Monday, February 6, 2012

Richard Epstein: In Defense of Libertarianism

The surprising persistence of Ron Paul during the Republican presidential primary process has brought the libertarian theory that he champions into the spotlight. At one level, what Paul says about the tradition is surely correct. It does not take a bold imagination to think that the level of government intrusion in the lives and businesses of its citizens has moved to an unacceptable and unsustainable level. He is right to stress the corruption that large government brings to social life.
In today’s environment, individuals divert their energy from producing wealth for themselves, which would otherwise create greater opportunities for others, to securing the transfer of wealth from others, which in the end diminishes all the possibilities for growth created by human ingenuity and invention.

In this essay, I do not want to defend the Paul candidacy. Candidates all take many positions, and I have little sympathy for what I regard as the dangerous isolationism of Paul’s foreign policy, for his relative silence on the vital issue of free trade, and for his quixotic effort to abolish the Federal Reserve (which stands in need of extensive reform) in favor of a return to a gold standard.

It is, however, important to note that the attractiveness of Paul’s central message has brought forth a number of attacks on the basic libertarian approach toward governance that urgently cry out for some answer. In this regard, my University of Chicago friend and colleague Todd Henderson sent me a brief post by Jeffrey Sachs entitled “Libertarian Illusions,” whose dismissive message is all too apparent from its title.

Sachs, who is the Director of the Earth Institute at Columbia University, isolates the chief defect of the libertarian position to its single-minded pursuit of one virtue—liberty—to the exclusion of all of the other values that matter in the world. As he puts it, “Compassion, justice, civic responsibility, honesty, decency, humility, respect, and even survival of the poor, weak, and vulnerable—all are to take a back seat.” Or really no seat at all on the bus. In other writings, Sachs takes a more economic approach to the issue, which is encapsulated in his brief but instructive critique on libertarianism’s alter ego, capitalism, published recently in the Financial Times under the chilling title, “Self-interest, without morals, leads to capitalism’s self-destruction”:
[Capitalism] fails when market competition breaks down, whether because of natural monopolies (in infrastructure), externalities (often related to the environment), public goods (such as basic scientific knowledge), or asymmetric information (in financial fraud, for example).
These criticisms are profoundly shortsighted and misguided. They call for some response. Sachs’s points, of course, take general aim at my worldview: after all the title of my Defining Ideas column is “The Libertarian.” I would instantly renounce that title if I thought that it represented an inaccurate statement of my views. Since Sachs does not offer a systematic account of what it is to be a libertarian, I shall try here to fill that gap in order to explain why his views are so deeply flawed.

The first step in that analysis is to recognize the deep-seated ambiguity in the term “libertarian.” In choosing the title for this column, I picked that term because it sets out in clear and intelligible terms a general orientation toward a defense of private property, freedom of contract, and limited government, all of which I embrace. But the term conceals an important division within the ranks of libertarians that influences the overall terms of the debate.

I refer here to the continuous tension between the hard-line anarcho-capitalists and the adherents to classical liberalism. In the former camp is my friend and sparring partner Walter Block,  perhaps the closest living successor to Murray Rothbard, who took the monochromatic position that the sole duties that individuals have to each other are to refrain from the use or threat of force and to honor their promises. The hard-line libertarian treats these duties as the entire sum of the obligations that one person owes to another.

The popular version of the term libertarian does not convey solely this meaning. The second branch of libertarian theory is classical liberalism. It takes a somewhat larger view of government that makes it a bit more elusive to characterize. The classical liberal does not deny the importance of controlling aggression and honoring promises. Indeed, these two values have to be as much a part of the system as they are of any alternative that Sachs might put forward. But the classical liberal makes two conscious adaptations from hard-line libertarian thought that render it largely immune to the criticisms that Sachs and others lodge against it. The first deals with moral obligations. The second deals with issues of monopoly, taxation, eminent domain, and regulation.

The first of these modifications is that classical liberalism is not just a theory about the legal interactions between ordinary individuals. One of its key components concerns the moral obligations between persons. To be sure, there are many instances in which legal and moral obligations overlap, including the imperatives to avoid the use of force against others and the need to keep promises. But in addition to these obligations, there is a second set of obligations that are not enforced by law, but which are enforced by an elaborate set of devices that range from public opinion to social pressures, which can come from friends, associates, religious institutions, or moral conscience.

This set of imperfect obligations has long been part of the overall classical liberal tradition. Joseph Story, in his Commentaries on Equity Jurisprudence, captured the mood when he referred to the “settled tradition” “between natural obligations on which no action lay, but which were merely binding in conscience, and civil actions, which gave origin to actions.” The classical liberal tradition could not be more emphatic in noting the centrality of those obligations that Sachs wrongly assumes are wholly outside of the scope of libertarian theory, broadly conceived.

