Making the Voluntaryist Venn Work for Us, Not against Us.

• Author: Munger, Michael C.
• Position: Venn diagrams that capture rhetorical strategies for advancing a free society and proposing a more robust freedom encompassing anything voluntary - Exploring the Philanthropic Landscape - Report

Many people in the liberty movement have been operating with a misleading mental schematic of the goals of reform. We generally think of something called "markets" as being the only setting in which voluntary private cooperation takes place. And we argue that "private" charities are an alternative to state action.

Both of these claims tend to trap us in a binary market-state dualism that limits our understanding of the broad scope of voluntary organizations and institutions, or so I argue in this essay. First, the "voluntary-coercive" distinction should be viewed as a continuum, a dimension along which there is marginal variation, not as a clean set of two discrete categories. Second, the essence of "private philanthropy" is its voluntary and decentralized features. It is private because it is voluntary and decentralized, but it is philanthropy because it is focusing on accomplishing shared or collective goals as opposed to mere commercial exchange.

The trend among charities and other nongovernmental organizations has recently been toward centralization, as in the case of advocacy for the ill-advised Common Core (Julian 2013) reforms imposed on state governments in top-down fashion. As Lenore Ealy and Steve Ealy (2006) note, such an impulse seeks to direct activity in massive blocs toward top-down social change, such as that advocated by the National Committee for Responsive Philanthropy, exhibiting precisely the "man of system" conceit described by Adam Smith that we often (and rightly) decry when the state tries to undertake similar centralized initiatives. Lenore Ealy (2014) points out that this trend is less a "new philanthropy" than it is a return to the notions of centralized social planning that motivated the Progressive movement in the United States. As John Dewey put it, "Organized social planning, put into effect for the creation of an order in which industry and finance are socially directed in behalf of institutions that provide the material basis for the cultural liberation and growth of individuals, is now the sole method of social action by which liberalism can realize its professed aims" ([1935] 2000, 60).

The paper proceeds as follows. First, I discuss "voluntary private cooperation," or VPC, as an alternative means (alternative to market processes) of organizing division of labor. Then in the second section I review the very interesting but underappreciated contributions of Richard Cornuelle, who advocated for the consideration of "the independent sector" as the focus of the liberty movement. There is no reason for classical liberals to advocate for the perfection of markets or the price mechanism as the exclusive means by which diverse, decentralized groups can be organized. In my analysis, the comparison is represented by two Venn diagrams that capture what I claim is the present rhetorical strategy for advancing a free society, which focuses on markets, and the Cornuellian rhetorical strategy, which proposes a more robust freedom encompassing anything voluntary. The third section considers some problems for the independent sector, including adverse centralization and the restrictive nature of donor intent. The final section offers some conclusions.

Voluntary Private Cooperation

The argument for human liberty is not an argument for "markets." The question is how best to achieve the myriad benefits of voluntary private cooperation, or VPC. Markets are part of doing so, a useful way of achieving prosperity, but a variety of other emergent social arrangements--more properly viewed under the rubric "society"--are also crucial for prosperity.

The hiving off of the market process as a separate category has some logic because in the market setting the direction of production and consumption is controlled mostly by prices. If prices are free to adjust, if property rights are clearly defined and enforceable, and if the transaction costs of exchange are not prohibitive, then certain useful consequences are likely to follow. But it does not follow, by any means, that the absence of a price mechanism to provide knowledge by which people choose their plans and activities implies the absence of voluntary human action.

The first argument I usually hear, especially from those who assume government coordination is necessary to redress market failure, is: "If markets are so great, why is most of the world poor?" The problem is that poverty is not what needs to be explained. Poverty is what happens when groups of people fail to find or are prevented from finding ways to cooperate. Cooperation is in our genes; the ability to be social is a big part of what makes us human. It takes actions by powerful actors such as states or warlords or cruel accidents such as deep historical or ethnic animosities to prevent people from cooperating. Everywhere you look, if people are prosperous, it is because they are cooperating, working together. If people are desperately poor, it is because they are denied some of the means of cooperating, the institutions for reducing the transactions costs of decentralized VPC. So forget about explaining poverty. We need to work on understanding prosperity.

There are two key reasons it makes sense to view VPC as the core of human prosperity and flourishing: exchange/cooperation and specialization.

First, we have to remember that exchange is cooperation. If each of us has an apple and a banana, and I like apple pie and you like banana creme pie, each of us can improve our lot by cooperating. I give you a banana, you give me an apple, and the world is a better place. Moreover, the world is better even if there is no change in the total size of our pies; the total amount of apples and bananas is the same, but each of us is happier.

But there is no reason to fetishize exchange. (That's the "markets versus social/ state" dichotomy; don't give away the farm here.) Nobelist James Buchanan's central recognition was that cooperative arrangements among groups of people are just "politics as exchange." Nonmarket types of exchange, where we cooperate to achieve ends that we all agree are mutually beneficial, may be even more important than commodity exchanges. Banding together for collective protection and taking full advantage of emergent institutions such as a language, property rights, and a currency are powerful tools created through VPC.

If we cooperate, we can use existing resources much better by discovering the higher-valued uses and redirecting resources toward these uses. Even if we are thinking of cooperation only in a static sense, within a fixed pie, we all are better off if we cooperate. Cooperation is just a kind of sharing so long as every cooperative arrangement is voluntary. Market processes foster this kind of cooperation: the only way you and I agree to a new arrangement is if each of us is better off.

The (possible) problem with this form of cooperation around price is that both the goals and the plans of the wealthy are privileged. For this reason, many philanthropists see the role of nonmarket and nonpriced cooperation as an indispensable complement. Some on the political left are worried enough about the privileging of wealth that they would advocate for the outright replacement of market process with nonprofit activity and exchange. The problem is that such a replacement would throw out the useful aspects of market cooperation, one of our best mechanisms for discovery. We don't need to be satisfied with making better use of a static pie. Working together and becoming more dependent on each other in market settings, we can also make the pie bigger. There is no reason to expect that each of us is well suited to produce all the things we happen to like, and even if we are, we can produce more of it by working together.

This leads us to the second reason VPC is the core social process of flourishing societies: specialization. Remember, I like apples, and you like bananas. But I live on tropical land and in a warm climate where producing apples difficult. You live in a much cooler place, where growing your favored bananas would be prohibitively expensive. We can specialize in whatever our conditions, talents, and training makes each of us relatively best at doing. I grow bananas, you grow apples, and we trade. Specialization allows us to increase the variety and complexity of mutually beneficial outcomes.

Interestingly, this would be true even if one of the parties is actually better at producing both apples and bananas. David Ricardo's analysis of "comparative advantage" shows that both parties are better off if they specialize, even if it appears that the less-productive person can't possibly compete, because the opportunity costs of action are different; that's all that is necessary for there to be potential benefits from cooperation.

There is no reason to fetishize comparative advantage any more than exchange. In fact, true instances of deterministic comparative advantage are rare. The real power from specialization comes from division of labor or the enormous economies of scale that come from discovering synergy. Synergy can result from improvements in dexterity, tool design, and capital investment in a production process composed of many small steps in a production line or from innovations, using the entrepreneurial imagination to see around corners. Synergy is not created by the sort of deterministic accidents of weather, soil quality, or physical features of the earth that economists obsess about. Producing wool and port depend on location; human ingenuity can create synergy anywhere that division of labor can be voluntarily promoted. All the important dynamic gains from exchange are created through such voluntary private cooperation.

Far from enabling the atomistically individualist man, the division of labor and specialization create a setting where only a few people in society are remotely self-sufficient. Furthermore, the size of the "market"--or, more...