Epstein’s Critique of Hayek (Part 2)

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.

About F. E. Guerra-Pujol

When I’m not blogging, I am a law professor at the College of Business of the University of Central Florida.
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4 Responses to Epstein’s Critique of Hayek (Part 2)

  1. Pingback: Why won’t Richard Epstein update his priors? | prior probability

  2. cardiffkook says:

    For a great insight on the potential for negative externalities emerging out of voluntary decentralized activities, I stronly recommend googling the Slate Star Codex article on “Moloch”. If you don’t follow Scott Alexander, I recommend adding him to your list of great non libertarian blogs.

    I strongly disagree with your framing of taxes as theft. You have effectively answered the question in your framing and in a way which eliminates the potential for an unbiased answer. Consider it thus… Do you agree that people in theory should have the freedom to agree to paying a tax for public goods? If so (and from a libertarian or classical liberal standpoint the answer is obviously yes). Therefore taxation is not the equivalent of theft. People don’t agree to theft for obvious reasons. They can and often have agreed to be taxed (I move into a neighborhood which has local taxes which competing neighborhoods don’t have). Taxation is not any more theft — than a rule limiting our freedom to take a certain action is slavery.

    Now I know that people usually have not (and would not have) agreed to taxes, thus the forcing of such redistribution is indeed a form of exploitation. It is thus a lot like theft. But it ain’t theft. Overlap isn’t the same as identity.

    So, taxes are in practice often similar in some ways to theft. My recommendation is to keep the benefit of taxes as a way to solve public goods problems and to make it voluntary. In practice this means building more variation, choice, opt outs, exit options, voice and subsidiarity into the system.

    As to your question on the Oasis. My answer is that over the long haul we would be better off designing (or allowing it to spontaneously form) a system where open access (competitive) markets sell water to travelers. To handle the occasional traveler who gets lost with no water and no money to buy any, I recommend travelers build a mutual aid society which comes to everyone’s aid. This mutual aid society can be funded via insurance premiums, voluntary contributions, taxes or some combo. Absent such a market and such an aid society today, I suggest the moral thing for me to do would be to give the poor guy a glass of water, and if someone else didn’t do the same I would think less of him. I would not allow him to be sued or arrested, as he committed no crime, he was just being a mean jerk. I would not honor a contract of the oasis owner charging a million dollar IOU for the glass, as this is a contract under clear duress.

    • enrique says:

      Thank you for your thoughtful comments on theft and taxes. I plead “guilty as charged” for over-simplifying my analogy between taxes and theft. I can imagine a scenario in which, behind a veil of ignorance, a majority of self-interested actors agree to some form of taxes and redistribution. With respect to the oasis hypothetical, I agree that the “moral” thing to do is to give the thirsty fellow the glass of water (even though, in my version of the hypothetical) he purposely put himself in this situation; but the problem here is not moral but legal: should the owner of the oasis be compelled (with or without compensation?) to provide the thirsty man a glass of water? If so, where should we draw the legal line?

  3. cardiffkook says:

    I think a legal obligation to provide water would lead to bad long term results. It would foster bad habits on the part of travelers and would lead to the fencing off of Oases. Thus I would recommend institutions which do not create such a legal duty.

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