The Fantasy of a Pure Market

The government/market dichotomy is pervasive in contemporary political and economic debate. Many decry proposed ‘interventions’ into capitalism on the grounds that they are costly, politically motivated interferences that are vulnerable to capture by special interests. They assert that the ‘free market system’ should be allowed to operate free from outside interference: redistribution, regulation or public provision.

At the heart of this view lies some sort of neutral laissez-faire state, beyond which any ‘intervention’ is deemed unnatural. The ideal minarchist libertarian state would enforce property rights and contracts, and prevent force, fraud and theft. People could own what they acquired through ‘voluntary’ exchange; they would be free to do what they wanted with their property. I find libertarians rarely explore their preferred institutions much deeper than this, and build many of their arguments on the distinction between ‘markets’ and ‘government.’ However, on close inspection, the boundary between the two becomes blurred.

Complications with the Libertarian ideal #1

The nature of property rights is not at all obvious. Generally, a property right is thought to be a relation between a  person and an object, one that is respected by other persons in society. Owning something means that one is free to do what one wants with the thing: trade it, destroy it, display it, consume it or give it away. It also means that nobody else can do the same without your consent. But such a simple relation cannot be uniformly applied to everything that might be considered ‘property.’ The nature of the object or concept in question changes how the property right is defined.

Property cannot be autonomous, because doing ‘what you want’ with something that is autonomous is deemed abusive. Ownership of children or other people is therefore deemed problematic. Even in the cases where libertarians approve of ownership of, and trade in children or slaves (yes, they do), they would surely limit what could be done with, or to, said persons while they were owned. Similar boundaries concerning ownership can be observed with animals. Here the ownership is not problematic in and of itself, but it is still not the case that one can do whatever one wants with an animal, which could easily be abusive.

Another issue arises when the very nature of something is that it is person specific and so cannot be given away or traded. Court cases, votes, identities and credit histories are not appropriate candidates for trade, because that contradicts their definition. If court cases could be traded, this would quickly undermine the legal system. A less extreme case is when something, though tradable and ownable, is deemed too important to be at the whims of the owner. Even those who approve of a market in organs would surely not approve of a rich man buying them all and putting them into a blast furnace.

Property is a human construct, and the fact is that many aspects of nature do not respect clearly defined property boundaries: seeds, air and water all flow freely across them. Hence, problems can arise from dumping waste into a river or emitting it into the air; or from seeds from certain plants being transferred across land boundaries; or from sound and light pollution. The ‘invasion’ of property with more clearly defined boundaries by things that do not respect them will inevitably result in legal conflicts. How these cases are resolved will help shape subsequent laws that develop.

Property is also subject to changes as technology and politics evolve. A relatively recent development is environmentally motivated property rights, used in an attempt to prevent pollution. Relevant decisions such as how many carbon/fishing permits are handed out, and how much they are sold for, impact the workings of the economy. Newer still is intellectual property. Consider the case of digital photographs – if one uploads a photo to the internet, has one released it for any use whatsoever? Do the limits depend more on the nature of the photo itself than whether one has supposedly ‘voluntarily’ released it? Or what if someone else took the photo? There is no easy answer to such questions.

Complications with the Libertarian ideal #2

The other side to the libertarian ideal is the liberty of contract. Contracts are mutually agreed on actions or exchanges subject to certain conditions, or payments, from each side. Surely, libertarians ask, everyone should be free to negotiate the terms of their own contracts, and the state should only enforce such ‘voluntary’ decisions?

Such a presumption obviously precludes the mentally ill, or children (who are also precluded from purchasing certain items). Where the boundary for these is defined is an open question, in a constant state of flux as new mental illnesses are discovered, or as children become more educated, or as populations age and older people must be included in such considerations.

However, even for mentally competent people, the fact is that discussing a contract for every good or service one receives would be highly costly and quite possibly computationally impossible (i.e. it would take more time than there is). So norms develop. You don’t sign a contract every time you go into a restaurant: you know the deal, and so do the workers and owners. Shops are expected to provide receipts so that people can keep track of their transactions. Many jobs – particularly low paid and or short term ones – do not involve contracts at all. These are implied contracts, and figuring out what exactly has been consented to – what it is reasonable to infer from observed behaviour – is incredibly tricky.

Even when one does sign a contract, it is impossible to foresee every eventuality that might occur, particularly with long term contracts. So contracts are almost always, necessarily, incomplete. Employment is the best example of this. If your boss asks you to get them a pen, do you retort ‘that wasn’t in the contract?’ Of course not: it’s simply a reasonable request given social norms, the nature of the job and so forth. On the contrary, if your boss asked you to strip, that would not be deemed reasonable in a court of law, despite it not necessarily being in the contract that such behaviour was not permitted (or even, perhaps, if it was in the contract but was not clearly stated or expected given the nature of the job).

