The Economics of Law, Order, and Action

The Logic of Public Goods

Jakub Bozydar Wisniewski

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9780815367871
• eBook ISBN: 9781351256308
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

According to the standard position of the economic mainstream, the efficient production of so-called public goods, including law and defense, requires the use of territorial monopolies of coercive force. Two arguments are put forward for this position: a "positive" one, based on the claim that only such institutions can successfully supply society with crucial public goods, and a "negative" one, based on the claim that such institutions by themselves constitute inevitable "public bads".

This book challenges this assumption by utilizing the insights of the Austrian School of Economics, New Institutionalism, constitutional political economy, and other heterodox economic approaches, combined with economically informed ethical analysis. It puts forward a positive case for voluntary social organization that offers new insights into the intersection of economic logic, social philosophy, institutional analysis, and the theory of entrepreneurship. In other words, in an attempt to draw on the interdisciplinary spirit of classical political economy, this book aims at providing a comprehensive economic and ethical case for extending the applicability of voluntary, entrepreneurial cooperation to the realm of creating and sustaining legal and protective services together with attendant institutional frameworks.

1
Introduction

1.1 Preliminary remarks

A recurring theme in the history of political philosophy is the suggestion that the existence of law and order requires the monopolization of violence in a given territory. Similarly, a common opinion in mainstream economics is that monopolized violence is the only reliable tool for the provision of “public goods”, chiefly among them a well-functioning system of legal and defense services.

It might be argued that, widespread as they are, such suggestions and opinions contain at their core a rather conspicuous contradiction. After all, it would seem reasonable to assume that the monopolization of violence promotes the use of violence, whereas a lawful and orderly society is one from which violence has been largely eliminated. And similarly, it would seem reasonable to question the extent to which goods and services provided on the basis of monopolized violence – that is, in a paradigmatically non-consensual manner – can be seen as unambiguous public benefits.

Over the course of the history of social thought, this apparent contradiction has been especially emphasized and most eagerly explored by various schools of anarchism. Unsurprisingly, the typical conclusion reached by them is that the monopolization of violence, far from promoting genuine law and order, is actually antithetical to it. However, as convincing as their arguments might be taken to be, one of their potential shortcomings is that their acceptance requires certain prior moral commitments – for instance, a commitment to the ethics of universal and inalienable natural rights. Thus, while they constitute an important challenge to the mainstream treatment of the subject of law and order in the field of political philosophy, they may be seen as less applicable to the parallel investigations in the field of economics.

This is because sound economics adheres to the principle of value freedom, and all that it aims to establish is the logical feasibility (or lack thereof) of implementing specific organizational solutions. However, far from being uninteresting on account of its apparent ethical blandness, this is a highly value-relevant approach, because, by aspiring to show the impossibility of reaching certain goals, it also shows the futility of any ethical code that may motivate their pursuit. In other words, even if a philosophical anarchist succeeds in demonstrating the ethical unjustifiability of social organization grounded in monopolized violence, he may still fail to answer the public goods argument drawn from neoclassical economics, thus facing the uncomfortable conclusion that the ethical strength of his principles clashes with their logical infeasibility.

The present book is sympathetic to the ethical concerns of the anarchist tradition insofar as it is skeptical of the suggestion that monopolized violence can credibly serve as a foundation of law and order. At the same time, unlike the works of the majority of the classical representatives of this tradition, it makes explicit use of the tools furnished by the marginalist revolution in economics and emphatically recognizes the crucial role of private property and market entrepreneurship in creating advanced, well-functioning social orders. Thus, it is perhaps particularly well placed to evaluate critically the cogency of the neoclassical public goods arguments, especially as it employs for that purpose tools and arguments drawn from an alternative economic tradition originating in the marginalist revolution – that of the so-called Austrian School of Economics and its parent discipline of praxeology (i.e., the logical analysis of human action). Moreover, it subsequently uses these same tools to engage in a similarly critical evaluation of the “dark obverse” of the public goods argument – namely, the notion that territorial monopolies of force are “necessary evils”, whose activities are hardly beneficial in absolute terms, but nonetheless cannot be replaced by any superior alternative.

In other words, the dual task of the present book is to highlight the shortcomings of the neoclassical and neoclassically influenced arguments in favor of the desirability or inevitability of territorial monopolies of force and to present a comprehensive theoretical framework for the voluntary, contractual provision of law and order.

