The Past and Future of Law Without the State – David D. Friedman, 2017-06-07, Budapest



welcome everyone please welcome professor David D Friedman who is a prime author and the most distinguished speaker and the proponent of social organized differently social organization without the involvement of the state and today he is going to be speaking about one particular aspect namely the production and the enforcement of law in a decentralized and stateless fashion both about the historical aspects and the possibilities of the future this talk has been made possible by individual donations for which I would like to say thanks for everybody who contributed thank you very much and would also like to you to visit and like and join the Hungarian Facebook page for much a philosophy I observe a theory of Liberty the and garyun community for market anarchism so thank you so much and please welcome professor Friedman I'm going to be talking about anarchy and that is a word which means different things to different people so I ought to start by saying what I mean what I mean by Anarchy is a society without government and that then raises the question of what is the government because I am going to be describing societies that do have mechanisms for enforcing rights enforcing contracts settling disputes for doing the sorts of things that we think of is the most fundamental governmental function and then the question is are these governments and figuring out what is or isn't the government is a harder problem that it seems because as far as I can tell there is nothing governments do that is not at some time in some place been done by something not a government we think for example of invading countries as sort of a monopoly of government but if you look at what was happening in England in the years before Alfred the Great when the armies referred to as the Danes were ravaging England as best I can tell those were not national armies they were entrepreneurial projects that a popular war leader would say hey let's go invade England we can get them to pay us off for leaving maybe we can get some land and a bunch of people would join him so it's hard to think of a more fundamental government function and as we will be seeing lots of the government functions have in fact quite commonly been done in other ways so the definition I prefer is to observe that in any society people believe they have rights and the way you can tell they believe they have rights is by how they act when somebody violates them that generally if someone does something I don't want him to do I'm willing to bear some cost to stop him but that cost is based on the value of the issue in the case of rights violation people are willing to bear an unreasonably large cost in order to stop somebody from violating their rights so you can think of rights as a sort of commitment strategy what it is will depend on the society but that what you think are your rights are the things that you're willing to fight pretty hard to defend that doesn't mean you never surrender obviously there are hopeless battles but if you imagine that somebody says give me your money or I'll beat you up and you say to yourself you do a quick sort of cost-benefit calculation and you say well I've got a hundred euros in my pocket I could fight him I'm about as big as he is on average fighting him will give me a cost of about one hundred and fifty euros you still fight him if it was ten thousand you'd give up but so I think that's a way of thinking of rights as a description of human behavior not as a moral category and if you want a more detailed description of that there are many of my articles on my web page one of them is called a positive account of property rights it's called property rights only because it was written for a conference on property rights it's really a positive account of Rights so given that definition of government I then want to talk about societies that successfully had forms of law and law enforcement with no government and I'm going to start with historical ones my project for a number of recent years has been a book on legal systems very different from ours that includes Imperial China Periclean Athens but it also includes modern societies such as the Romani the Roma who have ways of enforcing their own rules on their own people underneath the radar of the government groups like the Amish in the u.s. a variety of other such cases and it also includes historical systems such as Jewish law and Islamic law and lots of others and the draft of that book is up on my web page for comments so you're welcome to look at it and tell me what I've got wrong I don't have anything good on ancient Hungarian law but if you have a good source by all means tell me about it so the system I want to describe historically is what I've started calling feud law and I should tell you that the word feud and the word feudal have no connection they happen to sound similar but they describe different things and they etymologically come from different origins what is feud law the basic logic of it is that if you wronged me I threatened to harm you unless you compensate me so it's a private decentralized form of law enforcement and if you look at feud law systems there are about four conditions they have to meet in order to be workable legal systems and the first one is that my threat to harm you is more believable if you really did wronged me than if you didn't because otherwise just a form of extortion and I think of that requirement as right makes might there's got to be some reason why I can get away or at least have a better chance of getting away with harming you if you really have wronged me according to the views of our society and if you haven't and different societies do it in different ways the most organized feud society I have studied is saga period iceland iceland about a thousand years ago and that was a legal system which had courts it had a legislature it had a law code but it had no executive arm of government so there were no mechanisms by which you could use anything like the state to enforce your verdicts so in that system what happens is that if the court says I'm in the right and that you owe me two hundred ounces of silver as the penalty for something if you don't pay the court declares you an outlaw it is legal to kill an outlaw it is tortious to defend an outlaw so if your friends defend you they will get into legal trouble with anybody who gets hurt in the process so if you try to resist the coalition against you expands and in practice people who get outlawed either they pay off and don't get outlawed or they leave Iceland or they get killed so that was a organized system where it was the court itself that gave you the right makes Mike the fact that the threat to kill somebody was much more believable after you had won the case than before I should say in that system most cases settled out of court it looks like something like ninety percent of all cases were privately settled but the court existed as a threat well if you didn't settle there are other systems the one of the other few systems I've looked at well let me give you the simplest one and this is one which is still around as you may know the Romany alias gypsies shigani various other names for them left India about a thousand years ago and they divided into many different groups in countries and one of the groups which is called the Romagna Chow are the main Romani group in India today India sorry in England today none of them are in India as far as I know that's where they left but they're in England today and there's an interesting book on gypsy law which has a chapter on the Romani jaw and as far as I could tell reading that chapter the present-day Roman arch all have what's really a primitive version of the Icelandic legal system of a thousand years earlier because the way that system works is that if you wronged me I threatened to beat you up unless you compensate me it's a fairly small society the other people around probably know whether you wronged me or didn't if they think that you wronged me then my friends will back me and your friends won't back you if they think I'm just making it up then your friends will back you and my friends won't back me and the result is that if you did wronged me you either pay me off or you leave town so that's a very very simple primitive version of the same system and then there are various other ones in between the Somali the northern Somali and Somaliland basically have traditional mechanisms not for a permanent Court but for setting up an ad-hoc Court when a dispute arises and that has enough respect from other people that again if I try to use violence against the court verdicts I'll have a harder time getting people to go along with me than with the quick verdict so the first requirement is that right makes might the second requirement is that there is some way of getting me to carry out my threat because if you imagine a situation where you have wronged me and I say I will harm you unless you compensate and your reply is come try if you try to beat me up I'll beat you up if you try to kill me I'll kill you so that it's a situation where before the fact I want people to believe that if they wronged me I will go after them but after the fact that may well not pay me to do so and what I need is a commitment strategy and this problem it turns out with volved a very long time ago that people sometimes claim that the institution of property is a creation of government but it isn't true because the institution of property exists existed longer than the human species there are a variety of what it referred to as territorial animals mostly birds and fishes who have a primitive version of property and the way it works is that the animal somehow marks the territory he is claiming and turns a switch in his brain metaphorically speaking such that if another individual of the same species comes onto his property he will fight and he will fight more and more desperately the farther into the territory the trespasser comes unless the trespasser is much stronger than the defender a fight to the death is a loss to both sides because even the winner is likely get injured so if you know that this other bird or fish or whatever it is is committed to defend his territory you will usually back off even if you're stronger than he is so that really as I see it is the primitive version of property it's very primitive they don't have title deeds they can't sell it but nonetheless it does mean they're treating a certain areas belonging to them the human equivalent humans have a much more elaborate version of that in which we defend lots of things in our territory and the human equivalent of that switch of the brain is the emotion we call vengefulness we sometimes think of it as an irrational emotion after the fact it's irrational if somebody harms you and you have to take a chance of getting killed to get revenge that may be unfortunate but the knowledge that you will do that is a reason not to harm you so you can think of the emotion of vengefulness as a sort of a hardwired commitment strategy build into our psyche by evolution which helps make it less likely people will violate our rights there are other mechanisms in human society one obvious one is reputation if somebody steals from me and I don't carry through my threat then other people will know that I'm fair game that I'm a wimp and and they can steal from me and nothing will happen so even if it's risky I've got an incentive to carry out my threats against the person who stole from me or cut wood in my forest or seduced my daughter or did whatever I regard as a wrong in that system and then a third reason is status human beings care quite a lot about their status and nobody wants to be seen as a wimp and if other people push you around and you do nothing you're a wimp so all of these are mechanisms by which one commits oneself but if you think about it we actually need a commitment strategy that lasts past death because otherwise somebody can wronged you by killing you and you're no longer around to get back at them and in fact there are such strategies that in the Icelandic system if you kill me my heirs inherit the claim and my heirs then have three incentives to get you unless you're willing to pay we're dealt to pay the fine for killing one of them is again a feeling of vengefulness presumably my kids don't like my being killed I hope another reason is the fact that they get to collect 200 ounces of silver which is a lot of money and the third reason is again reputation the knowledge that if you kill one of the members of the kin group other people will get you is the good reason not to kill members of the kin group and therefore they have an incentive to establish that reputation the Somali have a very complicated and interesting system which