If one rejects laissez-faire on account of man's foul ability
and moral weakness, one must for the same reason, also reject
every kind of government action. Welcome to Keith's night.
Don't tread on anyone. And the libertarian Institute
today. We have Peter Leeson author of
Anarchy, Unbound. By self governance works better
than you. Think.
He is a professor of Economics, at George Mason University.
Mr. Leeson. Where is the best place for
people to find your archive of work?
Peter Leeson.com, my personal website?
Excellent. Let's get into.
Terrific book. What is anarchy?
Anarchy is the absence of government.
And what is government? Well there, I think things
become a little bit trickier. I adopt a, I think so, you know,
the classic description of the vibe.
Aryan definition is a legitimate Monopoly on the use of force,
which is a territorial definition and I think it's
useful for many purposes and I think that other attempts to
really precisely Define what government is are also useful
but I experienced, you know, looking at different social
institutions looking at different societies over time
talking to people my own intuition.
None of these definitions adequately or at least
perfectly. I should say capture what it
really means to have government or its absence.
So we understand again, Anarchy's the absence of
government, but we're talking about what is government.
And so I tend to think about it as lying on some kind of a
spectrum where you have more or less government.
And I think for the most part, when we're talking about anarchy
versus the state, people's intuitions are very similar to
one another's. And so, you know, we don't
really run into a classic Atari problem.
There are some cases where I think we do, but I think they're
not so important. So I adopt for in short, an
approach to, you know, what government or Anarchy is, is,
you know, it when you see it, I don't think that as I say any
given situation, Satisfies. All of the various ways or
particular particular forms of definition that people have
offered, you know, that would capture it.
And so that's why I take this kind of loose approach, which
some people are upset about some people don't like, but I think,
you know, basically captures what we haven't have in mind.
So what is wrong with the definition that state or
government? Rather is a group of people that
claim the right to initiate violence in a geographical
territory on and with Property, they didn't just lie acquire
with people who haven't contracted with them.
Well, there's nothing wrong with it per se, but notice how many
things you packed into that into that damage dust the acquire,
right? What does that mean?
Sure, territorial Monopoly over what territory, right.
That are to whether or not you've got a a territorial
Monopoly. Depends upon how you define the
territory. And question is it is is the
territory a block? Is it that is the territory
eight blocks. Is it something that a country
that the size of the United? Is it a territory?
The size of Alabama? It completely depends, you know,
I think if we and I'm going to probably forget, you can tell me
what's wrong with it. But I may miss some of the
qualifiers that you had, but if you think about, you know, a
mafia Organization, for example, an organized criminal unit, they
have within some territory. Typically a something
approaching a, or they can at least a monopoly on Force.
It's not a legitimate Monopoly on Force, but that begs the
question of what we're Counting. In is legitimate.
They may claim that they have a legitimate Monopoly on Force.
So we probably don't want to look to that as as part of our
definition. But I think more generally, you
know, I think most people would say, well look they don't have a
monopoly because these or criminal organizations for
example exist within some broad or territory, where there is a
government where there's a state and so they are not, these are
not these criminal groups, don't have a monopoly and I would say,
okay, but by the same token, then the state or the government
doesn't have a monopoly either. We just acknowledge that there's
another organization. In this case, the criminal gang,
that also wields force, and it's performing many of the functions
that a government normally does. So that's my issue to use the
example that you gave, you know, with these kinds of definitions.
I also think more importantly that it doesn't really matter so
much. I mean other than kind of for
mostly pedantic purposes. Most people would think about a
mafia organization as not a state as not a government.
You know, often we think about criminal organizations emerging
where the state is, is not active in some important way.
And so, we could study criminal organization a mafia, for
example, as a case of private governance, with respect to
those individuals relations among themselves.
They are in an anarchic environment.
They can't rely upon the ordinary.
What we ordinarily, we call State institutions to help them
cooperate to prevent them from engaging in conflict with each
other. So, from that perspective, There
is an anarchic context. That's just, which is a way of
thinking about it, in some other context, that we might be
interested in studying. However, we might want to think
about the mafia as a government. None immediately comes to my
mind, but I've had enough discussions about what Anarchy
our government is with people to find that sometimes especially
when people are trying to when they have a particular interest
in a certain definition because they want to make a certain
point. All the sudden things that I
don't think they ordinarily, would call governments become
governments or or vice versa. And so that's why I take this
kind of, you know, this approach that says, look, let's put all
that aside, call it whatever you want.
In fact, it's not even that interesting to me whether or not
someone wants to call it, Anarchy or government doesn't
really matter. What matters to me is the
mechanisms of governance that they use.
And I think ordinarily, we can classify.
Those governance institutions as a relay as either relying upon a
state or not. And I think in the case of a
criminal organization, we say that's not a stake in.
Case of a, perhaps different sort of criminal organization
that we call a federal government.
In some cases we call a state. So we make the we make the the
differentiation in your review of Anarchy and legal order by
Gary chartier. You say there are two approaches
to proving a point when discussing an orgasm one
attempting to demonstrate that, it is better able to achieve
some stipulated outcome or outcomes or to by attempting to
demonstrate that it Does more just or moral than Alternatives
in your book in Turkey on bound? Which approach do you take to
making the case for anarchism? I take the former approach.
So, you know, I broadly I'm an economist.
And so I think about things economically, the moral side of
the equation. While certainly very important
is not really something that I feel especially well qualified
to comment on, which is the sort of Justice angle in the quote
that you were just giving I think.
That doesn't mean that there isn't a matter of justice.
