The following exchange got underway at the Reason 35th anniversary banquet, which was held last November in Los Angeles. Keynote speaker Richard Epstein, the eminent legal theorist and author of the new Skepticism and Freedom, delivered a provocative talk about the foundations of libertarianism titled "The Ambiguities of Reason: Of Large and Small 'r's." For the spirited dialogue below, we adapted Epstein's comments and invited three responses, which are followed by a final comment by Epstein.
The Limits of Liberty
Why we need taxation and eminent domain
Richard A. Epstein
Perhaps the most fundamental question we face is how to think about liberty. Some libertarians stress the formal power of logic to resolve hard questions. They insist that all rights and duties flow from a necessary conception of individual autonomy or self-rule that allows all individuals to do whatever they wish with their own lives so long as they do not interfere with the like liberties of other individuals. No person may use force or deception against other people, either for his own advantage or for the advantage of third persons.
This moral imperative holds seemingly without regard for its social and economic consequences. Political organizations should adapt to this strong conception of rights and duties, the argument goes, and not yield to whim or fashion. Given this simple premise, individuals may use their own labor to acquire property, to exchange their labor or property with others, or to form complex business, social, and charitable organizations.
This strong intuitive conception of rights and duties tightly corresponds to our ordinary concept of right and wrong behavior. Most people do not seek to order their daily lives by discerning the origins of property in the mists of history; nor do they typically ponder the larger questions of public finance and political organization. But they are taught from birth to be neither bullies nor cheats. In dealing with life-size events, they adhere unswervingly to these simple basic principles. Why then resist their universal application? The content of the rules is clear, and any effort to switch to some calculus that weighs consequences case by case would at best yield indeterminate results, which would in turn heighten overall social insecurity. Better not to scratch beneath the surface. Even if these rules are not necessary truths, we should still treat them as such. Deductive principles order practical affairs well.
Unfortunately, this principle of personal guidance does not supply us with a comprehensive theory of social organization. First, there is the question of philosophical foundations. Can we really support any kind of political order that pays no conscious attention to the consequences it generates? On this point, the ostensibly deductive view is right to shun judging individual actions one case at a time. But this detached form of analysis really should be regarded as a form of closet consequentialism. Setting up public institutions to pass on all individual actions becomes so costly and intrusive that it flunks the standard of good government in just those consequentalist terms. But it is possible to moor this judgment of political structure in a keen appreciation of the mainsprings of human nature, which yields a decidedly mixed picture of the best and worst in human behavior.
We start with the biological observation that no individual could survive in a world of scarce resources without a strong measure of self-interest, one that includes at the very least his own family and close associates. That self-interest can manifest itself in one of two ways when dealing with strangers; through either aggression or cooperation.
The overall social consequences of these two approaches are massively different. With force, one person wins while the other person loses. With cooperation, both persons win. This simple observation underlies the consequentialist explanation for the libertarian preference for agreement over coercion: Take that arrangement that leaves both parties better off than they are under the alternative legal order. Contracts result in joint improvements, such that the greater the ease of contracting, the greater the gains from cooperation. Coercion creates at least one loser for every winner, where the losses (e.g., death, rape, or theft) can be huge relative to the gains on any intuitive interpersonal comparison of utility. When the odds are right, any individual may find it in his interest to use force or deception, but from a social point of view this conduct merits strong condemnation. The basic libertarian imperatives are well-grounded in human nature.
Yet just how far does this insight go in a practical sense? To hang your hat on empirical regularities is to retreat from the language of absolutes and to invite exceptions to general rules. If our ultimate criterion asks what arrangement leaves all parties better off than they are under the next best alternative, there may be cases where the dominance of agreement over coercion should be displaced. In fact, there are: Some contracts are suspect, and some force is justified.
In dealing with ordinary contracts of sale or partnership, we tend to ignore the consequences of these joint efforts on third parties, which any comprehensive social theory should take into account. In most cases, happily, these external effects are positive. Two or more traders not only increase their own wealth and happiness but also expand the opportunities for trade and advancement for others. But a contract to kill a third person has the opposite effect. Indeed, it is precisely because contract yields gains from trade to the participants only that we worry about such agreements, now called conspiracies, because of the threat they pose to the basic rights of liberty and property of others. We are now faced with the difficult practical question of how to identify these rights-threatening arrangements, to punish them if they achieve their object, and, more important, to nip them in the bud.
Concerns about bad contracts are not limited to such situations. Contracts that seek to bribe individuals to violate previous agreements are similarly dangerous. More controversially, contracts that operate in restraint of trade are also possible candidates for special treatment once it is accepted that overall levels of social output are higher under competition than under monopoly. Exactly what should be done with these arrangements, assuming that they can be properly identified, is no easy task, given the political risk that perfectly sensible business arrangements will be attacked by government action -- as is often the case when aggressive competition is branded "predatory" pricing, a dubious appeal to the libertarian norm against predation by the use of force.
Sometimes the strong libertarian synthesis breaks down in the opposite direction. The most conspicuous illustrations are condemnation and taxation, each of which contemplates the use of force against ordinary persons who have neither committed any wrong nor breached any promise. Yet it is in my view impossible to maintain any per se rejection of these two venerable if dangerous institutions, both of which are not only consistent with limited government but required by it.
The libertarian prohibition against force does not take into account the possibility that successful cooperation in key situations can be thwarted by individual holdouts. It will not be possible to build a railroad from point A to point B solely by getting the cooperation of 99 out of 100 private landowners along the way. The last one (indeed all) must be brought into line, and the way to do it is to compel the purchase by paying them the highest value of the land in any alternative use whose value is not dependent on the railroad that is about to be built. The public, including those whose property is condemned, gain the benefit of the railroad, but if compensation is correctly calculated -- a big if -- no individual suffers financial deprivation in the process. State coercion is used to create the win/win situations found in private contracts.
What works in condemnation cases helps explain taxation as well. The public enforcement of private rights and the creation of infrastructure through condemnation both need money that only compulsory exactions can supply. But once the coordination and holdout problems are overcome, much work has to be done to prevent massive abuses from working their way into the system. The flat tax is one sensible limitation on the power of taxation (others can be devised as well), for it allows state funding to vary in amount without picking on one segment of the population.
In sum, the central challenge to any political theory is to devise a set of institutions that first allows and then controls the use of coercion against individual citizens for their own benefit. In light of the justifications that have been put forward here, one could ask the question whether these concessions to state power amount to a backhanded capitulation to the modern welfare state, where any claim of the government to action in the public interest is sufficient to justify state intervention.