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Source link: http://archive.mises.org/1844/a-few-notes-on-public-goods/

A Few Notes on Public Goods

April 13, 2004 by

The theory of public goods (and bads) is pretty simple. The argument is that there are welfare-enhancing trades that would occur but do not because property rights to all the valuable characteristics of a so-called public good cannot be specified. “Basic science” is a perfect example. Presumably, we all benefit from basic science. However, scientists cannot contract with everyone who benefits from basic science. Therefore, the private benefit of basic science (to the scientist) is lower than the public benefit (to everybody) and the market will provide sub-optimal quantities of basic science. Even though the market provides basic science, the public goods theorist will be quick to point out that the market must under-provide basic science because the private return is lower than the social return.
There are three immediate problems with this line of reasoning:

First, we cannot know how much of something is “optimal.” That should be immediately evident.

Second, one can construct an easy reductio to refute the normative implications of the theory. You, the reader, presumably benefit from the fact that I do what I can to stay healthy, I work hard to stay educated, I shower, I change my socks daily, I’m generally a nice guy, et cetera. Since I can’t contract with each of you to provide a certain quantity of health, education, and good nature at a price you are willing to pay, I am a public good. It follows from the theory of public goods that I should be able to tax each of you. The ethical difficulties here should be obvious.

Third, throwing the state into the mix changes the incentive structure. As I just argued, I am a public good. Without a state, I can’t tax you and society has to go on its merry little productive way. With a state, though, the route to riches may be to have oneself declared a “public good” so as to receive lots of taxpayer dollars. We might revert to a situation in which the best way to get rich is expropriation and redistribution rather than production and exchange. We might argue (ironically) that the theory of public goods is itself a public bad, but that’s another story for another day.

For more reading, Tyler Cowen’s edited volume The Theory of Market Failure addresses the issue in some detail, as do Hans Hoppe’s writings on the private production of defense.

{ 14 comments }

Daniel Kelley April 14, 2004 at 12:17 am

I have a question for the author. How would a free market provide for national defense and law enforcement?

Alex April 14, 2004 at 2:17 am

Oh my goodness. There is a ton of reference material on this site in terms of using the market to provide defense and law.

To start off with, I would recommend Chaos Theory by Bob Murphy. It is an unfortunately neglected though brilliant book on how a market anarchist society might work. It is written for the layman, is very easy to understand, and it’s relatively small and cheap (60 pages). He tackles objections to market anarchism, and makes the case for how the market could take up many current government functions. I also feel that he takes a more realistic view as to how a market anarchist society might work. If I could give you one thing to read on anarchism, I would recommend this book.

Here is a link to it:

http://homepages.nyu.edu/~rpm213/ChaosTheory.html

Also, check out The Myth of National Defense – it’s on sale here at the Mises site.

Also, anything and everything by Mises. While Mises was a classical liberal, and not an anarchist, his books on the failings of the State are powerful.

All in all, I’m at a little bit of a loss to give any other recoommendations and links – there’s a lot of stuff out there. Hopefully some of the other posters on this board can give you some links – that is, if the term anarchism hasn’t already scared you away from your computer, and you are no longer reading this. :)

Regards,

~Alex

Jeffrey Cleveland April 14, 2004 at 4:12 am

The Myth of National Defense, which addresses the core issue of public goods and security provision, is available online here at Mises.org.

I would also like to agree that Art Carden is definitely a public good.

Andy April 14, 2004 at 7:43 am

Let me play devil’s advocate here. I assume that “natural monopoly” would fall under this topic. Suppose that government removed all privileges/regulation from utility companies such as gas,electricity, etc. I understand that there is no basis for saying that some particular price is a “monopoly price”, and that no one has a right to electricity. But do you deny that there are “natural” barriers to entry, and that customers are likely to be worse off in terms of price and service?

