A correspondent sent me an argument I hadn’t heard before that concludes that it’s not morally permissible for libertarians to work for public universities, and in this week’s column, I’d like to examine that argument. To telegraph where I’m going, I don’t think the argument works, but even if I’m right, it doesn’t follow that it is morally permissible for libertarians to work in public universities. To show that requires much more than a refutation of one argument for its impermissibility.
The argument I want to look at, stated in the words of my correspondent is this:
One argument against accepting taxpayer’s money is the good old fashioned ethical one that one never knows whether the work one is doing while accepting taxpayer’s money would have been rewarded with the same amount of money by customers judging one’s performance in a free market. If one is being paid more than what one would have received for services rendered in a free market then that person has simply become one of the exploiters, the people who make money through political means rather than private means (voluntary exchange). On the flip side, if one is being offered less money than what one would have received in a free market then one is being exploited for one’s services. It is extremely rare to get exactly the market price for one’s services. What is even worse, it is impossible to know whether one is among the exploiters or the exploited because the market prices e.g. for the service of conducting research or teaching students are themselves distorted by the presence of federal aid, research grants etc. Therefore it is best to avoid all those jobs that involve transactions with taxpayer’s money.
To help you understand what the correspondent is saying, I’d like to offer this example: Suppose someone has a job at State Normal School X teaching “Anti-Market Ethics for the Mentally Challenged” and is paid $50,000 per year. Imagine that State Normal School X were instead a private university dependent entirely for support on donors and payers of tuition who freely gave or withheld money to the school. If the school hired the professor to teach the same subject, it’s unlikely he would get exactly $50,000. If a free market institution would pay him less, then he is exploiting others by earning more than the market price. And if the free market university wouldn’t employ him at all, his entire salary is exploitative. If the public university pays him less than he would have received in the market, then he is being exploited.
What is wrong with this argument? The correspondent is right than in a free market, businesses that want to make money do so by responding to the preferences of consumers. As Mises points out in Human Action,
The direction of all economic affairs is in the market society a task of the entrepreneurs. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain’s orders. The captain is the consumer. Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him…. The consumers determine ultimately not only the prices of the consumers’ goods, but no less the prices of all factors of production. They determine the income of every member of the market economy. The consumers, not the entrepreneurs, pay ultimately the wages earned by every worker, the glamorous movie star as well as the charwoman.
Resources will shift from businesses that do not respond to consumer demand to those that do, but it does not follow that a business owner who adopts an unprofitable policy is doing something morally wrong. He has violated no one’s rights. People in a free market society are self-owners and owners of justly acquired property, and on that basis, they are free to engage in voluntary exchanges as they wish. This of course includes exchanges in which employers pay workers for their services. The employer and worker are morally at liberty to make any salary arrangements they want. If the result of the wage bargain differs from what it would have been if the business owner were fully responsive to consumer demand in allocating resources, that involves no violation of morality. The correspondent complains about those who receive a different wage from the one they would have gotten in the free market, but that fact by itself is ethically neutral, so far as I can see, and the language of “exploitation” insinuates a moral lapse that has not been shown to exist.
As often happens, Murray Rothbard gets the fundamental point right.
We have seen that in the free market economy people will tend to produce those goods most demanded by the consumers. Some economists have termed this system “consumers’ sovereignty.” Yet there is no compulsion about this. The choice is purely an independent one by the producer; his dependence on the consumer is purely voluntary, the result of his own choice for the “maximization” of utility, and it is a choice that he is free to revoke at any time.
I would like to avert a misunderstanding. Someone might object, “But isn’t it wrong to benefit from money forcibly extracted from people though taxation?” That’s an important objection to employment at public universities, but I haven’t addressed it at all in this article. I have dealt only with a different objection. It’s usually better to deal with one argument at a time. That is often the best path to clarity.