It might be argued that a number of coinciding processes in the contemporary world make this topic particularly noteworthy. First of all, in an increasingly globalized and specialized economy, international businesses engage in increasingly more complex transactions across territories that constitute jurisdictions controlled by many different local monopolies of force. As a result, none of these monopolies can provide the businesses in question with a sufficient degree of legal and physical protection – both because none of them controls the whole territory within which they operate and because none of them is likely to keep pace with the complexity of their operations. Thus, they either have to rely on the services of specialized private arbitration agencies or devise their own internal regulatory frameworks and coordinate them with those similarly devised by their business partners. In other words, they have to provide themselves with the relevant “public goods” in a purely voluntary and contractual manner, and the present book supplies the logical framework for understanding this process.

Second, modern technological ingenuity allows for the implementation of organizational solutions that vastly increase the potential of entrepreneurial activities, including their potential for establishing effective governance structures. For instance, big data processing allows for effective detection and prevention of fraud, advanced trading platforms allow for conducting complex online transactions protected by powerful security protocols and verification algorithms, and distributed ledgers allow for convenient record management free from the danger of moral hazard. Again, such inventions, especially when linked with the global character of modern market entrepreneurship, vividly illustrate the emergence of contractual, polycentric legal orders and point to the desirability of subjecting this phenomenon to a broader theoretical analysis.

Third, the last decades have witnessed a rise in secessionist tendencies and sympathies for local self-determination. And although many of them are associated with nationalist leanings, which are often comfortable with the use of monopolized violence, many others embody a genuine desire to use political decentralization as a tool to create social orders that are more in line with the principles of voluntariness, contractuality, and unanimous consent. In other words, it might be plausibly argued that consensual secession and decentralization taken to their ultimate conclusion fully liberate the provision of law and order from the influence of monopolized violence, and many members of modern secessionist and decentralist movements seem to be motivated by this line of thinking.

And fourth, it is, perhaps, scarcely an exaggeration to suggest that the institution of the nation-state – the main contemporary locus of monopolized violence – has lost much of its prestige over the last few decades. Part of it may be due to the lasting memory of the destructive excesses of nation-states during World War II and its aftermath. Part of it may be due to the modern, technologically driven scrutiny with which we can observe the dark underbelly of political and bureaucratic operations. And part of it may be due to the emergence of various intellectual traditions – such as the public choice school – that use modern social scientific tools to analyze political motivations in a coldly realistic manner. Be that as it may, it seems fair to say that an interest in exploring alternative institutional arrangements is on the rise and that the present book may serve as a useful tool for guiding the relevant exploratory impulses.

Furthermore, the ongoing economic globalization, social complexification, entrepreneurial emancipation, and technological progress are only likely to accelerate all of the processes mentioned earlier, hence making the topic of the voluntary, contractual provision of law and order all the more significant. It is also likely that the unfolding of these processes will go hand in hand with the growing recognition that neoclassical economics – with its limited appreciation for entrepreneurial dynamism and its physicalistic presuppositions – is an inadequate tool for describing them in an accurate and illuminating manner. Thus, it is hard to think of a better topic as a crucial litmus test for the continuing relevance and explanatory power of the Austrian School and other “heterodox” traditions in economics that follow the interdisciplinary spirit of classical political economy.

In sum, a critical evaluation of the neoclassical and neoclassically influenced arguments surrounding the issue of public goods and their constructive reformulation in the light of an intellectual tradition that is particularly cognizant of the productive power of entrepreneurial dynamism and voluntary self-organization can be seen as a natural combination of the right subject matter and the right analytical approach used at the right time. It is my hope that the reader of the present work will walk away from it with a similar impression.

With this, let me now move to a detailed overview of the contents of the ensuing chapters, which will further clarify the aim and scope of my project.

1.2 Project overview

As mentioned in the previous section, the aim of the present book is to investigate the putative theoretical desirability and practical inevitability of the presence of a monopoly of force in any given system of political economy and argue against both, utilizing for that purpose the theoretical apparatus and analytical insights of praxeology, that is, the logical “science of human action” (Lachmann 1951), exemplified especially by economic thinking in the tradition of the Austrian School of Economics.¹

In addition, on the methodological front I shall adopt the strategy of making my arguments maximally robust by assuming that the contingent elements of human character in any given system of political economy analyzed in the course of the present work are maximally favorable to the solutions offered by my intellectual opponents. This approach is based on the investigation of what has been termed “institutional robustness”, that is, the ability of a given system of social organization to stand up to the test of “hard cases”, that is, hypothetical scenarios under which the ideal assumptions concerning, for example, information and motivation possessed by the members of a given society are relaxed (Boettke and Leeson 2004; Leeson and Subrick 2006). Drawing on this notion and the attendant framework of testing various forms of political economy against scenarios involving less-than-optimal conditions, it might be argued that, for instance, classical liberalism is always more robust than socialism (or vice versa), even if an institutional setup based on the former (or latter) is introduced into a community populated by individuals who are selfish and ignorant, while that based on the latter (or former) is turned into a community controlled by benevolent and wise planners.²

The main contribution of the present book is to show that the combined analytical power of the two methodological approaches mentioned earlier is uniquely suited to presenting a comprehensive socioeconomic alternative to the view that sees the territorial monopoly of force as the foundation of institutional order in any working society.

