In our previous post, we identified (via the loquacious Professor Richard Epstein) a potential contradiction in Hayek’s influential theory of “spontaneous order.” Briefly, decentralized markets are a good example of a spontaneous order, but markets require a set of rules or a legal framework in which contracts and property rights are enforced, and this framework itself is often (though not always) the product of human design. (See also Regis Servant’s thoughtful comment in our previous post.) But aside from this mismatch, Epstein identifies another major blind spot in Hayek’s work. Specifically, Epstein asks, what happens when there is a breakdown of spontaneous order?
One could also put Epstein’s question this way: what happens when the invisible hand of decentralized decision-making produces a bad outcome? Think about “climate change” or the problem of traffic congestion, for example. In most major cities around the world, every person’s independent decision regarding when to drive and what routes to take often produces enormous and socially-wasteful traffic jams every business day, often on weekends too. Sometimes the only viable solution is some form of public “coercion.” In other words, we let our governments extort or steal our money from us (in the form of taxes) in exchange for better roads and other forms of public transportation. (As an aside, notice that once you see through all the embellishments and euphemisms–all the bogus “social contract” justifications of state coercion–you must conclude that taxes are involuntary wealth transfers, i.e. theft. We tolerate this extortion/theft because we have no other choice, given the asymmetry in power.)
The problem, however, is that coercion is generally bad. Hayek, like the great John Stuart Mill before him, is writing in the “classical liberal” tradition–a tradition we greatly admire, by the way–, and the overarching goal of libertarians like Hayek and Mill is to minimize the amount of coercion overall. Here, then, is the blind spot in Hayek’s thinking–if we are interpreting Epstein’s remarks correctly–a big if since his lecture was one long ramble and very hard to follow closely. Some level of coercion is not only necessary to create voluntary markets in the first place (at a minimum, for example, markets require a public or private enforcer to protect us from force and fraud); coercion may also be required when markets fail even with a legal framework in place. Professor Epstein provides a vivid example to illustrate his critique of Hayek: the so-called “oasis problem.”
We shall present a modified version of this classic problem to illustrate Epstein’s critique. Imagine a man in the middle of the desert. He is very thirsty after carelessly putting himself in this desperate situation. He did not pack a sufficient amount of water to last him during his travels, since water is heavy, nor did he bring any money or anything else of value. Now imagine that you own an oasis. Let’s say you inherited it from your grandfather. Your business is to sell water to people who travel through the desert. Let’s also assume that a glass of water costs x in the city and that you are able to charge 3x since you are out in the middle of the desert and your nearest competitor is miles away. Should you be legally compelled to give the thirsty man a glass of your water? (Would you be liable in tort for his demise, for example, should you refuse to provide him your water?) We shall blog about this example in a future post. For now, however, it suffices to say that your answer to this question will determine whether or not you are a hard-core libertarian or “classical liberal” in the Hayekian sense …
Image Credit: Wikipedia.