But to be frank, also, one of the things that I like about
economic science, is that it in its constant in its, the
scientific part of it tells us something about the consequences
of what it is that we do now whether or not we want to call
those consequences, good or bad is obviously a normative
judgment, but the science part gets us to my mind a long way of
the way there. It can be joined with a pretty
minimal set of normative claims and and generate A broader
worldview. Whereas I think when we rely
much more heavily on the normative component, the, what
is just component. There's a lot more room for
disagreement and I'm not saying that that disagreement is wrong
or misplaced, but there can be a lot of butting heads about.
You know, what the what the true nature of justice is or what the
just outcome is, whereas the question of, you know, does the
minimum wage cause dis employment, whether you think
Just or not. It has that effect.
Right? And so it clarifies, I think a
lot or takes a lot of stuff at least that I don't feel like an
expert on off the off the table and that's a big part of the
reason why I rely on, you know, economic reasoning joined with,
of course, normative values to arrive at a worldview.
What are some examples of Anarchy in our everyday lives.
Well, there are pockets of Anarchy.
This again, it gets, gets it back a bit to definitions in a
sense. But I think that actually most
people, most of the time are effectively interacting even in
places like the United States are effectively interacting in
and pockets of Anarchy and in anarchic.
Contexts, what I mean by that is that although there is a formal
State apparatus that is available to us.
Most of the time, we don't Avail ourselves of it.
And the reason that we don't Avail ourselves of it, is that
it would be impractical or too costly to do.
So, that's not the only reason, but it's a common one, right?
So if you think about, you know, if you go to a restaurant and
you order a, you know, a filet mignon, and they bring you out a
flank steak. Probably the last thought in
your mind is, I'm going to call the police or I'm going to
pursue this legally or uneven. I'm going to report this to the
Better Business Bureau. You're probably going to
Instead, try and resolve that conflict with the proprietor of
the restaurant and they will probably ordinarily be resolved
without problem. That is an anarchic interaction,
in the sense that the Cooperative Arrangement, and
ultimately, the contract that underlies it is not in practice,
going to be enforced by a state. So when you view it, that
broadly, most of our interactions, as I say, our our
anarchic If you want to get a little bit more official about
it, so that's a very micro view. If you zoom way out.
Obviously all of the world at a global level exists in an
anarchic context as well. Because states are obviously
Visa Vie one another without a supranational third-party with
formal authority to which they can appeal to resolve conflicts
between them. So scale way down.
We've got Anarchy all around us, scale way up.
We've got Anarchy all around us. That doesn't mean that we never
We use the state sometimes we do but it's a relatively small part
of the world that even has that as a potential reliable option.
And even there we see people often I think overwhelmingly
choose not to resort to it, simply because of cost
considerations. Now, people very often.
Say anarchy is something that we tried in Somalia.
Somalia, currently not a desirable place to live.
I'm associating that with Anarchy, the lack of a monopoly
State. Therefore, anarchism has
empirically been disproven and shall be laughed out of the
intellectual Court of discussion.
How do you respond to the idea that the existence of Somalia is
real? Life proof that anarchism
doesn't work. Oh, I tend to think of it as the
opposite. I think I tend to think of it as
as pretty strong, evidence that often times in the least
developed world. No government is Superior or may
be superior to government and that is not I should point out a
a testament to the incredible Virtues Of statelessness in a
place like Somalia. I don't think it is.
I think it's a testament to just how bad bad.
Add governments are, and can be. And, you know, unfortunately in
the least developed World a crucial part, to My Mind of why
they are least developed is that, they have really bad,
governments, governments that are strong enough to
essentially, expropriate people. But either because they lack the
strength or the will do not provide effective governance for
them. And so, in those situations,
even if you are a quite Pro State personnel, You should at
least conceptually imagine a scenario where the state is so
dysfunctional that having nothing at all.
Just letting people go, you know, Free Willy, even if it is
a kind of hobbesian Jungle, which I don't think it is, but
even if it approximates, that could be better.
Then having the state and I think that is what we actually
observed in Somalia. So as a matter of, you know,
evidence as a matter of the empirics, When somalia's
government collapsed in the early 1990s, there was a brief
period of civil war. That was, of course, quite bad,
but in the years, the decades that followed welfare in Somalia
seems to have improved under statelessness relative to what
it was under government. Not because again, Anarchy was
working. Great in Somalia.
It wasn't, but because Anarchy was working better than
something. That was even more disastrous,
which was a predatory dysfunctional state in that
regard Somali as I say is Not Unusual.
Most ldcs have similarly dysfunctional and predatory
States. What was unusual in Somalia was
the collapse of government and then this pretty protracted
period of stable panarchy, so So, you know, the key thing is
always when people both on the prostate and the anti Stateside,
the important consideration is to always ask yourself relative
to what, you know, I'm advocating for something
relative to what and too often. In my opinion, the comparative
Benchmark is a hypothetical one. It's a benchmark in theory.
It's, you know, it's a what? I call First best theorizing,
right? So we imagine that, you know,
Somalia and Anarchy is horrendous because we see that
there's lots of problems and poverty their tremendous, which
is true, and the relative comparison point in our mind.
When we make that claim is something like well what if they
had a government like the one in the United States?
That's the thing. We should be comparing to an
obviously, people are much better off in the United States
and Somalia. Therefore, Anarchy is a disaster
and government is great. Well, that comparison is Zan is
only a sensible one, if you think that American Quality
government is possible in Somalia.
If instead you look at what other governments in sub-Saharan
Africa have and what Somali historically had, what you'll
see is a much more sobering comparative, which is a highly
dysfunctional and predatory government.