Even beyond the nuances of property and contract law, there are additional laws such as immigration restrictions, limited liability, laws that define companies and protect shareholder’s interests, all of which many consider a fundamental part of capitalism. Furthermore, accepting the logic behind, say, limited liability, forces one to conclude that protecting people from their risks can be good for an economy, and similar arguments can be extended to consumer protection, get out clauses in contracts, and even safety nets. Decrying all such interventions is a pretty hard position to defend.

I could give endless examples. The fact is that defining property, contracts and the supposed ‘core’ of capitalism is neither straightforward nor simple, and inevitably involves value judgments and arbitrary decisions with winners and losers. The nature of capitalist – or any system’s – institutions depend on culture, demographics, income distribution (who can afford the best lawyers), the historical context upon which past laws were formed, and much more. And such decisions will inevitably have winners and losers and therefore will affect present and future patterns of production, distribution and exchange.

Whither Free Markets?

These complications put the idea that there is such a thing as a ‘free market’ in its place (there isn’t). However, there is a partial response I have seen: how ‘free’ a market is can be judged in a relative sense. A market that is more or less regulated can be judged as further from or closer to the idea, even if said ideal is unattainable or impractical. But whether or not something is within the minarchist ideal of property & contract law does not tell us how big an impact it has on an economy. For example, something as widespread as ownership of land, or decisions regarding employment contracts, would have enormous impacts on the economy. Decisions surrounding property and contract law are as significant as any other, perhaps more so. The relative ‘freedom’ of a market cannot be judged in such simplistic terms.

There is also the question of whether market freedom is defined by the amount of rules that are in place. Sports generally have rules, many sensible, some arbitrary, some confusing to many. But does it automatically follow that sports players are not as ‘free’ to play the game as they would be in absence of the laws? Laws such as limited liability mean an entrepreneur is more ‘free’ to start a business. The 1980s changes in anti-trust law made it less about sustaining competition and more about ‘consumer welfare,’ which gave rise to greater concentrations of market power and control over key variables such as price by corporations (prices are, in fact, not magic but often set by administrators). Are these markets more ‘free’ than ones characterised by a greater degree of choice and competition?

As a side note, I am aware of the existence of anarcho-capitalists, who advocate no laws whatsoever. In this case I’m not really sure what they’d classify somebody who owned land, and had absolute rights over that land, other than some form of government. The only response I’ve seen to this is the ridiculously naive argument that people/corporations would only use ‘reasonable’ measures to remove people from their property. In other words: everybody would obey some sort of libertarian ideal, despite it not being enforced.

I won’t draw any normative prescriptions from this framework here, but suffice to say I feel it takes the rug out from underneath a lot of libertarian arguments against ‘intervention.’  There is no neutral baseline against which we can judge said ‘interventions,’ and none are immune from value judgments, arbitrary decisions and difficult questions in a legal system with limited resources. None of this is to say that the specific cases I’ve identified aren’t up for debate, but that’s the point: libertarianism is in many ways an attempt to escape political questions and leave everything up to the market. But as I have shown, every law or social institution raises difficult questions that can only be resolved through political debate, through court cases and are dependent on various conditions that vary across time and space. The question becomes less about whether ‘market outcomes’ are inherently just, and more about debating just outcomes without being plagued by the arbitrary concept of ‘the market.’

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  1. #1 by Nick on January 11, 2013 - 12:30 am

    It is indeed blurred. I’m taking an Economic Regulation & Anti-Trust class this semester at college and the first lecture today was on the subject of competition and social welfare. The idea (and words) of “perfect competition” were spoken several times, but of course in the construct of the neoclassical, “all things being equal”, “rational individual” framework. The discussion was all about economic efficiency within a pure market, but with government intervention. The professor has some libertarian leanings, but for the most part seems pretty centrist.

    The idea of governments becoming markets within themselves became a talking point. Politicians as commodities that can be bought, sold, traded, etc.

    I guess what my point is is that this kind of thinking, markets vs. governments and how they battle each other, has become such a standard among society and modern thought that it is now just the cultural norm. It’s as if one cannot exist without the other, which of course is completely false in my opinion.

    • #2 by Unlearningecon on January 11, 2013 - 2:20 pm

      The idea of governments becoming markets within themselves became a talking point. Politicians as commodities that can be bought, sold, traded, etc.

