  However consumers aren’t willing to spend the additional money on all forms of CSR.  If one wants to see business as a source of social progress, one must look to the purpose of business: the consumer.  The customer is king, and the customer is always right.

[1] CSR advocates also focus on the seen and rarely consider the unseen consequences of an action.  The focus solely on the closing plant or the laid off work and ignore the new plant or the higher wages of another.  The focus of most CSR advocates is similar to that of every other protectionist group, protecting themselves from the competition of a free market.

[i] Anonymous, “How good should your business be?” Economist 1/19/2008, Vol. 386, Issue 8563

[ii] Coors, Andrew C and Wayne Winegarden.  “Corporate Social Responsibility—Or Good

Advertizing?”  Regulation Spring 2005 pg 10-11

[iii] Marcoux, Alexei M. “Business Ethics Gone Wrong” Cato Policy Report June 2000 Vol. 22, No. 3

                http://www.cato.org/pubs/policy_report/v22n3/cpr-22n3.html

[iv] Marcoux, 2

[v] Marcoux, 2

[vi] Coors, 10

[vii] Coors,10

[viii] Scott, Jeff  “Stakes v. Stocks”  Ludwig von Mises Institute 8/3/1998

                http://www.mises.org/story/23

[ix] Coors, 11

[x] Markley, 2

[xi] www.ge.com

[xii] www.ford.com

[xiii] Coors, 11

[xiv] http://www.toyota.com/about/our_commitment/index.html

[xv] Marcoux, 3

            “An unacceptably high proportion of the world’s population lives in dreadful conditions that consign them to Malthusian lives that are nasty, brutish and short”, says Norbert Kloppenburg, the senior vice president of KfW Entwicklungsbank, a microfinance institution based in Germany.[1] The alleviation of poverty through banking, or more precisely the provision of subsidized credit was a centerpiece of many countries’ development strategies from the early 1950s through the 1980s, but these experiences were nearly all disasters.[2] Microfinance, as it is known today, began with small experiments around 1980 that attracted official development assistance or corporation.

            The backdrop to the development of microfinance institutions was the failure of government assistance to the poor. It was appropriately recognized that government assistance to the poor often creates dependency and disincentives that worsen the standard of living in the economy. Jonathan Morduch in his paper ‘The Microfinance Promise’, says, “Despite decades of aid, communities and families appear to be increasingly fractured, offering a fragile foundation on which to build.”[3

            Microfinance institutions emerged as a consequence of the breakdown of government institutions to reduce poverty within the economy. Supporters of microfinance argue that the economic and social structures can be transformed by providing financial services to low income households. In addition, microfinance institutions are profit driven and offer a “win-win” solution for the financial institution and poor clients.[4] This paper, however, holds the stance that microfinance cannot be a tool of wealth creation as it detracts from saving and requires substantial government intervention.

Is microfinance ethical finance

            Microfinance is promoted primarily on the grounds of social and humanitarian aims. Kloppenburg vehemently asserts:

“The condition of the poor is all the more unacceptable because societies that make up a relatively small proportion of the world’s population have found ways, over very lengthy periods of time, that have permitted them to create great wealth, to prosper and enjoy opportunities that would have been unimaginable in earlier generations. This dichotomy – between rich societies and poor ones – is the largest economic and social issue of our time, and also the largest disgrace.”[5]

Kloppenburg, perhaps indirectly, suggests that the privileged members of society are responsible for this “disgrace”. And as privileged members of society, they need to eliminate this dichotomy. Microfinance, according to Kloppenburg, has shown that the working poor can create significant benefits for themselves with quite small loans.[6] The very act of helping the poor help themselves,  is according to many people ethical. There are many who claim that microfinance has been able to bring dignity and integrity to the fight against extreme poverty that, in the past, the different types of support to the poor were unable to do.

            However, Mario La Torre in his book, ‘Microfinance’, correctly claims that in our world today the definition of ethics is subjective. In his analysis of the ethics of microfinance, La Torre examines the behavior of the individuals involved, the depth of ethical activity, and the ethicality of intermediation.[7] Examining the ethicality of microfinance on those three levels, La Torre finds the answer in the cost of financial intermediation and the profit margin. Taking a pragmatic approach, however, he says that, while the cost of intermediation is great for most microfinance institutions “this cost is acceptable since it compensates for the possibility of accessing otherwise inaccessible financial services.”[8] Moreover, he says that it is also ethical when the intermediation cost incorporates a profit margin lower than the market rate, which according to him is a feature of microfinance institutions. Apart from these technical aspects that inevitably make microfinance an ethical practice, La Torre also asserts that encouraging access to financial services for individuals whom the financial system traditionally excludes is surely ethical.[9]

            The analysis provided by La Torre is certainly an investigation biased towards the promotion of microfinance as an ethical instrument. Poverty is certainly a significant problem of our time. Moreover, there are individuals who are genuinely concerned about poverty and honestly believe microfinance is an appropriate, free market tool to overcome poverty. As a result, microfinance appears to be a valid and ethical alternative for the eradication of poverty. Nevertheless microfinance institutions need to be analyzed in greater depth.

La Torre’s analysis on the surface seems detailed and valid. However, in reality the examination lacks depth. Firstly, funds provided to the poor are often subsidized by the government. James Morduch in his paper titled ‘The Microfinance Promise’ says, “…most programs continue to be subsidized directly through grants and indirectly through soft terms on loans from donors.”[10] He further cites a recent survey that shows that even poverty focused programs with a commitment to achieving financial sustainability cover only about 70 percent of their full costs. The Grameen Bank in Bangladesh, for example, would have trouble making ends meet without ongoing subsidies. The case for ethics is invalid here because government subsidies are not a result of saving and investment, but accrue from taxes or through an increase in the quantity of money. Mises, in his book ‘Human Action, says “Tax the rich and spend the revenue for the improvement of the condition of the poor, is the principle of contemporary budgets”. Frank Chodorov, in his paper, appropriately characterizes taxation when he says, “It is not the law which in the first instance defines robbery, it is an ethical principle, and this the law may violate but not supersede. If by the necessity of living we acquiesce to the force of law, if by long custom we lose sight of the immorality, has the principle been obliterated? Robbery is robbery, and no amount of words can make it anything else.”[11] As far as an increase in the quantity of money is concerned, Mises in ‘The Theory of Money and Credit’ says that it is a process that by-passes people’s democratically defined desires. Hence, while the use of microfinance institutions cannot be justified on ethical grounds, there are concerns that with the microfinance process that could make it unethical.

Microfinance: State Intervention and Wealth Creation

            Wealth creation according to supporters of microfinance is defined as an improvement in human productivity. Microfinance is also viewed as the solution to the problem of poverty that has universal application.[12] The San Francisco Examiner gives examples of how microfinance has had beneficial effects on individuals around the world. It tells of four women helped by microfinance: a textile distributor in Ahmadabad, India; a street vendor in Cairo, Egypt; an artist in Albuquerque, New Mexico; and a furniture maker in Northern California. The story continues:

“From ancient slums to impoverished villages in the developing world to the tired inner cities and frayed suburbs of America’s economic fringes, these and millions of other women are all part of a revolution. Some might call it a capitalist revolution…As little as $25 or $50 in the developing world, perhaps $500 or $5000 in the United States, these microloans make huge differences in people’s lives… Many Third World bankers are finding that lending to the poor is not just a good thing to do but it is also profitable.”[13]

While the alleged success of microfinance has been far reaching, the wealth creation ability of microfinance has been overstated. It is important to analyze the source of funds and accountability for the funds provided to the poor. Patrick Goodman, a consultant to microfinance institutions, in his report, ‘Microfinance Investment Funds: Objectives, Players, Potential’, assesses funding and major investors to microfinance institutions. He says that, “A US $30 million tranche (securitized bonds) bearing the least risk carries a guarantee from the US governments and was bought by institutional investors.”[14] Hence, a significant amount of investment comes from government institutions.

Grameen Banks, Bangladesh

            The case of Bangladesh’s Grameen banks is perhaps most interesting. The idea of the Grameen Bank was undoubtedly “new”, in the sense that the idea of microcredit had not been generated to affect millions of poor households. In fact, Grameen’s success has been assessed by the number of people affected, rather than its financial viability. Programs that have been set up in North Carolina, New York City, Chicago, Boston, and Washington D.C. cite Grameen as an inspiration.[15] In addition, Grameen’s group lending model has been replicated in Bolivia, Chile, China, Ethiopia, Honduras, India, Malaysia, Mali, the Philippines, Sri Lanka, Tanzania, Thailand, the U.S. and Vietnam. The founder of Grameen banks, Muhammad Yunus, often boasts of stupendous statistics such as, “Grameen has reached out to twelve million people or one-tenth of the population of Bangladesh.” He often uses poverty related rhetoric to gain increasing support for his plans with Grameen banks. He says: “…now that independent studies have shown that within ten years Grameen has managed to push one-third of its borrowers out of poverty, and to push one third of its borrowers up close to the poverty line, my message is always the same: poverty can be eradicated in our lifetime. We only need political will.”[16]

Furthermore, in reference to the establishment of Grameen banks, Yunus says that he found that most villagers were unable to obtain credit at reasonable rates, so he began by lending them money from his own pocket, allowing the villagers to buy materials for projects like weaving bamboo stools and making pots. Ten years later, he had set up the bank drawing on lessons from informal financial institutions to lend exclusively to groups of poor households.