So that is probably to my mind, but we ought to be comparing
Anarchy in Somalia to or again for any other comparison
institutional. Harrison that people want to
make, they should think about what the relevant alternative to
what their discuss what they're considering is not what their
preferred alternative would be in la-la land.
But in the world that we actually live in, where we have
constraints about the governance institutions of various
qualities that are available to us how to things look there.
Yeah, I remember Bob Murphy said, people will say that a
small Anarchist Village would have a lot of trouble defending
itself, which is true. Also a small state of a few
couple hundred, people would have trouble defending itself.
And I love the analogy you use where you said, I didn't know if
I should buy this car or that car didn't have so much money.
So well, I was told why don't you just get a Bentley?
Well, that was an unrealistic option of yours at the time and
that really got to the root of the, you know, Nirvana fallacy.
C or the fallacy of unconstrained Choice?
Don't you see that all over in in discussing economics, instead
of, you know, they're being poverty?
And instead of there being sweatshops.
They should have American wages. So let's Outlaw sweatshops.
Don't you see this all the time and how important this fallacy
is? Yeah.
It's crucial. I think a huge part of the value
added of Economics, you know, you cannot mix and it's base is
so simple and it is And one of its starting premises, is that,
you know, we Face constraints. Which means we can't choose
things outside the opportunity set.
So, you know, while we would love to have during the
Industrial Revolution, for example, we would love to have
this safer working conditions, you know, 21st century working
conditions, for example, and the higher wages that went along
with them. Unfortunately, time machines
don't exist. And so that was not one of the
options available to, to People during the Industrial
Revolution. And so, you know, we can think
of any number of examples you pointed to some others where, as
long as once, we're recognizing that, we're choosing within
constraints that choices are made within constraints.
Then, we again face, you know, more sobering, I think.
Alternatives. Did you write the chapter that
there's a book legal systems, very different from ours, and
there's a chapter on Pirates. Did you write that chapter?
I did. Yes.
What is the importance? It's of pirate law and
understanding of how Anarchy worked within pirate Realms.
Well, I think, you know, there's several surprising aspects of
governance among early 18th century Caribbean pirates, which
is what which is what I've studied and probably the most
startling fact is that these guys who had devoted themselves
to theft and violence as a way of living somehow.
In order to succeed as a criminal Enterprise, in order to
cooperate with each other needed to make sure that they didn't
behave violently and with and stand stealing from each other.
And the fact that they were able to overcome that problem.
I think is somewhat surprising, but the way in which they did,
it is even more surprising and that was essentially to
anticipate a system of constitutional checks and
balances that predates. A very similar system that we
ultimately adopted here in the United States Pirates developed,
you know, the infamous pirate code.
It was a real thing. They had written constitutions
that divided power among their officers as a way to
simultaneously empower the officers, such as the captain on
their ship. But also to restrain the
captain's ability to use that Authority against crew members,
for his personal benefit, the Paradox of power, that famously
Madison, articulated Pirates. Basically, you know, lived that
Cool experience again. Before the founding fathers, had
put pen to paper. I think that is, especially
surprising because, not only, is it criminals, who are coming up
with a self-governing solution who naturally can't rely on the
state to help them cooperate, but they are developing what, I
think most contemporary observers would regard as a
quite sophisticated form of self-governance.
A lot of times when people think of, and when people talk about,
Self-governance. They have in mind, very crude
institutions of self-government which are critically important
by the way. I don't mean to denigrate them,
by calling them crude. But for instance, the discipline
of continuous dealings, which is simply the idea that if you
cheat me, I won't interact with you again.
That's really important, but it's also very basic Pirates.
Relied on that institution. But overlaying it was, this much
more elaborate and sophisticated system that involved.
Written rules checks, and balances divided, power, excuse
me, and was incredibly successful.
So I think those are probably the first things that come to my
mind with respect to the surprising success of anarchic
pirate governance. What is the ricardian law of
Association? That law is.
That's a term from from mises. And you know, mrs.
Liu defy mises. My favorite Economist is then my
favorite book of his called Human Action.
Alternatively, he was going to title it, social cooperation and
the ricardian law of Association is really just about social
cooperation. It's about individuals finding
ways to cooperate with each other based on the division of
labor in order to You realize, you know, material gains to
mises is mind, at least in my reading.
And to my mind. It is the foundation of
civilization, our ability to find solutions to obstacles that
otherwise stand in the way of our that otherwise stand in the
way of our ability to realize Mutual gains from exchange.
And so, you can think about really Studies of Anarchy,
studies of self, governance, as contributing to that strain of
thought as trying to understand. In my, in my case, trying to
look to the world and understand how people who have confronted
various practical problems of governance in the absence of the
state have. In fact, figured them figured
out ways around them with many imperfections, but I think, you
know, one of the things that's important, why I emphasize the
empirical component here. Is that it's all well and good
and fun. I get try to enjoy it
tremendously to think, abstractly about how stateless
systems would operate, you know, about competing private
insurance companies and competing private defense
agencies and so on. But it's for the most part.
Not what real world stateless. Societies have developed.
There are some features that are in common, but their systems
tend to look somewhat different. And part of the reason for that.
Is that they are typically confronted with some quite
particular governance problem that they need to overcome and
the institutions that they developed reflect the particular
solutions, to those particular problems.
Please get inside the mind of someone who says something.
Like, if men were angels, we wouldn't need government first.
What are the assumptions in that statement?
And second. How do you respond to that
logic? If men.
So, that's a quote, quote, for medicine.
So, if men were Angels, they wouldn't need government.
Well, I mean, I think it's true, right?