      The logic of capitalism makes this reality. The fact is that profit seeking firms would jump at the opportunity to trade votes, court cases and everything I outlined above. I’d bet a libertarian exists who advocates almost every one of the things I use as absurdities in the post.

      I guess what my point is is that this kind of thinking, markets vs. governments and how they battle each other, has become such a standard among society and modern thought that it is now just the cultural norm. It’s as if one cannot exist without the other, which of course is completely false in my opinion.

      This is more pervasive in the states than anywhere else. Generally, I find ordinary people – correctly- see the whole system together, and are more likely to think in terms of class. They understand the state’s actions are generally reflections of different interests within society, and they understand that politicians, bankers and the whole cabal are just the same group of people. The market-government dichotomy is simply another form of divide and conquer.

  2. #3 by john77 on January 11, 2013 - 12:52 am

    I could go on for hours pointing out mis-statement and suggestio falsi. but I might die of old age before I finished.
    The simplest example is that when we were 7-11, my best friend had a good cricket bat and I had ball, stumps and bails: you say “doing ‘what you want’ with something that is autonomous is deemed abusive”. I say “only by the cricket ball if you really, really believe that a cricket ball is capable of independent thought and moral judgements”

    • #4 by Unlearningecon on January 11, 2013 - 12:58 am

      You could make an argument, but you can’t be bothered?

      The only argument you managed completely misunderstood what I said. I was talking about ownership of slaves and children.

      Hell, did you even read the piece, or are you just ideologically predisposed to disagree with me?

      • #5 by john77 on January 11, 2013 - 10:22 am

        I am not disagreeing for ideological reasons, but for logical ones. You cannot apply current-day concepts of human autonomy to slave-ownership: the two are utterly incompatible, So you cannot use that as a way to qualify property rights.
        Autonomous means it is not property.

      • #6 by Unlearningecon on January 11, 2013 - 11:03 am

        Exactly, so there are limits on what one can own.

  3. #7 by Julia on January 11, 2013 - 3:30 am

    A “totally free market” is impossible, just because it relies on a perfect property norm that’s absolutist at its core. It’s just like “full communism” in that regard.

    • #8 by Unlearningecon on January 11, 2013 - 2:15 pm

      The immediate contradiction can be seen with the fact that libertarians need taxes, which they regard as theft, to pay for property rights in the first place, which are necessary for theft to have meaning.

  4. #9 by Justin Oliver on January 11, 2013 - 4:28 am

    The concept of freedom certainly has a contested meaning. My understanding is that a person’s freedom exists within the sphere of their rights. So the more fundamental problem is to determine, if possible, what people’s rights are.

    If rights (or, principles regarding how people should be free to act) can be validated objectively to exist, then it seems possible to distinguish whether a government has impinged upon someone’s rights and thus limited their freedom.

    • #10 by Unlearningecon on January 11, 2013 - 2:17 pm

      Yeah, true, although rights are obviously blurry and come into conflict with each other. So minor impingements on each other’s rights may simply be an inevitable aspect of the human condition.

  5. #11 by Roman P. on January 11, 2013 - 6:06 am

    A bit offtopic: after recently reading Fernand Braudel I found it curious that historical markets of Medieval Europe were heavily regulated. Indeed, they often had administered prices…
    I think that Braudel ought to be a required reading for the economists, really.

    • #12 by Chris on January 11, 2013 - 10:32 am

      The right to manufacture a particular type of good (e.g. linen) was often a monopoly granted by the king to his subjects, e.g. to a favoured lord. Libertarian thought probably originated from would-be entrepreneurs observing these monopolies and fantasizing about the rights to manufacture and trade in certain goods and to set up enterprise without the need for the monarch’s blessing, participation in his court, the various political intrigue, etc. Which, one would think, gave birth to the original ideas behind “liberal” thought.

      Contrast this with modern libertarians, whose experience is of relatively free markets, where only “natural” monopolies exist (such as education, defence, water, electricity, etc) and people can setup businesses in almost whatever trade without restriction (or at least non-discriminatory licensing by bureaus). It makes modern libertarian obsessions of removing the last bits of government restrictions (that are needed to allow markets to function properly) seem so absurd and childish.

      • #13 by Unlearningecon on January 11, 2013 - 2:15 pm

        Yeah absolutely. The problem with the ‘free market’ view is that it’s unfalsifiable. There will always, by necessity, be some supposed ‘interventions’ that libertarians can point at to say the pure market hasn’t really been achieved. Apparently when the last bit of law is removed, suddenly things will take off.

    • #14 by Unlearningecon on January 11, 2013 - 2:17 pm

      That’s interesting. Medieval China had a lot of trade, but profits were not allowed and this was strictly enforced.

