maxjmartin.com

The Machinery of Freedom

Book notes for "The Machinery of Freedom" by David Friedman

Review

A brilliant book, thought provoking on every page.

The text is mostly free of straw-men. Friedman himself raises and attempts to answer the arguments against each of his points. He also points out where he feels there can be no definitive argument (in the case of morality for example) in which case he is just discussing his own personal preference.

Instead of starting from natural-rights arguments like some libertarians, Friedman looks at the removal of government from a more utilitarian point of view (he himself is not a utilitarian it seems, but his arguments will work for most flavors of morality). Libery is used as a heuristic, but backed by utilitarianism (see my note here):

I tried to show that the institutions of anarcho-capitalism would tend to generate libertarian laws. A key step in that argument was my claim that the value to individuals of being able to run their own lives is typically greater than the value to anyone else of being able to control them—or in other words, that increases in liberty tend to increase total utility.

Reading this book it also struck me how we seem to be slowly drifting toward a more decentralized, anarcho-capitalist world via technology. Public transport eroded by Uber, government money by bitcoin. Companies such as uber, deliveroo and airbnb evading existing regulation, etc.

A central argument is that government failure is worse and more certain than market failure.

On the political market individual actors—voters, politicians, lobbyists, judges, policemen—almost never bear much of the cost of their actions or receive much of the benefit. Hence market failure, the exception on the private market, is the rule on the political market. Which suggests that the existence of market failure is, on net, an argument against government, not for it.

I agree with removing government where it is not fixing a clear issue, and attempting to improve the incentives of the current system (futarchy, small subset of population chosen to vote, etc.). 
The same arguments also point us toward smaller governments where possible. Independent charter cities under the protection of the nation state maybe? The nation state would provide an army, immigration policy, and coordination of shared laws (such as carbon tax, rules of the road, etc. where universality is more important than freedom). The cities would have their own system of law, contract enforcement, etc. This should make the results of voting much more direct, and allow people to exit or change their current city if they are unhappy with it, leading to people living in communities that are much closer to their own optimum. We would see issues such as migration to cities with high wellfare payments, but those cities could implement policies to restrict those payments to residents etc.

I am still not entirely convinced that anarchy would be better than a minimal government. People consistently act against their own interests, there are many market failures that are only efficiently handled by a government of some type (pollution, armed forces, charity/redistribution). Friedman does answer these criticisms in the book, it may be that I am underestimating how badly government currently performs.

since the poor are, as a rule, politically weak, they are at least as likely to be the victims of governmental income transfers as they are to be the beneficiaries. [...] The second is that the struggle among groups trying to make themselves beneficiaries rather than victims is likely to be an expensive one, making practically all of us, rich and poor, worse off in a society that permits such redistribution than in one that does not.

While I concede the second point, the first point seems to be empirically wrong. In the UK, if we stopped all redistribution, it they would be vastly worse off.
I understand the argument is that we need to take into account all the redistribution, including redistribution to special interests, like regulation causing higher prices, corporate welfare and other random cases of rent seeking (and not just the obvious things like tax credits, benefits, health care, etc). I am still unsure, and would need to look at data to convince myself either way.

One of the most interesting arguments was the idea that in a free society, peoples values will be reflected by the choices they make in the market, that they are best placed to maximize their own utility function, and that this is an excellent way of handling the fact that each person has different values. In aggregate this might not result in the higest possible utility, but it is probably better than we could manage if we tried to do it by making changes top-down.

Even if we were entirely unable to observe other people's values, that would not necessarily prevent us from constructing a society designed to maximize total utility. Each person knows his own values, so all of us put together know everybody's values. In order to maximize the total utility of the society we would construct rules and institutions that utilized all of that information via some sort of decentralized decision making system, with each person making the decisions that require the particular knowledge he has. This is not, of course, merely an abstract possibility. One of the strongest arguments in favor of letting people interact freely in a market under property rights institutions is that it is the best known way to utilize the decentralized knowledge of the society, including the knowledge that each individual has about his own values.

I also enjoyed the idea of rights emerging via Schelling points

What is added to a state of nature in order to turn it into civil order, to convert the war of each against all into peace, is a network of commitment strategies based on an elaborate set of mutually perceived Schelling points. [...]
What matters is that each person is committed to bearing substantial costs to maintain his commitment strategy, that people for the most part correctly perceive each others’ commitment strategies, and that those strategies are for the most part consistent, that I am not committed to getting from you something you are committed to not giving me.


