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.
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.
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.