  6. #15 by gastro george on January 11, 2013 - 1:35 pm

    One quote I saw somewhere was that a libertarian is somebody who expects the starving masses to agree to protect and defend the property rights of the rich man sitting on a pile of corn.

  7. #17 by ichi on January 11, 2013 - 4:10 pm

    Absolutely brilliant analysis!

    Beyond the foundational aspects that you’ve considered here, where property rights are nebulous, complicated, and frequently require the very intervention of the state that libertarians propose to do away with (or replace with mini-states assiduously patrolling the borders of their properties), there is also a concern that market interaction cannot be performed by “rational actors”. There are any number of ways in which market participants are, or can be, manipulated into acting against their own self interests and thereby not maximizing the utility of their property.

    The combination of the problems of defining the limits of property rights in the first place and preventing irrational behavior in the market are a sure indication that “free market” is an impossible dream.

    • #18 by Unlearningecon on January 12, 2013 - 5:09 pm

      (or replace with mini-states assiduously patrolling the borders of their properties)

      I’m quite convinced this is the libertarian ideaL: everyone has their own little patch of land where they are a dictator.

      There are any number of ways in which market participants are, or can be, manipulated into acting against their own self interests and thereby not maximizing the utility of their property.

      Yeah, libertarians rarely deal with rationality on any deep or systemic basis. They will frequently assert that ‘people should be allowed to be irrational,’ or that ‘governments are irrational too’ but this is a shallow cookie-cutter argument that doesn’t really require much thought. You might be interested in my post on this here.

  8. #19 by Harry Bowls on January 12, 2013 - 3:01 pm

    Nice post. Could it more generally be said that internet libertarians suffer the same problem that any ideologues suffer, in that they see the institutions and systems of the world around us as extensions of some ideology – rather than ‘technologies’ we use to organise society? So (as you rightly point out) they see markets as a pure system that are polluted by governments, rather than a useful technology that (a) has been constructed by fallible humans over many years of trial-and-error, and (b) does a decent job of facilitating exchange and innovation. Just like any technology, you need a different market for different circumstances, and some markets work better than others. In some cases, you don’t want to use a market.

    Being ideologues, they also conveniently can avoid real-world problems like not using circular logic, being consistent, or compromising when it comes to designing policy. Which, to be honest, sounds like great work if you can get it.

    • #20 by Unlearningecon on January 12, 2013 - 5:10 pm

      You are right: markets are a tool, and like all tools they are not applicable to every situation, or may need to be adjusted depending on various legal, historical and cultural circumstances, as well as which market is in question.

      Being ideologues, they also conveniently can avoid real-world problems like not using circular logic, being consistent, or compromising when it comes to designing policy. Which, to be honest, sounds like great work if you can get it.

      Indeed, the ‘market knows best logic’ cannot be verified by any other measure than market outcomes, and hence is completely circular.

      • #21 by john77 on January 12, 2013 - 6:59 pm

        Actually, if you bothered to ask an advocate of the free market, you would learn that their preference for a “free” market (actually one where the referee is not a market participant) is a philosophical one. They believe that people will be happiest if they are allowed to choose how to spend their money/work to earn their money/… with individuals making and receiving different offers until they decide which is most favourable.
        This is not a scientific theory which can be tested (unless you regard the Berlin Wall as a test).

      • #22 by Unlearningecon on January 12, 2013 - 9:20 pm

        Correct. So how does this contradict anything I said?

      • #23 by john77 on January 12, 2013 - 10:01 pm

        Duh! It isn’t a circular argument because it isn’t argument in the first place.

      • #24 by Unlearningecon on January 12, 2013 - 10:41 pm

        You will find the argument in many places. Perhaps you do not endorse the circular argument but it certainly does exist.

      • #25 by Will on January 14, 2013 - 10:05 pm

        Libertarians argue along three lines.

        1) The practical argument: The free market is the most efficient and most productive of prosperity, and any deviation from it will reduce efficiency and wealth

        2) The utilitarian argument: The free market is the most consistent with happiness

        3) The argument from nature: The free market is the only system consistent with some set of inherently true principles (whether “natural law” or “axioms of action”)

        Shifting from one line to another, without acknowledging that the object that was being treated as ultimately desirable has now been disregarded, is a common tactic.

      • #26 by Unlearningecon on January 15, 2013 - 4:23 pm

        Yes. To claim the most ‘free’ system (based on your ideology) is also the most efficient and utilitarian really is wishful thinking.