What should be a trivial point thus needs urgent restatement. Nothing whatsoever in anarcho-libertarian theory makes it illegal for persons to show compassion or render assistance to those who are in need. The only sense in which they take a back seat (to the control of force and fraud) is that these imperfect obligations rely on a more diffuse set of sanctions to keep them in place.

Nor are writers in the classical tradition inattentive to how this issue plays out in practice. To take one of the great chestnuts of the common law, it is widely agreed that there is no legal duty to rescue a stranger no matter how great his need and how little effort it takes to extend a helping hand. One standard move for the first year torts professor is to offer a hypothetical case where all it takes to save another human being is for someone else to toss a life preserver in his direction. So why not impose a legal duty to add teeth to a set of woolly social sanctions? The answer is, in the end, that there is no social problem for the law to cure.

The real danger in these situations is the large number of people who end up hurting themselves in undertaking heroic, but foolish, efforts to rescue others, which David Hyman of the University of Illinois has documented in numbing detail. Nor is there any reason to believe that bringing out the heavy legal artillery will do anything to improve the situation, which is why the nineteenth-century cases that defended the “no duty to rescue rule” relied on the distinction between moral and legal obligations to make their case for refusing to create the latter.

There is no more power to Sachs’s critique of libertarian theory when we look to larger questions of social conscience and responsibility. The magnates of the nineteenth century left behind many of the great institutions of the twentieth and twenty-first centuries. Vanderbilt University, the University of Chicago, Stanford University, Johns Hopkins University, and Carnegie-Mellon University all got their start from the notable capitalists of their ages.

Contemporaneous billionaires like Bill Gates may not have founded a university but his massive contributions to private universities and to people in need through his own foundation bear testimony that, when it comes to the fine art of giving, honey goes a lot further than vinegar. Even Warren Buffet, about whose views of taxation the less said the better, has taken the pledge to turn his wealth over to a variety of public causes, knowing full well that a dollar of charitable support will go a lot further in private hands than it will in the public treasury. Just what could Sachs be thinking in ignoring some of the most conspicuous features of our social life?

That kind of support and charity is not limited only to the very rich. Its practically a tradition among Americans to invite to dinner neighbors or family members recovering from illness, or to take care of their children in times of stress, or to do a thousand small things, day or night, to help their peers through difficult times—and all without legal compulsion.

Separately, there are many employers who will only hire workers on contracts at will, thereby leaving their workers vulnerable to being fired in an instant. But it is grievous error to ignore the second-order social norms that also guide behavior. In practice, it is far more likely that these same employers will help carry their loyal workers through in rough times. There is no libertarian who believes that employers should fire workers on a whim simply because they have reserved the contractual right to do so. In social and employment contexts, these many small acts of kindness form an indispensable social glue. I can’t think of anyone who works within the libertarian tradition who opposes these efforts. In fact, many libertarians strenuously insist that it is precisely because the uses of law are limited that these social obligations are so imperative.

Sachs is every bit off base in his critique of capitalism, even its narrow libertarian version. As noted, classical liberals understand the necessity of taxation and eminent domain. They do not allow private individuals to free ride on the efforts of others in the construction of public goods, or block the formation of roads and railroads. More concretely, the most ardent libertarian supporter of freedom of contract is not indifferent to the effects that fraud has on the operation of a legal system. To be sure, fraud, standing alone, is always less of a threat than the use of force. The first and best line of defense against the conman is a healthy awareness of the time-honored proposition that if a deal looks too good to be true, it is probably a sham. But that line of self-defense is often breached, for even the sophisticated—think of Bernard Madoff’s victims—can be seduced by artful wiles.

The thought that fraud is outside the libertarian tradition is risible. It is well known that the use of fraud allows the fraudster to overstate the value of some things and understate the value of others. Huge bodies of the law deal with fraudulent misrepresentations, concealment, and nondisclosure. Still other branches of the law include defamation and trade libel, which allow individuals redress when fraud about them is addressed to third persons. Indifference to fraud is one charge that cannot be made against any strand libertarian thought.
There is no legal duty to rescue a stranger in need.

The same can be said of his charge that capitalism will self-destruct because of its inattention to those externalities related to the environment. But again, even the narrow anarcho-libertarian system is concerned with nuisances to both public and private spaces. It routinely allows for injunctions and damages against all forms of pollution that contaminate land, air, and water. That body of environmental law morphs into systems of public control whenever the harms in question become diffuse. In that setting, private lawsuits, which work well in one-on-one disputes between neighbors, break down because the backbreaking administrative costs of having millions of people each sue for small damages are just too high. Indeed, one great strength of libertarian theory is that it lays out a workable account of externalities that then gives guidance in hard cases like fracking. It is not credible to think that pollution represents either a glaring omission or, worse, an enshrined virtue in libertarian theory.