is a different solution to this problem as some other problems in which there are a set of nested coalition's created by a combination of kinship and explicit contract so that you're part of a member of a group and that group is a part of a member of a group and that group is a part of a member of the group and they have various obligation agreed on obligations with regard to rights violations so that if my rights are violated the other members of my group are committed help me either get revenge or collect damages if I violate rights and have to pay damages the other members when I pay part of the damages if damages are paid to me they get part of it and I'm greatly oversimplifying it's a fairly elaborate and interesting system but it's all a flexible and fluid system that sub groups can pull out or go in it really is sort of like a explicit social contract as opposed to the fictional social contracts of the societies we're used to so those are some of the ways in which the commitment problem gets solved in real world societies the third problem is protecting the weak you need some way in which people who don't have access to the direct use of violent force can nonetheless get their rights protected and the I cylinders have my favourite solution to this problem and it's an extremely simple solution and that is that damage claims are transferable indeed marketable so we imagine that I'm an elderly man with one son and someone kills my son and I know that if I try to go to court to sue him to collect damages I'll get beaten up on the way to the court so my neighbor my neighbor is a wealthy farmer with four big sons who had a Viking in their youth and lots of friends and relatives so I transfer my claim for two hundred ounces of silver to him he collects it if it's easy to collect he may give me half the money if it's hard to collect he may keep all the money but either way my the killer of my son has had to either pay damages or get killed and that's a reason not to kill my son so that's sort of a simple and elegant way in which you can get people who don't themselves have resources to have their rights protected because when you violate their rights you are creating a resource namely their claim against you within that system I like to point out that US tort law is a privately prosecuted form of law the forcement is by the government but the actual process of the figure figuring out who damaged your car and suing him and getting damaged payments is done by you or by your lawyer and that it would be a better system in modern day American law if tort claims were marketable because after all if someone damages my car I may not be able to afford a lawyer and if I can't afford a lawyer I probably don't know what lawyer will do a good job but if we only imitated the legal institutions of Iceland a thousand years ago I could just auction off my damage claim whichever law firm offer the highest price would be the one that was going to do the best job of it of of collecting the money and the problem is solved so that's why I like to say that the u.s. legal system is a mere thousand years behind the cutting edge of legal technology all right my third problem that you have to solve in such a system I know I've gotten that that was my third my fourth my fourth problem is terminating feud because one of the problems in this is that people may disagree about whether they violated your rights all right so I claim you wronged me and I therefore threat to harm you threaten to harm you and I want to carry out that threat for my reputation but you believe you didn't wronged me you believe you're innocent of my claim and if you give in and pay me you are now a wimp and that's going to lower your reputation so there's a serious risk of the kind of thing people imagine when they talk about feuds where you have a back-and-forth case and it turns out if you look at real feud societies not to be very common but one reason it's not very common is they generally have mechanisms when it starts to happen to stop it and the most common mechanism is arbitration so if you imagine you're in such a situation you find somebody in your society who is prominent and reasonably powerful and who people have a good opinion of and both sides agree to accept his verdict on the dispute and now if his verdict is that I did wrong you Nou damages I don't look like a wimp for paying them because after all I agreed to have this judge decide the case furthermore if I don't go along with what I agreed to I've now got another enemy the arbitrator who's going to be mad at me so that's a pretty effective way in which you can can terminate feuds so that's sort of a brief summary of what I could tell from looking at a variety I haven't described all of them of systems in which law enforcement was private and decentralized there are lots of other systems that are part way there as I mentioned modern tort law is a privately prosecuted legal system although the final enforcement is by the state Periclean Athens going back a bit famous democracy criminal cases as well as the equivalent of tort cases were privately prosecuted in Athens the incentive to prosecute a criminal case was that usually if you won the prosecutor got part of the fine that was paid by the convicted defendant and that obviously raised a problem which was that you might look for somebody who was rich and unpopular accuse him of something and hoping to get money and the Athenians who are not stupid had a solution to this problem they had very large juries and if the prosecutor failed to get at least 20% of the jury to vote for conviction the prosecutor was fined so I like to describe the legal system of Kerala in Athens as the legal system of a mad economist because it's full of sort of clever ideas that might or might not work but that would be another subject again if you want to know about that you can read the draft of that chapter of my off my web page so so far I've been talking about historical systems let me now go on to talk about what was the subject of my first book which was published about 45 years ago where I tried to sketch out what a modern society would look like in which government was entirely replaced by voluntary mechanisms this is what some people refer to as anarcho-capitalism or market anarchy and I was trying to imagine how that would work see what problems that would raise and see what economic theory could tell me about how it would how it would work out so imagine a society that works as follows each individual is the customer of a private firm that sells the service of protecting your rights and settling your disputes and there are many such firms and you pay them an annual fee just like you pay for auto insurance and then there are the people you call if somebody Rob's you or if you get into some other conflict and there's an obvious problem which everybody observes whenever you suggest this and that's what happens in a conflict between two people who have different rights enforcement agencies so we imagine that this Pleasant gentlemen has the different rights enforcement agency than I do one day my television set is missing the video camera that my rights enforcement agency as part of their service installed in my living room shows him walking out the door with with my television set my rights enforcement agency calls him up and says we understand you have mr. Friedman's television set please return it you owe us $50 for our time in trouble than locating you and he says what are you talking about I got a nice television set a friend of mine gave it to me it's none of your business who he was never heard of mr. Friedman in my life well my agency says we're sorry you take that position but we've got the evidence we're pretty sure that we know that you're guilty so for big strong men are going to show up at your door tomorrow morning to retrieve the television set and he replies well that thank you for telling me that I do have a rights enforcement agency and I'm going to get in touch with them and if four thugs come to my door tomorrow morning there will be six valiant defenders of my rights to deal with them so that sounds like it's setting off a small war between the enforcement agencies but that's not what's actually likely to happen because these are profit-making corporations and war is expensive if it actually happens they'd end up having to pay hazard pay too there employees and furthermore they wouldn't be providing a very good service to their customers because nobody wants to have his front lawn turned into a free-fire zone and you would much rather have a system where your rights are always protected than a system where half the time your rights are protected and a half the time you violate someone else's rights and get away with it so the obvious solution is that the two agencies agree on a private court an arbitrator as in my earlier case to settle it and they agree that if the arbitrator says it's my television set then his agency won't protect him because they're only protecting his rights not protecting his ability to steal things and if it says that it's not my television set then they will pay some damages for having imposed all this trouble through their mistake and if you think about the situation of the firms you can see that they are going to anticipate this situation occurring many times in the future and therefore it makes sense for them to engage in a long term contract in which they agree that any disputes between their members will be settled by a specified private court that they think does a good job of settling them that's the basic system now it may occur to you to say but wait a minute what's this nonsense about a contract there's no government in this system to enforce contracts you don't need a government because one form of contract that is self enforcing is the contract between parties who are repeat players if you think of an agreement between two firms or two individuals who know that they're going to be dealing with each other many times in the future each of them has an incentive to keep the agreement because if they don't the other side won't so if the first time that my agency loses the court case they say tough luck we're going to defend our guy anyway then they know that the next time the same thing will happen in the other direction they're back fighting each other and they're going to lose their customers to some more reasonable seller of the service who's willing to keep his word so I think of the problem of enforcing contracts for repeat players as the any problem which doesn't require enforcement mechanisms and once you've got that you can then as it were leverage that into enforcing contracts in general because now each of us is the customer of a rights enforcement agency and those agencies have agreed that either of them can use force against the others customer if he loses the court case so that's the basic logic of the system the system that I'm that I'm describing now the next question is what determines the law because again we've got no government making law in this system this is an anarchist system and the answer is that the law is being produced by the private courts and then the question is what kind of law are they going to produce and the answer is that they are producing the law to sell on the market and they are therefore you're going to produce the legal rules that the customers who are ultimately the customers or the enforcement agencies want to be under so imagine that there is some change in legal rules for example making tort claims marketable which is an improvement for everybody in that case either the rights enforcement agency once somebody suggests that makes that change or they lose their customers to some other agency that makes that change harder problem is suppose there is a change in the legal rules which one one rights enforcement agency wants and one doesn't it's an Arri rule that one of them their customers favor that rule the other they don't well this is a market situation so each agency does a little bit of market research and white agency says if we get legal rules that allow the death penalty which our customers happen to like they want to be protected if anybody kills them by his getting killed then we would be able to collect $10,000 a year more from our customers because they would value the service bet more if in conflicts with their customers we could guarantee the death penalty how much is it worth to you and the other company does similar research and they conclude that they could collect 20,000 more if they could guarantee not to have the death penalty in in disputes between the customers the two companies in that case they agree to not have the death penalty and the pro death penalty the anti-death-penalty company either makes a side payment to the protest penalty company or agrees to