If men were angels, we wouldn't need government, you know,
government is one form of trying to provide governance a system
and of creating and enforcing rules that promote social
cooperation. If everybody internally always
did the right thing if we all innately cooperated without
them. For incentives, then we would
have no need, not just for government.
We wouldn't have a need for any system.
Any institutions of governance at all.
The follow-up piece of that, of course was that or the follow-up
piece of that that we should consider.
Is that precisely? Because men aren't angels.
We do need some incentives to help us realize the gains from
cooperation. And those are governance
institutions. One form of, which is to be
provided by a state, but it's not the only one, you know, I
just gave you an example of. We just considered this example
of early 18th century pirate's, who did not were not asked.
We're not a government. I think in the ordinary sense of
the term that anyone would use that I want to come back to that
in a second, with respect, to our previous discussion about
what a government is, by the way, but just presume for the
moment that they were, that they were a criminal organization and
not a government. They developed these private
solutions that have a lot of features that look like what we
associate with the American system of government.
But a crucial difference in Pirates case was that their
system of Since that, that version of constitutional
democracy, if you want to call it, that they adopted was
unanimously, voluntarily consented to.
So, all the numbers of a pirate crew agreed to be governed by
those rules, which of course, makes it quite different in some
respects from the American system of government.
But back real quick to this issue of what a government is in
there. For what, you know, what is
government's absence. Pirates.
Have a monopoly on violence on their ships.
Does that make them a government?
I don't think so. Although I should say, I've had
discussions with some people, including some Libertarians who
have insisted to me, that no, it was a government.
It was a government because they had this Monopoly on violence.
As I say to me, the terms, don't matter so much.
But this is an illustration of why I think think the terms
don't matter so much in ordinary conversation.
We would call Pirates. A criminal organization that was
at odds with a government that was seeking to suppress them as
criminals, which is in fact was the case.
For some particular purpose of argumentation.
Somebody might want to insist that, it's a government, fine.
But here we need to note that the crucial difference was that
pirates consented to be governed by these rules explicitly,
where, as citizens of the United States, for example, that is not
true. And so that is one dimension in
which we can distinguish pirate governance from governments.
Having said that one more quick thing on this That distinction
of. Voluntary agreement is
attempting one to use to try and separate out if definitionally
governments from not. But that also fails, that's
another distinction that doesn't work and it's a shame.
I think it doesn't work because it is from a Libertarian
perspective. Probably the natural kind of
Distinction that we would want to draw.
The reason, I think it doesn't work is that It is very hard to
construe in reasonable terms to my mind.
A system that is governed by spontaneously emergent social
norms. As one that all the members who
are governed by those Norms consented to in an explicit way.
The reason being that people haven't consented to them in an
explicit way their Norms. Nevertheless, you could imagine
a society, and there have been some that are governed
exclusively. Possibly by Norms there,
ordinarily called stateless. Societies there, anarchic by my
understanding, but they wouldn't satisfy this, no coercion rule,
right. They wouldn't satisfy this.
Everybody had to explicitly consent.
Now, you could torture, you could torture the example and
make it so that all the sudden they are consenting, you know,
well if they wanted to, they could move into dada da.
But wait a minute. Those are the same types of
arguments that we as Libertarians ordinarily object--
to when people say well, the United States government is
Voluntary. Because if you don't like it,
you can move right? The same, all the same
arguments. Basically come reverberating
back at us. When we try to think through
these various again, particular eyes, definitions of government
versus Anarchy that have been suggested, which is why.
I again adopt this, what I call the commonsensical view, which
is that pirates are criminals, not governments governments, our
governments, we can probably agree on that.
Who makes the laws under Anarchy?
Well, it depends on the anarchic context, right?
So I just mentioned social norms in an anarchic context that is
governed by social norms or Which social norms play an
important role. No one makes the rules.
The rules are organic. They are it's like saying, who
makes language, who makes Customs.
No, one person does they develop as a result of people
interacting trying to find solutions to their problems.
In other cases? The rules are Made by the people
explicitly, who are who the rules are going to govern.
Think back again to the pirate ship Pirates, made the rules
deliberately and explicitly consciously.
That would govern their ships. They sat down and Drew up pirate
articles that written pirate code or Constitution that I
mentioned before. That's two extreme cases.
I think many anarchic context, have some combination of those
and perhaps some other things in between that are not, not
immediately coming to my mind. But the point is there isn't one
answer to who creates the rules the where the rules Come From,
depends upon the anarchic context and that source of rules
as well as the substance of the rules is going to reflect the
particular problem situation, again of the people who Going to
be governed by the rules. Social norms, one of the nice
features of them is that they work really well.
When you have very large groups of people because since they
organically emerge, we don't have to all get together in a
collective decision making body whether its private or not and
say, okay, here's how we're going to greet each other.
When we see one another, here's how we're going to deal with
contractual default. We don't have to do that, that
conserves economizes on a lot of cost of decision making On the
other hand, if there's only 30 of us or 80 of us like there was
on the on on the, on an early, 18th century, pirate ship, that
Collective decision-making cost of coming together to explicitly
create rules is much lower because there's fewer of us,
right. So there are these trade-offs
explicit rules tend to be more costly to create.
But they also give us a bit more control over.
Exactly what the rules are going to be rules that emerge
spontaneously. Asleep precisely because no
individual controls them. Can be harder for us harder
harder for the, for any individual to have influence
over much much harder. And so they tend to have their
own sort of inertia their own development, which is again,
both a both a benefit and a cost.
So, these, these trade-offs to these different sources of
rules, and we tend to in my mind, observe sources that are
economically sensible. Given the context in question.