Sachs displays an equal ignorance with respect to the issue of natural monopolies or infrastructure. On this issue, to be sure, there is a gulf between the hard-line libertarian, who thinks that monopoly problems and infrastructure creation can always be overcome by private ingenuity. The classical liberal tradition has long thought that the regulation of natural monopoly and the creation of infrastructure are an essential part of any sound government system. That view is articulated clearly in early English common law, most notably in the 1810 decision in Alnutt v. Inglis, which made it clear that the usual rules on freedom of contract did not apply to parties that had a monopoly position, whether created by natural forces or the operation of the law.
That decision has worked its way into the fabric of American law, starting with the great 1876 case of Munn v. Illinois, so much so that the proper rules on rate regulation were the central challenge to the United States Supreme Court in the years after the Civil War until the onset of the New Deal in 1933. Unfortunately, there is no one best solution for dealing with this problem, because no level of government prodding can produce the outcomes that are generated by competitive markets. But the effort to develop systems to deal with reasonable and nondiscriminatory (or RAND) rates was undertaken by the classical-liberal justices who are held in ill-repute today. It was these justices who also tried to determine, for those industries that could support multiple firms, how the antitrust law should respond to horizontal conspiracies in restraint on trade. On this score, the justices developed a remarkable set of uniform rules that show no hint of class bias.

Finally, the government support for basic scientific knowledge has long been a staple of classical liberal thought. One of the features of libertarian law is the protection supplied by a mature system of patent and copyright laws. In order to be eligible to receive protection, the putative rights holder must prepare an invention worthy of patent protection or a writing worthy of copyright protection. Here again is not the place to deal with the manifold complexities of this area of the law. Its mere mention should be enough to indicate that Sachs has no idea whatsoever of how the libertarian/capitalist tradition seeks to organize the law of intellectual property.

What then could his ultimate motive be in casting aspersions on libertarian thought? I do not think that it rests with any of the matters that he lists (“Compassion, justice, civic responsibility, honesty, decency, humility, respect, and even survival of the poor, weak, and vulnerable”). He chose those because all readers, in their bones, know that a credible case can be made that government must respond to problems like taxation, pollution, infrastructure formation, and monopoly power.

But there are many other reforms that Sachs might well support that do not fall within these categories and may easily be brought along in the undertow. For instance, I strongly oppose the decision in the Clayton Act of 1914 to exempt labor unions and farmers from antitrust law. I am equally opposed to the successful efforts of the New Deal that gave rise to the National Labor Relations Act of 1935 and the many Agricultural Adjustment Acts of the 1930s. Under the guise of redressing some inequality of bargaining power, these laws gave direct monopoly protection to unions and farmers to the enormous detriment of everyone else.

Nor do I have a kind word for the extensive efforts of modern environmentalists and urban experts to extend the notion of externality so far that virtually every gainful activity can be enjoined without compensation. And clearly there is much to be said against the vast expansion of entitlements through Social Security, Medicare, and Medicaid, which pose the greatest threat to the long-term stability of the United States. There are enormous transitional problems in cutting back or undoing these programs, which require a full and frank debate.

Yet by the same token, it is imperative to understand that the defenders of these programs do not get their campaign off the ground by using grotesque mischaracterizations of libertarianism and capitalism to make their case. These two great systems of thought should be acquitted of all the charges that Jeffrey Sachs makes against them. We have here one of those sad situations in which Sachs’s weak and misconceived attack says more about the intellectual poverty of the author than of the systems that he hopes to undermine with a few deft strokes.

Richard A. Epstein, the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, is the Laurence A. Tisch Professor of Law, New York University Law School, and a senior lecturer at the University of Chicago.

1 comment:

Anonymous said...

Libertarian = small Govt. In the US the concept of small govt is protected by their constitution. Paul is thus able to campaign credibly as a champion of the American way of life - as a constitutionalist.

Awareness of the failure of big govt is growing, particularly with the young as reflected by Paul's support base.

If Paul can get enough support to explicitly influence republican policy towards limited govt as the most moral as well as viable govt form then the whole world will take notice.

US foreign policy is handicapped by a lack of coherent philosophy. In other words US democracy is rightly seen as another form of big govt.

I therefore disagree with Richard's concern over what he regards as Ron Paul's dangerous isolation.

If the US gets its house in order they will set the world an example that can not be denied.

Yes there are tyrants in the world. The UN and the EU are corrupt and seek world govt but the US has such a major military advantage they can stand defiant. Closing bases and stopping the wasteful foreign aid would be a good thing for the US and ultimately for us.