David Friedman: Law And The State

The third of David Friedman’s evening lectures was hosted by the Adam Smith Institute and held at the National Liberal Club. The irony of the venue and the current state of liberalism in the UK was not lost on the attendees. It was introduced by Eamonn Butler, Director of the ASI, and very well attended – about 130 attendees in total.

Private Property

David Friedman started the talk with a discussion of private property and the old falsehood: that private property only exists because of the state. He used territorialism predating the human race, and not specific to our species, as the proof of this falsehood.

He challenged us with a puzzle: how did we get out of the Hobbesian state of nature? Why do we behave in a peaceful way? He went on to discuss commitment strategies that are mutually recognised by all involved. This approach exists without the state (and his example of parking your car in snow-bound Chicago is very collaborative, with anarchistic overtones). He suggested that he thinks of rights as a behavioural category.


His next area of discussion was contracts and the challenge: how do you enforce contracts without governments?

Friedman used as an example Imperial China ceding the island of Formosa (now commonly known as Taiwan) to Japan. Chinese law had no contract or civil law. What we would regard as breaches of contract were treated as criminal (cheating or swindling); they were reported to a magistrate and then pursued as a criminal matter, if the magistrate could be bothered. This resulted in very complex contract interactions. (See his online article for more information here).

David then moved on to cyberspace and how difficult it is to enforce contract law; but as he pointed out there are ways:

Two basic mechanisms:

Firstly he mentioned the ‘discipline of constant dealing’ – if you deal with someone frequently enough then you trust them. If they cheat you then you won’t do business with them again.

Secondly he covered reputational interests. As an example he suggested a vendor that may offer “money back, no questions asked”. If they broke this contractual commitment then the mechanism to resolve this is ‘informational enforcement’ – that is letting others know that you beach your commitments – effectively reputational enforcement.

Other private contractual mechanisms do exist, such as arbitration, which is commonly used in the UK and USA, or deposits, which are effectively holding something of value hostage, for example in escrow.

Law in general

David’s last area for discussion was law in general, that is tort etc.

Friedman stated that a good deal of what is really ‘law’ happens outside the state. e.g. contracts, American Arbitration Service, legal interpretation, a system of norms, etc. He then briefly discussed a number of examples of societies with their own private law, such as the Amish (basically anarchists), Saga-era Iceland and Somali law, which is similar to Iceland.

He also mentioned self-enforced law, such as laws being produced on the free market. This is an interesting area for further discussion.

The State

David then discussed the state and its shortcomings where law is concerned. He described a ‘simple-minded explanation’ of why democracy works (for the state, that is, not for the general populace). The voter has such a low marginal benefit for keeping track of politicians, there is little incentive for individual to monitor them (one in several million chance your vote makes a difference). Where the incentive and ability to compare private systems is possible, this is not the case for public systems; therefore laws under a competitive market are inherently better.

As he stated “we as libertarians believe liberty works” and so we believe that private laws will generally be more libertarian. So, for example, if the people who want to ban heroin can outbid those who want to use heroin then it will be banned; but in a libertarian world this is unlikely to happen.

Friedman then said “I reject the Whig theory of history, that institutions get better over time” and asked the question: “is child protection better under state law?” Children are a difficult case in politics as kids generally have no property or votes.

David mentioned his paper ‘Making sense of English law enforcement in the 18th century‘ as in this period there only existed civil law – the prosecutor was the party offended against. Between 1830-1870 this system changed from no public prosecutors, via paid constables (for the first time) and statutes.


At the end David answered a few questions, one of which was from Brian Micklethwaite. He asked whether David was still happy with his most famous book Machinery of Freedom. David said “Generally yes”, though he cited a conversation he had subsequent to James Buchanan‘s review on the topic ‘who pays for capital punishment’. In this section he thinks he now has stronger answers to back his position.

The link for the video to this session is available here.

Libertarianism, the environment and climate change: the case against conservatism

In their 2010 General Election manifesto the Conservative Party said:

Vote blue, go green. A conservative government will cut carbon emissions and rebuild our energy security. We will make it easier for people to go green , with incentives for people to do the right thing. We will protect our precious habitats and natural resources, and promote a sustainable farming industry. We will fulfil our responsibility to hand on a richer and more sustainable natural environment to future generations.”