go its way on some other disputed issue but the basic logic is that they are looking for the rules that maximize the total value to their customers just as in an ordinary kind of market situation this is of some interest because the fundamental one of the fundamental problems with government legal systems is we do not have any mechanism to make them make good law all right we have what I think of as the civics class model of democracy or the naive model of democracy and the naive model of democracy says the politicians have to do good things otherwise we'll vote them out and the trouble with that is that in a society of any significant size even as small as Hungary let alone the US each individual voter correctly knows correctly believes that his vote is very unlikely to change the outcome of an election and figuring out what politicians are doing what they ought to be doing is not costless all right it's a complicated system the government is doing many different things for some odd reason politicians never run for office campaigning as I am the bad guy all right so you're gonna have to figure out to separate the rhetoric from the facts furthermore as far as I know nobody has ever introduced a bill into the US Congress with the title a bill to make farmers richer and city folks poorer we have such a bill every year it's called the farm bill and it's basically designed to raise the price of farm products as you know you have the good luck to be in Europe which does even more of this than we do and not that successful in Hungary I just got some apricots and they were very good price but but as the general rule the EU I think is worse than the u.s. in trying to subsidize farmers in the expense of other people but of course when defending the bill the politicians who support it will always explain why it's for everybody's good that we've just got to make sure that we have that we produce enough food despite the fact that we are exporting large parts of our food enough food so that if next year we have an enemy who controls the Atlantic Ocean and an enemy who controls the Pacific Ocean and an enemy who controls Canada and an enemy who controls Mexico we won't starve to death so in any case they don't quite put it that way but that's the implicit logic of what they're saying so and so the general rule is not in fact in the interest of politicians to make good law there is a branch of economics called public choice theory which explains in some detail what the incentives of politicians are and why we get the particular kinds of bad law that we we get but my standard piece of evidence for economists is that the economics of foreign trade was worked out correctly by David Ricardo almost exactly 200 years ago it's a system thing called the principle of comparative advantage one implication of his analysis is that under most circumstances a country that imposes a tariff is shooting itself in the foot there are some special exceptions but as a general rule a tariff makes the inhabitants of the country poorer not Richard this must be true because it's something that I am paul krugman agree on along with pretty much all other economists who who are serious nonetheless over those 200 years almost there have been almost no countries that have followed out the logic and simply abolished all their tariffs the two most notable examples are England in the nineteenth century starting about 1840 and hong kong which wasn't the country in the post-war period which was a free trade society those are two spectacularly successful economies England everybody knows about hong kong of course is much more successful than england hong kong in in physical material hong kong was probably the poorest conference placed in the world they had a population density ten times the density of the most densely populated country in the world which was Singapore they imported drinking water they had an inflow of poor refugees from fleeing China and between World War two and about twenty years ago the per capita income of Hong Kong past that of England all right so it looks as though indeed the rule is right and yet nonetheless you don't get countries unilaterally abolishing their tariffs you only get countries agreeing that we abolish our tariffs if you abolish yours in other words we'll stop shooting ourselves in the foot if you start shooting stop you shooting yourself in the foot and it turns out that if you work out the economic analysis of the political market that's a rational trade that in terms of the welfare of the population our tariff hurts us in terms of the political benefits to the politicians our tariffs are politically profitable to him that the people who are benefited by the tariff are willing for various reasons to offer more than the people who are harmed and therefore the politician is saying I'll do something is politically costly to me but helps you if you do something politically costly to you that helps me so it's a very weird case where the bargaining makes sense for the politicians but not for the population the general point I'm making we can discuss it in question period if you like is that we don't have a good mechanism to generate good laws on the political market but I've just described a mechanism that generates good law on the pro-law private market for law in my anarchist society rather like the mechanism that generates good cars and good food and things of that sort in ordinary markets that you're producing something for sale it's not quite identical for various reasons but it's close enough for my for my purposes now one question that might occur to you is even if this system is in some sense economically efficient if it makes laws that maximize total benefit to the people that they affect is it just well I don't have a good theory of justice I'm not sure anybody has a good theory of justice but I do believe in individual freedom and I think that like most people who believe individual freedom I believe that freedom is not only morally right it also is on the hold in people's interest that as a general rule it is worth more to me not to be enslaved than it is worth to you to enslave me it is worth more to me to be free to live my life as I like then it is likely to be worth to you to control my life so I think that although there's no guarantee the pattern of the legal rules that would come out of what I'm describing would tend to be a relatively libertarian pattern of law that's not a guarantee you could imagine a society where let's take the case of heroin as a good libertarian I think heroin should be legal that it's I don't want to use it but if you want to use it feel free far as I'm concerned I expect your authorities would not agree but if you imagine a society where almost everybody thinks heroin is a terrible thing the system I'm describing is providing law on the market if everybody want almost everybody wants law which says you can be arrested for using heroin that's what you're going to get but of course under those circumstances a political system will also give you laws against heroin and in fact does we've run that experiment several times now so so it's not guaranteed to be a libertarian Society in general I think that anarcho-capitalism and libertarianism very different things anarcho-capitalism is a set of institutions libertarianism is an outcome one of the attractive things about a macro capitalism is just likely to give you a libertarian result but it's not definitionally the same thing it doesn't have to all right let me there are a number of problems with this system and since I want to go on to talk a little bit about the future I'm just going to mention them very briefly if people are curious the third edition of my book machinery of freedom there's that why don't you show the machinery of freedom slide if you can my or actually show that my web page my web page has a link to a free PDF of the second edition of machinery of freedom if you want to read the third edition I think it's either to 95 or 395 as a Kindle from amaz on and the nice thing about Kindles you don't have to transport them but I discussed the number of these issues in the various editions of the book one obvious problem is how you defend your stateless society against government's national defense and there are a number of imperfect ways in which you might do it but my own feeling is that whether such a system is going to be stable depends in part on how powerful your potential enemies are that the u.s. really has no serious enemies and hasn't had for a fair while even though we pretend we do the as I you know Canada is a small country and rather friendly Mexico is a bigger country and poor and reasonably friendly and we very prudently set up our country with a very large ocean on each side but you foolishly didn't do that but so but if I were in one of the Baltic republics I would be a lot less sure that in a stateless society I could defend myself but it's not clear they can defend themselves or the government either given the circumstances unfortunately so that's one issue is ways in which you could defend yourself and I've got a chapter in the original book and then another chapter in the new edition discussing possible ways in which you could could get the resources to defend such a system another problem and one which is really economically more interesting is internal stability because if you ended up with only two or three rights enforcement agencies you can easily enough imagine the CEOs of those agencies having dinner together and discussing the trouble they've been having because their customers are very picky and if they don't do a good job the customers threatened to go to someone else so how about we join we create a cartel or we fuse into a single firm now our customers have got another all no other alternative so we can raise the price lower the quality of our service make lots of money basically robbery is more profitable than business as government's long ago discovered so you have to worry about stability against the reinvention of government and that's mainly going to depend I think on whether you have two or three agencies or 100 agencies that it's relatively easy to set up a cart tell with a very small number of players it's hard with a large number and that ultimately is a question for the economists in the audience of economies of scale does it turn out that a company providing rights enforcement services for 100 million people does a better or worse job a cheaper or more expensive job than one doing it for 2 million people and that's a technology question which you'd have to watch the society and see what happens so those are two problems there's a third problem which I refer to as market failure on the market for law and that is situations where the legal rule between you and me affects someone else and there are a number of such situations and in that case the mechanism is only we're the ones who are choosing the rule so we're going to ignore external costs on other people and therefore you will not get optimal rules in in such a situation but again since the alternative is a political system that you have no reason to get optimal rules the fact that this one is less than perfect doesn't mean it isn't an improvement but let me go on to talk a little bit about how I think some of these ideas or something analogous to some of these ideas might actually turn out to be real in your lifetime and that is that's the most likely way the prediction is very hard especially about the future is as somebody said maybe maybe I'm too pessimistic and maybe in 20 years from now the US will be a stateless society but I don't think it's very likely but what you might have is a world where cyberspace is stateless as it now more or less is and real space has governments that there are a set of technologies that some of you are familiar with where the key technology is public key encryption and if this were a talk on that subject I'd spend much more time on the details but the guts of it is that we know how to set up interactions online in such a way that you can communicate with a stranger with no third party able to read the communications that's what public key encryption gives you as an extra bonus it also lets you prove your online identity without having to give away your real space identity so that you can use digital signatures to show I'm the same guy who spoke to you yesterday I'm the guy whose webpage gave you some information that was valuable you can in fact separate reputation you can maintain both anonymity and reputation which sounds like a paradox but given that you can have a online identity with a reputation but keep secret the link between that online identity in your real space identity you can't arrest somebody if you don't know who he is so that means that we've got the potential in those technologies for a