The need for a principled reconciliation between the prerogatives of individual liberty and social order has been a central preoccupation of classical liberal philosophy. In this CIS Occasional Paper, Professor Richard Epstein of the University of Chicago, one of the foremost contemporary exponents of classical liberalism, discusses this crucial issue. Professor Epstein argues for the importance of four simple rules in underpinning the foundations of a free society- individual autonomy, property rights, contract and tort. Professor Epstein also discusses the unavoidable dilemma of a free society under the rule of law- namely the tradeoff between the need to authorise the use of force in order to exact these rules and ensure the adequate provision of public goods; and the need to control the use of force.
Under socialism, redistribution between individuals occurs, not through charity or compassion, but simply through coercion. The level of so-called benevolence is determined through political processes, which are strongly influenced by the recipients of a transfer payment rather than by the decisions of free donors. Our task is to create a set of collective arrangements that allow us to move beyond the prohibitions on force and fraud, where appropriate, but to do so in a way that allows us to restrict the scope of state action so that government itself does not become the agent of illicit redistribution. We do not want everybody believing that the appropriate way to earn an income, win a fortune, of obtain property is to pick the pocket of the person sitting next to them. Such a state is most undesirable, because each time a pocket is picked, the amount available for the next pickpocket is a little less. If we repeat that process often enough, too much social wealth will eventually be lost in the transfers. There will be too little remaining, either for people to use productively themselves or to give to others. It is a major challenge to organise a society that works its way through these trade-offs between the proper use, and the dangerous abuse, of government power.
Reconciling private choice and state monopoly
Understanding how this challenge can be met forces us to think about the fundamental nature of economic and social activity among individuals. We possess an ideal of liberty, whether manifested in the so-called theory of natural rights or in a consequentialist approach to social policy that is driven more by evaluating outcomes in terms of the well-being of individual citizens. Both approaches lead to similar conclusions. A world with free nd open markets, in which people can choose their trading partners, will outperform any system involving constrained choices for individuals and extensive duties of forced association. We therefore seek anan open arena for association and exchange, in which the existence of choice by others is the main constraint on the arbitrary behaviour of any particular individual or group. In such an arena, people encountering arbitrary behaviour can simply switch their allegiance to other traders rather than battling with a single provider of a good or service. That is one reason why the argument for restricting government activities to controlling force and fraud is so strong. In a nation containing many separate individuals, the counterweight to the arbitrary power of one person is the ability of each to shift his or her business, custom or friendship to other people. Given free entry and free exit from various markets, it is that range of choice which offers the securest guide for our liberty. Indeed that is how we each tend to envivisage our own private liberty.
But this ideal of freedom through choice does not correspond to a state of anarchy. Certain actions against others will be intolerable – above all the use of aggression. Unfortunately, it is impossible to secure a series of voluntary contracts among private individuals sufficient to stop all aggression amongst them. We might, for instance, wish to protect ourselves against the worst aggressor in the world, who may be threatening to do us serious harm. We might enter into a peace treaty with that person and pay a ransom. But by such partial actions we have not obtained peace: we have simply invited the second worst aggressor in the world to come after us and demand a similar exaction. Thus if we extended this approach to all individuals at all times, weve would need such a huge number of bilateral contracts to control the use of force that we could never satisfactorily do so. Owing to these deficiencies, we need to accept and enforce some collective and social understanding about the mutual renunciation of force a a way of doing business amongst individuals.
But who will be the enforcer? Unfortunately, to obtain genuine enforcement, we must wistfully turn our gaze away from the flickering light of liberty and embrace the unlovely spectre of government monopoly. We cannot have two referees acting as enforcers if one can decide that A vill win while the other decides that B will win. In disputes between individuals over the boundary of their properties or the interpretation of their contracts, there can be no common master if each party is entitled to its own authoritative referee. The moment we allow one common master, we inevitably create a system involving monopoly power. The great problem is to reconcile as best we can the tension between these two imperatiatives – the monopoly vested in government and the free choice that we wishish to see retained by individuals.