Jeffrey April 14, 2004 at 8:29 am

Charles Murray invokes a public goods rationale for taxes and goverment spending in the New York Times today: “suppose you could choose which government entities your tax dollars support… Police, fire, water and sewage, courts and prisons and national defense will get far more money than they would ever have the nerve to request. The allocations for national parks, environmental protection, air-traffic control and highways will probably be many times their current budgets. But my first point (match my prediction against your own choices) is that almost all the choices will be for tangible services. Most of them will be for services that fall under the classic understanding of a ‘public good’ — something that individuals cannot easily provide on their own and that is shared by all (police protection, clean air).”

Actually, this article doesn’t really demonstrate much. It is another way of saying: once the thieves have stolen your money, you would probably rather they spend the loot on things that might benefit you as versus on things that benefit the thieves alone.

tz April 14, 2004 at 12:56 pm

It should be retitled “The Myth of a market provided national defense”. Fine in theory. I don’t see an anarchocapitalistic paradise springing forth in Afghanistan or Iraq, nor do I think if mises.org hired a plane to drop leaflet abridgments of these works that it would break out.

To repeat again, my challenge is if this actually works, tell me how much it would cost to form a company and sell shares, occupy New Hampshire (or Chad for that matter), create a state and defend it and we can set up our Misean utopia there. I might invest if it made sense. Don’t tell me that it could, should, or would work, go do it, or at least come up with a plan for a pilot or prototype in the real world.

For law, all I have to do is reject your legal system on my individual grounds (“pro choice on everything”?) – If you can only use force to execute your market provided justice ruling, and I haven’t agreed to be bound by it, you must create a market-mob “government” (but refuse to call it that) to use force with all the evils – they are hidden or obfuscated but not eliminated.

Again I’ll bring up Linux and the Free Software Foundation (Operating systems and basic software seem to be natural monopolies) and such who are NOT government (and typically anti-regulation) and have found a model which provides software as a public good for free.

The answer to basic science might be an open-science foundation. It might work for new drugs where there would be no royalties (but neither liability) for the products of research. The Lions clubs helped the blind (who typically aren’t very productive nor have much capital) and I can give other examples through history.

Instead of analyzing this and thinking about ways to minimize government and maximize a non-market public sector, it seems everyone would rather reduce the argument to government v.s. anarchy, or try to fit socialized cost/benefit square pegs into free market round holes.

It is a real problem that lots of people want to misidentify things as public goods when they can be handled by the private sector (business or volunteer), or perhaps some other non-governmental entity. But that is a semantic or definitional confusion.

The classic definition of the problem is that I cannot limit the benefits to myself but if I want it I have to pay the entire cost myself, and normally it is too expensive for one (or a small group) to pay for the many. (Externalities is the “public bads” side, but is fundamentally different and if it comes up I can address that too).

Consider a flooded area that would be fixed by a dam. Every landowner in the flood plain would benefit (hence the dam is a public good for them), but they would rather have one of the other landowners pay for it. So the floods continue, and the dam never gets built.

The benefit is socalized, but the costs are individualized. 10/100ths of a dam for 10/100 properties doesn’t do any good. Even 75/100. Or 90/100 or even 99/100 where the holdout has a heckler’s veto. Here it is zero or one dam, not some sliding abstract amount of dam. It either would raise land values beyond the cost of construction or it would not.

But still, it would raise all land values, not only those who would pay (or even get a loan on the increased value) for the construction of the dam. If I hold out, I might eventually get it for free. If I contribute, I have to pay my share and a fraction of the holdouts and I give a gift to the holdouts.

You might find a way through it (but it probably would make a counterable assumption). I can come up with other examples.

Public goods are a problem. There is no simple or trivial solution. If something is misidentified as being a public good, the error is in the misidentification – if antibiotics cure something, it was not a viral infection to begin with. If the solution is to find a way to make it a non-public good, it has changed the class of problem to one where solutions exist, not the fundamentals of the problem. This solves the specific case, but not the general problem.

Common defense (the commons) cannot be provided by the traditional free market. It need not be provided by government per se – a Militia has served various societies well. The third way – What Touqueville pointed out about volunteer comittes and the current opensource movement – might handle things.

