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The Promised Land of the Free
March 9, 2004
Richard A. Epstein, Jeffrey Rogers Hummel

Contents

Ivan Eland
Director, Center on Peace and Liberty
The Independent Institute

My name’s Ivan Eland and I’m the Director of the Center on Peace and Liberty here at the Independent Institute. And I’ll be the moderator tonight.

We have two distinguished speakers here tonight that are going to speak at this program called “The Promised Land of the Free.” This evening we’re featuring the book, Skepticism and Freedom, by Richard Epstein, and of course you can get that upstairs. If you haven’t already, you should get a copy of it.

And before we get started, I’d just like to make one mention of an upcoming Independent Institute event. In your packets and on our website you’re going to find information about our forthcoming dinner. On April 21st we’ll be holding a gala dinner event entitled “Innovation, Entrepreneurship and the Global Marketplace” featuring Robert Galvin, Chairman Emeritus of Motorola Corporation, and Peter Thiel, the founder of PayPal.

Now I’m going to keep my introductory remarks very short tonight so we have the maximum time for our speakers and the Q&A following. But I’ll just say that over the past century, U.S. government power has grown astronomically as the average citizen’s life is increasingly taxed, regulated and spied upon. In the last few years alone, federal spending has increased almost 30 percent, creating the largest deficit in US history and extensive corporate welfare pork and abuses of civil liberties and also economic liberties.

Richard A. Epstein

Are you running the Bush campaign? (laughter)

Ivan Eland

No. I don’t think you’re going to find too much support here for that.

Richard A. Epstein

Not from me.

Ivan Eland

Even in the non-security spending, President Bush has increased spending faster than any president since Lyndon Johnson. So the spigots are turned on, so to speak. In his new work, Richard Epstein goes to the root of the problem, addressing moral, conceptual and psychological foundations of liberty and showing how they have been systematically undermined in the U.S. Should individuals be free to make their own peaceful choices or should decisions by special interests in the name of the public good be imposed by force? What about property rights, taxes, regulations, civil rights? We are delighted to have the two speakers here tonight, and I’ll introduce Richard Epstein first. He’s the James Parker Hall Distinguished Service Professor of Law at the University of Chicago and he’s also a Senior Fellow at the Hoover Institution.

In addition to Skepticism and Freedom—just hold up the book one more time there—he has written Simple Rules for a Complex World, Principles for a Free Society and Takings: Private Property and the Power of Eminent Domain. And he is the co-editor of The Vote: Bush, Gore, and the Supreme Court. He has also published articles for the Wall Street Journal and the New York Times and many other publications. And I was told today that his book Takings was featured in the Clarence Thomas confirmation. Is that correct?

Richard A. Epstein

I’ll give the whole speech about that. (laughter)

Ivan Eland

I’m going to introduce both speakers so we can get right to the program here. Our second speaker is Jeffrey Rogers Hummel. He’s a professor of economics at San Jose State University, and he’s also a national fellow at the Hoover Institution.

He’s author of the book Emancipating Slaves, Enslaving Free Men: A History of the American Civil War. Now obviously we’re not going to be speaking specifically about the Civil War tonight, but this is an excellent book, because I’ve read it myself, and so I can commend it to everyone. Professor Hummel also wrote the scripts for the audio program The United States Constitution narrated by Walter Cronkite and the audio series American Wars narrated by George C. Scott. So I’m going to turn it over to Professor Epstein.

Richard A. Epstein

Well, thank you, Ivan. (applause)

I have to say it really is a great pleasure to be invited here by David and by Ivan, and to spend some more time with Jeff—we share Hoover appointments—and it’s always nice to have an audience which is alert and mildly sympathetic to some of the things that I’m about to say.

Actually, I was going to get very annoyed at David because I thought he’d double-crossed me. That is, when I walked in I realized, oh, my God, this title about the promised land—that’s Nicholas Lemann’s book. And I said I wasn’t quite sure what I was supposed to say about it, but if the Lord taketh away on the one hand, He delivereth on the other, and Ivan has come to the rescue. Because he reminded me of an episode which has long been forgotten in my life, which was that before Anita Hill, I was the hottest thing on Capitol Hill (laughter) during the Thomas hearings.

And it actually relates to this particular talk. When I was a young man, I wrote this book called Takings, and I realized that I had become, quite by inadvertence, almost accidentally, almost against my will, a crusader against virtually every major trend in judicial thought in the United States in the last 100 years. (laughter)

And as I mentioned to somebody beforehand, I was writing this book and I was worried about all these fine questions about, for example, whether you recover consequential damages in a takings case. And all of you are looking at me and saying, “I don’t even understand the problem, professor, so why the hell should I worry about the answer?” (laughter)

And you know they were small-bore issues, but they all matter. And around page 322 of this book, I came to the conclusion, quite by surprise, that the entire New Deal structure was unconstitutional. (laughter) I just sort of wrote it out. I mean, the important stuff had to do with these consequential damages cases, and this was a minor point which was sufficiently unsubtle that it didn’t require a lot of elaboration. I didn’t realize that when people would actually look at this book they would care about its major thesis and not about its conceptual foundations.