TOC

(this excludes some new chapters added in the 2014 edition)

Part I: IN DEFENSE OF PROPERTY
Poem: A Saint Said
1. In Defense of Property
2. A Necessary Digression
3. Love Is Not Enough
Interlude
4. Robin Hood Sells Out
5. The Rich Get Richer and the Poor Get Richer
6. Monopoly I: How To Lose Your Shirt
7. Monopoly II: State Monopoly for Fun and Profit
8. Exploitation and Interest
9. I Don't Need Nothing

Part II: LIBERTARIAN GRAB BAG OR HOW TO SELL THE STATE IN SMALL PIECES
Poem: Paranoia
10. Sell the Schools
11. A Radical Critique of American Universities
12. The Impossibility of a University
13. Adam Smith U.
14. Open the Gates
15. Sell the Streets
16. 99and 44/100ths Percent Built
17. A First Step
18. Counterattack
19. Might Have Been
20. Is William F Buckley a Contagious Disease?
21. Its My Life
22. The Rights of Youth
23. Creeping Capitalism
24. If You Want It, Buy It
25. Scarce Means Finite
26. Pollution
27. Buckshot for a Socialist Friend

Part III: ANARCHY IS NOT CHAOS
Poem: Anarchy is not Chaos
28. What is Anarchy? What is Government?
29. Police, Courts, and Laws--on theMarket
30. The Stability Problem
31.. Is Anarcho-Capitalism Libertarian?
32. And, As a Free Bonus
33. Socialism, Limited Government, Anarchy, and Bikinis
34. National Defense: The Hard Problem
35. In Which Prediction is Reduced to Speculation
36. Why Anarchy?
37. Revolution ls the Hell of It
38. Economics of Theft, or the Nonexistence of the Ruling Class
39. The Right Sideof the Public Good Trap
40. How to Get There from Here
Postscript for Perfectionists

Part IV: FOR LIBERTARIANS--AN EXPANDED POSTSCRIPT
Poem: Second Edition
41: Problems
42: Where I Stand
43: Answers: The Economic Analysis of Law
44. Private Law Enforcement, Medieval Iceland, and Libertarianism
45. Is There a Libertarian Foreign Policy?
46. The Market for Money
47. Anarchist Politics:Concerning the Libertarian Party.
48. G. K. Chesterton--An Author Review