Laws (which should bind government before individuals) can be enforced using a more market oriented process, but that cannot define them (or the Judge’s gavel becomes the Auctioneer with the lawyers bidding on the finding). If we all agree, there is no problem, but what if someone that doesn’t believe in private property walks into your home – do you impose your definition of law upon him?

If I think abortion is murder, can I kill an abortionist/murderer in defense of an innocent and helpless 3rd party? We all decide individually? We all pay a thugocracy and who spends the most prevails? Or do we look to a higher law, what is called the Natural Law to define things? But then it would not be a market that defines the law. A market could theoretically be paid/bribed to say red is green. (with government growing and corrupt, there are many instances of this happening now, many examples on this site).

Alex April 14, 2004 at 7:01 pm

Oh man… there are so many incorrections here that this is going to take a bit.

Quote:

“I don’t see an anarchocapitalistic paradise springing forth in Afghanistan or Iraq, nor do I think if mises.org hired a plane to drop leaflet abridgments of these works that it would break out.”

I also don’t see an advanced market economy running in these countries. I guess that means that capitalism doesn’t work.

I guess classical liberalism doesn’t work either – because I don’t see limited decentralized government in either of those places.

This argument has been covered many times. Afghanistan and Iraq are State societies; they ar controlled either by the U.S. and local warlords.

For an ancap society to work, it first needs to have a strong rooting in culture – the belief that insurance companies can handle and resolve problems of defense.

Any ideal system of government management – even the classical liberalism that I presume that you support – requires a culture that understands the benefits of such a system, and economic incentives that make totalitarianism difficult to achieve.

Quote:

“To repeat again, my challenge is if this actually works, tell me how much it would cost to form a company and sell shares, occupy New Hampshire (or Chad for that matter), create a state and defend it and we can set up our Misean utopia there.”

I love this argument against public goods – it’s like the communist argument against capitalists. “If the State doesn’t build vehicles, who will? In how much amount? What will it cost? How will the factories work?” Of course no capitalist can know all of these answers – most capitalist owners of factories do not even know the absolute minute details of their business plans and the operations of their plants.

I see the same argument being used against ancaps all the time; if we had private law, what about x? Without x being supplied surely everyone would die or starve to death. What about private defense? How exactly would it work? How many troops would there be? How many tanks? How many guns? How much would it cost?

I do not need to give financial details on how such a company would work or how much it would cost to invest in it.

Lastly, it happens to be illegal for private militaries to do many of the functions that the State does, and with the State gobbling up an enormously large economic pie, it is also economically inefficient to do so.

Before I move on, I should remark that there is no such thing as a ‘Misean’ ancap utopia. Mises was a classical liberal, not an anarchist.

Quote:

“For law, all I have to do is reject your legal system on my individual grounds (“pro choice on everything”?) – If you can only use force to execute your market provided justice ruling, and I haven’t agreed to be bound by it, you must create a market-mob “government” (but refuse to call it that) to use force with all the evils – they are hidden or obfuscated but not eliminated.”

You have brilliantly just described the current legal system in which you live in. Congratulations. But you do not understand that market anarchism is based on voluntary contractual agreements.

Quote:

“Instead of analyzing this and thinking about ways to minimize government and maximize a non-market public sector, it seems everyone would rather reduce the argument to government v.s. anarchy, or try to fit socialized cost/benefit square pegs into free market round holes.”

Thats probably because there are only two ways to go about doing things in an economic sense; voluntary, and involuntary. One is the market and the other is the State. There is no third way.

Quote:

“The classic definition of the problem is that I cannot limit the benefits to myself but if I want it I have to pay the entire cost myself, and normally it is too expensive for one (or a small group) to pay for the many. (Externalities is the “public bads” side, but is fundamentally different and if it comes up I can address that too).”

I want something, and I can’t get it with my own money. The idea is to force other people, through the State, to give me what I want. Sounds more like socialism and democracy than classical liberalism.

Insurance companies can and likely would build or destroy things that would raise insurance costs of the homes and lives that they were insuring. One might counter with the argument that sometimes building a dam would be unprofitable for the insurance company. In this case, the people always have a choice of leaving, or perhaps the risk is so low that no dam would be necessary.