            Yunus also voices his opinions about commercial banks, and explains how their functioning and operations overlook the poor. In reference to the employees that are hired by Grameen, Yunus says, “We tell them, ‘Go away. Do not come to the office. Sleep under a tree or gossip in a tea stall, but do not come to the office.’”[17] This philosophy is maintained essentially because, unlike a regular commercial bank, Grameen bank wants its employees to be amongst the people, rather than having the people come to them. Unlike commercial banks Grameen banks does not require its clients to show any collateral. Yunus explicitly says, “Our clients do not need to show how large their savings are and how much wealth they have, they need to prove how poor they are, how little savings they have.”[18] Moreover, he claims that commercial banks are “only” liable to its shareholders, where as Grameen banks are liable to its shareholders, who are the borrowers as well, and the government, which somehow increases Grameen’s liability. In addition, Yunus claims that Grameen’s success is measured not by bad debt figures or repayment rate, but by whether the miserable and difficult lives of borrowers have become less miserable.[19] A commercial bank on the other hand will ask at the start of its loan whether the borrower has collateral to repay it. Then supposedly forgets about that borrower completely. Only if the loan is not repaid will it concern itself again with the borrower.[20] Another reason why Grameen banks, according to many, display greater social responsibility is the fact that while commercial banks serve people who are living well above the poverty line, Grameen’s borrowers are all initially below the poverty line.

Government Intervention in Grameen Banks

It has already been mentioned that a large portion of the funds that flow into Grameen banks are in the form of subsidies. Without these subsidies, Grameen would not be a financially stable institution. If Grameen had been a market institution, it would have suffered $34 million in losses between 1985 and 1996, or it would have had to raise its loan rates to well above 50%. Most loans are for one year with a nominal interest rate of 20 percent. [21] Calculations suggest, however, that Grameen would have had to charge a nominal rate of around 32 percent in order to become fully financially sustainable.[22] Grameen argues that such an increase would undermine the bank’s social mission.

            Yunus suggests that the government is a significant stakeholder in Grameen banks. He says that while his plan was to have the Grameen Bank one hundred percent owned by the borrowers, his good friend, the finance minister of Bangladesh indicated that his proposal would have a better chance of passing if he offered a block of shares to the government.[23] He also says that, Dr. Hossain, a resident scholar, suggested that forty percent of the shares should go to the government, and the remaining sixty with the borrowers. Yunus concedes: “Without much enthusiasm, I went along with this.”[24] Hence, the role of the government in Grameen operations cannot be disputed. In fact, most would suggest that the government should play a significant role in the alleviation of poverty. Funds provided to microfinance institutions are, as suggested earlier, a product of, either taxation or increase in the quantity of money.

            It has already been established that taxation is equivalent to robbery. An increase in the quantity of money, or inflation, on the other hand, is often justified on pragmatic grounds. Mises, however, says that “there is a need to realize that inflation does not add anything to a nation’s power of resistance, either to its material resources or to its spiritual and moral strength.”[25] Even if poverty exists on a level that is seriously affecting the economy, the solution must be provided out of the available means by restricting consumption for non-vital purposes, by intensifying production in order to increase output and by consuming part of the capital previously accumulated.[26] As a result, the economy will effectively be able to reduce poverty without resorting to artificial methods such as inflation.

            Furthermore, Mises says the only reason a government would resort to an increase in spending is because they fail to convince the majority of the population that poverty is a serious problem affecting the economy. Mises says: “They (people) do not believe that conditions are so bad as the government depicts them or they think that the preservation of the values endangered is not worth the sacrifices they would have to make.”[27] The government, however, could be right, that there is in fact a serious problem of poverty that is plaguing the economy. However, the methods chosen for the solution is of greater significance. In effect, they reject the democratic way of persuading the majority. The state assigns itself the power and moral right to thwart the will of the people. They win the cooperation of people by deceiving them about the costs involved in the measures suggested. In effect, for purposes defined by them, they act as guardians of the people.

            Mises also says that the majority might support policies such as taxation, but they essentially do not want to pay for the costs incurred by the state. They uphold these policies only to the extent that their conduct does not burden themselves. In effect, they vote only for such taxes as are to be paid by other people, namely the rich; because they think that these taxes do not impair their own material well being. However, if a government is resorting to inflation, “it is employing methods which are contrary to the principles of representative government, although formally it may have fully complied with the letter of the constitution.” [28]

             Advocates of microfinance often indirectly posit that the poor are deliberately excluded from access to credit. Many of Yunus’ claims about commercial banks vehemently attack the services provided by commercial banks. In essence, he claims that commercial banks deliberately overlook the poor, who could potentially be their largest source of profit. Jeffery Tucker in his paper titled, ‘Microcredit or Macrowelfare – the myth of Grameen’, says, “Half the population lives below the poverty line in Bangladesh. Are we really supposed to believe that banks blithely overlooked millions of poor people out of bias or hatred or snobbery?”[29] Tucker further says that there is no way commercial banks could have been so “stupid” to not spot this opportunity even after decades of demonstration. Furthermore, significant donors to Grameen banks have been the United Nations, the government of Bangladesh and the United States.

The case against Microfinance           

Thomas Dichter, who critically analyzes microfinance economic institutions, lays down four main developments, in reference to microfinance, in the economic history of rich countries.

He says:

1.      Earlier forms of microcredit never played a significant role in business start-up or small business development,

2.      The first efforts at democratizing financial services were almost entirely savings and “thrift” based,

3.      Economic development in fact came before the movements to democratize financial services, and

4.      When credit for the poor did come along it followed the saving movement and developed almost entirely in relation to consumption.[30]

These developments are certainly still valid and applicable today and microfinance cannot be expected to yield the kind of results that a significant number of people have supported and advocated. Dichter, in his categorical arguments, first assesses whether the poor have any assets whatsoever. This is because most microfinance institutions do not require any form of collateral from the poor when they take out loans from these institutions. Dichter, however, claims that this issue is fairly complex. He says that the assets of the rural poor are often hidden from view, often deliberately, to avoid exploitation or expropriation. He cites the nineteenth century where peasants often hid what they had from tax collectors, the landlord or their neighbor.[31] He even talks about the 16^th century, when farmers in the Alps took measures such as cutting production of cheese to pay fewer taxes. He contends that in many countries such as India, China, Russia or even the United States, relatively poor people find ways to hide or underestimate their assets. As a result, microfinance institutions often assert that the poor are without assets. Moreover, very little research on poverty is conducted, because it is done too quickly and superficially to unearth anything more profound than the answers the poor want to give researchers.[32] Dichter also says that they hide, or save these assets because of their poverty and their frequent indebtedness. Generations of such attitudes have “shaped some of their behavior, rendering them often cunning, conservative survivalists, who were forced by circumstance to find myriad ways to deal with crisis, periodic shortages, and, of course , death and taxes.”[33] Also, microfinance institutions often view the poor one dimensionally – that they are needy creatures, with immense potential, but with little resilience and few strategies or choices. As a result, microfinance institutions feel compelled to mete out loans to the poor without any collateral.

            In most cases these loans are given out to start new businesses and to promote an entrepreneurial spirit among the poor. Historically however, credit was used by real businesspeople such as traders and merchants.[34] There is a stark difference between the traditional view of credit and current microfinance framework. Dichter says they see it as “linear and in black-and-white terms.” The view is very simple in that if any individual feels that he needs capital for some activity, and does not have it, he can borrow it, and when the business grows and he makes a profit he can pay it back. The nature of credit in a traditional market economy is, however, a “complex and ramified network of credit balances binding larger and smaller traders together.”[35] Historically, there was a hierarchical ranking of traders in which larger traders give credit to smaller ones and smaller ones have debts to larger ones. As a result traders often preferred expensive private credit to cheap government credit because it gave them a higher position in the flow of trade. Therefore, credit relationships in business can be complicated. The vast majority of today’s microcredit program borrowers are straightforward in their behavior with the major aim being to pay back the loans and get out of debt.

            An important question of what came first – formal credit arrangements or economic development also needs to be addressed. Dichter says that there is ample evidence that growth and development came first. Historically, in the 16^th and 17^th centuries, commercial activity of traders who needed to expand their production was financed by early forms of private banks. Moreover, in the years of the industrial revolution in Europe, beginning in Britain, the role of banks started to evolve as demand on the part of expanding manufacturing and heavy industries for credit increased. As a result, short term working capital and many financial instruments such as overdrafts started to develop.[36] Therefore, it is clear that before the demand for formal credit increased, there was an initial build up of activity in a given sector.