  9. #27 by noteconomist on January 12, 2013 - 10:35 pm

    This is something I’ve thought about a lot and talked about a lot before! There are still so many people who insist that the issue right now is that we need more tax cuts and the regulation is still the reason why we dont have full employment.

    And you present the point so eloquently, in a way that mirrors how I think of it so well. Why on earth are we stuck with these failed dreams of “free markets” and “rational agents”. Good god I feel like I’ve been living a lie.

    Thank you for doing what you do.

  10. #29 by Joe Winpisinger on January 13, 2013 - 9:20 pm

    • #30 by Unlearningecon on January 13, 2013 - 9:56 pm

      Eh, you’ll have to do better than “this is a straw man argument.” This is precisely how libertarians frame the debate; if you want to dispute it, you’ll have to back up your assertions.

      And I understand libertarianism just fine: honestly, it doesn’t require that much brain power. It’s not a great tactic to assume your opponents do not understand your position.

      • #31 by Joe Winpisinger on January 14, 2013 - 3:23 am

        Scoop It! insights are more or less a tweet. So not much of a chance to back up anything. With that stated, I think that even the most zealot libertarian(I argue with them all the time being a Conservative) would say that the type of hedonism you describe here destroys society. No one gets to do what they want all the time in society. What you describe is anarchists. Libertarians are much like the defensive back that was not holding on a pattern the other day but has his hand on the receivers shoulder all the way down the field. As Dan Dierdorf commented, he was not holding but you are begging them to call holding by doing that.

        I get your point in the post and it is a good point overall. But it is a point that is obvious and to attribute this type of thinking to libertarians is most certainly knocking down a straw man. Want to disarm their arguments( I do all the time) then you have to engage what they are actually arguing.

      • #32 by Unlearningecon on January 14, 2013 - 11:51 am

        Scoop It! insights are more or less a tweet. So not much of a chance to back up anything.

        Fair enough.

        Honestly though, I think the straw man is yours. At no point did I suggest libertarians think everyone should be able to do what they want: generally the libertarian creed is “do what you want, as long as you don’t hurt anyone.”

        Instead, what I’m getting at is the way libertarians frame the debate: the government versus the market. They suggest people should be free from ‘force’ so they can ‘voluntarily’ exchange things. What I’m saying is that even the institutions required for their ideal raise difficult political questions, ones that their ideology sets out to avoid. The government-market dichotomy can be found in almost every libertarian and if you haven’t seen it I’d suggest you haven’t read much libertarian thought (for example, see a question on Bryan Caplan’s test, “Should the Supreme Court strike down economic regulation as unconstitutional?” That is a nonsensical question for someone who advocates state enforced property rights and contracts).

      • #33 by john77 on January 14, 2013 - 3:54 pm

        I think that suggesting Joe W is creating a straw man and then creating one is going a bit far.
        In your original post I stopped counting straw men after the first half-dozen.
        Number one – that those who object to state interference as benefiting special interests oppose redistribution – I and many others want all honest people, and especially the poor, to be better off which means there to be more wealth to redistribute to the poor, even though that means redistributing away from myself/ourselves. Solar panel feed-in tariffs mean redistributing from the poor to the well-off: so do the subsidies for wind-farms (Margaret Hodge has just discovered that Ed Miliband agreed to pay them for failing to produce any electricity, four years after sceptics pointed this out) and US subsidies for biofuels.
        Two Adam Smith advocated public provision of “public goods” where the benefit to society as a whole exceeded the cost. Libertarians merely take a narrower view of “public goods” than socialists. Those of us in the middle would, for instance, support the building of social housing but deny subsidised rents to those with incomes in six figures like Bob Crow.
        Three, Philmore’s argument for “voluntary slavery” is not comparable to the USA’s version of slavery – it is more comparable to the OT version of slavery for Hebrew slaves apart from the term limit. Four, Rothbard is arguing for more freedom for mutual agreement to adoption/fostering, not for owning children or treating children as chattels like furniture.
        Five “Court cases, votes, identities and credit histories are not appropriate candidates for trade, because that contradicts their definition.” Not in the history of the USA!! Plea bargains and vote buying (common in the UK in earlier centuries before the *Conservatives* introduced the great Reform Act) are still current, identities have been bought and sold, credit histories are wholesaled by banks and credit rating agencies.
        Six, libertarianism would not lead to a rich man buying organs and tossing them into a furnace because the sellers would have the option to refuse to sell them to someone doing that. Sellers do NOT have to accept the highest bid except in a left-wing regime: I sold my first flat to the buyer whom I thought would be most congenial to my neighbours (before anyone moans the less congenial bidder was a white middle-class male like myself).
        You are misappropriating tort into an argument what is ownership of property. How are environmentally motivated property distinct from any other? Only a Greek, Indian or Chinese could describe intellectual property as “newer”: copyright was formalised in England in1662.
        “Property is a human construct”: zoologists inform us that may animals and birds are “territorial” regarding a certain area as belonging to them and will defend it against intruders
        Seven “However, even for mentally competent people, the fact is that discussing a contract for every good or service one receives would be highly costly and quite possibly computationally impossible (i.e. it would take more time than there is)”: nonsense:.a contract does not need to be written: in England deals and contracts are traditionally verbal and sealed by a handshake: until late Victorian times, the vast majority were illiterate. I enter into a contract every time I buy carrots pr apples in the local market. The stallholder offers them for sale for so many at a published price and I accept, or, occasionally I bid for a smaller quantity and he accepts. There is NO NEED for the contract to be in writing.
        Eight “So contracts are almost always, necessarily, incomplete.” I loathe modern HR departments but this is one of the few cases where they mostly do their job properly by framing employment contracts in an open-ended fashion to cover the unexpected without leaving vast loopholes for abuse.
        “Shops are expected to provide receipts so that people can keep track of their transactions” NO they are required to do so by a law decreed by King Alfred to prove that the purchaser has paid for the goods and has not stolen them.
        If you want more corrections later, ask for them: by now I’ve had enough and I need a drink before I get bad-tempered.

