William J. Polley

You should take a look at the Austrian and Mises blogs. Those aren't straw men there, they're real alright.

Very good. It is not as simple an issue as many think.

Bill,

As I noted in the first of the two posts, most left of center folks are for markets as well. From what I can tell, the difference between how the left and the right see markets lies in the amount of regulation we think is optimal. And my point is that while many people insist they are for less regulation, when push comes to shove, they aren't.

As to your objections dealing with the value of reputation and some amount of regulation... it can all be done without government at all. EBay Tuvalo, or FreeBay or whatever anyone wants to call it, can set up offshore in precisely the same way that EBay operates out of California today. Buyers and sellers can be rated, and only regulation the service deemed to be helpful could be set up. But in the end, that is still not enough for there to be faith in the system.

I think faith in the system requires one other thing in addition... some sort of outside the market punishment for those that violate the rules. I had another post once pointing out that my money is generally safe at Bank of America, not because most people (including employees of Bank of America) are afraid of what Bank of America would do to them if the money disappeared, but because most people are afraid of what the state would do to them.

I would also note... you mention externalities. That is one of the topics I bring up a lot. But based on comments and e-mails I get, it seems to me that few on the right would advocate really truly doing anything about externalities, viewing any such attempts as an interference in the market.

Markets are where supply meets demand. Free markets are those where supply & demand meet freely, i.e. without any coercive restrictions regarding the quantity, price or quality which characterize the object of exchange.

Free markets are a direct implication of the freedom of association. If I want to associate with you and you want to associate with me then it's our right to do so (contractually or informally). This is not the case if we're citizens of different nations, employer or employee, etc. In those cases, 3rd parties are making us unfree.

I don't think we should give up on "free market" because people in the US gave up on "liberal" and look who appropriated it?

"Free market" might tend to be used as a slur word. We need to take it back. [Language deleted--BJP]

As for the other substantive issue... Markets "live" on top of institutions such as property rights, contract enforcement, etc. These are not limits to freedom but the context within which people can choose to interact (we could make verbal deals, without format contracts, but why?) or are forced to interact (if you punch me I'll call the police, whether you like it or not).

The anarcho-capitalist twist is that those institutions can also be market phenomena, i.e. that we can have self-enforcing cooperation in a non-cooperative game, as it were.

We also need to distinguish between negative and positive freedoms. Free markets connect with the negative notion of freedom: don't do stuff to me I haven't agreed to.

Re: externalities... Externalities = missing markets.

Actually, to get to a fully formed theoretical construct of the politics and regulation of "free markets" you need to start with a moral-political theory of legitimacy: personhood, the socio-political status of minors, property, etc. (Think Nozick.)

(Am I a true enough believer? ;-))

Hi Bill

I like your posts on free markets'. Might I add a piece from Wealth Of Nations thats shows he was not the laissez- faire free market ideologue that he is often made out to be. He recognised the need for some intervention - the issue is what kind of intervention and what limits to it.

He is discussing problems with banking in 1772 in Wealth Of Nations (it's from my new book on Adam Smith for Palgrave Macmillan's 'Great Thinkers in Economics' series, to be published in early 2008:

"So important was this point to Smith that he considered it necessary to make the case for intervention by government regulation in banking markets:

‘To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them; or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law, not to infringe, but to support. Such regulations may, no doubt, be considered as in some respect a violation of person liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed.’ (WN II.ii.94: p 324)

This innocuous, seldom quoted, passage in Book II, written in 1772, eight years after Smith met and discussed the laissez faire ideas of the French Physiocrats, directly rejects them, contradicts continual references to him today as an advocate of laissez-faire and, therefore, opposed to all interventions in free markets. He never mentioned laissez-faire in all of his writings and correspondence, and this paragraph, among others on similar lines, explains why.

