Probing Liberty's First Principles

Scepticism And Freedom:  A Modern Case for Classical Liberalism
by Richard A. Epstein
(University of Chicago Press, Chicago, 2004, 311 pages)

I will say it up front:  Richard Epstein is really, really smart.  A reasonable presumption is that, if you disagree with Epstein, he is right and you are wrong.  Of course, that is not strictly true;  he is not always right.  But he is right so often and so deeply that, if you possess a dollop or more of good sense, you can never disagree with him without suffering a nagging fear that his vision and knowledge (especially, but by no means only, of law and economics) reveal to him things that you somehow have missed.

Happily for my own peace of mind, I am in wide, if not complete, agreement with Epstein.  He is a classical liberal who understands that the state is a human institution afflicted by all of humanity's flaws.  He understands that the special legitimacy fuelling state power often generates fearsome tyranny out of otherwise innocuous human pettiness, vanity, greed, ignorance, and envy.  He is committed to reason, preaching its virtues and practising what he preaches.  He knows that being principled does not mean being dogmatic.  He loves freedom;  he has no wish to impose his tastes and preferences upon others;  he realises that markets need not be perfect in order to be good;  and he eloquently explains that private property is indispensable for both prosperity and liberty

Epstein -- for 30 years now a professor of law at the University of Chicago -- probably is the world's leading living philosopher of freedom (under the age of 91).  For this reason alone, any book by him is welcome.  His latest work, Scepticism and Freedom:  A Modern Case for Classical Liberalism, is no exception.  In the first third of the book, he reviews freedom's foundational meaning and its classical liberal justification.  In the next two thirds, he tackles some recent challenges to classical liberalism.  Throughout, Epstein displays his signature deftness at negotiating from first principles to specific applications and back again.

FREEDOM'S FOUNDATION

Although no longer as skeptical as he was in his youth about consequentialism, Epstein continues to found his case for freedom on natural law.  But his natural law is no brooding other-worldly omnipresence.  Instead, it evolves out of real-world situations and takes human nature and the world we inhabit as they are.  It is the utilitarian-inspired natural law of Henry Hazlitt (whom Epstein does not cite) and of Randy Barnett (whom Epstein cites briefly but inadequately).  What does this natural law command?  If the goal is maximum and widespread human flourishing and prosperity, then the following are the foundational requirements:

• individual autonomy, or self-ownership;
• private property rights with initial ownership established by the rule of first possession;
• contract;  and
• protection against the initiation of aggression.

To those foundational features, Epstein adds three less obvious (and less liberal-sounding) rules, all stemming from cases of what, in Anglo-American law, is known as necessity.  Necessity softens otherwise strict property rights protections, often justifying the replacement of contract with the practice of "take and pay".

First, take and pay is usually justified in dire emergencies in which negotiations are impractical.  The classic case is the sailor who, surprised by a violent storm, secures his boat to a dock without the dock-owner's permission.  As long as the sailor compensates the dock owner for any losses the owner suffers because of such emergency dockings, the law does not and should not require the sailor who is at imminent risk of losing his life to first to get permission before docking.  Second, government must tax and sometimes even use powers of eminent domain to acquire the resources necessary to supply genuine public goods (of which, of course, national defence is the most potent example).  Third, government must actively police against private monopolies.

The dire emergency exception to the work-a-day rules of property rights and voluntary contract is clearly justified.  Only the most wooden "libertarian" would have the law permit a dock owner to deny the safety of his dock to a boat caught in a deadly storm.  But the second and third exceptions are less obviously justified.  This review is not the place to join the debate on the feasibility of a purely voluntary, stateless society.  Epstein has a powerful point when he reminds his readers that states are ubiquitous in time and space.  That fact surely conveys a great deal of relevant information.  So let us not argue here with Epstein's case for taxation.  But eminent domain is quite a different matter.  The only justification Epstein offers is the standard argument that government cannot let vital projects be held hostage to private owners who might withhold their property.  He, no doubt, imagines the highway or airport that would get built but for the recalcitrant grandmother who refuses to sell her family farm, either because she truly does attach an enormously high sentimental value to the homestead or because she is strategically holding out for an absurdly high price.

While it is easy to imagine such problems, I doubt that they are significant enough to entrust politicians with the power to take private property, even if politicians follow Epstein's sound advice on when to pay for whatever properties are taken.  America is planted thick with housing developments on large contiguous plots of land.  Private developers manage to assemble those tracts without eminent domain.  The Walt Disney Company purchased 30,000 contiguous acres of land in central Florida for its amusement park and resort.  That is an area twice the size of Manhattan.  With skilful contracting manoeuvres -- for example, buying each plot of land contingent upon the successful purchase of all other plots of land necessary to build the road or airport -- a government intent on serving the public should be able to do its job without powers of eminent domain.

Epstein's case for active government policing against private monopoly power is even less persuasive.  His presumption is that, in markets, monopolies arise with sufficient frequency and durability to justify antitrust legislation.  That presumption, of course, is widespread -- even at Epstein's home institution, otherwise famous for its confidence in the reliability of markets.  But the only evidence he provides is the fact that the common law refused to enforce contracts in restraint of trade.  Indeed it did.  But it is too long a leap from recognising the potential wisdom embodied in this common-law rule (and in a few other related ones, such as those imposing special duties and restrictions on common carriers) to the conclusion that active state policing against monopoly power is justified.  I know of no compelling evidence that private monopoly power is a problem in reality;  I know of plenty of compelling evidence that antitrust statutes have been abused by plaintiffs to thwart competition.  Therefore, a useful simple rule for our complex world is to abandon all statutory efforts ostensibly aimed at protecting consumers from monopolies in markets.

BEHAVIOURAL ECONOMICS, LAW AND LIBERTY

Given the scope and depth of this book, the foregoing is nit-picking an eloquent, powerful, and persuasive case for classical liberalism.  Especially welcome are the final three chapters on behavioural economics.

The case for classical liberalism is sometimes made inappropriately.  A chief example is objecting to government intervention on the grounds that it is unnecessary because individuals are hyper-rational -- that is, so rational as to be immune to systematic error in perceiving and judging reality.

Properly understood, individuals are rational.  But contrary to the impressions left by some writers, everyone this side of the grave has emotions and psychological traits that cause actual perceptions and choices to differ often from what most reasonable standards hold to be accurate and wise ones.  In 2002, Daniel Kahneman, a professor of psychology at Princeton University, shared the Nobel Prize in Economic Science (with my colleague Vernon Smith) for his pioneering work on how real people differ from the homo economicus of economists' models.  This work in "behavioural economics" is both interesting and important.  But because the strongest case for liberalism does not rest on the assumption that people are hyper-rational, discovering and cataloguing the many ways that individuals deviate from hyper-rationality does surprisingly little damage to liberalism's rationale.

Perception and decision-making biases do exist, but they often cancel out when decision-making is decentralised, are minimised by specialisation, are further minimised by the market's concentration on each decision-maker of the benefits and costs of any decision, and have especially great potential to wreak widespread damage when they distort collective decision-making processes.  Epstein successfully argues that the best of behavioural economics strengthens the case for classical liberalism.

The three chapters Epstein offers on behavioural economics alone make the book well worth reading.  But you must read the entire volume.  It supplies a masterful analysis of classical liberalism and of the most potent current ideas that threaten to undermine it.