      • #34 by Unlearningecon on January 14, 2013 - 4:14 pm

        Nothing you’ve said contradicts my post. In fact you’ve missed the point completely, as usual. I can’t be bothered to trepse through the wall of text and fisk it, but an example – here’s you:

        in England deals and contracts are traditionally verbal and sealed by a handshake: until late Victorian times, the vast majority were illiterate. I enter into a contract every time I buy carrots pr apples in the local market. The stallholder offers them for sale for so many at a published price and I accept, or, occasionally I bid for a smaller quantity and he accepts. There is NO NEED for the contract to be in writing.

        Here’s me:

        You don’t sign a contract every time you go into a restaurant: you know the deal, and so do the workers and owners. Shops are expected to provide receipts so that people can keep track of their transactions. Many jobs – particularly low paid and or short term ones – do not involve contracts at all.

        Your grasp of logic and reading comprehension worry me sometimes.

        Here’s my simple message: there’s no neutral market that is not affected by legal decisions, historical context and definitions. If you weren’t being so combative I might thank you for offering so many examples detailing how true this is!

      • #35 by john77 on January 14, 2013 - 4:35 pm

        “Nothing you’ve said contradicts my post”
        Pathetic: can you read?
        “Shops are expected to provide receipts so that people can keep track of their transactions” NO they are required to do so by a law decreed by King Alfred to prove that the purchaser has paid for the goods and has not stolen them.”
        I have given half-a-dozen examples of straw men.
        You postulate that we don’t enter a contract when we enter a restaurant (well. you do: I can cook) which is only very narrowly true – the contract is entered as soon as you order something off the menu. You argue that entering into a contract takes too much time: bah! humbug!. The stallholder displays prices: it takes seconds to agree or refuse. Every deal to buy a loaf or bread (or in your case a takeaway) is a legal binding contract.

      • #36 by Unlearningecon on January 14, 2013 - 4:42 pm

        Yep, many contracts are implicit. That’s what I said; it’s what you said. Please read more carefully.

        I am done on this subject and so are you.

        PS I am aware receipts are legally required. It was my point.

  11. #37 by Robert Nielsen on January 14, 2013 - 2:23 pm

    Excellent post. I always wondered why libertarians argued the state should do nothing but protect property rights. After property rights, like all rights are social constructs and no more natural than the right to an education or a right to a job. There is also the point that Ireland and other post colonial countries, land/property belonged to a small elite who got it through war and violence. It is hard to argue that their right to property is the only right the state should protect. (In Ireland this lead to massive civil disobedience and finally state intervention to break up the large estates).

    You properly addressed the point of coercion (so I don’t have much to add). After all a group of individuals coming together for mutual action and protection is essentially what the state is. Any libertarian society will have just as much coercion and arbitrary force as one with a government.

    • #38 by Unlearningecon on January 16, 2013 - 12:59 pm

      Thanks.

      The distinction between possession and property must be made. Possession is natural and its impossible to envisage human life without some form of it. Property is arbitrary possession that is not based on use but on, well, property.

  12. #39 by Ramanan on January 14, 2013 - 2:27 pm

    Impressive post!