What are some examples of Private money that you have come
across in your research. Private money.
I'm trying to think. I don't know that I've studied.
Private money, I mean, in the case of Somalia, what you had
was after the after the government collapse.
So the government had, there was a Somali Shilling which was the
government currency after the government collapsed.
Obviously, there was no Central Bank, that was printing money
and so in a sense, it was private money.
What what somalis did was continued to circulate the
existing Somali Shillings? So that fiat currency was
actually just piggybacked on once there was no government in
was and Chose was used by people simply because it was in
circulation and was already being used, it performed its
function. There were some problems that
emerged because one of which was that as the existing Somali
Shillings began to wear out when nobody else was creating the
money. There was a bit of a problem and
so they began importing notes and that led to some periods of
inflation. So the system didn't work, you
know, did not work perfectly at all, but that's the only example
that That's coming to my mind of.
I'm trying to think maybe I've studied a lot of different
anarchic episodes, but that's the only one where where I can
think of of money coming up in an important way.
Yeah, Paul Krugman has an article where he says the best
argument for keynesianism. Is there was a small group of
parents who got together and had babysitting coupons 30 minutes
each / coupon and no one was doing anything.
Because everyone wanted to save up their own coupons, then
someone decided we're going to print more coupons to stimulate
demand and then people started babysitting in this got this
babysitting, Co-op working, what he explicitly says, without
knowing it is, private money can work and you don't you didn't
need a state to come in in prison.
Everyone who used a different currency.
So you're able to do that. You think things like casino
chips, coupons, checks Pride. I've Bitcoin.
Do you think there's anything there to the idea of private
money? So we could not only understand
it philosophically and economically but maybe embrace
it to strip the state of some Federal Reserve power or if they
keep inflating the dollar to the point where it loses too, much
value, anything there you think is worth looking into.
Well, sure. I mean, you know, look, I
certainly am a, am a proponent of privatizing money.
It's just that I haven't studied it.
So I know one of my colleagues Larry.
White Lawrence Eight who has studied historical private
monetary systems. He's the person to talk about to
talk to about these things. That he's done.
Excellent work documenting how the system has various systems
of in fact operated. So I don't see any reason why I
don't, I shouldn't say, I don't see compelling reasons, why
money shouldn't be privatized in the same way that I think,
essentially everything else should be, should be privatized,
but I'm not a, I'm not a monetary.
Very expert. Have you come across any
interesting examples of how anarchic societies have dealt
with externalities? Sure.
Sure Pirates. Another great, great example,
you know, the what on pirate ships practically every activity
that a person engaged in, was liable to create a negative
externality. Okay, the reason for this is
that pirates sailed on, Merch stolen Merchant ships and these
Merchant ships to give you to put the put a, give you a size
perspective here. The average merchant ship 200
ton merchant ship of this period, would typically have
like a dozen Merchant Sailors on it.
So Pirates would take that over but their pirate Crews had like,
you know, 80 guys. So you're cramming 80 guys into
this really confined space and moreover.
This confined space is, you know, combustible quite
literally, you know, it's a wooden ship with call with
cloth. Al's.
So fighting on the pirate ship, could not only very easily,
injure the ship. It could injure the other
Pirates around you, you know smoking in the hold of the ship
could blow the crew to Smithereens, you know,
practically any conflict between Pirates created a perspective, a
potential problem for create terms of creating - spill spill
overs for other members of the crew and Pirates, adopted a
private regulatory solution and their anarchic context.
Which was they simply had rules that said, things like you can't
smoke in this part of the ship. You can't, you know, have
violent conflicts on board, the ship.
If you're going to have them, they need to be settled on
Shore. And they would typically have
duels that were refereed by the quartermaster was another
officer on the pirate ship. So, they had they laid out these
rules in their constitutions and the punishments for violating,
those rules. Also existed in more enforced
and they exist. They consisted of Monetary fines
essentially or corporal punishment.
So up to and including death. The book is anarchy Unbound.
Why self governance works better than you, think what is
economics? Economics is an approach to
understanding human behavior to my mind.
What is the economic difference between something being in the
private sector and the public sector?
Can you say it one more time? What is the economic difference
Shore? So if I'm looking at, you know,
in Industry, Healthcare would, what would be the pros and cons
of it being privatized versus done under the rule of a state?
Well, again, it depends on the particular case but in very,
very broad Strokes. To my mind, the chief benefits
of privatization of private property rights versus having
something be owned by the state are twofold.
The first is information, and the second is incentives.
So when you have private prayer and those are intimately
connected, you could even you can think of them as two sides
of the same coin, when you have private ownership, you have
markets and when you have markets you have price
information and that Information is a guide to the private owners
to the resource owners and resource users about how to best
use and combine resources in a way that increases their social
value. Once you have that information.
However, you need to have incentives to act upon it,
right? You need, you need to not only
know, for instance, that consumers want would rather have
leather be devoted to boots. Then you know, Choose You Need
to not only know that, but you then need to have resources
resource, owners be incentivized to produce boots, instead of
shoes, and that's the incentive piece.
So as I say, they're intimately, connected private ownership,
which creates residual Clayman see, gives us that incentive.
And because it's permitting for market exchange, gives us the
information that comes in the form of prices about how to
combine resources best. That's the general, the general
benefit of private property rights.
Is public property, right? Public ownership, having said
that, and this is something that I think is often overlooked.
There are benefits also to public ownership or to not
private ownership. If private ownership were always
appropriate than what you would see when people were left to
their own devices is that they would privatize everything.