While that is a difficult enough problem, it is not the only one. In the gereneral organisation of society, our usual intuition is that free and voluntary exchachange through private property should predominate. We have sound reasons for disliking monopoly. But there is a complicated and interesting feature about peo beople as they go about their daily lives, whether today or in any other eracra: they are constantly forced to take into account the interaction raction between their activities on private property and those on public property. In their sensible but unreflective style, they make the transition amazingly well. When they require a network to get themselves or a product from pointn A to point B, they must put together some form of social infrastruct tructure – building roads, organising sea transport, or creating networks to run railways, telecommunications and electricity. And while we can privatise most of these operations, some form of state power must be retained in order to keep the networks open. Thus, obtaining the optima structure for these network industries requires accepting some degree of regulatory power, and then understanding how we can best constrainin the way in which that power is used.
The most modern manifestation of this problem is interconnection arrangements in telecommunications. There is a wide difference of opinion over how these are best handled. There is an even wider difference in performance between, for instance, the relatively efficient telecommunications system in New Zealand and the rather ramshackle system in Australia, even though the two countries face the same basic problem. The United States is somewhere in between New Zealand and Australia, perhaps lumbering along closer to Australia. For centuries the whole question of how to organise infrastructure has been a major problem confronting societies. Writing in the seventeenth century, the distinguished English legal historian and author Lord Matthew Hale said that for statecreated monopolies or networks, there would need to be clever systems of rate regulation or pricing, so that exorbitant charges were not imposed on individuals. Hale clearly understood that excessive charges would lead to fundamental resource misallocations. Thus there are two types of exceptions to the rules allowing individual choice – the civil enforcement function and the infrastructure provision function. The problem of a free society is to find a set of legal rules that enables us to maintain the best balance between necessary state monopoly and individual freedom.
Recapitulating the simple rules
Dealing with the principles governing a free society takes me back to 1990, when I first visited New Zealand and Australia. I talked then about simple rules for a complex world. In putting together a legal structure that reconciles private competition and state monopoly, while avoiding socialism, I believe the rules I then proposed best answer the basic challenges.
The first rule is one of individual autonomy. It is a very innocent rule to state, but profoundly important to endorse. Individuals own their minds and bodies, and control their various faculties, talents and abilities. It is not that morally they can do anything they want with their bodies, but that they are the only party who legally can make decisions concerning their own persons. The justice of the autonomy rule is easily apparent if we contemplate other possible rules. For instance, one could imagine a rule that required divided ownership of the person. If any individual wanted to do something, they would need the approval of all the rest of humankind. But the rest of humankind would hardly be in a position to give that approval, because none of them would any longer own their own faculties either. Since they are themselves subject to collective ownership, their faculties would also be under divided authority. Another alternative and unsatisfactory rule might be a system of slavery. Or we could decide that nobody can really decide what anybody can do, because the creation of rights in individuals is wholly arbitrary and to be rejected – a post-modern approach designed to maintain psychological and legal chaos for all concerned.
But if we start with rules such as individual autonomy, they turn out to be immensely durable. We cannot imagine major changes in political or economic structures that would lead us to abandon or modify such a rule. This is reinforced by any historical survey, from Roman times (Roman law was where I started my legal education) up to the present day. When rules serve such a dominant social function, they almost invariably come to be endorsed as natural law. There is a peculiar convergence of two craditions in the way in which we think about the principles of a free society. There is a feeling that some rules are almost God-given, or invariant, or laid down by nature. At the same time we have strong utilitarian and functional justifications for the same rules: it is claimed that other rules would lead to social consequences so bad that nobody would want to endorse them. There is thus a great deal of often unappreciated common ground between what lawyers and philosophers sometimes call the deontological approach and a consequentialist or functional approach. The deontologist believes we understand justice in any particular dispute by relying on certain antecedent principles of right and wrong, while the cons onsequentialist or the functionalist uses outcomes as the justification for any position. On reflection, I believe there is a false antithesis between thesese two approaches as measured by the results they support. We have confidence in the norm of individual autonomy, not because it is divinely ins but because it is humanly functional. It is not possible to find an alternative that will allow people to have as much as they want, consistent with the desires of others.