Highlights
Page: 29
It is thus argued that government must intervene to prevent the formation of monopolies or, once formed, to control them. This is the usual justification for antitrust laws and such regulatory agencies as the Interstate Commerce Commission and the Civil Aeronautics Board.
Page: 29
His conclusion is that the degree of concentration in the economy has been relatively stable. It always appears to be increasing, because highly concentrated industries are much more visible than more competitive ones. We are all aware that, sometime between 1920 and the present, General Motors acquired a commanding position in the automobile industry. Few of us realize that during the same period U.S. Steel lost its dominance in the steel industry.
Page: 30
In most economic activities, the efficiency of a firm increases with size up to some optimum size and then decreases. The increasing efficiency reflects the advantages of mass production. These advantages generally occur only up to some definite level of size. One steel mill is far more efficient than a backyard blast furnace but making an existing mill still larger brings no added advantage—that is why steel mills are the size they are—and two steel mills are no more efficient than one.
Page: 30
The men at the top get further and further removed from what is actually going on at the bottom and are therefore more likely to make costly mistakes. So efficiency tends to decrease with increasing size once firms have passed the point where they can take full advantage of mass production.
Page: 30
A natural monopoly exists when the optimum size for a firm in some area of production is so large that there is room for only one such firm on the market.
Page: 31
The natural monopoly wins in the sense of producing goods for less, thus making a larger profit on each item sold. It can make money selling goods at a price at which other firms lose money and thus retain the whole market. But it retains the market only so long as its price stays low enough that other firms cannot make a profit. This is what is called potential competition.
Page: 31
The power of a natural monopoly is also limited by indirect competition. Even if steel production were a natural monopoly and even if the monopoly firm were enormously more efficient than potential competitors, its prices would be limited by the existence of substitutes for steel. As it drove prices higher and higher, people would use more aluminum, plastic, and wood for construction. Similarly a railroad, even if it is a monopoly, faces competition from canal barges, trucks, and airplanes.
Page: 37
In the United States in this century the predominant form of monopoly has not been natural monopoly, artificial monopoly, or direct state monopoly, but state monopoly in private hands. Private firms, unable to establish monopolies or cartels because they had no way of keeping out competitors, turned to the government.
Page: 39
Does this mean that half the money spent on airline fares went to monopoly profits for the airlines? No. The effects of regulation are far more wasteful than a simple transfer. If the fare between two cities is a hundred dollars and the cost to the airline of flying a passenger is fifty, each additional passenger is worth a fifty dollar profit to the airline. Each airline is willing to bear additional costs, up to fifty dollars per passenger, to lure passengers away from its competitors. Without the CAB airlines would compete on price until the fare fell to fifty dollars, thus wiping out the extra profit. With the CAB setting fares, they get the same effect by competing in less useful ways. They may spend money on advertising or fancy meals and fancier stewardesses. They may fly half-empty planes in order to offer the passengers more flights a day.
Page: 41
But it is in the interest of physicians to keep down the number of physicians for exactly the same reason that it is in the interest of plumbers to keep down the number of plumbers; the law of supply and demand drives up wages.
Page: 42
A politician who can regulate an industry gets much more by helping the industry, whose members know and care about the effects of the regulation, than by helping the mass of consumers, who do not know they are being hurt and who would not know if they were being protected.
Page: 46
The same error is one reason many people consider inheritance unjust. They assume that if a father earns money and leaves it to his son, who lives off the interest, the son is really living at the expense of the people around him. [...] It is his father who pays for it. If the son were literally living on food produced and stored by his father this would be obvious, and few would object.
Page: 46
To the true egalitarian, who regards equality as itself a paramount end, this is no defense. Inheritance is unequal, thus unjust. His is a view with which I have no sympathy. I see no reason better than greed for claiming that I deserve a share of someone else's wealth, which I have had no part in producing, when he dies. I see no reason nobler than jealousy for objecting to another man's good fortune in being left an unearned inheritance.
Page: 47
The person who says, as almost everyone does say, that human life is of infinite value, not to be measured in mere material terms, is talking palpable, if popular, nonsense. If he believed that of his own life, he would never cross the street save to visit his doctor or to earn money for things necessary to physical survival. He would eat the cheapest, most nutritious food he could find and live in one small room, saving his income for frequent visits to the best possible doctors.
Page: 48
Does that mean that we should satisfy our need for medical care by having everyone in the country become a doctor save those absolutely needed for the production of food and shelter? Obviously not. Such a society would be no more attractive than the life of the man who really regarded his life as infinitely valuable.
Page: 48
The error is in the idea that improved health is worth having at any price, however large, for any improvement in health, however small. There is some point at which the cost in time and money of more medical care is greater than the resulting increase in health justifies. Where that point occurs depends on the subjective value to the person concerned of good health, on the one hand, and the other things he could buy with the money or do with the time, on the other. If medical care is sold on the market, like other goods and services, individuals will consume it up to that point and spend the rest of their money on other things. Through Medicare, government makes the decision; it forces the individual to buy a certain amount of medical care whether he thinks it is worth the price or not.
> Ideally yes, although people do act against their own interests all the time
Page: 49
A program such as Medicare may also transfer money from one person to another; such an effect is often cited by those who claim that such programs make it possible for the poor to get good medical care that they could not otherwise afford. If so, the transfer should be evaluated separately from the specifically medical part of the program. If transferring money from the rich to the poor is good, it can be done without any program of compulsory medical insurance; if compulsory medical insurance is good, it can be done without any transfer. There is no sense in using the transfer to defend the insurance.