First, we see that insurance companies – unlike the State which you seem to support in the making of this dam – have every reason to carefully consider not only making it, but making it in a cost effective way; no ridiculous ‘job creation schemes’ here.

Quote:

“Public goods are a problem. There is no simple or trivial solution. If something is misidentified as being a public good, the error is in the misidentification – if antibiotics cure something, it was not a viral infection to begin with.”

Yes, public goods are a problem – but I think that by privatizing and using insurance companies to protect individuals and property, we have actually found a (relatively) simple solution to the problem.

Quote:

“Common defense (the commons) cannot be provided by the traditional free market.”

Sure it can. Next?

Quote:

“Laws (which should bind government before individuals) can be enforced using a more market oriented process, but that cannot define them (or the Judge’s gavel becomes the Auctioneer with the lawyers bidding on the finding).”

I recommend reading some books on private law – Bruce Benson comes to mind.

Quote:

“If we all agree, there is no problem, but what if someone that doesn’t believe in private property walks into your home – do you impose your definition of law upon him?”

The idea of having insurance companies in an ancap society is to protect people and property from invasion – such as the man walking in your home at the dead of night.

You seem to have the idea that because everyone has a different idea of how the law should work, then we cannot have a coherent legal system.

We already have this problem in democracy, and we will always have this problem. This argument has been brought up by the likes of Bindinotto, as well, if I’m correct.

I’d really hate to talk more on this, since I hear it so many times – perhaps the other posters in here can clear things up a bit for you.

Your other statement about the market being bribed has also been answered countless times by anarchists, and especially well by Bob Murphy. Though I’m getting a little tired of recommending his book, as it seems as though few people take my advice on it, but you should try reading it. It is, in my humble opinion, the best book on market anarchism ever.

Here, yet again, is a link to the book:

http://homepages.nyu.edu/~rpm213/ChaosTheory.html

Alex April 14, 2004 at 7:41 pm

In this blog, I think I need to talk a bit about how market anarchists are too defensive, and not offensive enough.

People often try to corner ancaps by making them explain exactly how everything in a market anarchist society would work – something that would be impossible even if we were currently living in an ancap society.

Someone might want to ask these people how the current legal system, private defense, regulations, politics, border disputes, workers compensation, etc work in our current society.

With this idea, I’d like to start questioning TZ now:

1) If Classical Liberalism actually works, please give me an example where the state has not grown or become centralized. Also, what is the ‘best’ definition of classical liberalism? Who will make all the laws? And how will the State be limited in power? Fine in theory, but not in practice. I don’t see classical liberal paradises popping up on Afghanistan and Iraq.

2) Since your rejection of an ancap society is actually a rejection of state society and law, I’d like to use your own quote if I may:

“For law, all I have to do is reject your legal system on my individual grounds (“pro choice on everything”?) – If you can only use force to execute your [lets substitute 'State' here] provided justice ruling, and I haven’t agreed to be bound by it, you must create a market-mob “government” (but refuse to call it that) to use force with all the evils – they are hidden or obfuscated but not eliminated.”

3) On public goods; without a profit and loss system, and the generating of funds through a voluntary system, how do we decide what should be built where, how much should be charged, and where to build it?

Lets say I have ten people who live in a flooded area that could be fixed by a dam. The cost of making said damn, however, is billions of dollars, and would require the theft of said money, through the State, from some neighboring city.

Since these people cannot obviously pay for this dam, should we build it anyway? Why or why not? Without a private market, how do we decide the most efficient way of building the dam without prices and a profit and loss system? How do we stop the State from creating a giant public works project that carries on for much longer than it needs to be under the guise of ‘creating jobs’?

4) What happens if the State misidentifies a public good, and starts robbing to pay for said public good? More to the point, how do know when a public good is necessary enough, without market pricing and voluntary pooling of resources, without profit and loss, to produce a ‘public good’. Many things in life are essential that cannot be afforded by many individuals. Under this guise public goods could be almost anywhere.