In the light of this general approach, the second step in establishing our rules for a free society is to find mechanisms for matching property with individuals. This is complicated by the fact that sometimes property should be held in common and sometimes in private. Here classical liberals like Bastiat, who did not have the perspective of a lawyer, had too great a tendency to focus exclusively on the superiority of private property with respect to a wide variety of goods and services, as well as resources such as land and labour. In the process, he forgot that resources like waterways and airways were often held in common. Half the basic theory of property rights is essentially that of Bastiat, but there is another half which complements his picture. We need a reasonably coherent theory distinguishing the two types of ownership. For the moment I want to concentrate on those forms of property, such as land and chattels, which are privately owned. With respect to these, two additional functions have to be served, one of exchange and the other protection, and these ate the objects of our third and fourth rules.
Accordingly, the third essential rule for a free society concerns contracts: if we need rules both for giving people the ownership of their labour (the autonomy rules), and for giving people the ownership of land and other forms of property (property rules of first possession), we next need a system of rules for voluntary exchange, so that resources owned by one person can be transferred to another. The most important feature of rules of voluntary contracts is the ability they confer on people to multiply gains through piling transaction upon transaction upon transaction. A good transactional lawyer is not somebody who can simply work through the mechanics of a sale. He or she is somebody who understands how to structure multiple sequences of voluntary transactions. Out of a very simple principle we get joint ownership, the lending industry, the sale industry, the leasing industry, and indeed all manner of businesses by a constant andad repetitive application of these transactions.
Then in order to make this system secure, we need the fourth and last of ouour basic rules – rules of protection that we call the law of tort. Once again the basic theory informs us of the formation of the rule. There are only two choices we have for the transfer of labour and property between indivividuals: voluntary exchange or coerced transaction. If the former generates mutual gains, then the latter most certainly does not. The central offic ffice of the law of torts is to direct most human interactions into the voluluntary arrangement by prohibiting one individual from taking or deststroying the property of another. The most obvious danger from this quar is of course deliberate harms, and it is to these that the tort law is first directed. But some additional protection must be given against the accidental destruction of property by others as well, lest we all succumb to the temptation of ignoring the harms that our actions inflict on others in ouour efforts to secure benefits to ourselves. There are of course certain limite ited cases – involving the so-called doctrines of ‘privilege’ – in which one individual may take the property of another in order to avoid some imminent peril to their self. These cases show that on rare occasions forced interactions can yield social gains. But it is important to stress that while these are theoretically important, they constitute only a tiny fraction of involuntary interactions between strangers. The strong presumption is that the tort law must work to keep people apart, so that they can bring themselves together voluntarily.
Private and common property
The first four rules work well with interests in labour and property that are conveniently made private. It is there that thinkers like Bastiat understand why we do not want, and cannot endure, a social system that tolerates aggression against individuals, where ‘aggression’ is the act of a stranger imposing losses on one person in order to generate gains for another. But our analysis is not yet complete. There is another problem which goes back to the issues relating to network industries. Often, the gains to one individual from contracts will depend, not merely upon securing a single trading partner, but upon the more daunting task of securing the unanimous consent of all individuals. That is exactly the familiar probler of social order generally. If there is a contract in which people agree not to use aggression against anyone else, a single person utside the network can disrupt the peace for every other individual. In other er words, we an immense coordination problem. We may be forced to use coercion whehere the dangers of one person holding out are so great that they could disisrupt the overall system. The New Zealand Public Work.ks Act 1981, under which land la may be taken for public purposes provided compensation is paid to the owner, is an example of such a mechanism
Under any system of property rights, there is almost invariably a trade-off between the externalities created by aggression and the holdout problems when certain common pool resources must be introduced or controlled by unified management. Dealing with land, chattels, water and air spасе involves a constant tension between these two problems. Thus, a society cononcerned about the advancement of the common good will not generate a relentless pressure towards private property in all circumstances, but towards the creation of certain common properties as well. In merely talking about common properties, does this mean we are falling into the trap that writers like Bastiat so much feared – that the momenent we have common properties and common goods we will lurch into o socialism? Socialism is, of course, not very far away, because the very word means collective ownership over the means of production. But the ansnswer to that question is happily in the negative, at least if we approach it from a sensible theoretical perspective that understands the place for COmmoron property. It is here that we also find a place for forced exchanges, institut by government, upon payment of just compensation to those deprivrived of their property or otherwise restricted in its use. In order to keep the intellectual lines clean, it is critical to draw one key distir tinction.