Although the approaches in question have already been used to formulate similar arguments, the present book aims at bringing such arguments together, highlighting their interrelations, considering them from a broader range of perspectives, and tracing out their implications for a range of subjects and disciplines. To that effect, I will mainly analyze two major, but very different, justifications for the existence of territorial monopolies of force: a “positive” one, based on the claim that only such institutions can successfully supply society with crucial public goods, and a “negative” one, based on the claim that such institutions by themselves constitute inevitable “public bads”. By proceeding in this way, I will try to demonstrate that the methodological tradition utilized in the present work is uniquely capable of exploring the question of the monopoly of force in its full complexity, dealing with multiple relevant areas of economic and social analysis: economics and ethics, incentives and preferences, information and motivation, and hard and soft institutions. In addition, I believe that bringing all those areas together under the aegis of praxeological investigation allows the present book to put forward a positive case for voluntary social organization that offers new insights into the intersection of institutional analysis and the theory of entrepreneurship, thus suggesting that these disciplines can be much more ambitious in their intellectual scope than they are usually taken to be.

In sum, in an attempt to draw on the interdisciplinary spirit of classical political economy, the present work aims at providing a comprehensive economic and ethical case for extending the applicability of voluntary, entrepreneurial cooperation to the realm of creating and sustaining legal and protective services together with attendant institutional frameworks.

Now before delineating and then criticizing the main reasons adduced in the relevant literature in the aim of demonstrating the desirability or inevitability of the presence of a monopoly of force in any given system of political economy, let me define more precisely what I mean by the key concept in question. I shall do this by referring to and building upon some of the pertinent classical and contemporary definitions.

Max Weber famously wrote about the entity that “upholds the claim to the monopoly of the legitimate use of physical force in the enforcement of its order… [within] a given territorial area” (Weber 1978, p. 54). This definition generally corresponds to my understanding of the notion under discussion, but I consider it incomplete insofar as it does not specify the implications of the characteristic it mentions with respect to the concept of legitimacy. In other words, the relevant question here is: What makes the actions undertaken by a territorial monopoly of force “legitimate”? According to Weber himself, legitimacy stems from “a belief by virtue of which persons exercising authority are lent prestige” (Weber 1964, p. 382), a belief grounded in tradition, the charisma of the rulers, or trust in the rationality of their organizational decisions (Weber 1991).

This account of legitimacy, however, seems to me to make Weber’s original description of a monopoly of force overly and unjustifiably restrictive. For one thing, it does not answer the question of how many inhabitants of a given territory must entertain the relevant beliefs towards their ostensible rulers. The very suggestion that there must be at least some of them who are not themselves members and employees of the local monopoly of force makes Weber’s description too narrow to be applicable to, say, repressive tyrannies and slave systems, which, by virtue of their organizational character, have hardly any social legitimacy.

Thus, the account of legitimacy I find more persuasive is based on a paraphrase of a statement made by Thrasymachus in The Republic, who claimed with regard to justice that it is “nothing else than the interest of the stronger” (Plato 1953, p. 177). While I disagree with this opinion as applied to the concept of justice, it sounds much more plausible in connection with the concept of legitimacy – to contend that legitimacy is nothing else than the interest of the stronger (or, to be more precise, the strongest) is to recognize that although in a given territory many entities utilize the means of physical coercion, only the most powerful of them can meaningfully declare itself as “legitimate” (and may find it highly expedient to do so).

This is due to the fact that in any given society the verdict as to what is and what is not legally legitimate is passed by its judicial system, and, by definition, only the most powerful coercion-wielding entity can bring such a system under its monopolistic control (Stinchcombe 1968, p. 150; Tilly 1985, p. 171). Thus, if we generalize the earlier point, it follows that “the claim to the monopoly of the legitimate use of physi...

Table of contents

• Cover
• Title
• Copyright
• Contents
• 1 Introduction
• 2 An Austrian critique of the theory of public goods
• 3 Defense as a private good in a competitive order
• 4 Law as a private good in a competitive order
• 5 Ideas, institutions, and preferences
• 6 The ethics of legal and protective polycentrism
• 7 Conclusion
• Index