Coercion vs. Consent

Richard Epstein, Randy Barnett, David Friedman & James P. Pinkerton from the March 2004 issue

(Page 2 of 5)

The short answer to that question is no. Indeed, there is a strong sense in which exactly the opposite happens. The traditional deductive form of libertarianism allows for state force to protect against aggression and fraud. The more complex version recognizes that state power is also appropriate to overcome holdout problems by the limited use of force. This two-tier inquiry clearly legitimates some forms of government action, but by the same token it makes the case against state intervention stronger in those settings where none of these justifications are available. It is easy to see why the state should keep its hands off the substantive terms of labor contracts in a deductive libertarian world. Hence we should get rid of minimum wage, antidiscrimination law, collective bargaining statutes, and mandatory pension and insurance regulation. Systems of price and rent control similarly go by the boards, as does the full range of tariffs, anti-dumping laws, and other impediments to international trade.

We arrive at the same results even after we recognize the legitimate state role in condemnation and taxation. Unregulated labor and product markets present no coordination and no monopoly problem. The basic libertarian position in favor of competitive markets is thus strengthened by allowing in principle a broader range of state justifications, none of which works in these cases. Removing these ordinary activities from the thrall of government regulation should increase the tax base and thus reduce the need for taxation, while simultaneously increasing the liberty and prosperity of all. The greater level of wealth should in turn reduce the calls for redistribution of wealth by state action, which in turn will reduce if not eliminate much of the welfare state. Government will still be larger than deductive libertarians might want, but it will be far smaller than the current bloated state.

Our limited use of coercion is done with the paradoxical intention of expanding the scope of individual freedom. It is always dangerous business, but it is only with a conscious awareness of how we must both use and limit government power that we shall find the intellectual tools to resist a descent into the all-powerful welfare state. The practical success of our endeavors depends on the ability to avoid not only the dangers of the all-powerful welfare state but also any categorical reluctance to use coercion to initiate forced exchanges that benefit us all.

Richard A. Epstein, the James Parker Hall Distinguished Service Professor of Law at the University of Chicago, is the author, most recently, of Skepticism and Freedom: A Modern Case for Classical Liberalism (University of Chicago Press).

The Lesser Evil
Sometimes the cure is worse than the disease.
Randy Barnett

For most of his career, Richard Epstein has been urging libertarians to expand the exceptions to the prohibition on the use of force beyond self-defense, detention of rights violators, and restitution to include using forced transfers to solve the economic problems of "holdouts" and "free riders." Holdouts would be addressed by eminent domain, free riders by taxation. He justifies both of these expansions on consequentialist grounds.

In his writings on contract law, however, Epstein has insisted that we do not want to make categorical exceptions to contractual enforcement that are so malleable that people can define themselves into them at will. He allows that some agreements can be voided, such as contracts signed under duress or as a result of material misrepresentation, but each justified exception amounts to a direct or indirect way to police force or fraud. As he has written: "The rules in question should not create artificial incentives for parties to lower the level of competence they bring into the marketplace. It is dangerous to allow people to plead their own incompetence in any transaction that they wish, with the benefit of hindsight, to repudiate."

I am not sure he has adequately appreciated how his instincts about contract law defenses apply as well to the categories of free riders and holdouts. It is far too easy to assert the existence of these barriers to trade, and far too difficult to defeat unjust expansions of the use of force when these exceptions are allowed, even if he is right that some such problems are otherwise insoluble. If so, then the cure could well be worse than the disease, and no amount of fancy economic analysis can establish otherwise. The consequence of rent-seeking -- of interest groups using the coercion of the state to acquire unearned benefits for themselves -- matters as much as the consequence of failing to build a road. Ask the residents of Poletown, whose Detroit neighborhood was destroyed by eminent domain to build a General Motors assembly plant. Ask the Atlantic City client of the Institute for Justice who successfully resisted the condemnation of her house to erect a parking lot for Trump Towers.

I know that Epstein's theory of the Takings Clause would restore the requirement of "public use" that would prevent using eminent domain to transfer rights from A to B, and I agree his approach is better than what we now have. But who's to say that these takings for the "public good," as opposed to public use, do not increase aggregate welfare? Who's to say that the welfare created by General Motors remaining in Detroit is not greater than the welfare of the families who must leave their homes? Who's to say that the parking lot to be used by thousands does not create greater welfare than a house used by just one woman?

Due to limitations on our knowledge, we have little choice but to rely on the principle of freedom of contract to answer these questions, however imperfectly. Unlike self-defense and restitution, exceptions for free riders and holdouts cannot be justified as the enforcement of the rights of others. Authorizing force in defense of individual rights is a necessary evil to address the problem of compliance when persons put their own interests ahead of respect for the rights of others -- rights that are themselves necessary, on consequentialist grounds, to solve the pervasive problems of knowledge and interest. Caution should be our guide in pursuit of better consequences than properly defined individual rights provide.

Of course, to some extent this debate is moot. If we ever get to a libertarian world in which these are the only forms of coercion still existing beyond self-defense, etc.,we will know a lot more about how liberty actually works and how to achieve it politically than we do now. We will be in a much better position to decide whether to abolish these practices along with all the other vestiges of the welfare state. I should live so long.

Why then debate them now? For the same reason Epstein has been harping on these points for decades. We debate the form of the ideal end stage as part of the debate over whether to take any further steps in its direction. Epstein clearly believes that a more sympathetic and defensible end state is one in which these additional exceptions for free riders and holdouts exist. On this, I have always had my doubts.

I do not think that Epstein has ever seriously addressed the alternative ways of solving these problems that have developed historically on the market, and which libertarians propose be extended to address the problem of so-callled "public goods." "Public goods" are more a construct than an artifact of the world. It is often only a lack of imagination by academic economists that prevents them from seeing a solution. Indeed, one of the functions of entrepreneurs, as opposed to academics, is to figure out how to make a public good into an excludable private good.

Such techniques include creating the fencing technology needed to exclude free riders (think of the walls around movie screens and theater stages), tying nonexcludable goods to excludable goods, and such legal devices as conditioned contracts that go into legal effect only when a sufficient number of persons have agreed to pay for a particular project. Holdouts are dealt with by real estate developers assembling parcels of land in a variety of ways. I am not sure anyone can prove that these alternatives to takings and taxation will definitely increase aggregate social welfare. But I am certain no one can prove the opposite either.

This is not to deny that consequences matter, a point on which Epstein and I agree. Indeed, I think there are very few libertarians today for whom consequences are not ultimately the reason why they believe in liberty. The issue is always how best to achieve good consequences. As Epstein notes, making no exception to a general prohibition on the use of force is not an option. Self-defense is an exception, as is forcible compensation, and anyone who studies the common law of torts, contracts, and property knows that other exceptions are built right in to the doctrines that define the liberal conception of several property and freedom of contract.