It sounds great, doesn’t it? Sadly there has been little evidence on any of these measures, but let us concentrate on climate change for a moment.

There is substantial evidence that the Earth’s climate is changing: the average temperature is increasing, as is carbon dioxide concentration in the atmosphere; these changes are having multiple impacts across the globe, from ice caps melting, ocean acidification and its impact on coral, changes in plankton population etcetera. There are some, mostly educated in unusual sciences, such as English Literature or other subjects particularly useless to this debate, who deny this evidence, or claim there is no correlation to human activity. I am not going to debate with the tinfoil-hat wearing brigade here, as I don’t waste time on other anti-science numpties, such as creationists or the anti-vaccination idiots. I do object to their use of the term libertarian though, as they tar the libertarian movement with their brand of old-fashioned right-wing conservative conspiracy-theorist red-under-every-bed lunacy. But let’s get back on topic.

Whether you agree with anthropogenic climate change or not, we humans dump considerable pollutants into the Earth’s atmosphere, rivers, seas and soil. Anybody claiming to be a libertarian or anarcho-capitalist must recognise that this is in contradiction to our belief in property rights; that humans can dump our waste, whether it be garbage, faeces, DDT or carbon dioxide, into the common areas of the planet without consideration of property rights is socialistic not libertarian. The issue here is two-fold: firstly, that ‘common areas’ exist at all; secondly, that governments have ownership of (effectively ‘control over’) common areas and misuse that ownership. This issue has been identified by many libertarian authors in the past, from David Friedman in Machinery of Freedom (see his chapter on Pollution) and Murray Rothbard in For A New Liberty (see his chapter on Conservation, Ecology and Growth).

As David Friedman states:

“The pollution problem exists because certain things, such as the air or the ocean, are not property. Anyone who wishes to use them as garbage dumps is free to do so. If the pollution were done to something that belonged to someone, the owner would permit it only if the polluter were willing to pay him more than the damage done. If the polluters themselves owned the property they were polluting, it would pay them to stop if the damage they did were greater than the cost of avoiding it; few of us want to dump our garbage on our own front lawns. If all the things polluted were private property, pollution still would not stop entirely. Nor should it; the only way to completely stop producing pollution is for all of us to drop dead, and even that would create at least a short-run pollution problem. The proper objective in controlling pollution is to make sure that it occurs if, and only if, the damage it does is less than the cost of avoiding it. The ideal solution is to convert unowned resources into property. One could, for instance, adopt the principle that people living along a river have a property right in the river itself and that anyone who lowers the value of the river to them by polluting it, without first getting their consent, is liable to suit.”

Friedman goes on to put the blame squarely at the door of government for its lack of responsibility:

“At present, pollution is ‘controlled’ by governments. The governments—federal, state, or local—decide who has enough pull to have his pollution considered necessary. This reduces control to a multitude of separate cases and makes it almost impossible for the victims of pollution to tell what is really going on or to impose effective political pressure.”

Rothbard makes a similar case using the government-owned ranges in the western US as an example. These common lands weren’t allowed to be homesteaded in economically viable units of more than 160 acres and so the commons were over-grazed and destroyed. Similar activities are happening in our oceans currently, as Rothbard goes on to discuss.

As a brief aside, a simple comparison I use here is the question: why have whales, a mammalian species that many people of the Earth have traditionally hunted for meat, oil, bones etc., been driven to the edge of extinction, whereas cows, sheep and pigs are plentiful throughout the planet? The answer is obvious: one category is ‘unowned’ and lives in a public space, the oceans; the other category is ‘owned’ and farmed on private land. The lack of ownership is the problem here. Imagine if we farmed whales – would they now be nearing extinction? We have the technology to do this now – is it any different from other mammalian food sources? [This argument is discussed elsewhere by many, such as Jeremiah Dyke here and Bill Walker here.]