He went on to argue that on condition that bankers were restrained from issuing and circulating bank notes, or notes payable to bearers for less than a certain sum and were unconditionally obliged to make immediate payment on the presentation of their notes by bearers, then their trade ‘with safety to the publick’ may be ‘rendered in all other respects free’. Competition from many other banks (he was not alarmed by the formation of banks in greater numbers) ‘obliges all of them to be more circumspect in their conduct’ and ‘to guard themselves against those malicious runs, which the rivalship of so many competitors is always ready to bring upon them.’ This suggests that legal interventions to safeguard the public interest are required and that reliance on perfect liberty is not sufficient a protection from the experience of uninhibited laissez-faire. Adam Smith was not an ideologue about these matters. Neither should we be.

Gavin Kennedy,

The farther back in Wealth of Nations you get, the less the right likes what's in it. There's a reason most copies of The Wealth of Nations only get to Book 3. The folks who love to quote Adam Smith and tell us they're capitalists are somewhat horrified by Smith's views on the role of government and the desirability of a progressive tax system.

Cactus,

"From what I can tell, the difference between how the left and the right see markets lies in the amount of regulation we think is optimal. And my point is that while many people insist they are for less regulation, when push comes to shove, they aren't."

The optimal amount of regulation is certainly an important dimension along which you can measure broad differences between the left and right. But your point goes far beyond that. What is that supposed to mean, "when push comes to shove, they aren't"? Are you saying that someone who doesn't agree that your caricature of a totally regulation-free market represents a sort of utopia is a hypocrite? If I believe that less regulation is good, will you force me to argue that no regulation is best or else deride me for being inconsistent? Come on. When push comes to shove, I am for less regulation in many instances--but not zero regulation. Is that not a reasonable position to hold? You seem to want to lump a broad category of views into one extreme caricature, and I'm not going to sit by and let you do that.

"...it can all be done without government at all."

I made that point in the 9th paragraph.

"I had another post once pointing out that my money is generally safe at Bank of America, not because most people (including employees of Bank of America) are afraid of what Bank of America would do to them if the money disappeared, but because most people are afraid of what the state would do to them."

Punishing theft (and other crimes against person and property) is essential to maintaining the rule of law--which, again, was a major point in my post. Any respectable market economist will agree with that. If you don't have those laws and just rely on people to protect what's theirs, you don't have a market system in the proper sense. You're a short ride away from anarchy. So how does this advance your argument. Am I allowed to agree with you that theft is bad and still be a "free market" economist?

"...it seems to me that few on the right would advocate really truly doing anything about externalities, viewing any such attempts as an interference in the market."

I think Greg Mankiw maintains a list (the Pigou Club). Not all are on the right, of course. But is it ok for a "free market" economist to allow government intervention to correct a true honest-to-goodness market failure?

There is, of course, often disagreement about whether a phenomenon is truly a market failure or how large an externality is or how certain we can be of the magnitude of the same. Partisan colors sometimes tend to get waved around at such moments. A lot of heat, but occasionally some light. I think those are things that are proper to be debated, and in the end opinions may differ.

Finally, I'm not saying you are wrong, but I would like to see evidence. Show me a copy of The Wealth of Nations that only goes up to Book 3. (An Amazon link would be fine.)

Gavin,

As usual, your quote from Smith hits the mark. It certainly addresses the banking question. Thanks for your contribution to the discussion.

Gabriel,

"The anarcho-capitalist twist is that those institutions can also be market phenomena, i.e. that we can have self-enforcing cooperation in a non-cooperative game, as it were."

Well, like I explain in my response to cactus, I did cover that. I wouldn't call it anarcho-capitalist or anarcho-anything for that matter. Again, we rely on the government to enforce certain standards of behavior (e.g. theft will be punished). Other standards of behavior are enforced by the community (e.g. pay for goods promptly so that you earn a reputation as a trustworthy buyer). We don't need a government to enforce the latter standard because the private market can do it pretty well. It's not anarchy.

Cactus,

One more thing. The part about which I would be most interested in your response would be to this statement of mine:

"It is blatantly unfair and misleading to suggest that economists or others who frequently appeal to the benefits of free markets, competition, and the profit motive will never be satisfied until all regulations are removed. To suggest that conservatives put up (start an off-shore competitor of EBay where anything goes) or shut up is to make the very same suggestion."