            The startup of business activities in the past were a result of savings and was done through savings that was either the individual’s who started the business, or the savings of relatives and friends of that individual. Dichter tells of a few instances where people have borrowed small amounts from friends and family to start their businesses. He gives the example of Walt Disney’s launch of Disney Brothers: “In 1923, soon after Walt Disney arrived in Hollywood, he and his brother Roy needed funds to launch Disney Brothers. They borrowed $25 from Roy’s girlfriend and $500 from their uncle.”[37] Therefore, savings or borrowing from a close social network has generally been used for business startups.

            Even today, non-bank, informal sources of capital for business start-ups continue to dominate, in developed and developing countries alike. In fact, a survey of 12 developed countries showed that in 2000, an average of 78 percent of funding for business start-ups came from informal sources.[38] The reason behind this statistic is that start-ups are experiments undertaken in the real world; they are not undertaken in a “controlled” environment. Therefore, the result cannot be predicted in advance, they are speculative. Dichter says, “Most people everywhere seem to recognize that reality, beginning with the entrepreneur, which helps explain the preference for self-financing or informal financing even when formal financing my be available.” When borrowing from a friend or a relative the entrepreneur knows that his risk is hedged. Generally, when an individual borrows from people, with whom he has a social connection, the arrangement is “softer” and more risk tolerant.

            Credit offered by microfinance institutions, however, stems from philanthropic or altruistic reasons. As a result, it is significantly easier to obtain credit and far easier terms. Hence, the credit offered is not only riskier but also available to a larger proportion of people. Formal bank credit was historically used by established businesses, only when they had achieved a degree of profitability and were expanding. Since the business was past the start-up stage, the banker could have something to trust in. Moreover, the drivers of economic growth in the United States were not poor people getting access to enterprise credit but the expansion of bigger businesses and industry.[39]

The significant difference between standard microfinance clients of today and real entrepreneurs is the use of credit. While entrepreneurs use credit for investment, credit for the masses through microfinance is largely for consumption. As a result, microfinance institutions often engender among the poor, a practice of spending rather than saving. In eighteenth century Scotland, there were a group of social entrepreneurs who had a vision for the poor. They wanted the poor to know the ills of the “alehouse” and “imprudent expenditures”, and promoted the need for “moral restraint”. Moreover, there were penny schemes offered by banks as a means of training the population in the habits of saving.[40] The poor who were objects of those lessons were the working poor, who had a source of income but needed ways to some away form the “rainy day.” Microfinance, however, in many ways reverses the chronological function of saving and credit. The poor are encouraged to take the loans and are then told about the importance of saving.

However, the view offered by many proponents of credit through microfinance institutions is starkly different. Ernst A. Brugger, in a section from the book ‘Microfinance Investment Funds’ says,

 “Savings from clients could contribute to the growth of MFIs… Over and above reforms in the financial sector, local governments and central banks also have a vital role to play in this context by creating an enabling framework to encourage local banks and financial institutions to invest in the microfinance market. Encouragement may also come in the form of incentives for microfinance investments such as tax break, special rewards, recognition, and concessions.”[41]

Brugger also suggests that stronger central banks rather than a higher proportion of savings will establish public confidence in the banking system in less developed countries. The ideas supporting microfinance, in effect, show that savings “could” have a function, but is not necessary to the success of microfinance institutions.

            Why is it important that the central bank should not intervene, even though savings in less developed countries is so low? Mises explains that the monetary changes introduced via the banking system not only distort interest rates but also generate business cycles. The artificially lowered interest rates stimulate the demand for bank loans over and above the amount of real savings available for lending. This demand is met with inflationary increases in the quantity of money and credit. An inflationary increase, as discussed earlier, will lead to a worsening economy, especially for less developed countries.

Potential for Microfinance

            Can it be argued that the functions of microfinance institutions are insignificant? Yes and perhaps, no. Jeffery Tucker suggests that commercial bankers can fulfill the functions of a microfinance institution if they saw the poor as a viable market. In reference to Grameen banks he says: “We are told that Yunus discovered a wonderful new way of making profitable loans to the poor by doing something that all conventional bankers in Bangladesh had overlooked. Half the population lives below the poverty line in Bangladesh. Are we really supposed to believe that banks blithely overlooked millions of poor people out of bias or hatred or snobbery?” Tucker does have a very compelling argument. Nevertheless, there are microfinance institutions in certain less developed countries that know the value of saving and investment in extending credit in the long run.

BancoSol, Bolivia

            Banco Solidario’s focus is mainly on banking rather than the offering of a social service. Loans are made to “solidarity” groups that could include three to seven members. The bank now lends to individuals as well. Interest rates offered at Banco Sol are relatively high. In 1998 when inflation was below 5 percent, loans denominated in bolivianos were made at an annual base rate of 48 percent, plus 2.5 percent charged up front.[42] Clients that show a good repayment performance are offered loans at 45 percent per year. As a result of these rates, the bank does not rely on subsidies, making a respectable return on lending. Moreover, repayment schedules are flexible, allowing some borrowers to make weekly repayments and others to do so only monthly. Loan durations are also flexible. At the end of 1998, about 10 percent had durations between on and four months, 24 percent had durations of four to seven months, 23 percent had durations of seven to ten months and 19 percent had durations of ten to thirteen months.[43]

            Borrowers from BancoSol are far better off than in Bangladesh and the loans are much larger. Average loans are around $900 dollars, which are close to nine times greater than those made to borrowers in Bangladesh. The main reason for this is that the borrowers are the working poor, who are marginally above the poverty line. By the end of 1998 BancoSol was serving close to 81,503 clients, which accounted for 40 percent of the borrowers in the entire banking system.[44]

            The success of BancoSol can be attributed to impressive repayment performance. However trends are starting to change. As the number of non-government organizations has increased, the bank has had more competition. Easier access to credit has made borrowers lethargic and reluctant in their payments.

Rakyat Indonesia

            Rakyat Indonesia, like BancoSol, is a financially self-sufficient and also lends to the poor who are “better off”. Moreover, average loan sizes were around $1000 in 1996.[45] Unlike other microfinance institutions, these banks require borrowers to put up collateral, so the very poorest borrowers are often excluded. Nevertheless, their operations remain small scale, and collateral is often defined loosely, allowing staff for some discretion to increase loan size for reliable borrowers who may not be able to fully back loans with assets. Repayment rates for Bank Rakyat Indonesia have also been high, with 97.8 percent of borrowers repaying their loans in 1998.[46] The bank now serves about 2 million borrowers and 16 million depositors.

            The importance of saving is central to the success of Bank Rakyat. Their main source of funds are general deposits from the general public, which account for approximately 75 percent of the loans.[47] Moreover, loan officers often get to know clients over time, starting borrowers off with small loans and increasing loan size conditional on repayment performance. Annualized interest rates are 34 percent in general and 24 percent if loans are paid with no delay.[48]

            Bank Rakyat does not see itself as a social service organization – it aims to earn a profit and sees microfinance as a good business. In 1995, the unit desa program earned $175 million in profits on their loans to low-income households.[49] In fact, repayment statistics show that people of lower income had a larger repayment rate than corporate borrowers.

The case of donor money

            The functions and operations of Bank Rakyat Indonesia and BancoSol have certainly been huge successes in their respective countries. Moreover, this success is amplified because of minimal government intervention in these banks. Nevertheless, there have been other banks and NGOs that have had minimal intervention from the government. They, however, are subsidized by donors. While there is no inherent problem with donor money providing support for microfinance institutions, often times the donations are of such immense quantity that microfinance institutions cannot put them to adequate use. Moreover, donor control over these institutions increases and affects the day-to-day functions of these banks. Jonathan Morduch says that in 1997, when microfinance was on the rise, “a high profile consortium of policymakers, charitable foundations, and practitioners started a drive to raise over $20 billion for microfinance startups in the next ten years. Most of those funds are being channeled to new, untested institutions, and existing resources are being reallocated from traditional poverty alleviation programs to microfinance. With donor funding pouring in, practitioners have limited incentives to step back and question exactly how and where monies will be best spent.”[50]                        

Conclusion            

            Over the last decade the popularity of microfinance has steadily increased. It is often justified on the grounds that it is a free market solution to poverty. Muhammad Yunus has often claimed to be deeply influenced by the free market, but also concedes that it neglects the poor. He says: “…I saw how the market liberates the individual and allows people to be free to make personal individual choices. But the biggest drawback was that the market always pushes things onto the side of the powerful.”[51] Yunus fails to realize that the market by its nature does not distinguish between the powerful (or rich) and the poor.

            In fact, many microfinance programs such as Grameen banks are partially run by the government and in no way can be labeled a free enterprise. Moreover, the claim that not only the poor benefit but the banks earn profits as well has not held true over the last decade and is unsubstantiated. Therefore, economic expansion and development have not materialized as a result of microfinance in my less developed countries. Wealth creation can only come about through the forgoing of present consumption for latter, which essentially is saving.