> yes!
Page: 50
If people who have more money wish to donate it to providing medical care to the poor, that is admirable. If they wish to donate the money of the poor, it is not.
Page: 53
The public school is a monopoly by virtue of the money it receives from state and local governments. In order to compete with it, an unsubsidized private school must be, not merely better, but so much better that its customers are willing to forgo their share of that money.
> hence support for voucher programs by many libertarians
Page: 53
The value of the voucher would be the state's per capita expenditure on schooling. Public school systems would have to support themselves on the money brought, in the form of vouchers, by their pupils. Private and parochial schools could, if they chose, supplement the vouchers with additional tuition, charitable donations, or church monies.
Page: 63
In a free-market university, on the other hand, the present corporate structure would be replaced by a number of separate organizations, cooperating in their mutual interest through the normal processes of the marketplace. These presumably would include businesses renting out the use of classrooms and teachers each paying for the use of a classroom and charging the students who wished to take his course whatever price was mutually agreeable. The system would be ultimately supported by the students, each choosing his courses according to what he wanted to study, the reputation of the teacher, and his price.
Page: 64
Under the sort of market system I have described, a majority of students, even a large majority, can have only a positive, not a negative, effect on what is taught. They can guarantee that something will be taught but not that something will not be.
Page: 67
Give me your tired, your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore, Send these, the homeless, tempest- tossed to me; I lift my lamp beside the golden door.   VERSE ENGRAVED ON THE BASE OF THE STATUE OF LIBERTY
Page: 67
In my opinion, the restriction on immigration is a mistake: we should abolish it tomorrow and reopen the most successful attack on poverty the world has ever seen.
Page: 67
I therefore include in my proposal the condition that new immigrants should face a fifteen year residency requirement before they become eligible for welfare. I also suggest that the federal and state minimum wage laws be altered so as not to cover new immigrants, or, better yet, be repealed.
Page: 68
As long as the immigrants pay for what they use, they do not make the rest of the society poorer. If increased population makes the country more crowded, it does so only because the immigrants produce wealth which is worth more to the owners of land than the land is worth and the immigrants are able to use that wealth to buy the land. The same applies to whatever the immigrants get on the free market; in order to appropriate existing resources for their own uses, the immigrants must buy them with new goods of at least equal value.
Page: 70
If the roads were privately run, it would pay their owners to encourage off-hour traffic by charging a low price and to discourage people from driving at rush hour by charging them the full cost of their trip.
> could also do this on public roads, uber do something similar as well (surge)
Page: 71
The cost of rush hour driving could also be avoided in other ways. Commuters could use cheaper forms of transport— bus, train or carpool. They could move back to the city or their businesses could move out to the suburbs. In any case, they would be responding to the real cost of their actions, something they are not now forced to do.
Page: 72
Any of these improvements could, in principle, be made by the socialist institutions now running our highways. None, so far as I know, has been.
> incentives not strong
Page: 72
[This chapter was first written in 1969; since then some of the approaches described have been adopted by public highways here and abroad. A two thousand dollar savings in 1969 dollars comes to about thirteen thousand 2014 dollars.]
Page: 73
A commuter heading into town with an empty car would stop at the first jitney stop he came to and pick up any passengers going his way. He would proceed along his normal route, dropping off passengers when he passed their stops. Each passenger would pay a fee, according to an existing schedule listing the price between any pair of stops.
[...]
There are two difficulties with jitney transit. The first is safety; the average driver is not eager to pick up strangers. This might be solved by technology. The firm setting up the jitney stops could issue magnetically coded identification cards to both drivers and potential passengers; in order to get such a card, the applicant would have to identify himself to the satisfaction of the company. Each stop would have a card-reading machine with one slot for the driver and one for the passenger. As each inserted a valid card, a light visible to the other would go on.
> This is basically uber/lyft!
Page: 88
But there is no way to play safe. If a useful new drug is kept off the market, people who might be saved if the drug were available will die. Caution kills. Whom it kills may not be obvious; often the new drug is only an improvement on an old one, an improvement which might raise a cure rate from 80 percent to 85 percent. Which men and women and children make up the 5 percent killed by caution no one can ever know; their deaths are statistics, not headlines. A statistical corpse is just as real as a thalidomide baby on the front page; it is just less visible.
Page: 88
My own conclusion, that drug companies should be free to sell, and their customers to buy, anything, subject to liability for damages caused by misrepresentation, must seem monstrous to many people. Certainly it means accepting the near certainty of a few people a year dying from unexpected side effects of new drugs. I believe the cost of our present policy, although less visible, is even higher. How high I cannot tell.
Page: 89
[The argument of this chapter received striking support in 1981 when the FDA published a press release confessing to mass murder. That was not, of course, the way in which the release was worded; it was simply an announcement that the FDA had approved the use of timolol, a ß-blocker, to prevent recurrences of heart attacks. At the time timolol was approved, ß-blockers had been widely used outside the U.S. for over ten years. The FDA estimated that the use of timolol would save from seven thousand to ten thousand lives a year in the U.S. If so, its failure to approve the use of ß-blockers before l981 was responsible for something close to a hundred thousand unnecessary deaths.]
Page: 98
The problem of plenty is not a new one for capitalism. It has dealt with that problem by providing more and better ways to use larger and larger incomes—so successfully that Abbie Hoffman hardly realizes how rich we already are by the standards of previous centuries. Capitalism will continue to deal with the problem of plenty in the same way. It's only fair: capitalism created the problem.
Page: 103