And this became very clear during the Thomas hearings. Clarence Thomas is something of a “natural lawyer,” and for those of you who don’t know what that dirty phrase turns out to mean, it basically has the sense that individuals have, by their Creator or by some other natural force, rights to their person, rights to acquire property, rights to sell their labor in ordinary transactions, and rights to be free from the interference of others; and that to the extent that you have state coercion with respect to these kinds of liberties, it has to be done to benefit the very people who are going to be coerced.

So what our friend John Locke, who was the leading naturalist, said in these terms was, “Sure you can tax people, but you have to tax them in a way which returns to them benefits in the form of security which is greater than the liberty that you asked them to sacrifice.” And that’s the situation in which it’s kind of a coercive form of winning behavior with respect to the individuals in question. And I, as a young man, read that, thought it sounded rather good, realized later on that it actually had some fairly powerful economic foundations associated with it, and mid-way through this book on takings I had figured this out.

Now what does this get you in terms of political purchase? Well, the answer really is extraordinarily simple and I’m sorry to say not entirely edifying. What happens is that Senator Joe Biden, who did go to the University of Syracuse Law School, I think, and finished last in his class, became the leading constitutional critic of his generation. (laughter) What he did in effect is, he picked up a copy of my Takings book, and on national television he showed it to a somewhat puzzled Justice-Thomas-in-waiting, and said, “Sir, if you believe anything which is contained in this book, you are not fit to sit on the United States Supreme Court.” (laughter)

That was the sort of the nice message about this, and I mean, you know, it turned out that he was even willing to give me equal time, if I was prepared to go into this kind of rigged campaign setting associated with Washington politics. One of my former students, who worked for Biden, said, “You could come down and testify and defend yourself.” And I said to him, “I have a better idea, because I know you won’t accept my offer, just as I won’t accept yours, which is if Thomas lives or dies, he’s going to have to fight for himself. He doesn’t have to have my baggage on top of his broad shoulders. But tell the Senator that any time he wants to debate the merits of my book in front of a neutral forum in which he doesn’t control both microphones simultaneously, (laughter) I will be more than happy to oblige him.” And you know what? It’s now been counting 13 years and I didn’t even get the courtesy of a rejection with respect to the particular letter in question.

And there’s actually a slight moral about this—and then I will try to talk about it in relationship to these particular principles—which is that there are some people who when they dominate politically, become a form of intellectual bully. And what I mean by that is that there’s nobody in the room who’s prepared to speak against them. They’re willing to say rather harsh things about things that they disagree with. But on the other hand, if you pipe up and say let’s have equal time, all of a sudden they’ll turn, run, and hide.

And I think the one thing I’m most proud about in my academic career is that I’ve never turned down a debate on anything with anybody. And it seems to me that that’s the right attitude that you have to have with respect to your own work. If you really believe in it, you have to believe it in front of your friends, in this room, and you have to be prepared to go into settings which are often more hostile and tell exactly the same thing so that if your worst detractor and your best friend come together, they will each agree that you’ve said whatever it was that you said, even though they will disagree about the wisdom and sobriety of all the thoughts that you have put forward. (laughter)

Now that being said, the question as we start to slowly elaborate on this riff, is quite simply this: What was it about what I said that made somebody like Joe Biden so terribly upset about everything that I believe? And essentially what it was was a story, not of betrayal—because I’m not one who likes to point fingers at people who disagree with me—but rather a story of people who’ve lost their way and failed to understand the kinds of principles under which our particular nation was put together.

And as I mentioned to you already, in terms of my political origins, I’m very much somebody who thought that John Locke had the odd good idea or two, and that interestingly enough that many of the Founding Fathers, when they put this government together, actually thought more or less about the same thing. The central question that they had to face—since they were not anarchists and they weren’t even strong libertarians; they were sort of more sober classical liberals. So the difference between the libertarian and the classical liberal actually matters, although in terms of current policy debates, we’re always on the same side, so we tend to forget these differences between us.

But the argument turns out to be this: The Lockean position, as I said, understood the power of individual self-ownership with respect to labor; understood the power of the ability to sell your services to somebody who wants them and not to somebody who doesn’t want them, which is the usual government way of doing business; (laughter) understands the power of situations where, since we all don’t agree about what each other should do, we’re all entitled to take offense at what others do, but not entitled to stop them by virtue of the fact that we have offense. But on the other hand, when they put their hands in your face, you can gently remove them in order to go about your way.

And that simple set of accommodations is the set of accommodations which, for the most part, government ought to satisfy.

Now the standard difficulty with this Lockean formation is in fact one that every serious government has to face, whether it is a simple republic or a compound republic or federalist society like the one that we have. And the question that you have to ask is whether this particular system of rights is self-supporting without any kind of central authority in order to deal with it.