We create a system of common property to make sure collective ive endeavours can take place in those circumstances where it is just too difficult and costly to organise common contracts amongst all indivdividuals. From that fact, it hardly follows that we want collective ownership of the means of production to be a disguised method of transferring wealth from A to B. A system of social insurance will not run the risk of redistribution if it takes from everybody and gives everybody in return something of greater value than each person surrendered. But a system that takes from one group of individuals and provides benefits to a different group not only runs that risk of redistributing, but also invites that outcome. Thus, with many systems of social insurance, it is important to determine whether or not the benefits and burdens run in parallel. If they do, a principle of reciprocity will typically mean that everybody gains from the transaction. If they do not, it is a telltale sign of illici government action. In thinking about the common good, therefore, we must always be careful to consider whether the relevant definition of the ‘common good is collective or individualistic.
Under the collective definition, if group А benefits while group B is harmed, that transfer could be in the commor good – if we decide the transfer is justified by some principle of political philosophy. But if we take seriously the idea of individual autonomy, then we will consider the common good to be advanced only to the extent that all citizens within a society benefit. This distinction between the collective and individualist definitions of the common good suggests that the most important principle of natural justice is often the idea that when the government takes for the benefit of the public at large, it should ensure that the burdens are not disproportionate by providing compensation to the losers. Under the ideal compensation mechanism, the losers will be compensated up to the point where they are indifferent between the property they were forced to surrender and the compensation received. One of the difficulties with many classical liberal formulations of individual liberty and the common good is that they tend to underestimate the complexity, difficulty and dangers associated with thinking through the practical implications of the just compensation principle. I have undertaken work on the takings clause in the American constitution, which deals with just compensation.
But that analysis is not confined to either the American or legal context. It arises whenever the question of social coordination has to be fairly addressed. When confronted with complex systems of social regulation, it takes an enormous effort for us to get the balance right. The issues confronting telecommunications systems provide a good illustration of the basic problem. In constructing a network, we typically want the interconnections to work so that everybody in the network is better off, given the combination of costs and benefits they face, than if no network had been possible. But in the United States, under the guise of the universal service obligation, and in New Zealand under the Kiwi share obligation, massive amounts of redistribution can take place, only partially obscured, within this programme. Hence, it becomes very easy in political life to confuse the two rationales for collective action. One rationale is to overcome holdout problems, while the other is to undertake various forms of redistribution. In a comprehensive and systematic theory of individual liberty we must be constantly alert to this distinction. We must use all our intellectual powers, and all our legal skills, to apply that distinction correctly. In the end, the concessions we make to collectivism will lead to a higher level of public ownership than a pure libertarian might desire, yet may still ward off the truly dangerous tendencies of socialism. In distinguishing the collective definition of the public good from the individualistic, we have been talking about forced exchanges, that is, those exchanges associated with the social contract. To see the power of the term ‘social contract’, we need to take the words one at a time, and they will lead us back to the general dominance of private markets.