                 The functions of microfinance institutions, if at all needed, should be limited to offering newer and effective modes of saving for the poor. Moreover, strong leadership, that banks such as BancoSol in Bolivia and Bank Rakyat Indonesia have displayed, should lead to the aversion of government assistance.  

Bibliography

Bank Rakyat Indonesia - unit desa. 2007. http://www.fao.org/ag/ags/agsm/Banks/banks/indones2.htm (accessed December 8, 2007).

Brugger, Ernst A. "Microfinance Investment Funds: Looking Ahead." In Micrfinance Investment Funds, by Ingrid Matthaus-Maier, 231-252. Frankfurt: Springer, 2006.

Chodorov, Frank. Ludwig Von Mises Institute. 1962. http://www.mises.org/etexts/taxrob.asp (accessed December 8, 2007).

Dichter, Thomas. A Second Look at Microfinance. February 15, 2007. http://www.cato.org/pub_display.php?pub_id=7517 (accessed December 9, 2007).

Goodman, Patrick. "Microfinance Investment Funds: Objectives, Players, Potential." In Microfinance Investment Funds, by Ingrid Matthaus-Maier, 11-45. Frankfurt: Springer, 2006.

Kloppenburg, Norbert. "Microfinance Investment Funds: Where Wealth Creation Meets Poverty Reduction." In Microfinance Investment Funds, by Ingrid Mattaus-Maier and J.D. von Pischke, 1-5. Frankfurt: Springer, 2006.

Mises, Ludwig von. The Theory of Money and Credit. Indianapolis: Liberty Fund, 1981.

Morduch, Jonathan. "The Microfinance Promise." Journal of Economic Literature, 1999: 1569-1614.

Torre, Mario La. "The new conception of microfinance." In Microfinance, by Gianfranco A. Vento Mario La Torre, 1-19. New York: Palgrave Macmillan, 2006.

Tucker, Jeffery A. Microcredit or Macrowelfare - The Myth of Grameen. November 8, 2006. http://www.mises.org/story/2375 (accessed 12 8, 2007).

Yunus, Muhammed, and Alan Jolis. Banker to the Poor. London: The University Press Limited, 2001.

Intellectual Property rights (IP) have long been a hindrance to the advance of society, giving advantages benefitting a few. This paper seeks to correct the view of IP as essential to our society and expose them to be what they really are.

                Government intervention in the dissemination of ideas has stunted the growth of our society and is stunting the growth of America’s economy. An injustice is being perpetrated upon the victims of these laws, laws that are beneficial to large companies and a roadblock to the individual and small company. 

Download and view as a PDF which makes this article much easier to read.

                This paper takes into consideration many of the most common and powerful arguments for IP and through rational thought and researched evidence, aims to enlighten the reader. The targeted scope is primarily America’s Intellectual Property system but the principles found herein apply to all societies.

                IP rights are illegitimate due to the qualities inherent in a right. Upon examination it is obvious IP rights are not rights and do not belong in any free society. Property rights depend upon scarcity and ideas are never a scarce resource. One individual’s use of an idea does not cause another individual to lose something. IP should be eliminated from our society and the blessing of liberty shall flourish.

Contents

Definitions & Assumptions. 3

Utilitarian arguments for Intellectual Property Rights (IP). 4

Arguments against IP due to abstraction. 5

Arguments for IP due to creation or a Natural Law.. 5

IP: Throttling Society by the Neck. 6

Privacy violations and government interference. 6

Problems with Patent law.. 6

Business Method Patents. 7

Inconsistencies of IP. 7

Copywriting & Trade Marking… Unnecessary and Illegitimate. 8

The Mark of a Successful Product. 8

The demise of IP rights and our better world. 9

Innovation. 9

Less government intervention. 10

The Open Source software movement. 10

Products/Services changing the rules of IP. 11

Popularity of works. 12

Our World as it should be….. 13

Suppose the first person to invent the wheel or discover fire put a patent on it. What would this have done to the progress of society? It would have been catastrophic to our advancement, if others were not able to make wheels or start a fire to keep warm. Our patent system may be squelching “wheel” and “fire” type inventions and consequentially our society progresses at a much slower pace.

Intellectual Property rights (IP) are invalid and detrimental to the innovative growth of society. Contrary to popular belief, in the absence of IP, innovation would flourish and our standard of living would increase. Intellectual Property and Intellectual Protectionism are two terms for the same injustice. Why is the state allowed to grant a monopoly of an idea to an individual? This is a gross infringement upon other’s rights.

Definitions & Assumptions

As with any intellectual probing of a subject, it is important to first define the terms. These are some of the main terms relevant to the IP issue.

·         Patent, “the right to exclude others from making, using, or selling an invention or products made by an invented process that is granted to an inventor and his or her heirs or assigns for a term of years”[i]

·         Copyright, “a person's exclusive right to reproduce, publish, or sell his or her original work of authorship (as a literary, technological advancement, musical, dramatic, artistic, or architectural work)”[ii]  

·         Trademark, “a mark that is used by a manufacturer or merchant to identify the origin or ownership of goods and to distinguish them from others and the use of which is protected by law"[iii]

These all fall under the heading of Intellectual Property (IP), also included but not defined are: registered trademarks, business method patents and industrial design rights.

This treatment of the subject of IP rights assumes and affirms the following: (1) human beings have distinct “natural rights” endowed by their Creator, (2) property rights are foundational to a free society, (3) government’s role is to recognize and protect these rights only, (4) government should not create monopolies or engage in any protectionism that favors one group of people over another (5) less government intervention is always beneficial to the growth of society.

Utilitarian arguments for Intellectual Property Rights (IP)

“No wealth-creation calculus can justify the overturning of property rights, which is what patents achieve.” ^xxxv

The central argument for Intellectual Property rights is that without them, innovation would cease to occur, as there would be no financial incentive driving growth.[iv] Is the purpose of the law really to maximize wealth and innovation? The answer is a resounding no! “The goal of law is justice, not wealth maximization.”[v] The purpose of the law is to protect citizens and their rights. As John Locke understood, “the end of law is not to abolish or restrain, but to preserve and enlarge freedom.”[vi] By imposing a monopolistic protectionism on an abstract idea, the state is in effect limiting all other citizens’ rights to utilize their own ingenuity by furthering a good idea or discovering it autonomously. It is neither within the bounds of the state nor its role, to ensure a participant in the market shelter from competition and market forces. Anti-trust laws currently can actually apply to patents, as they truly are monopolies.[vii] Even lending a book or borrowing one from the library could be considered suspect, as that may be depriving the creator of profit. When competition and innovation are allowed to coexist, the market flourishes. The sectors with highest competition are notably the fastest growing, most innovative and most profitable. Copyrights are most certainly not even a result of free market but “Like all privileges (emphasis added), they were grants of the king.”[viii] 

The IP advocates state that the incentive for innovation is negated as a new idea/invention can be “stolen” and utilized by others. However, most companies do not research and develop just to patent. Their primary goal is to bring a product to market. “Being `first on the market’ is its own reward.”[ix] Patents and copyrights are typically only defensive measures. In the free market, patents and other Intellectual property rights stifle creativity, impede innovation and bring unnecessary government intervention into our commerce. The belief that the monopolistic advantages of IP are needed to sustain innovation in a society reflects a great lack of faith and distrust in the free market system.

Arguments against IP due to abstraction

The author of a piece of music or a book cannot have rights to words and sounds everyone else can utilize just because of the order of the words or sound. Does it make sense that the previous paragraphs cannot be copied by other people due to word order and origin? Words and ideas are both abstract and do not exist in the real world but only in our minds and as such are subject to interpretation. “The economic case for ordinary property rights depends on scarcity.”[x] Instead, IP rights “purpose is to create scarcity, thereby generating a monopoly rent for holders of such rights.”[xi] Information is obviously not a scarce resource; it cannot be depleted.  Thomas Jefferson said it best, “He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening mine. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature.”[xii] Jefferson understood, allowing the spread of ideas does not harm others. This free spread of knowledge is the natural way of life. Property and rights to it exist only if, the original possessor is missing his property when it is utilized or it is no longer in his possession.  This deprivation of the owner obviously does not occur in so-called IP “violations”.

Arguments for IP due to creation or a Natural Law

“The notion that the mere act of creation confers ownership is problematic.”[xiii] “The patent holder can prevent others from practicing the invention even if, as is quite common, they arrive at the process quite independently.”[xiv] This view, that one is entitled to the fruits of one’s creation regardless of others rights is neither just, nor a protection of rights.

“In addition to allowing the author to partially control the paper, ink, computer, and photocopier of others, copyright in particular restricts not only our rights to our property, but to our very bodies. Consider the choreographer of a dance who gets the right to stop another from moving his body in a certain fashion.”[xv]

The physical universe holds many secrets; why should the discoverer be allowed to prevent others from utilizing the new discovery? Even worse, the law declares null any independent discovery of a new process/product/idea due to previous discovery. This government granted protectionism infringes on the rights of many and confers special privilege on the few.