    Most economists have a fantasy view of the world and confuse how the world works and how they want them to work. They can never be wrong because they can always give the excuse that the markets were not free and so on but don’t realize that the policies they propose and push to make it look like they want the world to work is deflationary.

    I think a lot of people will deny that their views are not like that. Nevertheless they have been heavily influenced by such minds which describes a fantasy pure market.

    One silly argument given (I guess by Friedman) is that if some seller is a crook, people will realize he is a crook and he will go out of business and hence we do not need regulations. Now this is silly. Some negative effects can be long term – such as health, radiation due to the usage of electronic instruments etc. Some crooks exist – especially in travel – and they needn’t worry about how their consumers think because the base keeps changing. Also people do not realize things when they are buying them – like the car example you posted in which Milton Friedman defended some defect.

    • #40 by john77 on January 14, 2013 - 4:17 pm

      @ Ramanan
      “One silly argument given (I guess by Friedman) is that if some seller is a crook, people will realize he is a crook and he will go out of business and hence we do not need regulations.”
      This is not universally true BUT it worked in the London Stock Exchange before an interventionist government (under Margaret Thatcher) abolished “single capacity”. Classical investment theory states that people will want a higher investment return to compensate for higher risk so you will only deal with someone who trust less if the expected return (allowing for the higher risk) is sufficiently greater. The guys with whom we dealt were those we trusted rather than those we thought to be cleverest (a few classified as both).
      Also it does not mean that we do not need regulation, but that, in some cases, regulation costs more than it is worth.

    • #41 by Unlearningecon on January 14, 2013 - 4:21 pm

      I think a lot of people will deny that their views are not like that. Nevertheless they have been heavily influenced by such minds which describes a fantasy pure market.

      As you can see, this is generally the reaction. But the government-market dichotomy is pervasive; perhaps people don’t even realise it’s there. It irritates libertarians because they cannot use their various tinned responses or quote Friedman, so they deny it exists.

  13. #42 by Luis Enrique on January 15, 2013 - 2:24 pm

    here’s an alternative hypothesis, that you will no doubt find disagreeable. But here I am talking about economists, not incoherent fundamentalist libertarian halfwits.

    economists are perfectly aware of how real world markets differ from some abstract notion of a free market. I could cite mountains of research – for example, the whole literature on the importance of institutions for economic development, or perhaps the book Pillars of Prosperity by two very mainstream high status economists. Nonetheless there are useful distinctions to be made between governments and markets, and it can make sense to talk about economies being more or less free.

    Economists also use highly stylized abstract models which ignore many salient features of reality. They are able to negotiate the gap between thinking about such model to thinking about reality, contrary to the assumption of people like your good self UE. People see these ‘unrealistic’ models and think they mean economists mistake them for reality, but the mistake is their own.

    some qualifications.

    no doubt you can find many instances of economists being too glib about these matters, mistaking their models for reality, or taking what you consider to be an overly simplistic or optimistic view of “free markets”. This is a basic mistake known as a sampling error. Rather than sample the whole distribution, you concentrate on those elements which confirm you pre-existing beliefs.

    • #43 by Unlearningecon on January 15, 2013 - 4:37 pm

      The government-market dichotomy, IMO, originates from economics. The supply-demand framework with its ‘market failure’ and ‘government intervention’ leaves students with no real knowledge of the institutions required to sustain capitalism and their history. However, the real problem is more the dogmatic libertarian interpretation of it, as you say.

      I think you are projecting a bit with your response, as this post wasn’t really aimed at economists. I am aware that particularly development economists talk a lot about institutions, and that economists sit in the gap between theory and reality. My issue is generally with the theories in and of themselves and you’ll not often find rhetoric from me that matches your descriptions.

  14. #44 by Silvano on January 15, 2013 - 2:44 pm

    I think this is a good post. A bit biased, but surely it strikes a good point. Sometimes if you read hard minded anarchocapitalist it’s hard to distinguish their portrait of the State from the Marxist one (a bunch of guys using coercion to grant to themselves power and money is not so far from the so called “Burgeois State”).

    • #45 by Unlearningecon on January 15, 2013 - 4:21 pm

      A bit biased

      Everything is biased one way or another!

      Sometimes if you read hard minded anarchocapitalist it’s hard to distinguish their portrait of the State from the Marxist one (a bunch of guys using coercion to grant to themselves power and money is not so far from the so called “Burgeois State”).

      Marxism and libertarianism agree in this area, certainly. What confuses me about anarcho-capitalism is the land ownership question I outlined above.