Recall, for these purposes, the definition of a contract. In a conttract each person takes something they own – whether it be their libert rty of action, or property they possess – and surrenders it to somebody els else in exchange for something in return. The hallmark of a voluntary exchange – and the voluntary principle is one we must constantly stress – is that it leaves both parties to the transaction better off than they would have been in the absence of the transaction, as measured by their own subjective evaluation of the exchange. We like voluntary trade precisely because it generates these mutual gains. Social contracts are those contracts that people cannot make for themselves because the obstacles to the transaction are too large, and so we have a forced exchange in the manner already described. We take from one person but avoid the charge of aggression by giving that person something of equal or greater value in return.
Thus, in theheory we are promoting the common good while not trampling on the rightsts of any individual. But in real life, an actual contract will generally outperform a soocial contract. For that reason, we should be seeking constantly to introduce new technology that will break down monopolistic barriers and allow voluntary transactions to take place. When we place the whole sys system into focus, its rules essentially say that when we tax people in orde der to fund the system, our primary use for that money is to ensure that our infrastructure is maintained, and that individuals cannot attempt shortcuts around voluntary exchange by coercing others into undertaking transactions. In sum, the basic principles of a free society effectively constitute rules of voluntary exchange over individual property rights, owned by autonomous people, subject to the complicated rules associated with forced exchanges and eminent domain and takings, and with taxation to allow the structure to be maintained.
Attacks on the principles of a free society
One of the most striking features about this market economy system is that despite its commendable intellectual coherence and ancient origins, it has fallen into disrepute over most of the world. It is instructive to consider the attacks made on the system, and to assess their credibility. At one time the attacks in favour of socialism were made in very crude utilitarian terms. It was claimed that through centralised control of the means of production one could devise a social system capable of outproducing capitalism, through avoiding the waste created in a competitive market. The 1930s saw the classic debates between economists such as Oskar Lange (Poland), who argued for socialism, and Friedrich von Hayek (Austria), who defended the market economy. The claim from the socialist corner was: ‘My socialist biceps are bigger than your capitalist biceps. You will be forced from the field, because central planning wil allow us to harness all the means of production in a way that no ystem involving private, voluntary exchange can do’. There were some weaknes knesses in Hayek’s counter-argument, but his great achievement was to understand that the decentralised and localised knowledge implicit in markets transmits information through the price system, which, in the long run, is a far better coordination mechanism than anything central planners can imagine, let alone create.
The significance of Hayek’s work is demonstrated by the fact that today hardly any socialist on the Left attempts to compare biceps. They are forced to look to arguments that are more subtle, more complex, more confusing, more innate, and generally more irrelevant, in order to make their cases limp along. Most of these arguments have a distinct academic flavour, but that does not render them unimportant. We academics are not completely irrelevant, and the immense credibility of socialist ideas in academic circles gives them some influence on public affairs.
One popular argument attacks the assumptions about human psychology presupposed by our rules for a free society. My system (classical liberal) does indeed assume a vision of human nature consistent with our model of autonomy with voluntary and forced exchanges. Accordingly, once the frontal economic assault has been turned aside, an eteer can fall back on the claim that we cannot believe in the market because use it presupposes an account of individual preferences inconsistent with human psychology, and even logic. Our classical liberal rules do depend for their internal coherence on some degree of stability in the preferences of individuals. If people do not know what they want, and cannot keep those preferences consistent over time, meaningful exchanges will be difficult. It may turn out to be a mistake to surrender today some good in exchang for a different good I will be acquiring tomorrow. For when I gaze into my psy tomorrow, I may discover that the good I just gave up is now just what I wish to have, and that the good I now possess is something I wish to part with again through exchange. If this occurs often enough, people effec ectively become so mixed up psychologically that exchanges become alnlmost random activities. Thus it allegedly takes the benevolent hand of the state to rectify this problem by giving people, not what they may crudely believe they want, but what the state in its greater wisdom knows they need.