world which is very hard for governments to control and there are more pieces of the story that some of you are in know more than I do about digital currencies but in principle one can set up anonymous digital currencies although none of the existing digital currencies as far as I know is fully anonymous we've known how to set up anonymous digital currencies for a long time the problem is that the way that was figured out by David Chow might suppose 30 or 40 years ago requires a trusted issuer it requires a bank all governments or all govern all substantial government's are opposed to the idea of anonymous digital currency because if you have anonymous digital currency money laundering laws become an enforceable therefore it is very hard to set up a bank when all government's don't want you to do it and the beauty is some of you know a bitcoin is that it's a form of digital currency which does not require a trusted issuer therefore can be done even if no government approves of it the problem is that it's not anonymous it is in some sense the least anonymous money that ever existed because every transaction is public record although it's public record between accounts not between people so I'm not going to talk about that anymore other people here are much more involved than I am with digital currency but the basic point is that we have a set of technologies that have the potential to give you a world or online all transactions are voluntary you where you use not physical force but reputation to enforce things so that you could have for example suppose I want to hire somebody to write a computer program we're not going to use government courts I don't know who he is except online so there's a problem if I pay him before he writes the program I never hear from him again if he writes the program and sends it to me for me to look at before I pay him he never hears from me again so we need ways of enforcing contracts and it turns out there are very simple ways of doing it that we write our contract both of us digitally sign it the contract includes the public key of the arbitrator we agree on which is the information you need to check his signature so if I break the contract the programmer then complains to the arbitrator the arbitrator investigates the case the arbitrator rules against me I refuse to pay damages the arbitrator writes out his verdict and digitally signs it and the hands the other guy a copy of that he then has a package the original contract which I have digitally signed proving that I agreed to it the that contract includes the information necessary to check that the verdict is by the arbitrator I agreed to so all he does is to put that package up on the web with my name all over it and anybody who wants to deal with me again will check for information and discover I can't be trusted there are other mechanisms that sort of a simple mechanism by which you can use reputation rather than physical force to enforce contracts and since online the actual use of force isn't very practical you can't get a bullet through a t1 line it's really fraud and violation of contract you have to worry about and that would be mechanisms that would do it now there's an interesting extra bonus to this system suppose we develop a world where most of what people do is in cyberspace where most people are earning a living in cyberspace where most people are mostly spending money in cyberspace where most of your friends are in cyberspace this may sound like a crazy idea but only if you don't know anybody who plays World of Warcraft because there are quite a lot of people for whom a large fraction of the hours of the day and a large fraction of their social network are already online in World of Warcraft or in a variety of other contexts and as computers get better and networks get better and virtual reality gets better it's pretty easy to imagine a world where for most people most of the important stuff is online and one result of that is that people are then very mobile my daughter's profession is online freelance editor and a year or so ago she accompanied me on a trip which included india and bali and she was working all through the trip she could just as easily have been at home because all our work is done online anyway similarly I've been engaged in various conversations during the last two and a half weeks as I wander around Europe with the same people I converse with when I'm home in California all of it online so we have a world where most people are very mobile now governments are really only landlords because if people are mobile enough all the government can do is to say if you want a piece of land to be located on we're going to charge you taxes for it and then if those taxes are more than the real market value of the land you'll find another government that offers you a better deal so one way in which what I'm describing might happen and I'm I'm not a prophet it may well not happen is that you end up with anarcho-capitalism online and that's what matters and all those states still control real space the fact that they have to compete with each other for tax payers means that they have very little power if people want more details on this stuff as I said you can buy the third edition of machinery of freedom if you read the second edition or the first edition except it's not easily findable part three is where I sketch out what the system would look like and try to answer a variety of questions and potential problems with it if you're interested in my analysis a few law that's one of the chapters in my legal systems very different draft which you can get on my web page there it is indeed that's part of it it keeps going down there the reason student law isn't the link is that I don't have that yet that there are supposed to be three chapters written by other people one of them is on 18th century pirate's one of them is on prison gangs each of which has its own legal system and one of them is on the informal rules of American undergraduate students and the guy who is doing that hasn't sent it to me and I hope you will eventually because it sounds very interesting but in any case there is some more and one of the chapters as you can see is called feud law and that's where I sort of discuss these different societies which I've given examples of in the in the other chapters and the logic of feud law and how it works finally if you're interested in my general views on the future there is a book I wrote called future imperfect it's webbed you can read it for free off my web page as a general rule if my publisher lets me I usually web my books because I write books mainly in order to spread ideas not mainly as a source of revenue not that you never get any revenue after all one result of writing books and putting them online is that nice people invite you to come to Budapest and give a talk they even pay for your hotel and other places and other times but basically my books tend to get webbed there are also a whole lot of my journal articles are up on the web if you want to read those including the one on a positive account of Rights in addition to that this talk is currently being recorded video recorded many of my talks have been video or audio recorded and my webpage has my website has a page which is God I suppose recordings of maybe 40 or so different talks I've given so if you want to hear what I think about other things my favorite title is should we abolish the criminal law and I've given that one a few times but I've got another version which is partly about global warming and related issues of swords and others on a bunch of other fun topics so there's lots of stuff on the webpage I think that finishes what I wanted to say the I concluded long ago that the advantage of a question period is that when you're answering a question you can be pretty sure at least one person in the audience is interested in what you're talking about so I will now terminate the monologue part of this talk and turn it into a sequential duel do a log thank you questions yes I have this theory that it is inevitable that monopoly of power in societies will emerge that there will always be the stronger ruling over the weaker for sure you have written to explain the fact that it's never happened you may have noticed there's more than one country in the world you're logically appear to apply there as well and even within a single country governments usually claim a monopoly of force but the fact that there is in fact theft tax evasion all sorts of other things means they don't really have a monopoly of force and that even fairly powerful governments there are other people with some power but but but the simplest case just the international case if your argument was really true in general the world well at least the continent with all the there was a time when you couldn't get to the new world but the continent Eurasia would always have been one government has never been one government or close to it but what I think is for example now the u.s. is wrecking about with a thousand military bases international military bases are in the war so is one of examples that sooner or later some or entity we get so powerful that will start colonizing everybody else and after the US will fall apart some other entity will be us has lots of military bases but you will notice that when the u.s. actually tries to do anything it is not able to control the rest of the world that the u.s. pretty clearly believes that the Russians should not be causing trouble in eastern Ukraine probably the Russians should not have annexed the Crimea nonetheless they did and the u.s. really thinks that the guy who's presently running Syria shouldn't be writing Syria he's still there so the US can certainly influence things but it's way way short of all-powerful which is probably a good thing on the whole and similarly for other things that so no I don't know the degree to which you get your pattern again goes back to the kind of point I was making about economies of scale that there are some times and some military technologies in which there are large advantages being big and then you're going to get closer to what you're saying and others where it's gone the other way that after all the Roman Empire controlled I suppose rough pretty much the bulk of Europe not all of modern Europe plus the Middle East plus the North Africa it collapsed and it wasn't replaced by another big country it was replaced by you know 5000 guarantees essentially and for quite a while you had very small my first published journal article that happens was an attempt in an economic theory of the size and shape of nations trying to explain that pattern so I don't think it's as simple as you're saying there certainly is the issue of under what circumstances you do or don't get one strong thing or ten or a hundred or a thousand but I don't think it's as simple as you always get one thank you other question yes my question is also about a your perception of a likelihood of a certain scenario that currently there's as you said a lot of law enforcement that the government treats as crime but actually these are few systems under the radar and most of the people in this room have the experience that there used to be a black market in the socialist system but then there occurred a phase change and now that black market is the market and at some point it it I find it plausible to be a development where the decentralized law enforcement suddenly becomes the law enforcement and the regular taxation becomes a crime do you see that as a distinct possibility possible you've probably read Snow Crash by steffanson which is sort of a tongue-in-cheek future history science fiction novel in which there are still people in the US who go to large buildings and pretend to be a government but they're no longer controlling anything and that's possible I I think my guess is that the right way to get in that direction is not by having a revolution to abolish the government but just by gradually replacing one part after another and you could certainly imagine a situation where it is true that you could call the police when somebody Rob's you but you know perfectly well it'll be three hours before they arrive and they won't do any good and therefore what you really do is to call your rights enforcement agency that might happen it may not happen I remember when we were subject to a robbery in Chicago a good many years ago that it was pretty clear talking to the police woman who came that her view was the only reason anybody ever reported robberies was to the police was to get the documentation for their insurance claims and I think she was the one who commented that the consequence of making marijuana illegal was to make robbery legal because the police had only a certain amount of time and effort I don't swear that was the same person but so yeah