  15. #46 by freedomthistime on January 25, 2013 - 12:59 pm

    Nice post and summary of Ha Joon Chang’s “Thing 1″ the don’t tell you about capitalism :-)

    I recently read David Graeber’s book Debt: The First 500 Years and he makes an interesting point there about the relation between markets and states. Many folks – and particularly “libertarians” – will treat them like opposite ends of a spectrum, but Graeber points out that throughout history there are examples of market systems being forced upon previously autonomous communities by states. So the market is actually oftentimes a creature of the state, amusingly. For example he wrote the following in a shorter essay summarising the book:

    “Kings, throughout history, tend to be profoundly ambivalent towards allowing the logic of debt to get completely out of hand. This is not because they are hostile to markets. On the contrary, they normally encourage them, for the simple reason that governments find it inconvenient to levy everything they need (silks, chariot wheels, flamingo tongues, lapis lazuli) directly from their subject population; it’s much easier to encourage markets and then buy them. Early markets often followed armies or royal entourages, or formed near palaces or on the fringes of military posts. This actually helps explain more, rather puzzling behavior on the part of royal courts: after all, since kings usually controlled the gold and silver mines, what exactly was the point of stamping bits of the stuff with your face on it, dumping it on the civilian population, and then demanding they give it back to you again as taxes? It only makes sense if levying taxes was really a way to force everyone to acquire coins, so as to facilitate the rise of markets, since markets were convenient to have around.”

    I found that passage really interesting, as I hadn’t thought about states and markets as emerging together in that way before.

    I agree with what you wrote on property rights too and how they implicitly involve value judgements (I don’t believe there is such a thing as “value free” economics – so long as economies are comprised of humans they require some accepted ethical basis to function). Noam Chomsky has a take on property rights I find clear and helpful, one that I think makes quite a good summary of what you said:

    “Property rights are not like other rights, contrary to what Madison and a lot of modern political theory says. If I have the right to free speech, it doesn’t interfere with your right to free speech. But if I have property, that interferes with your right to have that property, you don’t have it, I have it. So the right to property is very different from the right to freedom of speech. This is often put very misleadingly about rights of property; property has no right. But if we just make sense out of this, maybe there is a right to property, one could debate that, but it’s very different from other rights.”

    Basically it’s the standard story of mainstream economists ignoring externalities / the third party costs/benefits of different kinds of property rights – or at least treating them as an irrelevant footnote rather than a central and critically important economic issue.

    • #47 by Unlearningecon on January 28, 2013 - 1:20 pm

      Yeah, Graeber’s book is interesting. I find libertarians have few examples of ‘markets’ arising out of nowhere like magic, and if pushed they will fall back on some obscure example like medieval Iceland or the ‘Wild West,’ ignoring specific historical circumstances and skewing the facts to fit their narrative. Such an approach smacks of desperation – why is no there no clear cut example of capitalism as we know it truly arising out of nowhere?

      That’s a great passage from Chomsky. It reminds me of the anarchist/socialist distinction between ‘possession’ and ‘property.’ Libertarians frequently refer to possession in their defences of property but don’t really discuss ownership of production and wage labour, or ownership of land, or rental. This is use of property beyond what one ends and denies others basic needs through the use of force. For libertarians, such things are, as you say, irrelevant footnotes; just more ‘voluntary,’ ‘subjective’ decision making.

      • #48 by freedomthistime on January 29, 2013 - 12:46 am

        “It reminds me of the anarchist/socialist distinction between ‘possession’ and ‘property.’ ”

        That distinction traces back to Proudhon’s 1840 essay “What is Property?”. Reading it a few years ago was a huge deal for me and clarified my thinking about what this thing called “property” actually is no end. It helped bring into focus for me the implicit violence our societies are based upon (well, implicit for a middle class white guy at least – less so for other demographics…)

        By the way, I’m sure you already know this, but libertarian is actually an anarchist/socialist word. That’s why I put it in inverted commas above. It was first used in the context of political philosophy by the anarchist-communist Joseph Dejacque in a letter to Proudhon in 1857. He used it for the title of a New York based anarchist journal Le Libertaire (The Libertarian) a year later.

        European social anarchists then adopted the term to refer to themselves. Peter Kropotkin called himself a libertarian communist, for example – I wonder what American “libertarians” would make of that?! ;-) I find it off-the-scale ironic that around 100 years later you find Murray Rothbard types pinching the term to denote a form of hyper-capitalism! Freedom is slavery now I guess…

      • #49 by freedomthistime on January 29, 2013 - 12:54 am

        And John Stuart Mill’s Principles of Political Economy (plus the Chapters on Socialism) also has a really comprehensive and clear take on the issues surrounding private property. At least, I thought so.

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