IP: Throttling Society by the Neck

History has many instances of patents severely debilitating and harming society.  Cipro[xvi] was a drug discovered to combat a possible anthrax outbreak. The one company that “owned” the right to produce it was unable to produce the quantities needed to meet supply. One company had the exclusive government granted right to produce several chemicals in a particular combination. This could have had disastrous effects in the event of an anthrax outbreak. Even more affected than industrialized countries are developing and third world countries unable to acquire affordable medicine.[xvii] If competition were legalized, generic pharmaceutical companies would be able to meet this need.

Privacy violations and government interference

The Crackdown on IP violations has greatly contributed to America’s decline of privacy. Peer-to-Peer clients (P2P) such as Kazaa[xviii], DC++, and Napster have all been attacked and forced to betray clients who may or may not be engaging in “illegal” activity. These networks act as a medium to allow two parties to exchange files. This technology has been attacked and forced to go underground or risk shut down.

Problems with Patent law

Patent laws are not always respected abroad. China is “notorious for its disregard of IP.”[xix] China has been able to grow at a pace impossible if not for their cultural view of IP as illegitimate. This puts domestic companies at a great disadvantage, as they are forced to respect laws their global counterparts do not. In the increasingly global economy, companies cannot afford even the slightest disadvantage or failure will ensue. In this new “flat world”,[xx] IP rights are increasingly ineffective/inefficient, partly due to enforcement inadequacy and due partly to the pace of technology as new advances cannot easily be recorded and checked against previous ones. Another weakness of the IP system is the huge costs associated with filing, particularly with patenting. The complexity of filing in the US alone is incredibly ineffective as technology accelerates to a speed unable to be checked and regulated. The system is very much stacked against smaller companies and individuals. Large companies such as Apple, Intel and Microsoft have many lawyers working for them focused solely on patents. These companies will often find software in violation of one of their patents and bully their way into gaining new technology or royalties. Patent lawyers are often high priced and many fledgling companies cannot afford the financial risk involved in the lengthy patent process, a process that may get through but may never be rewarding.

Business Method Patents

Business method patents are among the most ludicrous types of IP rights as they allow patenting a certain way of doing business. Most notable is the example of the “one click” purchasing option from Amazon.com.[xxi] It is absurd to believe a certain method of doing business can be monopolized. Groundbreaking business practices need to be assimilated into current business.

Inconsistencies of IP

The alleged rights associated with intellectual property are riddled with inconsistencies. Why is a patent/copyright’s length of ownership not infinite? If this were a true “right”, it could be bought/sold/traded at will or held at the owner’s discretion. Another inconsistency is the tribute or cover band as they make money off other artist’s creations.

How are libraries able to “lend’ a book out thousands of times (possibly depriving the author of potential money from sale of the book) yet a book cannot be uploaded to the internet and also viewed by thousands of people? Are not libraries in violation of the principle underlying IP? If the goal of these IP laws is to maximize and ensure the wealth of the author, logically, should not the government also protect against these other possible profit losses?

Copywriting & Trade Marking… Unnecessary and Illegitimate

People will tend not to use others brand’s logos as they are viewed as being cheap and copying. Many faux Rolexes are sold daily, does this affect Rolex’s profits? The buyer of a fake Rolex is generally unable to afford the genuine article. A Rolex is much more than just parts put together a certain way. The consumer is buying an image or status symbol. The point being, there is much more tied into a brand than appearance.  A store using the Wal-Mart name cannot be “Wal-Mart”; they would find it impossible to compete, as they would not have the experience, structure or distribution channels Wal-Mart employs. The threat of brand forgery is much less of an issue in the real world than trademark proponents proclaim.  If blatant misuses and forgery of a company’s image occur, there are free market solutions such as organized boycotts, business organizations, and news media exposés. A situation is foreseeable where the free market develops an agency that certifies or in some way verifies the legitimacy and business history of a business. Imposters would be eliminated from the market by sheer customer choice. Currently, it is difficult to forge a known brand identity in any location due to the uniqueness of the brand’s address whether physical or web URL. The problem of brand replication is a hypothetical argument that in reality bears little merit.   

The Mark of a Successful Product

Many of the innovative advances in society become neologisms (new words) and are brought into our cultural reservoir. Whether or not these are generic products or the real thing, consumers inevitably refer to them by their branded name. This does not hurt the company to any great extent, as the first innovator generally has the advantage of brand trust and loyalty. In fact, a genericized product is proof-positive of successful innovation and a winning product. Many of these consumers are invariably unaware of the trademarked status attached to a word, as they refer to all products of similar type by the “branded” word. “Pass me a Kleenex”, “Xerox this”, or “take an Aspirin” are all phrases in which brand ownership is entirely disregarded by the consumer. Incidentally, Aspirin lost its trademark due to its genericization.

The demise of IP rights and our better world

Companies waste a tremendous amount of money on research and development to get around patents already in existence, even though these processes/components may be the best way of doing something. If a company is able to build upon previous research and utilize best methods, innovation is finally going to be released from its chains. With the free transfer of ideas/technology, innovation would accelerate and be more efficient.

Innovation

“Great playwrights like Euripides and Shakespeare never wrote an original plot in their lives; their masterpieces are all adaptations and improvements of stories written by others. Many of our greatest composers, like Bach, Tchaikovsky, and Ives, incorporated into their work the compositions of others. Such appropriation has long been an integral part of legitimate artistic freedom.”[xxii]

Indeed, in the formulation of this response to IP rights, the thoughts and intelligence of a multitude of scholars have been drawn upon. Even the scholars cited herein incorporated their forebear’s wisdom into their works. Thus society progresses, learning from past and present knowledge. In a steady downpour we now try to pass this torch of knowledge. This dampening effect on innovation and creativity is the main result of Intellectual Property rights.

    All great new products are copied to some extent soon after their release. The highly popular iPhone was recently joined by the LG Voyager, which has many of the same features and touch interface as the iPhone, but is a step forward. If there were no IP restrictions, LG would have been able to incorporate the best features of the iPhone and add new ones in the constant struggle to produce the very best product. The iPhone has also been replicated by a Chinese firm that disregards IP. This new iClone is, according to Popular Science,[xxiii] chock-full of new features and a great leap forward for the consumer. This identical twin of the iPhone sports many features/qualities that put it leaps ahead of the iPhone. It is going to be half the price, offer a customizable operating system, and be able to work with any carrier (not just AT&T as with the iPhone).   Samsung recently went after some cloners of their phone in China; they were so impressed by their efficiency that they tried to hire them.[xxiv] These skilled cloners are forced to work covertly and live the lives of criminals, not able to be the innovative entrepreneurs they really are.

Less government intervention

Companies can still use defensive measures to “fence”[xxv] their products. Many music formats are already providing a free-market solution sans government involvement. iTunes music files contain Digital Rights Management (DRM) code that greatly restricts the use of the music. These safeguards can and are broken but for the majority of users they are an efficient solution to controlling the spread of content.  Proprietary coding is often used to allow a company to keep its code safe. Granted, this does not encourage the free spread of ideas but it does so without state intervention in the market. In a world without IP rights, these defensive measures by companies are unable to punish others for using the code. The supposed problems IP rights prevent already have free market solutions without the need for government to exercise its monopoly of violence. Currently an individual can ultimately be killed or end up in jail for resisting the government and breaking IP rights. This is the threat inherent in any government law. The removal of this threat to a citizen’s life is a step forward for liberty.

The Open Source software movement  

Society has reached a new paradigm; this new movement has decided the free market model of competition and collaboration leading to innovation is the ideal. This new open source movement is building and reinventing software collaboratively and synergistically. One person may pioneer a new software idea and he allows the community to access the code, tweak it, improve it, and reinvent it. This new way of providing software has revolutionized the industry and the end user has reaped the benefits. This new system is not completely free from government intervention as many times the software still has a form of copyright. Strangely enough, there is a new type of IP sometimes called Copyleft that sets parameters on the use of the free code or work. The limitations set on typical Copyleft licenses are the “rights to use, modify, and redistribute” as long as “extended versions of the program… …be free as well.”[xxvi] A programmer can improve a product but they cannot turn around and make it into a saleable product. Other examples of this new movement for free use of ideas are: Copyleft, Creative Commons, and the GNU General Public License. These are still IP rights of sorts; they just do not restrict the item’s use in any way except in regards to profit.