An externality is an effect of my actions which benefits or harms someone whom I cannot charge for the benefit or need not recompense for the loss.
Page: 103
Externalities play an enormously greater role in institutions controlled by voting. If I invest time and energy in discovering which candidate will make the best President, the benefit of that investment, if any, is spread evenly among 200 million people. That is an externality of 99.9999995 percent. Unless it is obvious how I should vote, it is not worth the time and trouble to be a well informed voter except on issues where I get a disproportionately large fraction of the benefit. Situations, in other words, where I am part of a special interest.
Page: 103
the chance that my vote or any pressure I might try to bring to bear on my congressmen or the President would alter the situation is one in millions. And if I am successful, all I get is a saving of a hundred dollars or so a year in lower air fares. It isn't worth it. For the airline industry the same research, backed by enormously larger resources in votes and money, brings a return of many millions of dollars. For them it is worth it. It is not that they are richer than all airline passengers combined; they are not. But they are concentrated and we are dispersed.
Page: 107
Before I proceed with my argument, I must define what I mean by ‘government’. A government is an agency of legitimized coercion. I define coercion, for the purposes of this definition, as the violation of what people in a particular society believe to be the rights of individuals with respect to other individuals.
Page: 112
In such an anarchist society, who would make the laws? On what basis would the private arbitrator decide what acts were criminal and what their punishments should be? The answer is that systems of law would be produced for profit on the open market, just as books and bras are produced today. There could be competition among different brands of law just as there is competition among different brands of cars. In such a society there might be many courts and even many legal systems. Each pair of protection agencies agree in advance on which court they will use in case of conflict. Thus the laws under which a particular case is decided are determined implicitly by advance agreement between the agencies whose customers are involved. In principle, there could be a different court and a different set of laws for every pair of agencies. In practice, many agencies would probably find it convenient to patronize the same courts, and many courts might find it convenient to adopt identical, or nearly identical, systems of law in order to simplify matters for their customers.
Page: 119
A brief answer is that people act according to what they perceive as right, proper, and practical. The restraints which prevent a military coup are essentially restraints interior to the men with guns.
Page: 122
This is not an isolated instance of the miscarriage of justice; it is the inevitable result of a system under which the government has certain special rights above and beyond the rights of ordinary individuals—among them the right not to be held responsible for its mistakes. When these rights are taken away, when the agent of government is reduced to the status of a private citizen and has the same rights and responsibilities as his neighbors, what remains is no longer a government.
Page: 123
The legality of heroin will be determined not by how many are for or against but by how high a cost each side is willing to bear in order to get its way. People who want to control other people's lives are rarely eager to pay for the privilege; they usually expect to be paid for the services they provide for their victims. And those on the receiving end, whether of laws against drugs, laws against pornography, or laws against sex, get a lot more pain out of the oppression than their oppressors get pleasure. They are willing to pay a much higher price to be left alone than anyone is willing to pay to push them around. For that reason the laws of an anarcho-capitalist society should be heavily biased toward freedom.
> because it forces each person to bear the cost themselves, rather than simply imposing it on others for 'free' by voting
Page: 125
Where the majority and minority, or minorities, are geographically separate, the majority is mainly concerned with having the laws it wants for itself. It is only our political system that imposes those laws on the minority as well.
Page: 128
Not only does a consumer have better information than a voter, it is of more use to him. If I investigate alternative brands of cars or protection, decide which is best for me, and buy it, I get it. If I investigate alternative politicians and vote accordingly, I get what the majority votes for. The chance that my vote will be the deciding factor is negligible. Imagine buying cars the way we buy governments. Ten thousand people would get together and agree to vote, each for the car he preferred. Whichever car won, each of the ten thousand would have to buy it. It would not pay any of us to make any serious effort to find out which car was best, since whatever I decide, my car is being picked for me by the other members of the group. Under such institutions, the quality of cars would quickly decline.
> rational ignorance. Not worth spending much research time since the effect of a vote is very small.
Page: 129
Most varieties of socialism implicitly assume unanimous agreement on goals. Everyone works for the glory of the nation, the common good or whatever, and everyone agrees, at least in some general sense, on what that goal means. The economic problem, traditionally defined as the problem of allocating limited resources to diverse ends, does not exist; economics is reduced to the engineering problem of how best to use the available resources to achieve the common end. The organization of a capitalist society implicitly assumes that different people have different ends and that the institutions of the society must allow for that difference.
Page: 129
There is a difference between what institutions allow and what they require. If in a capitalist society everyone is convinced of the desirability of one common goal, there is nothing in the structure of capitalist institutions to prevent them from cooperating to attain it. Capitalism allows for a conflict of ends; it does not require it.
Page: 130
Limited government, they say, can guarantee uniform justice based on objective principles. Under anarcho-capitalism, the law varies from place to place and person to person according to the irrational desires and beliefs of the different customers that different protection and arbitration agencies must serve.
> Or very small governments such as charter cities?
Page: 131
A public good is an economic good which, by its nature, cannot be provided separately to each individual but must be provided, or not provided, to all members of a pre-existing group. A simple example is the control of a river whose flooding injures the land of many farmers in the valley below.
> ie, the fishermen in the lake example, free-rider problems
Page: 134