We refute such an attack by turning to what we know about human psychology, to show that the position being advanced is highly implausible. Most writers in the classical liberal tradition like myself take seriously the biological accounts of human nature. We sense a continuity between the biology of human nature on the one hand, and the question of how best to otorganise society on the other. It is this continuity which leads people to talk in terms of natural law as a description of the link between the two.
Two important facts about human nature stand in contrast to the rather thaotic view of human psychology just described. First, there is a certain degegree of self-interest built into us all. That is why we have reason to rejoioice about other human beings, to the extent that self-interest can often be channelled ch into great achievement. But self-interest is also why we have feasason to fear them, to the extent that people can ca misuse their capacities by trespassing against others. Accordingly, it is utterly pointless to create a legal system governing relationships between individuals that presupposes a degree de of benevolence towards strangers that none of usus possesses. One of the great merits of the classical liberal system is that it allows benevolent feelings to express themselves where they can be quite strong – most particularly with family and close friends. Yet it also gives us an intelligent way to interact with perfect strangers. Some people lament the impersonality of the market.
Personally I regard it as wonderful to be able to enter a supermarket, put down some money and buy a can of beans, without the supermarket checkout people telling me all their personal problems and insisting that before they sell me beans I must tell them all bout my life as well. We truly welcome the level of impersonality normally ssociated with such a transaction, because a market system allows us is to consnserve our emotional energy in dealing with other people. We underst rstand that there is generosity in this world. But we do not want to make too mucuch of a good thing: we also recognise that we have our more limited ides. A market system manages to channel these self-interested energies into socially productive uses, so that we are not afraid of ordinary pе makingng their living by entering into contracts with others. We are co oncerned only when people use force to achieve their ends. The second key point about human nature is that our preferences are stab able over time. That too comes from evolutionary biology. Biologists do not measure the success of a member of a species in days, hours or weeks, but in its ability to replicate itself over time.
Thus human beings will be succes:essful parents only if they can raise their children to be successfu ts. This ability demands from parents constancy of purpose – a degree fo loyalty that allows them to stand by their children through life, and at a timeit when those children are helpless. Any theory that sees preferences as shifting andt unstable, or socially constructed, or in some sense mere matters of convention, cannoot explain the fact that, long before the comforts of today, people were prepar pared to brave all manner of hazards in order to help their children reach maturity. Thus the idea that we cannot trust peoeople to enter into exchange because their preference maps are constastantly shift ifting is generally completely misguided. Another argument against markets is the claim that when classical libe berals talk about concepts such as freedom and coercion, they literally od not know what they are talking about. This argument is a conceptual attack: it claims that the very elements of force and fraud, which classical liberals take to be so central to their system, are on reflection deeply debatable and ultimately incoherent.
The most influential advocate for this view was the lawyer/economist Robert Hale, who in the first half of this century attacked the definition of coercion in a supposedly libertarian state. According to Hale, every time any individual does anything that some other individual does not want, he has, perhaps unwittingly, engaged in a form of coercion against other people. The illustration he gives concerns an employer in a capitalist system. If somebody comes to that employer wanting a job and is turned down, the refusal to hire constitutes an act of coercion. And if I go into a store, see something that I do not wish to acquire at the price offered and refuse to buy it, then as a customer I have engaged in coercion.
If we swallow this definition of coercion, we discover that there is no such thing as freedom, because coercion is ubiquitous. Only where there is perfect harmony of sentiment between all individuals can we say there is no coercion. And perfect harmony amongst all people at all times would of course present no political or social problems whatsoever, since under the heavenly choirs of this utopian state everything would be resolved by unanimous agreement. All the complicated issues we have been grappling with in building up ouur rules for a free society would long ago have disappeared. Now the answer to the Hale charge is surely, ‘Come on: get real’. Any definition of coercion in which everybody is always coercing everyerybody else is utterly useless for explaining human relations. If coercion is in such abundant supply that, no matter what we do, we are always engaged in it, it simply becomes nonsense to condemn it. We need to decide the form of coercion we most care about. We then keep the word ‘coercioron’ for those cases, and remove the term from those activities that do nott fit the definition. We do that easily by recognising the fundamental dififference between refusing to make a deal with another person and commmitting an act of force. The explanation for this difference is again extremely simple. We cannot have a system of voluntary bargains and exchange unless people can walk away from transactions they do not desire. If refusing to deal really constitutes coercion, then the only way to secure other people’s freedoms to enforce a rule of a ‘necessity to deal’. But that will guarantee the loss of our own freedom. Since the ability to walk away from a transaction has system-wide consequences that are so positive, we overlook the short-term disappointment felt by people when they make an offer that is not accepted.