Products/Services changing the rules of IP

The following are all products/services that have benefited greatly from the new collaboration and disinterest for IP rights: Google book search and Project Gutenberg both are services offering entire books whose copyright has expired and copyrighted books in viewable, sometimes-editable, text form.  Source Forge[xxvii] offers a centralized location for open source code and programmers can utilize its extensive database of existent code to save time. MIT OpenCourseWare is a new free resource that provides all of the teaching resources necessary to autodidacticaly learn the same material as MIT students.[xxviii] Incidentally, this service is licensed under the Creative Commons[xxix] license and as such may be freely distributed/edited but may not be used in a profit-seeking venture. Open Office is one of many new computer programs that are open source and completely free. It provides a complete desktop publishing suite comparable to Microsoft Office.  Mozilla Firefox[xxx] is an open source alternative to Internet Explorer. It is immensely more powerful than IE and much more user friendly/driven and responsive to end user needs. It is giving IE a run for its money as Microsoft is watching its powerhouse lose market share to a free open source alternative. Wikipedia has now grown to over a staggering 2 million entries, over twenty times larger than Encyclopedia Britannica. Wikipedia is entirely user generated and there is no effort to make the information contained within proprietary. Wikipedia uses the GNU Free Documentation License (GFDL)[xxxi] a Copyleft license that allows free use with some commercial use allowed.  Shared intellectual commons such as OpenCourseWare and Wikipedia are changing the rules of intellectual property and setting new standards that are greatly benefitting humanity.  All these services are available completely free of charge. These new technologies are incredible in what they are doing for the poor and less fortunate. A child in Africa with access to a computer and an internet connection can teach himself the same material students at MIT are being taught.^[xxxii] The potential for self-improvement and pulling one’s self up by the bootstraps is of unimaginable significance. The class boundaries that in the past may have hindered social mobility are being broken. Education and training once available only to the well heeled are now available to all. These advance come with an ever-increasing disregard for IP rights. These companies are thriving by not being greedy and utilizing government monopolies to protect them.

Popularity of works

                Many artists and creators of all kinds of mediums are finding great success in releasing their works to the public free of any IP restraints. The band Radiohead recently caused an earthquake in the music industry when they released their new album on the internet free or "pay what you want".[xxxiii] This band is a very popular and well-known band but they have figured out that the publicity and good will they receive by allowing free distribution of their CD outweigh the potential gains. Artists are continually finding new ways to make money off their works rather than just relying on profit directly from the sale of their creation. A revolution is in progress in the television industry as internet TV is becoming feasible. That industry is adapting and inventing new profit models. The following is an interview by Reason magazine of the creators of South Park.

Reason: When it looked like Comedy Central wasn’t going to rerun the Mary episode, people were still able to download it illegally online. Did you see that as a victory for free speech, or did you think, “My God, these people are stealing our intellectual property”?

Stone: We’re always in favor of people downloading. Always.

Reason: Why?

Stone: It’s how a lot of people see the show. And it’s never hurt us. We’ve done nothing but been successful with the show. How could you ever get mad about somebody who wants to see your stuff?

Parker: We worked really hard making that show, and the reason you do it is because you want people to see it.[xxxiv]

This interview is representative of the new attitude that needs to develop for authors/artists to maintain a fan base and keep popularity.  Authors of creative works can and will survive and thrive without the crutch of IP giving advantage to few. 

Our World as it should be…

Intellectual Property rights are form of protectionism and not unlike tariffs and subsidies a government grant of privilege or monopoly. IP rights take away rights from otherwise law-abiding citizenry. The threat of violence is ever-present for a violation of these “rights”.  As such, they are incompatible with a free society.

The free market can and does provide a better solution. In a world without IP rights, innovation and entrepreneurship are allowed to advance. No longer would a business be able to bully its way to the top of an industry via government regulations. The people’s right to their creativity and innovation will finally be unbound from the shackles of Intellectual Property rights.

The author of this work hereby waives all claim of copyright (economic and moral) in this work and immediately places it in the public domain; it may be used, in any manner whatsoever without further attribution or notice to the creator.

... Many different arguments have been used to advocate government funding of professional sports. Roger Noll and Andrew Zimblast write in their book Sports, Jobs, and Taxes, that “although the details of campaigns for sports facilities differ from city to city, the basic case for subsidizing them is the same everywhere.”[i] They outline the three consistent arguments in favor of subsidizing stadiums. The first is that stadiums generate new jobs. Secondly, cities with major league teams attract more business. Finally, it is argued that additional tax revenues and lease payments make building stadiums an investment in the long term.

When the city of Nashville attracted the then Houston Oilers to move, they did so with a brand new $200 million dollar stadium. Consider the words of Nashville Mayor Phil Bredesen as he advocates this public works project:

First, the economic impact, which does not totally justify the investment but justifies a piece of it. Second, the intangible benefits of having a high-profile NFL team in the community at a time when cities are competing for attention is a positive. Third, it is an amenity that a lot of people want. We build golf courses and parks and libraries and lots of things because people in the community want them, and certainly there are a substantial number of people who what this. Fourth, the location of the stadium represents the redevelopment of an industrial are close to downtown, certainly a positive in its own right and a significant factor in the public mind. Taken together, it makes a very compelling argument for going ahead with this.[ii]

This argument broadly misses the point. As Hazlitt affirms over and over again in his Economics in One Lesson, one must look beyond the seen to the unseen. What is the alternative use of all the resources that go into the construction of the stadium? Certainly the stadium construction and operation will provide jobs during the immediate act of construction, but the opportunity cost of public construction is more than the resulting benefits. There is no net gain through the construction of a stadium.

In independent studies of the impacts of stadiums, there are almost no instances in which stadiums were shown to lead to a measurable increase in the economic well being of a city. Cleveland’s Jacobs Field, built in the 1990s, has been one of the most successful sports venues, having season long sellouts. Yet when economists Ziona Austrain and Mark Rosentraub studied the impact of the stadium on the local economy, they determined that its construction had no impact on the growth of income and employment in the Cleveland area.[iii] There has been no documented correlation between stadium construction and growth of income and employment in any study on the subject, while countless others have shown that stadiums have done little to increase employment.

The mayor of Nashville also brought up the major league city argument. These are, as the mayor articulated, the intangible benefits of stadiums. This is a surprisingly popular argument. In the late 1970s proponents of building the Metrodome for the Twin Cities area used the tagline, “Without the Vikings and the Twins, we’re just a frozen Omaha.”[iv] Martin Schneider repeated the remark twenty-five years later saying, “Without the Brewers, without the Bucks, without the Packers, we ain’t nothing but Nebraska”[v] This line of reasoning confuses the cause and effect that brings about stadiums.

In the early twentieth century, cities were not responsible for the financial viability of sports franchises. In his history on the professional sports industry, Phil Schaaf writes that cities were the only source of fans and revenue. “Teams had one source of income, ticket sales. In order to make that revenue stream both viable and reliable, the sports facilities needed to be in cities and accessible.”[vi] Teams could only afford to exist in large cities with enough people and businesses to support them.

The implication of the major league argument, however, is that having a major league team makes some cities more desirable than others. “Omaha is not Minneapolis for a multitude of reasons.”[vii] It is the multitude of reasons that provide the conditions for sports teams in Minneapolis and not Omaha. Roger Baade observed in 1987 that adding major leagues teams to a city has done little to change its economic status.[viii] During the 1970s and 1980s Omaha had an NBA team, the Kings. This in no way made it a point of pilgrimage for corporate America. Likewise, when LA lost two different NFL teams, it didn’t make it less of a city. Businesses and factories didn’t follow the sports teams away from the city.

Consider the relocation of the Brooklyn Dodgers. In 1955 the Dodgers won the World Series, the following the year the Dodgers still had one of the best teams in baseball, had a strong fan base and was profitable. Yet the team’s owner, Walter O’Malley moved the team to Los Angeles. New York had two other teams already competing with the Dodgers, while Los Angeles didn’t have any. Once there, O’Malley privately financed $22 million Dodger Stadium that instantly became one of the best ballparks in all of Major League Baseball.[ix] The Dodgers where successful in California because of the already existent economy in Los Angeles, not vice-versa.

Another aspect raised by Mayor Bredesen of Nashville is that locating a stadium in a rundown area will upgrade it. This is empirically untrue. Quirk writes, “One thing that major American cities have no shortage of is depressed downtown areas, and there is no shortage either of proposed solutions… almost all involving large infusions of public money.”[x] The few instances where a new stadium and revitalized downtowns seem to correspond are instances where depressed areas were already experiencing economic growth. This includes the construction of Camden Yards and the $90 million America West Arena in Phoenix.

These few examples are not the norm. The default instance is contrary to the wisdom of the mayor. The Metrodome in Minneapolis is surrounded by parking lots and warehouses, just as it was in 1982. This is in spite of three different teams competing there throughout the year. In Inglewood, the Forum sits in the same environment as it did thirty years after it is built. Quirk writes the “less said about the areas around the LA Coliseum and the LA Sports Arena, the better.”[xi] The problem with locating a stadium in a depressed area is that it brings people there for only a brief period of time during game days. People get brought in but don’t linger, making stadiums an ineffective way to revitalize rundown cities.

Stadiums are also viewed by many as public consumption. Similar to our National Parks, stadiums are seen as an end in itself because the team is valuable to local residents beyond what can be quantified (that can be easily measured.) This moves into the more classic public works doctrine and arguments of externalities, nonrivalrous consumption, and transaction costs.

An externality exists whenever the action of an individual brings added costs or benefits to another individual. Phrased differently, externalities exist when the participants of an action don’t reap all the costs or all the benefits of that action. An example of this can be the nocturnal bagpipe player who waits until midnight in his quiet neighborhood to play. The cost of his action can be seen on the sleepy faces of his neighbors the next morning.