Can this public good be financed by some variant of one of the noncoercive methods I have discussed? It is not obvious how. The size of the public is so enormous that a unanimous contract is virtually impossible, especially since one secret supporter of a foreign power could prevent the whole deal. Buying up most of the land affected by national defense might be less difficult than negotiating a unanimous contract among 200 million people, but hardly easy, since the land must be purchased before sellers realize what is going on and increase their price. Raising enough money to buy the United States would be a hard project to keep secret. In addition, the transaction costs would be substantial—about $100 billion in realtor commissions for all the fixed property in the United States.
Page: 142
the internal dynamic of limited governments is something with which we, to our sorrow, have a good deal of practical experience. It took about 150 years, starting with a Bill of Rights that reserved to the states and the people all powers not explicitly delegated to the federal government, to produce a Supreme Court willing to rule that growing corn to feed to your own hogs is interstate commerce and can therefore be regulated by Congress.
Page: 145
They are afraid of theft, murder, and rape, riot and arson. The greater these fears, the greater the degree of government tyranny which people will tolerate, even support. Civil disorder leads to more government, not less. It may topple one government but it creates a situation in which people desire another and stronger. Hitler's regime followed the chaos of the Weimar years. Russian communism is a second example, a lesson for which the anarchists of Kronstadt paid dear. Napoleon is a third. Yet many radicals, and some anarchists, talk and act as though civil disruption were the road to freedom.
Page: 149
As with private theft, the wealth taken is mostly a net loss, not a transfer. If a million dollars of the taxpayers' money is being handed out, the people competing for it are willing to, and will, spend most of a million dollars to get it, just as a private thief will put in twenty dollars worth of labor to steal twenty-five dollars worth of loot. In addition, as with private theft, more resources are consumed by the cost of protection against government: tax lawyers, inefficient allocation of labor and capital in planning enterprises to minimize tax costs instead of to maximize real production, and so on. In the long run, society is probably poorer by more than the total amount stolen.
Page: 153
Any attempt to improve the society as a whole is caught in the same public good trap. Anything I do to make America freer will benefit everyone; the small part of that benefit going to me is rarely sufficient to justify my doing very much. This is an especially bitter dilemma for those libertarians who are Objectivists. Improving the world mainly for the benefit of other people would be altruism, which they view on philosophical grounds as the ultimate evil.
> Hah
Page: 154
The producer of a public good can get only a part of the value of producing that good. Therefore a public good is produced only if it is worth much more than it costs. The producer of a private good gets virtually all the value (by selling it for what it is worth, usually) and so produces it whenever it is worth more than it costs. Thus public goods are underproduced relative to private goods. Under the institutions of government, bad laws, laws that benefit special interests at the expense of the rest of us, are private goods (more precisely, they are more nearly private goods than are good laws), and good laws, laws that benefit everyone, are public goods. Under an anarchy good laws are private goods and bad laws are public goods. Public goods are underproduced.
Page: 164
Here again, the problem is that an absolute right to control one's property proves too much. Carbon dioxide is a pollutant. It is also an end product of human metabolism. If I have no right to impose a single molecule of pollution on anyone else's property, then I must get the permission of all my neighbors to breathe. Unless I promise not to exhale. The obvious response is that only significant violations of my property rights count. But who decides what is significant? If I have an absolute property right, I am the one who decides what violations of my property matter. If someone is allowed to violate my property with impunity as long as he does no significant damage, we are back to judging legal rules by their consequences.
Page: 166
Later libertarian theorists have suggested other grounds for establishing ownership in land such as claiming it or marking its boundaries. But no one, so far as I know, has presented any convincing reason why, if land starts out belonging equally to everyone, I somehow lose my right to walk on it as a result of your loudly announcing that it is yours.
Page: 167
criminal trial rarely if ever produces a certainty of guilt. If you jail or fine someone after concluding that there is a 98 percent chance that he has committed a crime, there remains a two percent chance that you are violating the rights of someone who is innocent. Does that mean that you can never punish anyone unless you are a hundred percent certain he is guilty? If not, how in principle do libertarian moral principles tell you what degree of proof should be necessary for conviction and punishment?
Page: 172
My purpose is not to argue that we should stop being libertarians. My purpose is to argue that libertarianism is not a collection of straightforward and unambiguous arguments establishing with certainty a set of unquestionable propositions. It is rather the attempt to apply certain economic and ethical insights to a very complicated world.
> utilitarian libertarianism
Page: 174
Through most of this book I have used consequentialist arguments to justify libertarian conclusions. By doing so I provided evidence that the potential conflicts between the two approaches which I discussed in the previous chapter are the exception rather than the rule.
Page: 174
In Chapter 31 I tried to show that the institutions of anarcho-capitalism would tend to generate libertarian laws. A key step in that argument was my claim that the value to individuals of being able to run their own lives is typically greater than the value to anyone else of being able to control them—or in other words, that increases in liberty tend to increase total utility.
Page: 174
Libertarian principles are then valued only as a means, a set of rules that frequently lead to increases in total utility and should be rejected when they do not.
> yes! liberty as heuristic
Page: 175
Even if we were entirely unable to observe other people's values, that would not necessarily prevent us from constructing a society designed to maximize total utility. Each person knows his own values, so all of us put together know everybody's values. In order to maximize the total utility of the society we would construct rules and institutions that utilized all of that information via some sort of decentralized decision making system, with each person making the decisions that require the particular knowledge he has. This is not, of course, merely an abstract possibility. One of the strongest arguments in favor of letting people interact freely in a market under property rights institutions is that it is the best known way to utilize the decentralized knowledge of the society, including the knowledge that each individual has about his own values.
> yes!