They would establish private property rights in all of the
otherwise on privately owned stuff.
And yet they don't do that. Why don't they do that?
They don't do that because the cost of establishing of defining
and enforcing the private property rights would exceed the
benefit. It's efficient to leave some
things in the comments as it were and so, you know Harold M
sets famously wrote a great paper, right called toward a
theory of property rights, that analyze this question.
He was interested in how it was that private property rights had
emerged among some Indians who hunted, fur in Canada.
And what he found was that basically, when the fur trade
took off, so they were traditionally, communally
communally owned. Land in which the fur animals,
that they hunted existed. And that led to overhunting,
right? That's one of the cost of common
property because they didn't have the incentives because they
didn't have private ownership to conserve on the resource, when
the price of fur, he found increased because the fur trade
was flourishing, that created an incentive for these Indians to
establish private property rights in the trading, land as a
way to reduce that externality, that that oat, that Commons
problem that over over hunting problem.
And so he says, this is what explains the development of
private property rights among these Indians, which is
perfectly sensible. But an important part of that
story is that in the period before the fur trade took off,
which is to say before the value of creating and enforcing
private property rights in the forest areas was high.
It was in fact efficient to leave the forest areas in the
common realm as the Indians were doing So there's as with
everything in economics. There are these trade-offs
right? There's costs and benefits and
while in general private property rights are appropriate
and in general, I think we can do better by privatizing more.
It's important to understand that private property rights are
sometimes sensibly not adopted. We deliberately sometimes we'll
leave things in the Commons because we're better off as a
consequence of doing. So, Spite the fact that they
those common property rights undermine incentives and
preclude information, incentives, and information are
crucial, but there's a cost to basically getting them, right?
And if the cost exceeds that benefit, don't want to do it.
You said that I found and still find Human Action and endlessly
rewarding and Illuminating book. In my opinion.
It is the most important book on economics of the 20th century
and quite possibly the most important book, and economics
period. What are the main takeaways from
Human Action? Oh man, that's a hard question.
It's a, it's a long book. There are many, many takeaways.
I think that among the among those That that come to my mind
that that have influenced me the most, our first, how we conceive
of what economics is. So, before you ask me, what is
economics, I said, it's an approach to understanding human
behavior. I didn't say it's about an
approach to understanding Market Behavior.
It's an approach to understanding stock markets, or
an approach to understanding trade of goods for dollars.
It is all of those things, but it's an approach to
understanding human. Social behaviors much more
broadly than that, and mises is understanding of Economics
grounded in what he calls. Praxeology.
This, this General logic of human choice.
Was is to my mind, one of the earliest and to my mind one of
the best. Renderings of that idea, mises
was an economic imperialist to my, to my reading, at least
before, economic imperialism, was really fully understood as a
thing. So, he saw economic is applying
broadly to human behavior. Hence, the title of his of his
book, Human Action. So, that's one of the, the first
sort of kind of, I don't know, if it's right to call it
methodological, but it's a sort of an overarching view.
I think it is methodological, but an overarching View.
Of Economics relationship to its subject.
Matter that I think is crucially important among the much more
specific lessons that come out of that book.
I think probably the most important one to point two is
relates back to the ideas that we were just talking about with
respect to private property. Mises is argument about economic
calculation under private property rights.
Visa Vie, its impossibility under socialism.
So the this part of the Socialist calculation debate, Is
it in my judgment? You know, one of the very most
important ideas for understanding and economics
period, but in particular for understanding comparative
economics, for thinking about why it is that markets are tend
to be so effective. And why it is that government
government trying to perform the same, task tends to be so
disastrous and even why it is that government interventions
within a mostly market economy. Are often problematic.
That Central logic that he lays out about economic calculation,
I think is just absolutely, you know, crucial and genius.
Now, when Austrian start off with the idea that humans act,
what is the importance of? Recognizing that as a starting
point and what are its implications?
Well, its implications are to my mind.
All of economic theory in a broad sense.
So economics to my mind, starts with this single premise mises
called it purposive Behavior. In more contemporary terms, we
might call it maximization or some people might call it
rationality. It's simply the idea that people
have goals and they pursue those goals as best.
They can given the constraints that they face.
That's it from that simple idea. You'd arrive according to mises
and I which I agree you. Do you derive the basic, the
fundamental propositions of economic starting with the law
of demand and then moving from their out.
So, it's that, that premise is to my mind.
What actually is at the core of the economic approach to human
behavior. And it's developing.
Its theoretical implications is what gives us.
Economic theory and then the application of those principles
to what we observe to trying to understand the world is what
gives us what mrs. Called history or today.
We would just call, you know, applied economics, empirical
work and so it all starts from that from that core from that
first proposition. If you take out that
proposition, you enter a realm of to my mind, but you enter, a
great risk of ad hoc re in your approach to trying to understand
human behavior. So what unites, what has
historically? This is beginning to change but
historically, what unites what unites the economic Economist
and the economic approach is that all of the theories that
were being developed and subsequently, the applications
were coming, were starting from that premise?
Maximization. If you get rid of that premise,
it opens up the door for all kinds of other stuff, you know,
it opens up the door for pushing what at least traditionally has
been economics out the door and substituting it with something
like ideas from psychology which, you know, that's a fine
Enterprise if someone wants to do it, but to me it's not
particularly Illuminating. Of course, I would say that
because I'm quite partial to this.
Me Ceci and perspective, which insists upon Beginning from this
first Axiom. Now, let's take the idea of
Human Action. How would you apply it to the
understanding of marginal utility and if you could explain
what marginal utility is sure. So, this is a bit of a bit of a
bit of a of an unusual question in a way.