Lets say that someone gets the idea that food should be a ‘public good’ in Africa because, obvioiusly, the individual cannot afford it, or barely care, and the public must be forced to pool their resources to pay for this food.

However, the other African nations do not have enough money to pay for the food of all these poor people. The bill stops on the foot of the average American. Should we pay for this food, since it is obviously a public good, and the individual cannot afford to have it? (So much for limited government and classical liberalism.)

Another example; many individuals cannot afford college education or university education. While the rising cost of higher education is largely due to State interventionism, there will always be large amounts of people who cannot afford to pay for many colleges and universities.

Because many of these individuals cannot afford college, but can ‘hold out’ long enough and hope that someone else sets up a scholarship and tuition fund, should we then make education a public good?

5) What if someone barges into your home in Great Britian, in the dead of night. In a panick, you shoot him, and he dies. The British do not understand the concept of property rights, and sentence you to a prison term (as has happened in this country). Moreover, you were illegally carrying a firearm in your house without registration.

What if you live in a State society like this and cannot use your property (gun) to stop an intruder from barging into your home? What if the populace in a State society doesn’t understand the concept of absolute property rights and freedom to defend yourself?

6) What if you think abortion is murder, but you are in a State society which says that you cannot leave this (involuntary) society and make a covenant with other property owners in a large area that makes abortion illegal on their property, and as a part of the contract, also makes the funding of abortion illegal. What do you do?

7) Since the State does not have a means of knowing the most efficient use of a resource or good, how does it decide which is the most efficient way of using the finite amount of money and goods that it robs from the private market? How does it stop from becoming a politically correct organization, and how do you stop military blunders from constantly recurring without a profit and loss system? How does a military commander know when money would be better spent in one area than in other?

If the idea is to simply give the military more funding, how much funding is ‘too much’? How much is ‘too little’? And how much military presence is necessary for a classical liberal society, and how much military spending and presence in a classical liberal society would make it more like the totalitarian State that we live in?

I’m sure other posters on this board can come up with other objections and points to be made.

Steven M April 14, 2004 at 7:52 pm

Eliminating “government” entirely is theoretically possible, but it is no more desirable than for the cells in your hand to revolt and overthrow the tyrannical authority of the cells in your brain. This is because humans and cells in a community are usually better off than as individuals.

Historically, true anarchy (no parental authority, no state, no religion (spirtual authority)) has never existed. Why? Not just because some people will try to enslave and subjugate others for personal gain, but because free people will associate whenever they have common interests/beliefs. They will then realize that their association will be more efficient if their is a division of resources and labor. In other words, they will appoint representatives to pursue their interests. If they have sufficient foresight, they will try to limit the charter of the organization and require that the organization automatically dissolve without deliberately renewing it.

The bureaucracy that arises to manage those interests or archive common beliefs is called “representative government”. True, government (such as our federal government) typically exceeds its mandate and becomes an independent lifeform, whose interest may be at odds from that of it host (citizenry); however, rarely is the burden of government taxation/inflation versus service sufficient for the citizenry to revolt.

One may eliminate the present “regime”, but other authoritarian institutions will metastacize into government. In Iraq, this is seen by the rise and infighting between the various religious leaders.

Where formal government does not exist, “gangs” or “factions” arise that provide the same services ( “protection of person and property”, “dispute resolution”, “group representation” , low-interest “loans”). In fact, the adminstrators of this forum constitute a form of ‘government’ to which I am a resident’, but not (yet) a ‘citizen’. Fortunately, the worst that this goverment is likely to do would be to delete my post ;)

As I see it, people submit (sometimes fanatically, sometimes begrudingly) to or resist a wide variety of authorities: parents, teachers, religious leaders, corporate board members, supervisors, regulators, managers, tax collectors. People will be most willing to submit to the authority of the institution that best protects/promotes their interests. Yes, you could resist *all* authority, but would you really be better off? Rarely is a young child better off without his parents or an employee better off without his employer.