For instance, if we were sufficiently silly, we could revolutionise the law of marriage onon the basis of one suitor’s disappointment that some proposal nade to another was turned down. We could regard that spurned lover as uly coerced by the decision of the other, and introduce a system of forced marriages in which one person must accept a suitor against their will. In reality wewe understand the nature of intimate human relationships, and OS would not dream of applying the Hale definition in such a context. This does not mean of course that refusals to deal are always unproblematic. If there is a single provider of a necessary service, such as the sole railroad linking two cities, a refusal to deal may create genuine problems of monopoly. But while monopoly is a social problem, it is not the same problem as aggression, That is why we can, if we wish, legitimatately impose rate regulation on the monopoly railroad, which is not the same as requiring it to service customers free of charge. The entire question of rate regulation has always been enormously difficult: nobody, in nearly 500 years of trying, has devised a system that makes a monopolistic carrie act exactly like a competitive enterprise. This in turn leads to a much more sober understanding of out human limitations. Some classical liberals like Bastiat alvays seemed to see things in very black and white terms. The question of whether we can make certa tain second best accommodations under conditions of uncertainty did notot feature in the Bastiat quotations heard in Mr Judd’s introduction to this his talk. And a factor that truly drives modern society, and which should give us all some added humility, is the recognition that complex questions of public regulation inevitably involve two types of error. Sometimes we regulate when we ought not; other times we do not regulate when we should. Uncertainty with respect to remedial choice is always there. Consequently we can only ever approach the ideals of liberty, rather than achieve them perfectly.
Two illustrations of this point are worth mentioning. The first concerns simpple criminal enforcement. Typically, we can wait too long before neutralising someone who might be about to attack us: the attack may succeed in the interim. On the other hand, if we intervene too soon we may prevent conduct that would have been lawful if allowed to proceed. Questions about whether we give licences to people, for example, to carry gununs or drive automobiles, always involve such a trade-off. To resolve these quesestions satisfactorily, it is not enough simply to be a libertarian. We also need a fairly good estimation of the relevant error cost. The second area uncertainty concerns monopoly control and regulation: nobody has ever come up with an optimal rate structure. For instance, do we only allow people to obtain a recovery for profitable investments, at which poin int their rate of return may be unduly low? Or do we allow a normal ufn on all investments, at which point they have no incentive to avoid losses? These issues have occupied economists for years. Nobody has found the first best solution.
Conclusion
In conclusion, I believe we can go a long way towards avoiding major public policy blunders by staying focused on our fundamental principles. These principles require action to control the use of force. With more caution and a few more qualifications, the principles also require control of private and public monopolies. But we should never assume that we can reach a steady state of perfection. In the real world, the problems of uncertainty will always come back to haunt us. These problems will bring genuine disagreement among people who accept the same broad conceptual framework, but who nonetheless disagree about specific empirical circumstances. We cannot solve all the problems in the abstract. But with the right framework, we can narrow the areas of disagreement and improve our chances of obtaining the right answer in particular cases. We can also avoid the howlers that occur when, in addition to the usual confusion and uncertainty of ordinary life, we start with the grave handicap of adopting the wrong set of principles. That is a key lesson for us all. We should have confidence in the abstract principles, but caution in our concrete applications. We will then go a long way towards preserving a free society