But so there are different approaches to this.
But this is the central idea. Is that from mises, is that each
Channel unit of a homogeneous stock of goods.
Satisfies a less urgently felt desire than the preceding unit.
That's what his notion of marginal utility is and that
implies a downward sloping demand curve because it implies
that each additional unit. If you're holding everything
else constant of that good because you're using it to
satisfy a desire that you value less than the one that you
satisfied that the unit prior satisfied, means that your value
of that good is declining. So the marginal part simply
refers to what is happening to your valuation.
As you as you consider, each successive unit of that
homogeneous stock of goods is that?
Yes. Yeah, it does.
I'm trying to take it from a different angle to see if
there's any Austrian explanation for why.
Sometimes if the price of something increases you will see
an increase in purchasing by people because it went from oh
this cheap thing. That anyone could have to.
Oh my gosh, if I pay for this, this will raise my social status
and people know that I could afford this bottle of wine this
car, or this handbag does increased purchasing as a cause
of result of an increase in price, refute the Austrian
position. No, because in what we just did
in that in the example that you gave, we haven't considered a
homogeneous stock of goods a homogeneous stock of goods is a
stock of goods, for which each unit is equally serviceable.
If what we say is that, you know, when the in a much shorter
way of saying that is we haven't held everything else constant,
right? So if what we say is that, can
you give me your example? Once again, it's when when
people purchase something after the price increases because they
see it as in them, increasing their social status or saying.
Oh, it must be more valuable. Yeah.
So what we would be saying in that case, is that At the value
of the good to me before the price check before and after the
price change itself changed, right?
Which means that the good is not equally serviceable.
So it's sort of like saying, it's sort of like, saying, what?
I'm if I'm buying more of the good because it's price went up
because I'm trying to show people, you know, in the sort of
the veblen idea, you know, I'm trying to show people that that
I'm wealthier then it's price, is actually part of the good and
we've missed. What's on the X and y-axis,
right? So it has to be that we're
holding everything else constant.
When we derive this, this downward sloping demand curve.
You don't have to resort to something as exotic as that in
order to observe in the world. That when the price goes up,
people might people might buy more because in the intervening
period, lots of things that analytically we are holding
constant. We just gave one example, but
there are many potentially income for example.
That were holding constant when we're when we're thinking about
downward-sloping, demand are not held constant in the rich in the
real world. So insofar as one of those
things changes, we haven't violated the law of demand,
which said, there is this negative relationship between
price and quantity holding everything else.
Constant. What we've done is show that
everything else wasn't constant. And that makes sense.
Yes. Yes, it does.
I'm going to have to re-watch it 10 times, but yes, but for the
time being it definitely makes sense.
A lot of people will say, you got to give it to the austrians.
They were right about the business cycle.
It's been a lot of time and a lot of history.
Yes. We grant that they're right
about that. However, they do not appreciate
empiricism. And a lot of the studies that go
into seeing how humans respond to things.
They think they could get all their answers simply by sitting
in the armchair. How do you respond to the
shortcomings of empiricism as an approach to understanding
economics? I don't think there are
shortcomings. I think that there is a great
misunderstanding on a lot of different sides about the
relationship between empirical work, the relationship between a
relationship of empirical worked.
Austrian economics, mises wrote a book which he published in
1957. He thought it was one of his
big. Maybe it's best book called
Theory and Street his point. He also talks about this, a
human action. But his point is, we develop
Theory which is an analytical, a set of analytical constructs
like the law of demand, which is why this to go back for a
moment, why it can't be violated.
Empirically the law of demand is an analytical construct.
It's a tautology just like you can't empirically violate the
Pythagorean theorem. You can't empirically violate
the law of demand which is true. By definition is point, was we
developed so so we develop these analytical, we develop these.
These analytical Concepts in order to which is pure Theory.
That's the theory part that's economic theory in order to help
us understand the world. The match is not ever going to
be perfect for reasons. That we just considered a moment
to go. Other things can change.
This is a model, right? This is the world.
We're using the model to help us understand the world.
But by definition, the model is not a literal description of
reality. It's highly simplified.
That's what, that's what makes it useful useful for helping us
understand the world. One of its features that makes
it useful for helping us understand the world.
So, his idea is, we develop economic theory, which itself
cannot be empirically empirically.
It doesn't make sense to Empirically, test it because
it's in, it's an analytical proposition, just like, it
doesn't make sense to empirically, test the
proposition that two plus two equals four.
That's an analytical proposition like for the Pythagorean.
Theorem example that I gave, we're going to use that to
understand what is actually happening in reality.
That's the empirical part. That's his, what he calls
history. So empirical the whole reason
for theory is to do history. Okay.
So empirical work is crucially, important from an Austrian
perspective. It's the whole reason that we're
developing the theory in the first place.
We're not developing the theory for its own sake.
We're developing a theory to understand the world, which
means doing empirical work. But because the law, the
principles, the foundational. Analytical structures of
Economics are theoretical the empirical work.
Can't ultimately test. Just those things, it can test
assumptions that go into our models.
It can tell us what other things, for example, weren't
being held constant or some other posited, aspect of your
model. For instance, the constraints
that you supposed didn't hold in the way that you that, you
imagined that they did in the world.
It tells us those things which is why the model can still
produce testable implications, but the implications that are
tested are not Implications that refer back to the print, the the
analytical constructs themselves.
The law of demand is can't be violated because it is a
tautology. So observing people buy more
corn. After the price of corn Rises
doesn't violate the law of demand.
It might mean the law of demand. Is it useful in that case?