Page: 176
Feeling is running high. If no murderer is produced, three or four innocent suspects will get lynched. There is an alternative. You can manufacture evidence to frame someone. Once he has been convicted and hung, the problem will be gone. Should you do it? On utilitarian grounds, it seems clear that the answer is yes. You are killing one innocent person but saving several, and you have no reason to believe that the one you kill values life any more than the ones you save. You yourself may receive disutility from knowing that you have framed an innocent man, but if it gets bad enough you can always kill yourself, leaving a profit of at least one life's worth of utility. I am not willing to accept the conclusion. In an earlier hypothetical I said that I would steal. In this one, I would not frame. To save a million lives, perhaps, but for a net profit of one or two, no. It follows that I am not a utilitarian.
> This seems like the wrong decision to me, asuming that we were certain that framing one person would definitely save the four. 
Page: 179
One could describe most of this book as a utilitarian approach to libertarianism,
Page: 185
A change that makes a rich man ten dollars worse off and a poor man nine dollars better off is an economic worsening, but it may well increase the amount of happiness in the world. The same is true for a change that harms a large group of rich people by a total of ten million dollars and benefits a large group of poor people by a total of nine million. The obvious conclusion, and one that many utilitarians have drawn, is that income redistribution is a good thing. Taxing the rich and giving the money to the poor may be an economic worsening, due to collection costs and disincentives, and yet a utilitarian improvement. My reasons for disagreeing with that conclusion are two. The first is that since the poor are, as a rule, politically weak, they are at least as likely to be the victims of governmental income transfers as they are to be the beneficiaries. That is the point that I made in Chapter 4. The second is that the struggle among groups trying to make themselves beneficiaries rather than victims is likely to be an expensive one, making practically all of us, rich and poor, worse off in a society that permits such redistribution than in one that does not. That is the point that I made in Chapter 38. Those two chapters were a utilitarian attack on one of the chief doctrines that divides utilitarians from libertarians.
> I am still unsure, empirically, this does not seem to be the case.
Page: 187
So far, I have treated the probability of catching a thief as if it were simply a fact of nature. It is not. By hiring more policemen or offering higher rewards we can increase the probability that thieves will be caught. In setting up a system of legal rules, one of the decisions to be made is whether to catch half the thieves and fine each of them twice what he stole, catch a tenth of the thieves and fine each ten times what he stole, or catch one thief in a thousand and shoot him.
Page: 193
The first step in dealing with such problems is to realize that the problem is not simply one person injuring another; if it were, we could prohibit the injury or charge damages. It is rather a case of two people engaged in inconsistent activities. My candy factory would be no problem if you had built your consulting room somewhere else on your lot; your building your consulting room where you did would be no problem if I were not running a candy factory.
Page: 193
The second step is to realize that in many cases it does not much matter how the initial bundles of rights are defined, at least from the standpoint of economic efficiency. If a right is valuable to two people and belongs to the one who values it less, his neighbor can always offer to buy it from him. If you have the right to order me to shut down my candy factory I can offer instead to pay the cost of tearing down your consulting room and rebuilding it on the other side of the lot. If the right is more valuable to me than to you, I should be able to make some offer that you will accept. This insight leads us to the Coase Theorem,
Page: 194
The Coase Theorem states that any initial definition of property rights will lead to an efficient outcome, provided that transaction costs are zero.
Page: 199
At each Allthing the lawspeaker recited a third of the law. If he omitted something and nobody objected, that part of the law was out. Think of it as an early form of sunset legislation.
Page: 215
The fundamental problem with government money is not that government cannot provide stable money but that it is not always in its interest to do so. Inflation via the printing press is a way in which the government can spend money without collecting taxes.
Page: 238
For a solution to that problem borrowed from Periclean Athens, whose legal system I like to describe as the invention of a mad economist, you will have to read my next book.
Page: 252
What is added to a state of nature in order to turn it into civil order, to convert the war of each against all into peace, is a network of commitment strategies based on an elaborate set of mutually perceived Schelling points.
Page: 252
 What matters is that each person is committed to bearing substantial costs to maintain his commitment strategy, that people for the most part correctly perceive each others’ commitment strategies, and that those strategies are for the most part consistent, that I am not committed to getting from you something you are committed to not giving me.
Page: 254
The fact that I have a right not to be killed means neither that killing me is wicked nor that it is illegal, only that it will usually not be in other people’s interest to do it. That particular right is enforced by the commitment strategies of other people—in the Icelandic society described in Chapter 44, the commitment of my kin to use violent force against anyone who kills me and refuses to pay them the wergeld that the court awards. More generally, my rights are whatever I am successfully committed to defend, where success depends in part on other people recognizing my commitment and having no commitment of their own that directly clashes with it.