What libertarians should concentrate on is how to keep voluntary representative associations from becoming coercive, bloated, totalitarian, and demagogic. Constitutions, having distinct independent branches, and frequent elections help, but we also need instant runoff voting
(http://www.fairvote.org/irv/), open source electronic election software, more independence between governmental agencies, and stricter limits on what governments can fund, tax and do.

If successful private corporations are better off with good managers, we have to allow that countries may also be better off with good managers.

Jonathan Wilde April 14, 2004 at 8:22 pm

To repeat again, my challenge is if this actually works, tell me how much it would cost to form a company and sell shares, occupy New Hampshire (or Chad for that matter), create a state and defend it and we can set up our Misean utopia there.

No offense man, but have actually *read* the book? Your comments demonstrate that you have not even laid your hands on it. Your comments are the exact arguments it addresses. Whenever I see someone call anarchocapitalism “utopia” (and FYI – Mises wasn’t an anarchocapitalist) I know that the person has not really considered the issues, read the arguments, or actually *thought* about the problems. They usually end up looking pretty foolish.

Fine in theory. I don’t see an anarchocapitalistic paradise springing forth in Afghanistan or Iraq…

So you are saying that societies with a history of being dominated by gangs should be some sort of anarchocapitalist “paradise”? Do you realize how little sense that makes?

Consider a flooded area that would be fixed by a dam. Every landowner in the flood plain would benefit (hence the dam is a public good for them), but they would rather have one of the other landowners pay for it. So the floods continue, and the dam never gets built.

How do you conclude that the landowners desire the dam? Have you asked each and every one of them? Because the dam raises the land “values”? Should we build dams wherever we see a river to “benefit” the landowners? Should we build highways in people’s backyards in order to raise their land “values”? This is height of sloppy economic thinking. Every instance of a public good requires an individual utilitarian analysis of “goodness” or “badness”. People demonstrate their utilitarian preferences when they actually *act*. Without it, you can’t assign their values to them. You can’t just go around telling people they value dams.

Every morning when I take the MBTA train to work, there is a guy playing the sax with a tip hat set aside. The good that he produces is both non-rivalrous in consumption and non-excludable in benefit. Yet, hundreds of ‘free-riders’ like myself pass by without paying. You would likely say that it’s obvious the good won’t get produced, or that I am “utopian” for believing it will.

Or consider television and radio signals. Or the free Boston Metro newspaper. Or a well kept lawn. Or people wearing deoderant. Or free webmail. The public goods “problem” is a part of every nook and cranny of our everyday lives. It gets solved daily, millions of times, by entrepreneurs and by civil society.

Have you considered that these “public goods” might actually be “public bads”? Is Britney Spears performing in the middle of the street a public good or public bad? I suppose it’s a matter of taste. What if the landowners prefer the status quo of lower land values and a better view of the horizon to higher land values and a concrete monolith? Few are so arrogant as those who tell others what they should prefer.

You claim that territorial defense is a “public good”. That would imply that since Mexico ‘knows’ the USA is going to build an army, they won’t want to build their own. And the USA, since they ‘know’ Canada is going to build an army, won’t build one. So in the end, nobody builds an army, and the North American landscape is left defenseless since there is no overarching North American govt, right?

Even if you accept your claims that defense is a “public good”, have you ever considered the fact that liberty is a “public good” also? Defense against the growth of tyrannical govt requires voluntary contributions of eternal vigilance, knowledge of the consequences of economic policy, and a willingness to periodically engage in civil disobedience. All of these have “benefits” to the rest of society that are nonrivalrous and nonexcludable. What if your solution to these “public goods” problems is itself a “public goods” problem? Surely, the 200 million murdered by these solutions would claim that govt is the ultimate “public goods” problem.

If I think abortion is murder, can I kill an abortionist/murderer in defense of an innocent and helpless 3rd party? We all decide individually? We all pay a thugocracy and who spends the most prevails? Or do we look to a higher law, what is called the Natural Law to define things? But then it would not be a market that defines the law. A market could theoretically be paid/bribed to say red is green. (with government growing and corrupt, there are many instances of this happening now, many examples on this site).