you could but more generally I think the path you want is a path and we you are gradually replacing governmental institutions by private institutions and that's going to be easier in things other than law enforcement but even in law enforcement after all there's a lot of private arbitration already for settling disputes probably most commercial disputes are settled privately there's a lot of informal the use of social norms rather than laws to control things maybe I hope another question yes way back hello I was wondering I have a lot of friends who work for governments and I have I get paid by government sometimes in my work I was wondering how do you talk to people who are in the employee of the government how do you address those people I'm not being to look at developing how you address those manners it let me let me make a what seems a different point but isn't really and that's the economists question what's wrong with theft that economists tend to evaluate legal rules by the net effect on people and it's tempting to say well when you steal a hundred dollars I am 100 dollars worse off your $100 better off that's a wash why should we care and the economists answer is that if by spending time and energy picking pockets you can steal a hundred dollars then if it only takes ten dollars worth of efforts to steal 100 dollars then stealing is a profitable profession more and more people go into it as more people go into it it becomes less and less profitable that you pick somebody's pocket but it's empty because someone beat you to it three minutes before people stop carrying much money in their pockets similarly for other things and the equilibrium is reached when the marginal thief is spending on 99.99 cents to steal a hundred dollars at which point on net the thief is making the society poorer by the amount stolen possibly more than the amount stolen because the victim is all spending some resources protecting himself this is what economists call rent-seeking spending resources not on producing something what I'm making sure you have it instead of someone else so if that's right it is quite likely that it would be in the interest even if the thieves to make theft impossible because if you make theft impossible it's true that they will have to go to working at McDonald's for $5 an hour instead of feeling stealing for 550 an hour but on the other hand nobody was stealing from them grocery store prices will be lower because no one's stealing from the grocery store and therefore it's quite likely that they will be better off the same argument applies to governmental theft that is to say that it's very hard to really give things away because and you give things away people compete to get them and therefore the person who is working for the government is probably somebody maybe at this point it'd be worse off if the government was abolished because he's spent resources becoming an expert on working for the government but if he goes back a little bit in his career he could have worked out in a different direction used the same talents made almost as much not as much because that's why he went to government and he would be in a society in which the government was not eating 40% of the national income which is I guess a modest figure I think most of Europe it's a little higher than that but depends on the country and therefore having your relative income go down by 5% an absolute income go up by whatever 80 percent or so is likely to be again now if you abolish government instantly that it would argument wouldn't work too well because people have invested some costs in their present position but if all you're doing is saying we're going to gradually whittle away the government then figure that with luck at the point when your part disappears will be the year after you retire and you won't be bearing the costs of your replacement I guess that would be the kind of answer that I would make another question yes I know so looking put sorry here my question would be what what is your stance on the Libertarian Party of the United States as they reached the best result in 2016 since the 1920s any third party could yeah my view has always been that the function of the Libertarian Party is not to elect people but to spread ideas and the analogy I normally offer which I did not invent is to the most successful American political party which is of course the Socialist Party that the Socialist Party has never elected I think anything more important than the mayor of Milwaukee if I remember correctly and English Milwaukee but on the other hand if you look at the Socialist Party's platform at the beginning of the 20th century and the Republican and the Democratic Party platforms at the end of the 20th century you discover they've gotten almost everything they wanted so in my view the way that if we win the way we will win is that we get a few votes and the Republicans or the Democrats say well yeah you know those libertarians are peeling off four or five percentage points of the votes that's enough to determine which of us wins I wonder if there any of their ideas that we could steal and if you're really lucky the Republican the Democrats both feel the same idea so then you've got that one and then you continue with that process and I think that's the strategy that went ought to be ought to be aiming at at the moment the eye for quite a while been arguing that I hope the it occurs to the Democrats to try to pull libertarians out of the Republican coalition because the Republican coalition hasn't been doing much for libertarians for quite a while libertarians are a fairly small minority but they're a large enough group so that of all the libertarians who vote Republican voted Democrats that would essentially give the Democrats the next several presidential elections because it would be you know it shifted maybe 5 percent or 4 percent something like that I'm using libertarian the fairly weak sense of people who generally are in favor of both more economic freedom and more social freedom not hardcore people like me much smaller number and ideally I would like to have the Republicans and the Democrats competing for our votes at which point they will find whichever policies are most popular with us and least unpopular with their current base and try to annex them that that would be the policy that I that's what I want the LP to do and I've been saying for a long time and ultimately if we are really successful then the LP will disappear we will no longer need it because the other parties will be doing our work and I remember at one point a very long time ago saying it was sort of like a coke can that you know once you've drunk from you can throw it away and for some reason the gentleman who had been the most recent presidential candidate of a libertarian party did not think that was funny but uh anyway uh more questions yes Oh fine yeah you are proposing a market solution to many problems and what they think about the efficiency of markets because what efficiency of markets because two decades ago the companies were miss price by the markets and then it was sold by those companies going bankrupt and one decayed ago real estate was miss price by markets and then they were foreclosed and it was solved and what if human life is mispriced by the markets what will happen done I guess my basic answer is as far as I can tell markets are more efficient than any other way we have found of solving the coordination problem get making of organizing complicated societies they're certainly not perfect but as an economist I tend to assume people irrational and that therefore the fundamental reason why markets give the wrong answer is that there are situations where individual rationality does not produce group rationality and that I think is a useful definition of market failure and the reason individual rationality does not produce group rationality is that they are situations where an individual's making it we're a considerable part of the net cost is borne by somebody else or net benefit either way so I'm making a decision where I get a $10 benefit in an $8 cost and you get a $6 cost it pays me to make it even though we're worse off similar in the other direction if I ever since you make a decision where I get a $10 cost at an $8 benefit and you get an $8 benefit it doesn't pay me to make it even though making it would be worth doing that's a fundamental problem of market failure if you think about comparing the private market to the political market that situation is the exception on the private market that ordinary private market transactions if I want inputs I've got to pay for them if I want your labor to make something I've got to pay you enough so that you'd rather do that than anything else on the ordinary market if I produce something I sell it to the person who values it which gets me an amount of money representing its value to him so the sort of first approximation of the private market is a system where each person is bearing all of the net costs receiving all the net benefits and it's only the second approximation that you get things like externalities and public goods where that's not true if you think about the political market on the other hand the normal situation is the market failure it is almost never the case that a political actor actually bears the cost to receives the benefits of his action and that applies whether the political actor is an individual voter who gets all if he does do all the work of bridging how to vote to in vote for the right guy and if that helps he shares that benefit with ten million other Hungarians and it applies to a judge if a judge sets the precedence which lowers the national income by a hundredth of a percent that's a huge amount of damage one human being you double you'll never know and similarly for legislators so I would have said that as a general rule shifting decisions from the private market to the political market makes it more likely not less likely you'll get bad results so that would be the simple the simple answer that you know it takes a candidate to beat a candidate I don't agree have any better way now one other sort of fancier point for the economists and that is that there are trade-offs between market coordination and centralized coordination and the existence of those trade-offs is that firms exist that if you read were really the case that market coordination always dominated then every firm consists of one person and all inter all coordination we done on the market and Ronald Coase has a very famous article the theory of the firm in which he makes that point in which he points it out but if you really carry all the way through the simplifying assumptions of the market forever disappear that therefore what's going on is that there are transaction costs on the market which result in there being some costs of doing things on the market there are costs of trying to coordinate things hierarchically and non and you then get firms tending to be that size at which if they were any bigger the cost of doing things in-house would be higher than on the market if they're any smaller the other way around so and of course one of the advantages of the market which you've just pointed out of the firm's can go bankrupt so when they make enough mistakes they disappear it's much harder for governments to go bankrupt another question someone want to hand out there's somebody right there nice and close to you so under the system of private law enforcement agencies on private courts if I got that correctly it's impossible for me to know what law I will be judged under before committing a crime do I see that correctly and is that a feature that's an overstatement but it's an overstatement of a correct point that is to say to begin with if you know who the persons are committing the crime against is then you could check on what rights enforcement agency uses furthermore there's going to be some tendency to uniformity because it lowers cost it's easier to hire lawyers if they don't have to memorize 50 different systems so just as in lots of market context you get standardization occurring on the market but in this system you'll have a mix of standardization and diversity so that you will have some cases where there are some areas if you're in an area where water is very scarce you're going to want a much more elaborate set of rules for water rights than if you're an area where water is plentiful so there's going to be a mixture of partly standardization partly diversity but of course this is true already in a modern system I don't know what hungry but in the u.s. large parts of our legal system or state law if I am engaged in a come and say a tort conflict with you you might say well we know what state has happened in but imagine that what's going on is an accident with a car that occurs in California was bought