Do I mis-characterize your position? If so, how? I don't think any of our mutual readers would have trouble telling that I favor less regulation than you would in many circumstances. Yet I am on the record here and elsewhere as being in favor of regulation or intervention that is proper and justified (see the examples in this post). I certainly don't think that the existence or non-existence of a regulation-free EBay clone matters in the slightest for the question of the optimal level of regulation. Yet you seem to think it does. What conclusion shall I draw from this?

Bill,

"Well, like I explain in my response to cactus, I did cover that. I wouldn't call it anarcho-capitalist or anarcho-anything for that matter. Again, we rely on the government to enforce certain standards of behavior (e.g. theft will be punished). Other standards of behavior are enforced by the community (e.g. pay for goods promptly so that you earn a reputation as a trustworthy buyer). We don't need a government to enforce the latter standard because the private market can do it pretty well. It's not anarchy."

My point was that even the functions you reserve for the government (enforcement of contracts, property, etc.) can be markets. That's the anarchist position, from people like Mises.org (which seem to be the target of cactus' comment) or from David Friedman. But this is a little off-topic.

Concerning your discussion with cactus, I think we can safely say that practically everyone likes governmental enforcement of contracts and protection of property rights... but to read that as a secret victory for the Left is misguided on many levels.

P.S. EBay is not regulated. EBay is subject to US law. Law != regulation.

Gabriel,

Ok, I didn't take your statement about self-enforcing cooperation in games as going that far. It certainly doesn't have to go that far, and that is more to my point. Self-enforcing cooperation can spring up in a variety of ways specific to the market in question. Sometimes these behaviors become part of basic moral and ethical customs. When it works it is beautiful.

However, I wouldn't go so far as to say that some specific examples of self-enforcing cooperation implies that it would be a good thing to let it replace the basic legal code.

Cactus's problem does seem to be with the Mises.org folks. Hence my question, what about those who argue for less, but not zero, regulation? I interpret his argument as lumping it all together so as to discredit anyone who argues for less regulation than his position. That is my question to him in my previous comment and it's still on the table.

Polley is making some very good points and I find myself attracted to his analysis.

On the other hand when I look at the history of how rules and regulations come into existence I find myself moving back towards Cactus. Few rules or regulations are imposed out of the blue for no reason. For the most part they are imposed because someone has found a way to exploit the existing rules that creates an externality or cost that society through the political system decides is unacceptable. Now reasonable people can disagree that the cost of a specific regulation outweigh the benefits of that regulation. But doesn't that imply that when we get down to the bottom line we are really always arguing about a cost - benefit analysis and for the most part it is essentially impossible to say that regulation in general is either good or bad.

Moreover, conditions change -- often simply because of the existence of the regulation
and things have to be reconsidered. I do not know, but maybe regulation of the airline industry when it was an infant industry was a good policy.
But we now see that deregulation of airlines generally created more benefits then harm --
of course I'm 6'4" and now find flying to be
pure misery as opposed to the pleasure it was in old unregulated era. I would pay a higher price for more leg room and on long overseas flight I
along with a lot of people in business class do.

Take the debate we are now seeing about regulating the sub-prime mortgage market.We are clearly seeing a cost that a significant number of people with these mortgages are defaulting. But on the other hand we do also have a large number of people that have become home owners because of this market. It is clearly too early to see what the cost-benefit of this new market development is. Nor is it clear how the market should be constrained to limit the large number of defaults
while providing mortgages to previously unqualified individuals.

I would argue that for the most part the right-left disagreement over regulation is a question of the values placed on the different cost and benefits of regulation. If so, it is an unanswerable question.

Spencer, money, property and many other venerable institutions predate the modern notion of state and in some cases they predate the medieval state-like structures too.

Yes, many regulations are a new creation. And that's a bad thing(tm) because they promote vested interests.