Again, I am surprised that you believe you are making some sort of original objection. These questions have been addressed in many places before. Some, like Murray Rothbard, advocated a common law legal system based on the non-aggression principle. Others have argued that the conflict between different legal procedures is actually a strength in which laws are changed and refined over time.

Consider the case in which your protection agency, ACME, is patronized by people who want to outlaw drugs. I also patronize ACME. I see you smoking pot on your front porch and take a picture. I call the nearest ACME operator who sends an agent to your house to arrest you. We both go to an arbitration agency assigned by ACME for the adjudication. The firm is an anti-drug use firm, which makes rulings that punish drug users.

Suppose my protection agency, ACME, is different from yours, Tony’s Family, and both are patronized by people who wish to outlaw drug use. I see you smoking pot and call my nearest ACME operator, who sends an agent to arrest you. Since customers of both agencies haved contracted for no drug use, there is no conflict. Tony’s Family negotiates with ACME to select a for-profit arbitration firm for ruling. If the firm rules in my favor, ACME release you after the appropriate fine/compensation/jailtime/etc has been served for violating my rights. If the firm rules in your favor, ACME releases you and I have to pay you for pain and suffering, etc. Again, the firm is an anti-drug use firm, which makes rulings that punishes drug users.

Suppose your protection agency, Protect-You-Good, has nothing in its contract about using drugs, as most of its customers like to use drugs and think drug use is a natural right. I see you smoking pot and call my nearest ACME operator, who sends an agent to arrest you. Yet, PYG, being a for-profit operation that wants its customers happy and secure, wants to protect you. Which arbitration firm do we go to – a pro-drug use firm, or an anti-drug use firm?

There is a conflict between protection agencies.

What is the solution? ACME and PYG could go to war. But that is unlikely because they are for-profit organizations that have to take into account revenues and costs. War is costly. It involves capital loss, death and destruction, and pissed off customers. It must pass on these costs to its customers in the face of lower demand from its reputation of engaging in wars. And a new protection startup by the name of Microprotect, whose CEO is an ambitious ex-Harvard dropout, is looking to make market-share inroads.

Likely what will happen is negotiation. ACME calculates that its market niche of outlawing drugs yields them marginal revenues of $100,000 a year. PYG calculates that its market niche of allowing drug use yields them marginal revenues of $50,000 a year. PYG agrees in advance with ACME that when drug-use cases come up, they will contract out to an anti-drug use arbitration firm for a yearly payment from ACME to PYG of $75,000.

ACME is better off because it can raise its rates by $90,000. Its customers like the fact that they can be assured of get a pro-drug use arbitration firm for that extra fee. ACME likes profiting $10,000. PYG can cut its rates by $15,000 so its customers benefit from lower rates, while PYG profits by $10,000. All the parties involved in this positive-sum market are happy.

Will agencies periodically go to war instead of negotiate? Sure, but negotiating is profitable and war is costly. That’s the very reason why such a system will be much more libertarian than any monoplistic system like a democracy – anti-libertarian actions are much more costly. It’s would be much better than the monopolistic system we have now in which using money to buy agression is actually profitable.

This is just one example of how such a system would work: laws would be generated on the market by rulings from arbitration agencies working for a profit who are dependent on subscriptions from protection agencies working for a profit who are dependent on subscriptions from customers. Customer demand and inter-agency arbitrage decides law. Customers have an incentive to follow-thru with the rulings lest they acquire a poor ‘credit rating’ resulting in high premiums.

Many other systems have been proposed, and it would be in your interest to familiarize yourself with them before calling them ‘utopian’. See literature by Rothbard, Molinari, Tucker, D. Friedman, Barnett, Murphy, and the Tannenhills.