in Massachusetts and was manufactured in Michigan you have to go to a lawyer familiar with diversity jurisdiction to figure out whose law applies so to some degree that happens already know one of the things that actually discussed in the in the new book not yet published is what I think of as poly legal systems as systems where the same territory has multiple legal systems operating on it and there are a fair number of historical examples to some extent Church law and state law in the Middle Ages in Europe as you may know Sunni Islam there are four mutually Orthodox schools of law and in principle you could have a situation sometimes did where a major medieval Muslim City had courts for all four schools of law and then you have the issue of how do you decide it's easy if the two parties are adherents of the same school which they often are because it tended to be commute one community adhering to one and if they didn't then it's going to depend the rule might be that you go to the defendants court the rule might be to go to the defend the court that the ruler likes the Ottomans basically eventually subverted the system that they were they supported one of the four schools in the core Ottoman areas only that school was functioning in the less core areas the other three schools existed but that school had advantages so now historically you do get systems of that sort of another question I would like to refer a part of your lecture about the heroine that there is a place you told where people generally think harine is harmful and that's why they prohibited but is it possible to prohibit me to consume heroin by the majority if I want to and I had no victims of course it obviously as possible cause it's happening at the moment okay Brittnay y-you know but I don't think it's morally correct but it's possible no I didn't put the question correctly may a majority prohibit technically it's possible I don't think it is morally legitimate to do so but then I do not know of any way of appointing God as judge and having a legal system which is guaranteed to be only to only have morally legitimate parts of it yeah if even a donkey and can't healthily consume Hilary if I want where should I go yeah I would suggest that if you want to use heroin you do it discreetly and don't let people know you're doing it that's the usual solution but no but but under Anarchy if there is strong enough support for a non libertarian law you're going to get it but under any other system if they're strong enough support for that unless you imagine a system where you're a dictator which isn't sort of hard to maintain so yeah I mean I'm not I'm not a utopian I don't claim you there are institutions that give all entirely just results merely institutions that give closer to that than any other institutions and that's all the claim I'm willing to make another question there's somebody way at the back just a quick comment on the last question that if you want to shoot herring just come to my place and I will hook you up a serious question you mentioned yeah that was just a joke obviously so my question would be about private cities that you mentioned that there is a possibility in the future to freedom-loving people together away from the government in the cyber space but we can all hear about private city projects I'm sure that you are familiar with them in like floating cities or the on the ocean or in rural parts of Sweden so my question would be what do you think would be a few important characteristics for a private city project to be successful when success is defined as being able to maintain a legal system and the defense of course from other like governments and and yeah just a few characteristics and your thoughts on that project well I have the possibly biased opinion that the most attractive of this project is the seasteading version because it's the most flexible that is if you can pull it off having a form of floating housing which is competitive with ordinary housing the beauty of that is you can continually reform your communities so if you've got a town of 20,000 people under some set of rules and whatever their decision-making mechanism is gives a result that 4,000 of them don't like they call up the tugboat companies pull their rafts away do a little research and find 3,000 people in another community who agree with them and reform so ideally if you want a system with sort of a competitive market to generate good rules it would be nice if it was more fluid than the tied down geographical ones and that's really the part of it that I thought I'm a little depressed is because this of course is my son Padres idea it probably won't work most clever ideas probably won't work but hopefully you know one of them eventually will and the various proposals for start-up cities and such are not likely to be as libertarian as we would like but might well be more libertarian than other things I mean Hong Kong was a good deal more libertarian than China and even Dean more libertarian than the United Kingdom even when the United Kingdom was running it so other questions somebody over there okay so in your book the machinery of freedom there's a chapter about very well voted for unschooling and homeschooling but in the context of the whole book it seems like you are advocated against compulsory education but what's your opinion about that and I would sometimes claim that the only form of compulsory education I know of is the draft that being a slave for a couple of years that was a very educational experience but compulsory schooling does not strike me as a desirable institution if that's what you're talking about yeah no I his references to the third edition which is got it because a chapter in question isn't in the second edition and it's a discussion of an approach to schooling in which the kids basically control their own time and so you are encouraging your children to learn interesting things but it's up to them whether to do it or not to do it and that's now Patri is the son of my first marriage and he was brought up mostly by his mother and her second husband although he spent summers with us but the two children of my present marriage were mostly on almost entirely unschooled we were reasonably happy with the results the one exception we made was that we bullied them into learning the multiplication tables and my daughter's opinion is that that was a mistake that that really wasn't very useful skill nowadays anyway so if you're interested in that if you want to that is you can you can either that book or if you go on my blog and do a search for unschooling I've got two or three long posts in which I'm discussing partly my reservations about the standard schooling model which doesn't seem to make very much sense and then that particular different model which I like but kids are different and so I would not want to claim all kids are we better off with them schooling just that the observation is that some of them are and in some ways it's a much more attractive mom yes yes so my question is about blockchain technology there's the second wave of that after Bitcoin that allows smart contracts to be encoded in a I don't go to become too nerdy in a decentralized way and some appearance of that we're both anarchists and IP specialists quite a combination believe that that might be a chance for a sort of legal system to emerge without the state what if anything do you think about that well I know a little bit more about it than I did at nine o'clock this morning having driven from Graz to Budapest with people involved in that project and it's certainly an interesting project the connection between sort of cyber people and anarchists is not all that new I was sort of a peripheral member of the group that referred to a cypher punks in Usenet quite a long time ago and the way I like to put it is that the person who was sort of one of the leading figures there stole a bunch of ideas from me from machinery and reprocessed them and I then stole his version back and used it for some articles on crypto anarchy strong privacy is the term I generally use so no I think it's an attractive possibility it's got some obvious problems which we discussed that is the big problem to me with smart contracts is how you get into your computer system facts about the real world how do we discover whether I have really performed what I claim to perform and clearly people have some clever ideas about that and whether they're adequate I'm not sure but that's an interesting thing which I've been thinking about today other questions what happens in your model if somebody finds a dead body on the streets for example it has we don't know who is that we don't know so firm is that and my second part of my question is what happens when so so for these law firms to succeed they need to access to databases of data as the police and other organizations to answer your first question my guess is that all of the rights enforcement agencies in the area have a policy of offering a bounty for information showing that one of their customers has been killed because after all they want to protect their customers and part of protecting their customers is if you are killed and your body is dumped somewhere we'll find out about it and do something about it so I would expect that when you find that the adviser you say all right what can I tell about this body which are the rights enforcement agencies you have customers in the area let me get in touch with each of them and say I've got this dead body here it might be one of your people I understand that you'll pay $5,000 if it is here's the information come look at it so I would expect that that would be the kind of approach that would be in the interest of the rights enforcement agencies to use with regard to data I presume that the rights enforcement agencies will have contractual agreements on sharing data that if we find somebody there's good reason to suspect violated the rights of your customer we will be happy to sell you that information or maybe we'll give it to you for free because you do the same thing for us that firms quite often have arrangements of that of that sort among themselves with regard to other forms of information I would think it would only be a question of contract that when you I buy stuff from Amazon Amazon may or may not include in their contract with me that they will not tell anybody else what I bought and you would see that on the one hand or rights enforcement agency might say one of our people has been poisoned we'd like to know who has been buying the relevant kind of poison from Amazon on the other hand I might also be the flipside of that is that I might want people not to know about things for whether I'm doing the illegal or legal things so that seems to me the kind of issue that just gets settled on the market by how valuable the how valuable it is to the people the information is about to keep it private and how value it is to other people to have that information thank you as you may know in the u.s. at least what actually happened was that the telephone companies had a legal obligation to their customers not to share the information they shared the information with the government security people anyway they were sued and Congress then changed law to immunize them yes another so I'm a huge fan of your work I would like to have your opinion and disturbing tendency in the development work that I think that more and more people are getting dependent and government especially like in the countries that have an ageing population and I think that this is this this doesn't create demand for freedom really and what is your opinion and that how it will be solved in the long run probably because it's pretty horrible for example in Hungary like 94% of the retirees are on government funds and the government is like almost completely clearly bankrupt and I don't see it as a as a huge I don't know I don't know enough about Hungary to offer any opinions I would point out however that there are something over a billion people in China who are a great deal less dependent on government than they were 50 years ago that's a very large change in the opposite direction it's a bigger change and I think my guess is yeah I'm pretty sure the population of China is bigger than the population of Europe more generally the world is always moving in all directions at once that things are getting worse things are getting better so that what used to be the biggest threat with socialism intellectually speaking quite aside for military things that the what used to be I think the most dangerous idea was the perfectly obvious idea that in order to organize things you've got to have somebody at the top giving orders and that was a mistake and at this point that idea is almost dead you can never really kill bad ideas but you can come close that the combination