Page: 254
This way of looking at individual behavior also explains some of the behavior of governments. Argentina’s invasion of the Falkland islands triggered a British commitment strategy: Respond with force to anyone seizing British territory.
Page: 254
it would have been a great deal cheaper to transport all of the inhabitants to England and give each of them enough money to support him for the rest of his life. But it made a great deal of sense given that ‘defend our boundaries’ was a Schelling point and ‘defend our boundaries except when Argentina invades the Falklands’ was not.
Page: 257
A market failure is a situation where individual rationality does not lead to group rationality. If each individual makes the right decision, the group make the wrong decision. In the extreme case, every individual ends up worse off than if each of them had made a different decision.
> moloch
Page: 260
Rationality looks like a convincing argument in favor of institutions in which individuals are free to make their own choices, yet most economists are not anarchists or even libertarians. One reason they are not is that, even if each individual correctly acts in his own interest, the result may be worse than if each was compelled to do something else. For economists, that is the standard justification for many, perhaps all, government actions. Public goods are underproduced, so tax people to pay to produce them—not only national defense, as discussed back in Chapter 34, but scientific research as well. Negative externalities are overproduced, so regulate pollution, tax the production of carbon dioxide to reduce global warming. Positive externalities are underproduced, so subsidize education.
Page: 261
On the political market individual actors—voters, politicians, lobbyists, judges, policemen—almost never bear much of the cost of their actions or receive much of the benefit. Hence market failure, the exception on the private market, is the rule on the political market. Which suggests that the existence of market failure is, on net, an argument against government, not for it.
Page: 278
While I, like everyone else, hold views about right and wrong, I do not believe I have any way of showing that those views are correct. I can try to tease out the structure of my beliefs by introspection. I can attempt to construct an internally consistent account of them, and similarly for what I can deduce about other people’s beliefs. But since I cannot show that my beliefs are true, arguments based on them strike me as less useful for persuading reasonable people of my political conclusions than arguments that use economics to deduce the consequences of the institutions I favor and try to show that those consequences are desirable in terms not only of my values but of the values of those I wish to persuade.
Page: 292
Evolutionary biologists call their version the hawk/dove game. Hawks and doves in their model are two variants of the same bird, differing only in how they behave; when two birds go after the same bit of food, doves back down and hawks don’t. In equilibrium, produced this time by Darwinian evolution, there are just enough hawks so that the gain to a hawk from hawk/dove encounters balances, on average, the loss from hawk/hawk encounters.
Page: 295
One disadvantage to being a bully is that people choose not to associate with you. If, when you apply for a job, you inform the employer that if he does not treat you as you think you should be treated you will beat him up, you are unlikely to be hired. It follows that the payoff to being a bully will be much lower in a society where most relations are voluntary than in one where most are not. The implication of this argument is that a market society will have nicer people than either a traditional or a centrally planned society. Virtues will have a higher payoff, so more people will be honest. Vices will have a lower payoff, so fewer will be bullies.
Page: 298
The view that I eventually came to as a result of losing my argument with Berlin is what philosophers refer to as intuitionism, the claim that there are facts of moral reality that we perceive via moral intuition just as we perceive the facts of physical reality via our physical senses, and that the evidence for the reality of those facts is the considerable, although not perfect, agreement in how different people perceive them.
Page: 298
moral nihilism. According to that position, nothing is good or bad, virtuous or wicked. Moral beliefs are neither true nor false. The consistency of those beliefs, at the level at which they are consistent, is due not to moral reality but evolutionary biology. Humans have evolved those hardwired moral beliefs whose possession led to reproductive success in the environment in which we evolved, along the general lines of the previous chapter. Since we are all descended from ancestors who evolved under roughly similar circumstances we are all hardwired with about the same beliefs, with the exception of a small minority of defectives,
> surely this is correct..
Page: 313
I like to describe unschooling as throwing books at kids and seeing which ones stick.
Page: 315
Perhaps more important, they did not learn that education was something rather like cod liver oil, good for you but bad tasting, or that reading books is something you do because you are assigned to do it. When my daughter got to college she was shocked to discover that when her favorite class was cancelled for a day, the other students were glad instead of disappointed.
Page: 317
Having my children end up with personalities rather like those of myself and my wife rather than personalities modeled on mass American society strikes me as a plus, not a minus.
Page: 328
Rand's novels upset some people because the heroes are all handsome and the villains nauseating, with names to match. She did it on purpose; she did not believe art should be realistic and wrote The Romantic Manifesto (New York: World Publishing, 1969) to prove it. When someone told her that her work was not in the mainstream of American literature, she is supposed to have replied that "the mainstream of American literature is a stagnant swamp."