Review of Austrian Economics - The Ludwig von Mises Institute

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Hoppe: De-Socialization in a United Germany 103 Temporarily, unemployment would drastically increase, as it did in West Germany after World War II. Yet with flexible wage rates, no collective bargaining, and no unemployment subsidies it would quickly begin to disappear again. Initially, average wage rates would remain substantially below West German rates. But this, too, would soon begin to change. Lured by comparatively low wages, by the fact that East Germans will expectedly show a great need for cashing in (liquidating) their newly acquired capital assets so as to finance their current consumption, and above all by the fact that East Germany would be a no-tax, free-trade haven, large numbers of investors and huge amounts of capital, in particular from wealthy neighboring West Germany, would immediately begin to flow in. The production of security—of police protection and of a judicial system—which is usually (without argument) assumed to lie outside the province of free markets and be the proper function of government, would most likely be taken over by the major West German insurance companies. 48 Providing insurance for personal property, police-action—the prevention and detection of crime as well as the exaction of compensation—is in fact part of this industry's natural business (if it were not for governments preventing it from doing so and arrogating this task to itself, with all the usual and familiar inefficiencies resulting from such a monopolization). Likewise, being already in the business of arbitrating conflicts between claimants of competing insurers, they would naturally assume the function of a judicial system. 49 Yet more important than the entrance of big business, such as insurance companies in the field of security production, would be the influx of large numbers of small entrepreneurs from West Germany. Facing not only a heavy load of taxation in the West but being stifled On the economics of competitive, private security production see Gustave de Molinari, "The Production of Security," Center for Libertarian Studies: Occasional Paper Series, no. 2 (Burlingame, Calif., 1977); Murray Rothbard, Power and Market, chap. 1; idem, For A New Liberty, chap. 12; Morris and Linda Tannehill, The Market For Liberty (New York: Laissez Faire Books, 1984); W. Wooldridge, Uncle Sam the Monopoly Man (New Rochelle: Arlington House, 1970); Bruno Leoni, Freedom and the Law (Princeton: Van Nostrand, 1972); Hans-Hermann Hoppe, "Fallacies of the Public Goods Theory and the Production of Security," Journal of Libertarian Studies 9, no. 1 (1989); Bruce Benson, The Law, The Legal System and The State. As regards national defense one should note that for the foreseeable future, this is not a problem for East Germany. West Germany would certainly not attack East Germany—public opinion would make this impossible. And insofar as the Soviet Union is concerned, it will continue to station troops on East German territory for the time being under any scenario. On the privatization of defense see Murray Rothbard, For A New Liberty, chap. 13; also, Jeffrey Rogers Hummel, "National Goods vs. Public Goods: Defense, Disarmament, and Free Riders," Review of Austrian Economics 4 (1990).
104 The Review of Austrian Economics, Vol. 5, No. 2 there by countless regulations (licensing requirements, labor protection laws, mandated working and shop-opening hours), an unregulated East German private-property economy would present an almost irresistible attraction. The large-scale import of entrepreneurial talent and capital would soon begin to raise real wage rates in East Germany, stimulate internal savings, and lead to a rapidly accelerating process of capital accumulation. Rather than people leaving the East, migration would quickly take place in the opposite direction, with increasing numbers of West Germans abandoning welfare socialism for the unlimited opportunities offered in the East. Finally, faced with increasing losses of productive individuals, which would put even more pressure on West Germany's welfare budgets, the West German power elite would be forced to do what it presently is trying desperately to avoid with its own strategy of reunification through incorporation: to begin to de-socialize West Germany as well.
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