What is, in your opinion, the ratio of regulation aimed at "fixing the market" to regulations aimed at enriching political sponsors, party members, backers, etc.?

Gabriel -- I have no idea about the distribution of regulations between fixing the market and self dealing and I very seriously doubt that you do either. That is my point. The right assumes that the bulk is self dealing and the left assumes the
bulk is fixing the market. But both views are based on beliefs, not facts.

But I will argue strongly for my historic example of how regulations emerge. Provide me evidence to support your view that they only support vested interest. To disprove your thesis all I have to do is show one example of good regulation.

Property, etc, do predate the modern notion of state but they do NOT predate the state. The state came into being as mankind shifted into settled agriculture and away from hunter-gather societies. Civilization emerged around irrigation and other systems where the state determined much of what we now leave to markets. Ancient Egypt, Sumeria, China, etc., were much more command and control economies then free market economies that you are arguing for. Regulations are not new, they have existed as long as civilization have. I can cite you example after example of government existing very well without capitalism, but I challenge you to cite me a single example of capitalism without good government with a wide body of rules and regulations.

Bill,

Sorry, I've been out all day and didn't get a chance to see your question until the discussion moved on. Spencer covers some of these points well, as did Gabriel M, even if he and I would probably disagree on a lot. I believe your position moved on to:

"However, I wouldn't go so far as to say that some specific examples of self-enforcing cooperation implies that it would be a good thing to let it replace the basic legal code."

My question: why not? If the private sector is more efficient than the public sector, and I think we all could agree that most US laws and regulations are not relevant to EBay and the business of its buyers and sellers, why wouldn't it make sense for an EBay to come around that was not subject to those laws, and in fact, set its own rules. Those rules would be only those parts of the law that would be beneficial to EBay and its users.

I assume a true conservative would feel that EBay can do a better job of determining what such rules would look like than the US government and would produce something better suited to its needs and the needs of its customers than the hodge podge that is the current body of US law. (We're not talking about something excessively complex. A few good attorneys and a legal budget of $10K ought to do it. Even if I'm off by two orders of magnitude, we're talking peanuts to EBay.)

Given how easy and inexpensive it would be to reach this happy state of somewhat less regulation, where the amount of "less" is defined by EBay and/or its users, one can only wonder why nobody is doing it.

The conclusions I can see:

1. I have mischaracterized the conservative position - they really don't believe the private sector is more efficient than the public sector
2. I have made a false assumption that conservatives believe companies can set up rules governing transactions more efficiently than the public sector
3. Conservatives haven't spotted this opportunity yet
4. I am dead wrong - this is being done on wide scale and I don't see it
5. Regulation doesn't affect EBay's costs in the slightest, or actually have a net positive effect on EBay's business model (even once the costs of dealing with them are taken into account), so taking these steps won't help

No doubt I'm missing something, but those are the possibilities I see at this moment. I don't think its a dishonest position.

If I was arguing that more regulation will increase the profits of a company, and it was easy for that company to subject itself to more regulation if only by writing some of that regulation itself, you'd ask me why we don't see that happening. (My response would be... we do. EBay is doing it. But that's another subject.)

No problems about the double post. For clarity and brevity, I delete double posts as standard practice. Sometimes you need to refresh your browser to see your newly posted comment. Not always--it's hit and miss.

My real question was the more direct version (April 28, 11:38pm). I'd still sort of like your answer to that (and a link to any copies of WN that only go up to Book III...multivolume sets don't count...that's like saying an encyclopedia only goes up to the letter A).

If you would like to answer that more direct version, you may do so here. However, what you did give me in your last comment is worth addressing in a new post, so stay tuned. (It will have to wait until tomorrow.)

Bill Polley,

I have two copies of the Wealth of Nations. They're in storage now, or I'd give you their ISBN numbers. One I bought in grad school. Neither goes beyond book 3. Neither indicates that there's anything beyond book 3. About a year ago, when I was in a Barnes and Noble, the only copy of Wealth of Nations I found was a version I own.