Walter Johnson April 27, 2004 at 10:35 am

How would an anarchocapitalist society handle the impending (and inevitable) revolution of nanotechnology? Nanotechnology will eliminate resource scarcity, and eliminate the concept of ‘economizing’ in the process. Since there will be plenty of goods for everyone, humanity will do away with the ‘free market’ and ‘money’. What will become of the free market if such a thing happens? One solution is an ‘intellectual’ economy where encrypted software will be the currency. But software (and the entire nature of cyberspace) cannot be bottled up and mined like gold. It, as a scarce but not altogether ‘limited’ good, must be created by the government. And the very nature of knowledge makes it extremely easy to counterfeit, despite all the encryption. Reverse engineering with software is infinitely easy, for it is purely an intellectual activity, and we know the human (and machine) proficiency with intellectual matters. The only ‘limited’ resources left are land and time, both of which cannot establish itself as a practical commodity. In any case, the possibility of Rothbard’s gold standard diminishes. Also, there is always the likelihood of a nanotechnological virus, which will pose much of a danger, even more so than biological viruses, as it can consume anything -biological or nonbiological. Arbitration zones (or governments) in a free market might vary considerably, so at least one might have lax security measures to allow for a possibility of a nanotechnology virus. One solution to this nanotechnology risk is to ban it altogether, but that would institute totalitarian rule, not to mention going against the entire concept of ‘free’ markets and ‘human progress and liberty’ itself. (This is also based on the mistaken belief that the ‘bad’ side of technology outweigh the good. This can probably be said for nuclear technology, but not biotechnology and nanotechnology -which cannot exist without computers and ‘nuclear technology.’ You cannot save the ‘good’ parts of technology and get rid of the ‘bad’. Technology ultimately is a zero sum object -like a pencil. It doesn’t excuse us from our moral prerogatives.) A common myopic outlook is that nanotechnology will be in some far distant future and will not affect the anarchocapitalist utopia in any way. However, consider how much progress the human race (under capitalism) has made in technology in the LAST 100 years and you will see that technology trends speed up exponentially. The huge steps taken in nanotechnology only in the past decade, and the fact that technology today is nothing short of divine intervention to the technology a couple decades ago (computers, the revolutionary media, the radio, airplane, telephone, etc), is proof enough of the fact that high-end nanotechnology will be very much feasable before 2090. In sum, capitalism and economics is going to be quite irrelevant in this millenium, when resource scarcity and poverty will be eliminated. We must formulate a new social order to replace economics, to ensure human happiness and the human quest for knowledge (as human welfare will be well taken care of).

Tracy Saboe April 27, 2004 at 8:29 pm

Well, things that are in abundent supply to the extent that scarcity is no more, won’t be worth defending and defining as property anymore.

I highly suggest that everybody here read, “Free Market Environmentalism.” The market has to make goods definable and defendable, before they can be defined as private property. The process works in reverse too. When something becomes in such abundent supply that scarcity effectively disapears. It looses the need to be defined and defended, ceases to be private property and turns into public (not government) property.

After nano-technology there will still be things people want. They’ll need energy to run their nano-tech machines. They’ll still need land and space. There will always be scarcity of some good for which a market will develop around.

Tracy

Walter Johnson May 14, 2004 at 4:54 am

Ah, I see a solution to this nanotechnology problem. All “scarce” goods, in the physical sense, are made of up of atoms, so it was decieving for a moment there to assume that atoms are the most fundamental of building blocks. If (hypothetically) we achieve nanotechnology within this century, there would still be harvestable pieces of matter smaller than atoms, such as quarks. Scarcity is ultimately relative, and technology ultimately increases rather than decreases it. (As for higher-dimentional scarce goods, I’ll leave that to the superstring theorists.) The inevitable issue of a nanotechnological virus is in principle no different from, say, a pipe bomb or a biological virus (which is very easy to manufacture.) The nature of law enforcement cannot actually prevent these things from happening before they happen, it can only provide ‘just’ retribution. I am sure the free market can also provide efficient safety features (perhaps by creating “good” police nanobots to counter the bad ones? This is all speculation, of course).

Shante March 4, 2010 at 2:21 pm

Im a big believer of parental controls! There is just too many nasty things in the world that as a parent I cannot let me kids be exposed to. Being a older I remember the good old days when there was no cable, no internet, no cell phone texting, etc. I think that children these days are who they are because of being subjected to these bad things. I do believe in what your saying here and approve of your opinion. Keep on spreading the word! Thank you

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