In much the same manner people can experience benefits of other people’s action. A classic example is the construction of a lighthouse along a rocky coastline. The merchants who initially pooled their resources to construct the lighthouse bore all the cost but cannot keep others from receiving the benefits. Every ship will be able to see the lighthouse regardless of their contribution towards its construction.

Government action is called for by both collectivists and individualists based upon these two examples. Even Murry Rothbard, in his book Man, Economy, and State, advocates government action in dealing with externalities. Rothbard advocates that judicial action be taken against those people who introduce costs on others through their actions writing:

In so far as the outpouring of smoke by factories pollutes the air and damages the persons and property of others, it is an invasive act. It is equivalent to an act of vandalism and in a truly free society would have been punished after court action brought by the victims.[xii]

Rothbard calls for judicial action against the externality of air pollution because it is an invasive act. Note that Rothbard does not advocate for a regulatory commission but only judicial action. It is to be handled in much the same way as theft or other property violations.

Paradoxically, the external benefits of an action are used by collectivists to advocate for government public works projects and subsidization. Thomas Cowen writes in The Theory of Market Failures, that the common understanding is that “markets will under produce goods and services whose provision would entail positive externalities.”[xiii] The argument of the collectivist is that the capitalist will just sit and wait for someone else to build the lighthouse. They then conclude that no lighthouses will ever get built and the only solution is that the government must build it.

Yet when the value saved by a lighthouse exceeds the cost of constructing it the private company will build the lighthouse. It becomes in their best interest to construct the lighthouse. The notion that just because people can’t be excluded from consumption of the services a lighthouse offers doesn’t mean that the free market won’t produce a lighthouse.

The argument for government involvement based upon externalities is quite silly when put into simpler terms: that the Government is going to tax everyone to provide for a service because other people could benefit from that service without paying anything at all! Simply because some people can receive positive externalities from an action in no way prevents the actions occurrence. At some point the lighthouse becomes profitable and it will be built.

The other major aspect of public goods theory is nonrivalrious consumption, which refers to cases where “individuals’ ability to consume a good or service is not diminished by allowing additional individuals to consume it.”[xiv] Since nonrivalrious goods are excludable the “failure” of the private property order is not readily visible. What government advocates argue is that since additional consumers can be added with no additional marginal cost these consumers can be “inefficiently” excluded from consumption if the price of the good is higher than their value scales. Since there is no way of knowing exactly what value the marginal consumer has for the good, it is more “efficient” that the government simply supply the goods and services.

This neoclassical view of efficiency diminishes the importance of the individual. It is essential that one starts at the beginning for the conclusions to be sound. That beginning is that people act by apply means, according to ideas, to achieve ends. Individuals subjectively judge their actions as successes or failures that they either profited or lost. So what then is efficiency in light of subjective failures or successes in the individual’s plans?

In the article “The Austrian Theory of Efficiency and the Role of Government” published in The Journal of Libertarian Studies, Roy Cordato writes that efficiency in purposeful behavior is choosing means that attain certain goals.[xv] Conversely, inefficiency is using means that don’t work towards individuals goals. That being the case it is impossible to see “societal efficiency” as apart from the efficiency of the individuals. Austrian Economist Israel Kirzner writes that

Society is made up of numerous individuals…It is therefore unrealistic to speak of society as a single unit seeking to allocate resources in order to faithfully reflect “its” given hierarchy of goals. Society has no single mind where the goals of different individuals can be ranked on a single scale… Efficiency for a social system means the efficiency with which it permits its individual members to achieve their several goals.[xvi]

It is a limited government that allows individuals to pursue their goals in the most efficient manner available. Taxing the citizens to provide for nonrivalrous goods at the marginal cost doesn’t help the individuals be more efficient. Society is in no way made more efficient by the subsidization of nonrivalrous goods and services.

Starting at the beginning one is able to deduce that inefficiencies in society are a result of government intervention in the market process. Kirzner went on to write that:

Interference with the webs and forces that are woven through the market process limits the attempts of participants to coordinate their activities through an engine of remarkable efficiency – the market. The analysis of the market prices can clarify the costs involved through such interference, making it possible for market participants to decide, through the political process, on the extent to which they are willing to lay aside their engine of efficiency for the sake of special purposes of possibly overriding importance.[xvii]

Kirzner is making tow different claims here. He first makes the point that government interference cannot be justified by increased efficiency because only the market process and price system allows everyone the freedom to pursue their subjective ends. In the second half of this statement, after establishing the inefficiency of governmental action, Kirzner adds that there could be other reasons a political body would turn from efficiency.

Economists that spend pages arguing how trivial of an impact sports teams have on the local economy will turn right around and talk of the societal importance of teams. “The cultural importance of major league team sports in American society most assuredly exceeds its economic significance as a business.,,”[xviii] Andrew Zimblast compares revenues of sports teams versus major universities. He cites the top ten universities, who together receive federal grants of over $2.8 billion. This was is in 1994. He then follows this information up writing, “it would be inaccurate to conclude [from this] that sports major league teams are unimportant... One does not need to attend a game or tune in to a broadcast to derive consumer benefits from a local sports team…”[xix] This is a classic externality problem many will argue about sports teams, and a source for calls for government intervention.

Yet the argument against free markets based upon externalities is that the free market will naturally under produce these goods. This is simply not true in sports leagues. There is a lack of supply for the demand of teams sports as cities are trying to outbid each other left and right to get teams. An example was Hartford Connecticut’s bid for the New England Patriots. They offered the ownership of the Patriots a $280 stadium, parking structures, a $15 million practice cite and cost overruns to attract the Patriots out of their Foxboro home, all of it paid for through public funds.[xx] (People will often say this is due to the antitrust exemption that sports leagues were awarded in a 1922 Supreme Court decision, but remember that President Clinton abolished those advantages in 1998 with the Curt Flood Act.) It isn’t monopolies that give franchises so much bargaining power but simply ignorance of the effects of stadiums.

Stadiums do not have the economic benefit that people claim they have. They do not increase employment rates, they don’t make cities corporate power houses, and they most assuredly are not the best investment of money as the crowd out private credit. Furthermore, it is not necessary that the government treat them as a public good. Consider the case example above when Hartford offered the Patriots an amazing facility if they would only move. Despite over $300 million in subsidies the Kraft family opted instead to build a stadium costing approximately $325 million on $30 million worth of land, in addition to the paying remaining mortgage balance on the old Foxboro Stadium, all privately funded. Though sports franchises may fit some more classic molds of public goods theory it clearly isn’t necessary for the government to fund them in anyway. The removal of private funds from the market through taxation simply limits capital for private industries, industries that are much more beneficial in creating jobs, attracting additional businesses, and providing greater returns on investments.

[i] Noll, Roger G. and Andrew Zimblast “Build the Stadium – Create the Jobs.” Sports, Jobs, and Taxes ed., Roger Noll and Andrew Zimblast. Washington DC, Brookings Institute. 1997

[ii] Quoted in: Quirk, James Hardball: The Abuse of Power in Pro Team Sports. Princeton, N.J. University Press. 1999. pg 150.

[iii]Quirk, 154

[iv] Sporting News, October 16, 1995, pg 5

[v] Ibid.

[vi] Schaaf, Phil Sports, Inc.: 100 Years of the Sports Business. Amherst, N.Y. Prometheus Books. 2004.

[vii] Quirk, 155

[viii] Quoted in quirk, 155

[ix] Schaaf, 206

[x] Quirk, 155

[xi] Ibid, 156

[xii] Rothbard, Murry N. Man, Economy, and State. Auburn, Alabama. Ludwig von Mises Institute, 1962. pg. 156

[xiii] Cowen, Tyler. “Public Goods and Externalities: Old and New Perspectives.” The Theory of Market Failures. Tyler Cowen ed., Fairfax, VA. George Mason University, 1988

[xiv] Cowen

[xv] Cordato, Roy E. “The Austrian Theory of Efficency and the Role of Government.” The Journal of Libertarian Studies, Vol. IV. No.4 1980. pg 394

[xvi] Kirzner, Israel, Market Theory and the Price System. Princeton, N.J.: D. Can Nostrand Co., 1963

[xvii] Ibid., p. 309

[xviii] Noll, 57

[xix] Ibid, 58

[xx] Zimblast, Andrew “Football Stadium Folly” The Bottom Line Philidelphia, PA. Temple University Press. 2006

A major aspect of public goods theory is the idea of nonrivalrious consumption. This refers to cases where an “individuals’ ability to consume a good or service is not diminished by allowing additional individuals to consume it.”[i] Some simple examples of this are movie theaters or sports arenas. The cinema can admit extra people without any increase in the cost of their operation. Unlike externalities, these nonrivalrious goods are easily excludable making it harder to understand why people would claim they are part of the Public works doctrine.