"It is blatantly unfair and misleading to suggest that economists or others who frequently appeal to the benefits of free markets, competition, and the profit motive will never be satisfied until all regulations are removed. To suggest that conservatives put up (start an off-shore competitor of EBay where anything goes) or shut up is to make the very same suggestion."

I don't think I ever suggested that EBay could even work without any rules. I did suggest that EBay could write its own rules - rules better designed to facilitate things for itself and its users. I also suggested they could write those rules and operate under them at what is to them a very low cost, and thus avoid all the superfluous US laws completely.

The fact that it doesn't is a sign that these useless laws and regulations (i.e., those that exist in the US body of law, but that if EBay were to list its needs from scratch, it would not include) clearly have attached to them some value.

Ok, I'll take your word on The Wealth of Nations. However, I couldn't find any like that on Amazon. There are a couple of editions where Books I through III are in Volume 1 and Books IV and V are in Volume 2. It's a pretty large volume to put them all together, so many versions are abridged as well. My favorite edition is from the Liberty Fund. The entire text in two volumes for $15. Of course, they have it on-line for free here:

http://www.econlib.org/library/Smith/smWN.html

On the substantive point, we have both been ambiguous at time about what we mean by regulation, rules, and law. In my next post I will try to be more clear about that. Anyway, here is where I got my interpretation of your point. You say (1st post last paragraph),

"Which raises the question... where are the places on the net for the true believers? The ones which recognize that the government already has sooooooo many laws and rules that adding any more is superfluous. Where are those marketplaces (of goods and ideas) online where we can see the ideal of the right and the libertarians of no rules and regulations (over and above what the government already imposes)?"

You see, your initial post was about EBay being more corporate and uptight compared to Craigslist. Your opening salvo was essentially why does EBay have all these *extra* rules? Why aren't there more message boards without monitors? (The latter also coming from your first post.)

I understood that is saying that "free market" advocates are hypocritical for not starting a more free-wheeling version of EBay. Show me how that is an incorrect interpretation of what you wrote in your first post.

After the first round of comments at AB, your position morphs into this from your 2nd post:

"Put another way... it is relatively simple and inexpensive to set up whatever is the ideal conservative and/or libertarian marketplace, be it in goods, services, shares of stock, or whatever. Complete with buyer beware, no pesky government interference (either regulation or protection), and the like. And given the large number of believers, presumably there would be no lack of buyers and sellers to flock to those relatively regulation-less markets."

Nothing in your second post about EBay writing its own rules at all. I read it many times looking for it. It is only in the comments (and mainly the comments here) that you make that point. And you now use those to characterize your original position, but I'm sorry I just don't see it.

The first post is pretty close to suggesting that these markets would work without any rules beyond the basic rule of law that the government provides and you wonder why we don't see them. Your second post asks why these markets don't just move off-shore and avoid government altogether. Your comments now say that if they did they could write their own rules--just the ones they need. But that's not where you started, and that's not what I had read from you when I wrote my post.

Now then, since you are now moved onto the position that these entities could function quite well writing their own rules (let's not call them regulations since they are not handed down by a government), let's deal with that. In my next post I will try to suggest why even a free marketer (albeit a pragmatic free marketer) might agree with your most recent point in principle, but be skeptical of your suggestion of how to implement it. A tall order, but as Ben Stein said on his game show, "I shall do my best."

Sorry to be so long about this, but I felt I had to lay out in detail where your first and second posts were coming from since that is what I was responding to initially in my post. I'm trying to pin you down and occasionally running out of breath doing so.

"But that's not where you started, and that's not what I had read from you when I wrote my post."

FWIW, I often use blog posts to help me flesh out the idea. Writing things down, reading the comments, etc., I get closer to what I should have intended to write in the first place. So yes, my position evolves. Hopefully I learn from the initial mistakes and move on to new ones.

Understood. My next post (hopefully tonight, but no guarantees) will try to jump off from your position as I currently understand it.