of a little bit of people actually thinking about it and seeing why decentralized coordination was possible plus the experimental evidence the fact that India with its five-year plans did not get rich that Russia with its five-year plans stay poor that meanwhile Taiwan and Korea and Singapore with basically market systems did get rich and then the sort of final stroke when China abandons communism and from the time Mao dies to 2010 real per capita income in China goes up 20 fold so that was a pretty striking set of events with the result that I think in India today the reason they don't have a full free market system is not that the people in charge of it still believe in central planning it's that there are lots of people whose income depends on handing out government favors and it's a slow and difficult matter to unripe and Ravel unravel that system so that part we want at the same time environmentalism appeared to replace socialism that is to say a new set of arguments against them market came in in one sense that was an improvement another sense not in lecture Lee it was an improvement because environmentalism was a better argument in socialism that socialism only worked if you didn't understand economics you can still understand economics and believe in environmentalism at the same time environmentalism in practice I think gets often used to make excuses for doing things that there's no good argument for doing and therefore provides a substitute for socialism in justifying government interference with people which I don't think it ought to justify so that's one example in saying words the world's things are moving in both directions at once I think that's usually the case other questions and thank you for the talk firms compete on a lot more than just price and quality products so they often compete example on appearing socially conscious example by protecting the environment or countries into charities and the business of rights enforcement is often very brutal so if you remember the case of a couple of months back I think with the United Airlines case mobil diffic mammoth contract of course about plane you'll get a lot of cases that look like that at least on a superficial level so I'm wondering if you might not end with compete competing to be bad as their jobs are protecting people in certain ways just because it makes them look bad that is the problem with using the desire it'll look good to control behavior is the it's a little bit like the voting problem that is knowing whether a company is really doing good things is usually not easy to do because the company always wants to look as though it's doing things knowing whether companies doing bad things it's not always easy to do because reporters want to make a good story out of something and therefore are likely to give the part of the story that makes it sound as though the company was doing something outrageous and the individuals who are doing the enforcement by buying or not buying from that company have very limited is to get good information then the problem with reputational incentives in general and there are some other interesting cases like this is if you hire somebody to build a building his reward depends on whether you're how good a job he does it build the building the building but reputational enforcement is the side effect that if a company company I buy something I buy a jacket from refuses to take it back even though they said they would I tell people when they stop buying from that company the reason they stop buying for that company is not that they're trying to punish me for mistreating me they don't want to be mistreated themselves so that the enforcement part is really almost an accident though a happy accident and the problem with that is that because it's an accident it may not be an incentive to do it so if you imagine the case where you've cheated me and I complain and it's not and you of course that you didn't you say I'm the one who cheated it's not easy for an interested third party to figure out who's telling the truth and so a prudent third party will say well one or the other of them is dishonest I don't know which so I won't deal with either of them and if I anticipate that I never report you're cheating me because it just hurts me so that means that in order for reputational enforcement to work you need low-cost ways in which interested third parties can find out who is at fault and that's really the point of the mechanism I was sketching we're using digital signatures and arbitrators in such a way that you could find out who broke the contract at the cost of a second and a half of computer time to just check all the digital signatures and so the mechanisms you're describing may do some good things but I don't think they are very very reliable way of keeping companies from behaving badly or making them behave behave good it's it's going to be awfully tempting for the company to think of something that sounds really good if you don't think about it of which there are many such things and do that even if the real effects are not good now that we're talking about reputation and you mentioned reputations rolling in the digital cyber world I would like to have remarked on that question so you mentioned that if you if you do not comply with their with the contract that you previously agreed to then your reputation suffers either with online identity the problem is that your identity is actually replicable so it's cool that like Sibylla tech maybe a thesis you want to be technical so you basically can create another identity in and like in general the the description of the problem is that the reputation only makes sense if there's no term basically an expectation that you that you have a reputation for long term however to establish that you need some sort of bootstrapping yeah there are two answers to that the first which I think you're really suggesting is having a reputation is valuable and one way you get it is you start out by making small transactions you only have a small temptation to cheat don't cheat on those and over time you reach the point where people trust you for larger transactions and the fact they trust you is profitable to you and you therefore don't want to throw away your reputation and sort of the classic case of this is the diamond industry where at one time the New York diamond industry was dominated by Orthodox Jews who are unwilling to sue each other but nonetheless had enforcement mechanisms through trusted arbitrators largely rabbis such that if you were in that industry you would start out small and at the point at which somebody would trust you with the opportunity to cheat them out of a hundred thousand dollars your reputation was worth a hundred thousand dollars that's one answer and there are a number of other ways of doing this that you're probably familiar with the other possibility is that you can rent a reputation so if you go back to my arbitrator story suppose that you have two people who are contracting and neither of them has a reputation so therefore neither of them loses much of he's proved to have cheated however the arbitrator has a reputation the hour traders repeat player any people values that they can trust him so each contracting party deposits $5,000 with the arbitrator and if the arbitrator's verdict is that I owe you $3,000 he takes 3,000 of my dollars and gives it to you so that's the case in which you're renting somebody else's reputation because neither of you has it and in the real world a lot of this happens in a less formal and rigorous way that I'm describing if you look how eBay works for example eBay has mechanisms to transmit information about reputation of sellers and they seem to work pretty well and you've got the possibility of ass croatian seas where the thing you buy doesn't go to you it goes to somebody else the money doesn't go to him you inspect the product once you approve the product the money goes one way in the product goes the other and that's a real-world example of you're trusting the escrow agency because they could just keep the product but you don't have to trust either the two parties another question yeah thank you to the second one so usually when I'm kind and vaguely familiar with you well not actually familiar with your arguments and when I present it to people I often run into the an argument and know the lines of you said that the small number of private protection agencies can have dinner together and like catalyze on the one hand and on the other hand like the Roos themselves can pretty much be expected to standardize on long term because for poor people living in one community it's kind of better and given the fact that it's it's there's no guarantee for kind of any kind of Liberty this might sound like almost like a recipe for emergence of government and I must don't like him faced with an argument saying that like well I mean what it's over hand-wavy to say that it's like a market together of no after all it's going to be exactly the same or like equivalent well we do have a fair number of real world examples of societies that maintain decentralized systems for hundreds of years I mean the Somali did until basically the rest of the world started trying to force them to have a government they were sort of heavily outnumbered and the rest of the world hasn't really succeeded yet the the romantics all the ice lenders had a sort of semi stateless system that lasted for something over 300 years longer than the u.s. system has lasted so far at least so I don't think you can consistently predict that it will break down the problem is that we don't have any examples of modern developed societies that are stateless and maybe the answer is that under current circumstances they're unstable a long time ago I gave a talk on the subject of Robert Nozick's book Anarchy state and utopia at a libertarian party convention with Nozick in the audience and we ended up with an exchange like this one at the after the talk he didn't try to defend the argument that he had made in the book about why you wouldn't end up with Anarchy he instead fell back on what I thought was a stronger argument say look in the world as it exists we observe zero examples of stable stateless societies of the sort you describe and that's true unfortunately on the other hand my usual response is to say suppose it were 1750 and I was a very imaginative fantasy political scientist and I said there's this great form of political organization I've thought of you may not believe this but this is going to be a society where the rulers are elected by majority vote and all adults get to vote even women and it's going to be a system wherever all adults have the same legal rights even blacks and women and foreigners well some pointers foreigners who've been here long enough and it's going to be a society I mean I know this clearly couldn't happen in which the government collects and spends something between thirty and sixty percent of the total national income of the society and of course the people who might have Scott suggests to say we'll look this is very interesting fantasy but look around you nothing like that has ever existed in the history of the world is clearly impossible and yet that of course is the current standard political system of the developed world so circumstances change and part of the point of my discussion of the cyberspace argument is to suggest that there may be technological changes that are going to make it more possible to maintain this kind of system and similarly the discussion we had of the reference very briefly to the way in which blockchain systems can be used for smart contracts suggests ways in which the government functions may be undercut by new technologies that provide better replacements for what they're doing you pointed out that the solution Cruz table set comes from been seeking ah but it seems to me it may be others have already raised the issue and you've answered it before I mean not this event of course that the victims of fact do not internalize all the curses of the victims of a theft they do not internalize all the coasts of social codes or through social codes of theft so it seems to me that they have insufficient insert insufficient incentives to see you why do they not why do they not internalize the social cost who else is that is the legal system for Kansas that all crimes are crimes against the state as I as I like to tell people in the American context you can never be the victim of a crime legally speaking if somebody Rob's me or assaults me when the case gets to court it will be the state of California versus but in fact I would have said that most crimes most of the cost is borne by the victim why not you know because of it the victim spent on our property production or protection right right and the thief spends on spends these