What government advocates argue is that since additional consumers can be added with no additional cost, these marginal consumers are “inefficiently” excluded from consumption when the price of the good is higher than their value scales. Due to the inability of knowing exactly what value the marginal consumer has for the good, the private market would exclude far too many people. It is more “efficient,” argue the proponents of big government, that the government simply supply these goods and services at the marginal cost. More people will benefit with no additional cost on the producer.

This neoclassical view of efficiency diminishes the importance of the individual. It is essential that one start at the beginning for the conclusions to be sound. That beginning is this: that people act by apply means, according to ideas, to achieve ends. Individuals subjectively judge their actions as successes or failures. What then is efficiency in light of subjective failures or successes in the individual’s plans?

In the article “The Austrian Theory of Efficiency and the Role of Government” published in The Journal of Libertarian Studies, Roy Cordato writes that efficiency in purposeful behavior is choosing means that attain certain goals.[ii] Conversely, inefficiency is using means that don’t work towards individuals goals. That being the case, it is impossible to see “societal efficiency” as apart from the efficiency of the individuals. Austrian Economist Israel Kirzner writes that

Society is made up of numerous individuals…It is therefore unrealistic to speak of society as a single unit seeking to allocate resources in order to faithfully reflect “its” given hierarchy of goals. Society has no single mind where the goals of different individuals can be ranked on a single scale… Efficiency for a social system means the efficiency with which it permits its individual members to achieve their several goals.[iii]

It is a limited government that allows individuals to pursue their goals in the most efficient manner available. Taxing the citizens to provide for nonrivalrous goods at the marginal cost doesn’t help the individuals be more efficient. Society is in no way made more efficient by the subsidization of nonrivalrous goods and services.

By starting at the beginning, one is able to deduce that inefficiencies in society are a result of government intervention in the market process. Kirzner went on to write that:

Interference with the webs and forces that are woven through the market process limits the attempts of participants to coordinate their activities through an engine of remarkable efficiency – the market. The analysis of the market prices can clarify the costs involved through such interference, making it possible for market participants to decide, through the political process, on the extent to which they are willing to lay aside their engine of efficiency for the sake of special purposes of possibly overriding importance.[iv]

Kirzner is making two different claims here. He first makes the point that government interference cannot be justified by increased efficiency because only the market process and price system allows everyone the freedom to pursue their subjective ends. In the second half of this statement, after establishing the inefficiency of governmental action, Kirzner adds that there can be other reasons a political body could act, but that it is always at the cost of efficiency.

What at first appears to be a legitamate complaint against the free market is shown to be nothing more than a poor understanding of efficiency. The collectivist is eager to ignore the role of the individual, looking too quickly at the unfilled seats in a theater as market failure. A more proper understanding is that unfilled seats are signs of market success because individuals are choosing not to apply their means to that end. The theater may not even be the most efficient use of resources in the first place. (Perhaps the individuals of society would have preferred a bowling alley?) Only the market system, that allows theaters to go out of business, can bring efficiency to society. Empty seats illustrate the flexibility of the market order in allowing individuals to pursue their own goals in the most efficient ways possible.

[i] Cowen, Tyler. “Public Goods and Externalities: Old and New Perspectives.” The Theory of Market Failures. Tyler Cowen ed., Fairfax, VA. George Mason University, 1988.

[ii] Cordato, Roy E. “The Austrian Theory of Efficency and the Role of Government.” The Journal of Libertarian Studies, Vol. IV. No.4 1980. pg 394

[iii] Kirzner, Israel, Market Theory and the Price System. Princeton, N.J.: D. Can Nostrand Co., 1963

[iv] Ibid., p. 309

An externality exists whenever the action of an individual brings added costs or benefits to another individual. Phrased differently, externalities exist when the participants of an action don’t reap all the costs or all the benefits of that action. An example of this can be the nocturnal bagpipe player who waits until midnight in his quiet neighborhood to play. The cost of his action can be seen on the sleepy faces of his neighbors the next morning.

In much the same manner people can experience benefits of other people’s action. A classic example is the construction of a lighthouse along a rocky coastline. The merchants who initially pooled their resources to construct the lighthouse bore all the cost but can not keep others from receiving the benefits. Every ship will be able to see the lighthouse regardless of their contribution towards its construction.

Government action is called for by both collectivists and individualists based upon these two examples. Even Murry Rothbard, in his book Man, Economy, and State, advocates government action in dealing with these externalities. Rothbard advocates that judicial action be taken against those people who introduce costs on others through there actions writing:

In so far as the outpouring of smoke by factories pollutes the air and damages the persons and property of others, it is an invasive act. It is equivalent to an acto of vandalism and in a truly free society would have been punished after court action brought by the victims.[i]

Rothbard calls for judicial action against the externality of air pollution because it is an invasive act. Note that Rothbard does not advocate for a regulatory commission but only judicial action. It is to be handled in much the same way as theft or other property violations.

Paradoxically, the external benefits of an action are used by collectivists to advocate for government public works projects and subsidization. Thomas Cowen writes in The Theory of Market Failures, that the common understanding is that “markets will under produce goods and services whose provision would entail positive externalities.”[ii] The argument of the collectivist is that the capitalist will just sit and wait for someone else to build the lighthouse so no lighthouses will ever get built. They then conclude that no lighthouses will ever get built and therefore the government must build them.

Yet when the value saved by a lighthouse exceeds the cost of constructing it the private company will build the lighthouse. It becomes in their best interest to construct the lighthouse. The notion that just because people can’t be excluded from consumption of the services a lighthouse offers doesn’t mean that the free market won’t produce a lighthouse. The argument for government involvement really is quite silly when put into simpler terms: Government is going to tax everyone to provide for a service because other people could benefit from that service without paying anything at all! Simply because some people can receive positive externalities from an action in no way prevents the actions occurrence. At some point the lighthouse becomes profitable and it will be built. This is the triumph of capitalism: that even when everyone benefits, the free market will provide for goods and services without taxes or forced coercion.

[i] Rothbard, Murry N. Man, Economy, and State. Auburn, Alabama. Ludwig von Mises Institute, 1962. pg. 156

[ii] Cowen, Tyler. “Public Goods and Externalities: Old and New Perspectives.” The Theory of Market Failures. Tyler Cowen ed., Fairfax, VA. George Mason University, 1988.

If indeed, "competition is merely the absence of oppression"*, than lack of competition is oppression. On the surface, the school voucher system seems appealing to those who are for the free market. But when further prodding is done, reality is discovered -- "Under the voucher system public education remains public education, and nothing fundamental has changed."^[1]

With a school voucher, parents only have certain, restricted choices of schools at which to redeem the voucher. A limited choice is not a real choice at all. This would not be the case if education was privatized, in which case parents would have complete freedom in regards to decisions about where to send their children to school.

In his book, Vouchers Within Reason, James Dwyer explains, "The great promise of school vouchers is that they provide a mechanism for accomplishing what some states once tried to do…to rein in the practices of the worst religious schools, whose operators and parent clients vehemently and forcefully resist involuntary imposition of regulations." This quote perfectly illustrates how school vouchers violate the first amendment, which states, "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof…"

The school voucher system ends up making education more regulated, instead of less. "The government regulates what it funds. Vouchers will inevitably open the door to extensive regulation of private religious schools [that accept them]."^[2]

Restricted choice of school is not a real choice. Ultimately, school vouchers give the government more control over education rather than less. The government should give up its oxygen-squelching, death-grip on education, and let the free market, and the interests of consumers, dictate school choice. Relinquishing the $10,000 (on average) that the government spends per student would be a terrific start on the road to freedom from oppression.

* Frederic Bastiat said this ^[1] Dr. Dwight L. Lee, Professor of Economics @ the University of Georgia^[2] The Rev. Barry W. Lynn, Executive Director of Americans United

Private property, free enterprise, free market principles are principles that might sound routine to most Americans. However, the third world often receives this jargon with hostility. Nevertheless, as a resident of the third world for twenty-one years, I feel, putting these principles into practice could be revolutionary in the least.

Today, America, takes these virtues for granted. While the third world might not have an excuse in rejecting something they have not tried, this nation should abhor anything that drives it away from the very base which made it an economic powerhouse.

Most third world countries are mixed economies. The concept of a mixed economy is, in itself, hypocritical. While the government has control over some aspects of the economy, it does not assume complete control of the economy. A closer look, however, shows that these countries have not progressed to the levels they aspire to reach. India's per capita GDP in 1980 was $231, in the year 2000 it had gone up to $450. In comparison, the United States had a per capita GDP of $19,364 in the year 1980 and in the year 2000 it was close to $30,000. This is certainly evidence enough that countries like India are lagging behind even more than they did twenty years ago.

The problem of development is certainly not addressed at the root. Frankly speaking, this problem is overlooked. Expansion and development in these countries can only take place through the division of labor, the right to private property and entrepreneurship. As long as these principles are overlooked, third world countries will remain stagnant.

A country like America should be proud to be prominent advocates of these principles. Nevertheless, a neglect of these valuable tenets can lead even a country such as America to ruin.