Friedman and Rothbard, both regarded as gurus of the libertarian and anarcho-capitalist movement, have covered more than adequately in their respective manifestos the issue of pollution. They both rightly see it as a failure of government; it has interfered in private property rights, distorting the market and failing in every aspect. Rothbard notes:

“…factory smoke and many of its bad effects have been known ever since the Industrial Revolution, known to the extent Conservation, Ecology, and Growth that the American courts, during the late—and as far back as the early—nineteenth century made the deliberate decision to allow property rights to be violated by industrial smoke. To do so, the courts had to—and did—systematically change and weaken the defenses of property right embedded in Anglo-Saxon common law. Before the mid and late nineteenth century, any injurious air pollution was considered a tort, a nuisance against which the victim could sue for damages and against which he could take out an injunction to cease and desist from any further invasion of his property rights. But during the nineteenth century, the courts systematically altered the law of negligence and the law of nuisance to permit any air pollution which was not unusually greater than any similar manufacturing firm, one that was not more extensive than the customary practice of fellow polluters. As factories began to arise and emit smoke, blighting the orchards of neighboring farmers, the farmers would take the manufacturers to court, asking for damages and injunctions against further invasion of their property. But the judges said, in effect, “Sorry. We know that industrial smoke (i.e., air pollution) invades and interferes with your property rights. But there is something more important than mere property rights: and that is public policy, the ‘common good.’ And the common good decrees that industry is a good thing, industrial progress is a good thing, and therefore your mere private property rights must be overridden on behalf of the general welfare.” And now all of us are paying the bitter price for this overriding of private property, in the form of lung disease and countless other ailments. And all for the “common good””

The most interesting proponent of private property rights as a remedy for environmental failings is Edwin G. Dolan, author of ‘TANSTAAFL: The Economic Strategy For Environmental Crisis‘. Dolan introduces a concept of ‘spaceship earth’, which he adapts from science fiction author Robert Heinlein’s award-winning 1966 classic novel ‘The Moon Is A Harsh Mistress‘. Dolan correctly points out that while the Earth is huge it does have limited resources and is conceptually a spaceship carrying us all in one single confined environment. He makes the case that any pollution from a transaction must include the ‘external’ cost of cleaning up that pollution, or a recompense for the problems that it introduces. By including the external costs then the market can act to reflect this price information.

Interestingly this example brings us on to another point about pollution. Cattle are a massive source of methane, a greenhouse gas considerably worse than carbon dioxide. We often hear from vegetarians that due to the enormous amount of vegetable matter needed to feed our main meat sources, and their considerable lifetime output in greenhouse gases, that we should abandon eating meat and adopt vegetarianism. Ignoring the other factors, including the morality of meat-eating, and focussing on the gaseous (methane and carbon dioxide) output of cows, sheep, pigs, etc., this brings us back to our original issue of all costs not being included in a transaction. Supposing the pollution costs add 20% to the price of meat then how would the market react? Obviously people would eat less meat as price drives down demand. This negative feedback loop would align meat consumption with the true cost to all on the planet.

After years of ignoring the research governments have had to face the facts of climate change (whether right or wrong) and have implemented some legislation, where politically expedient, to try to address this. Two such measures that have been adopted in the UK are worth consideration. The first is carbon trading: this is an attempt at including all the costs in a transaction as per Dolan’s TANSTAAFL; although imperfect it is a step in the right direction. The second is taxing airline passengers. Yes, I know you are surprised as I am an anarcho-capitalist libertarian and so shouldn’t agree with any tax; in theory I don’t, but until the market principle is established that all costs should be included in transactions then this is a pragmatically useful starting point.

So us libertarians, and especially anarcho-capitalists, should embrace the move towards privatisation of pollution, the allocation of the external cost impact to the consumer. It’s not ideal that it is governments that are implementing these changes, often with taxes, but until a private property framework is in place that eradicates the free-rider problem then this is the least-worst option. Libertarians support private property rights, all private property rights, and so this must include pollutants and their impacts; conversely conservatives embrace the status quo and so are content for government to corrupt this important market. This is not about anthropogenic climate change, whether it exists or not, or whether you believe it or not, it is fundamentally about private property first and foremost: the foundation stone of liberty. So which are you, libertarian or conservative?