Or is it useful in general? Maybe it means that but it
doesn't tell us that the law of demand is wrong.
It also does it? Tell us that are starting?
Axiom was wrong. Remember this?
These this did for the The same reason, it doesn't tell us that
that law is wrong. It doesn't say people aren't
maximizing. It just as we failed to specify
something correctly. In the particular model that we
use that that leverage these analytical devices that doesn't
comport exactly with reality which is why it's important.
It tells us that our model, some aspect of our model is wrong, is
wrong. So we're doing all of this
theoretical stuff in order to understand this empirical stuff.
That's the first piece and the second piece is the empirical
stuff. Can refute some things, but it
can't refute, the purely analytical things, like the law
of demand. That is I think to my mind that
the more nuanced relationship between Theory and history or
between from an Austrian perspective between the
analytics and the empirical work.
But it doesn't it all say that empirical work isn't important.
It just says, here's the nature. Here's what here's how empirical
work is related. Back to the theory pieces.
Here's the here's how we conceive of the relationship
between them. And one of those things from the
Austrian perspective, one of those relations Is that you
cannot use the, you cannot use empirical evidence to falsify,
analytical propositions? Because they are analytical
propositions. Does that make sense?
Yes. Yes, sir.
Two more questions for you. Thank you so much for being so
generous with your time. You had mentioned that a
general, understanding of Economics, Human Action
cost-benefit analysis can really help you in almost every sector
of life. And how you interact with
people. What are some everyday examples
of how an understanding of Economics could could help
someone understand a situation or problem.
Well, I there are look a bit. I actually don't think of it.
I don't really think of it that way.
I think, economics. I think of Economics is a way
again for us as social scientists, to try and
understand the behavior of other people.
People, I don't for the most part, think about.
What comes out of Economics as not to say that, it never does
because it certainly does. But I don't in general, think
about it as lessons that people in the world can use to help
them navigate the world better. Okay.
I don't that's just not how I typically think about it.
I don't think that, I don't think that that is it a would be
an accurate description for most people in their in their
everyday life. Having said that if you simply
can think in terms of people having goals trying to pursue
them as best they can. And understanding what their
constraints are that people face in trying to achieve their
goals. Then you get a sense of you met
in your in any given you, no interaction that you have with
someone have a sense of what incentives are for them.
And what would constitute a change in their incentives of
some type? And you could in principle, use
that information to understand how to interact with them better
or to manipulate them effectively.
Essentially, you know, and we kind of do This, you know, we do
this with, you've got children. You'll know this happens or if
you, you know, when you're growing up with friends, once
you have an understanding of what people are after and what
constitutes a relative price, change of one sort or another
for them. Then you modify your behavior to
essentially create the kind of price change that is, you know,
conducive to your interaction with that person.
Now, that's a very That makes it sound far more deliberately
manipulative manipulative than it is, is all again.
I think a way of describing of thinking about how people in
part interact with each other rather than a yeah.
It's not a conscious thing that I think that they're going
through the conscious piece of it is, you know, businesses can
hire consultants and Consultants can tell them things.
I don't think about the things that Consultants tell
businesses, as being in the realm of social science, though.
It's practical. Ice, it's not-it's not of the
sort of exercise that social scientists are engaged in for my
perspective, which is trying to understand and explain behavior
rather than trying to help people improve their behavior.
If that makes sense. Yes, sir and final question.
If you are trying to judge someone and determine whether
there are good or a bad Professor or teacher.
What are some of the things you look for and would categorize
someone would make you categorize.
Has someone as a good teacher? Well, I do, I try not to, I try,
not to judge people on stuff like that, you know, really on
anything but especially at stuff like that, but I can tell you
what I can tell you is what I have found to be in my own
experience, the most inspirational and enlightening
teachers, and professors for me. And those people what they share
in common. Then I think most importantly in
addition, to obviously they understand the material, but I'm
going to take that for granted is that they have a passion for
that material, you know, I sometimes will suggest to
students that they should choose their courses or even even what
they're going to study based on professors and not, on course,
subject matter, you know, you might think, well, I'm
interested in, you know, and then pick some topic.
You know, what? Ever.
I'm interested in labor economics.
So I should take the labor, economics course.
It doesn't have to be economics. Whatever field they're in and
that's one way to do it. But in a weird way, you might
actually be more likely to learn about labor economics directly,
or indirectly, for example, from just taking a professor who you
get a lot out of who you find to be inspirational.
And you find to be passionate about the material that
ultimately may lead you to find out.
Or about labor, economics than, if you took a course on, you
know, labor economics, who was taught by somebody, who didn't
who didn't resonate with you in that way.
And that's another reason why I would hesitate to say there's
good and bad because I think what resonates with different
people different types of students is different.
You know, for me What mattered most was was this this issue of
being deeply passionate about, what that whatever it was that
they were talking about and an Comics.
What that meant was being deeply, passionate about the
economic way of thinking. There's a lot of stuff that goes
on Under the Umbrella of Economics rights.
And a lot of it, I think, is really not economics or not.
Not the, what is in my mind, the spirit or Essence of economics.
And so finding someone, who, who is passionate about that Spirit
or Essence, as I Standard, which is has this kind of necessity
and flavor. You know, that's, that that's
just incredibly know. I get I get so much.
I still I get so much out of that from from other professors
who you know, who have that and and that was true.
Also as I was going through college and graduate school, mr.
Leeson. Thank you so much for your time.
The book is anarchy Unbound, why self governance works better
than you think? Thank you for watching Keith,
and I don't tread on anyone. And the libertarian Institute.