all her resources on feeling so they both spend resources which they could otherwise which they both spend resources which they could have spent more productively but Leticia coast is not fully bald I don't understand when I waste my resources that is a cost to me the result of the thief spending his time is that well would the result of the of the victim spending his time is that he has less money the thief it is true there is a net social cost which is why you want rules against theft but in terms of the cost of the act of theft it seems to me that that cost is a cost to the to the victim no he's the one who loses stuff the anyway I'm not sure I understand your argument so maybe I'm being unfair to it interesting case which I spend one of my chapters on in the new book is eighteenth-century England where criminal prosecution was private the enforcement of verdicts was public unlike Iceland but they didn't have cops or public prosecutors in our sense and so if a crime occurred it was up to the victim to prosecute it and that system did not have was not a tort system so he didn't get a respite but he got private deterrence by having the reputation of prosecuting but that's sort of an interesting system because it's a little puzzling at first why people prosecuted and yet they did some Oh somebody way back there or up here whoever I don't care so environmentalism has had its fair share of criticism as like a substitute for socialism and I would like to ask in European is there a system which respects freedom and also somehow ensures that we will have a habitable planet in like a hundred years I think even without respecting freedom the answer is no that is I don't see any system that guarantees that we will have a habitable planet in 100 years as it happens I think that the environmental risks are greatly exaggerated I gave a talk yesterday in Graz which I assume will show up on the web at some point in which I was arguing that it is not at all clear whether the net effects of climate change are good or bad and that there is no good reason to think they are very bad which is what this kind of question implies but so far is the logic of the problem if they were very bad I do not see any set of institutions that will reliably prevent them because preventing climate change is not only a public good problem at the individual level it's a public good problem at the national level that if one country restricts its use of fossil fuels to hold down co2 most of the benefit goes to other countries so as far as I can tell where you have a cost which is a very dispersed cost I don't know of any good mechanisms for controlling for controlling such costs one of the things I discuss in the third edition of machinery when I'm talking about what I think of as market failure on the market for law pollution is one of the examples because if I agree to be liable to damages to you for polluting your air that results in less pollution and most of the benefit goes to them and since we aren't going to take account of their benefit we would expect a below optimal level of pollution control in my system the similar argument gives you a below optimal level of intellectual property protection because and you agree to honor my copyrights that results in my writing lower books which benefits people who are honoring my copyrights so there are a variety of ways in which is predictably imperfect but the problem with sort of the way the question is put is that it usually implies that there is some system that will always give us the right answer and I don't know of any section you know if you look for example at Environmental Protection under the Soviet Union it was turned out to be much worse than that in capitalist countries not not better and I don't see any any reliable solution to that sort of sort of problem but I think that the world is less fragile and a lot of the talk implies that you know people worry about the fact that eventually if you keep it up long enough there won't be any ice caps well for most of the history of Earth there was no ice cap you know what the technical term is for a time in the history of Earth when there was ice on one or both of the poles it's called an ice age right we are currently in an ice age we're in an interglacial in an ice age so you know if the ice all melts tomorrow we're gonna have a really serious problem because sea level goes up a lot if the ice all melts in ten thousand years as far as you know that's just fine we can see whether Antarctica is useful for anything but but that will just be the normal state of the planet over much of its time so in a way I'm reminded of a story about Adam Smith which is that there was a major American victory during the Revolutionary War and when the news of that came to Scotland one of Smith's students came to him and he said mr. Smith this will be the ruin of England and Smith replied young man there's a lot of ruin in the nation there's also a lot of ruin in a planet so a technological development may have government's survive especially artificial intelligence and the development of manufacturing technologies so what do you think about the possibility that the production of goods would be so efficient and cheap that basically government could move into a dystopia or utopia of providing everything for free for every citizen I think that's going to be hard because it's not just the cost of production it's also the decision of what to produce and it would seem to me that unless you have some good mekin decentralized mechanism like a market it's going to be very hard to take all of the environment where everybody wants and figure out what to do I think it's certainly possible that production will get much better it's also there are a number of ways in which technology could make things worse that sort of part of the point of my book future imperfect part of the reason for the title is that technological change to make things better or worse you can't easily predict which that after I published that book I was asked to give a talk on it at Google and I started my talk by saying that I thought global warming was a pretty wimpy catastrophe I had three different ways of wiping out the human race faster than that and I do I can think of at least three lines of technological development that could go in a way that results in there being no humans a hundred years from now I hope they won't they could also go in ways that would make us like gods or something close to that that would make us much better off and what could actually happen I don't know my one of my recent projects is that I'm trying to put together a collection of short works of literature poems or short stories mostly that have interesting economics in them and one of the ones I'm planning to use is in fact relevant to your question in an odd sense it's a story in which the aliens decide that they will destroy our economy by giving us replicators by giving us devices which kind of essentially no cost copy anything and the story is sort of from the point of view of the person running a big department store who takes about a day to figure out how in this new world is department store should function and this department store is now selling the opportunity to replicate many of different things and you know you pay for that they don't have to actually make it they have one of each thing but since you wouldn't want to have at home 6,000 different things it's still a useful service so I think that markets are pretty flexible in in in dealing even with very very productive societies I think the title is something like business as usual after alterations the neat story came across so if any of you know of a poem or a short story that has interesting economics implicit in it please tell me because I don't have enough yet so which are the three ways that you could destroy in the world nanotechnology via gray goo biotechnology via a high high school kid who invents a plague that kills everybody and artificial intelligence because after all if as some sensible people have predicted in another few decades we can make program computers that are people as smart as we are and if the computers keep getting smarter at the rate at which they have been and we don't 10 or 15 years after that we are gerbils and we had better hope they like pets so I hope I managed to this in my question but in my interpretation the state is something that bonds all these communities that that lives in the state within the state so for example right now I'm sitting here with the libertarian minded people but let's say I get I got home and there's my brother who's not interested in this stuff and the next day I'm going to you know these uh Far Eastern art history exam and there will be total different people and what you talked about was all these historic laws so they were also function they were also functioning in different communities so that was Jewish law there was Romani law and they all happen to be centered around ethnicities or religion or let's say people who speak the same languages so my interpretation of the state let's say with the limited government that it's something that Bond's people it's something that gives or gives us stability so of course if I'm saying limited government you could say why not no government so I don't know if that's really the question but what are your thoughts on my idea to begin with I recommend you a very interesting book called seeing like a state by James Scott because one of the arguments he is making on both theoretical and historical grounds is that States attempt to eliminate the diversity you're describing because that diversity makes it harder to rule people so that in France say in 1600 you not have a uniform language which meant that if the king sent out officials to Provence the officials would not have a common language or the people they were trying to regulate and he argues that governments had a long and eventually largest successful attempt to standardize the people they ruled because it was easier to rule people when they all spoke the same language all had they tried to impose uniform naming systems because it's hard to conscripted enta fie who is who they tried to impose reasonably simple and uniform property systems but taxing land is hard if seven different people have different rights to the same piece of land and so forth and so on so his argument at least is essentially the opposite of yours it is that having a state really requires large elements of uniformity what he's really describing is that you're trying to make the territory more like the map in order because you have to use a map in order to coordinate things that's much simpler than the territory really is more generally I would have said that generally markets handle diversity much better than political structures do because in the market different people can do different things you could easily enough have as you did have in fact in the Islamic world that some people follow the Maliki school and some people follow the Shafi school and you're gonna have some problems on the interface but nonetheless most of the disputes within the Islamic legal system are intra communal disputes issues of marriage and things of that sort and the fact that you can have different ones makes it easier to handle diversity rather than harder amazing I have a question I like markets and there's a market near here and I was over at that market a little before I gave this talk and I thought I was buying half a kilo of very tasty looking apricots I think I ended up with something more than a half a kilo and I'm not can eat them all so if any of you would like some apricots I have got free apricots available and they seem to be pretty tasty apricot thank you all [Applause]

5 thoughts on “The Past and Future of Law Without the State – David D. Friedman, 2017-06-07, Budapest

  1. I solved David Friedman's "Hard Problem" in 1995, with my "Assassination Politics" essay. https://cryptome.org/ap.htm See also the jimbellproject.org. It would sure be nice if David Friedman acknowledged my accomplishment, but his 2014 edition of the Machinery of Freedom book did not mention AP, or me, from my understanding.

  2. Yes the socialist party certainly got everything they wanted… But is it because of the socialist party advocacy or is it because as Ludwig von Mises pointed out middle of the roads policies lead to socialism? To me it's the latter, the government wants to intervene, special interests want the government to intervene, the people wants the government to intervene, they intervene, they fuck up the market, resulting in people wanting the government to intervene more.

  3. Nagyon jó előadás volt! Örülök hogy felkerült youtube-ra, így legalább meg tudom osztani a még annyira nem megrontott diáktársaimnak 😀

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