And the Lockean answer, which I think we all accept, is that self-help remedies are nice but in a general situation they’re not going to be sufficient to maintain order because self-help cannot only be exercised by those people who in fact have been wronged; it can also be exercised by those people who wish to commission wrong and to commit wrongs. And so therefore, what you have to do in any political order is to find an impartial umpire whom you put on top of them, who can adjudicate these disputes.

Once you commit yourself to that position, you realize that you’ve done a terrible thing. You’ve created a government monopolist of force, and then the next question you have to do is to figure out how it is that you managed to discipline this particular guy. If you were an old-fashioned Hobbesian, you’d say it’s not even worth trying: absolute power in the hands of a sovereign is what we want because anything else is going to be anarchy.

But if you think about it a little bit differently, essentially what you would say in economic terms is, if we invest a little bit more in government, we might be able to get rid of some of its rough edges. And that’s what essentially the theory of constitutionalism is about.

So the first thing you have to figure out is exactly what is it that you want this particular government to do. And, you know, we have a pretty good approximation from our own Constitution. One of the things that you’d like it to do is to defend you against foreign invasions with an army and an air force and a navy—maybe not an air force back in 1789, but then—who knows? (laughter) You have to supply some kind of a social infrastructure. I think there is a certain libertarian fantasy that you could run all sorts of network industries on a voluntary basis; but one of the things that modern economics confirm, which I think the older theorists believed in, is that the coordination problem of trying to get little pieces of highway together from millions of people means that somebody will simply blockade the entire enterprise, and the whole thing will come clattering down.

So this means you need a system of taxes, you probably have to have a system of takings, God forbid, but for that you’ll want to offset it by some system of compensation, so that you would never have a situation in which a single individual can be victimized by a state which would simply say that your property is exactly what we need for the public good, and oh, by the way, we’ll wipe you out. The fact that you have to pay compensation as a policy to the particular individual that you prejudiced by a deprivation of property means that you’re now going to have to take into account his losses when you determine your political functions and your general sense of social welfare.

And since each of us has a little bit of larceny in us, it’s nice to make sure that when we act in our collective behaviors, we recognize that we, too, can sometimes be the odd man out.

Now if you start to look at our government, it is not a straight libertarian kind of situation, which is the force of the words “classical liberal” that I put into the title of the book. If you’re trying to figure out what the differences are, I think I would state them in the following way:

A good libertarian, hard-lined and consistent, believes that all taxes are theft and therefore no taxes are allowed; a good classical liberal of the sort that I am takes the Lockean view that you have to have taxation to keep a union, but you’d like to keep them flat in order to simplify their administration and to prevent people from constantly figuring out a way to tax somebody else for benefits that they receive in one form or another.

So you’ve got to have a system of taxation. And then of course if you’re trying to figure out what the next thing is, you also have to have a system of infrastructure that will allow people who own private property to communicate one to another. In modern terms, we call these “network industries,” and we talk about the Internet, the roads, the telecommunication system, and all the rest. And what it takes to organize one of these networks is a little bit of coercion. And again, the system of taxation and the system of condemnation are designed to put this kind of infrastructure together.

Now if you’re a very good libertarian, you don’t much care about the differences between cartels on the one hand and competitive industries on the other, because both of them arise out of voluntary contracts. On the other hand, if you read that bloke named Adam Smith, you would care about this kind of difference. He would say, generally speaking, that if you put rival cells in the same room and they start to collude on price, you better be a little bit worried because you can trace the systematic social dislocations from monopoly which you can’t trace from competition.

It’s not that competition doesn’t have its losers, and that monopoly doesn’t have its losers—both have losers. But what you can say about the competitive situation is, you’ve exhausted all the gains from trade. What you cannot say about the monopoly system is exactly the same proposition. So for somebody who has a slightly more economic and a little bit less natural law view of the world, it turns out that if you can say we can maintain it, competitive-type situations turn out to dominate monopoly-type situations.

And our good classical liberal is going to be allowed to tinker with the whole question of monopoly regulation. But since he looks at government always under a presumption of distrust, because of the abilities of factions to take it over, he is going to examine very carefully any proposed remedy to see whether or not it is worse than any particular disease.

And the last thing, which became not an eighteenth century issue, but surely a nineteenth century issue, was the essential problem of the common pool. That is, there’re many resources like wild animals, fish and game, where if you allow the Lockean rules of first possession and capture to take over, in the end you cannot have sustainable supplies of various kinds of wildlife. And trying to figure out smart ways in which you could prevent the level of capture so as to allow the sustainability of the underlying resource, generally requires government kinds of catch limits, which cannot be explained under standard libertarian principles.

And so too, if you go look at the late nineteenth century cases, when they were worried about the extermination of birds, and the exploitation of oil fields, and the development of water rights, none of these funny little materials lend themselves to simple private-property solutions. Sometimes you require a common property, sometimes you require direct forms of government regulation; and essentially a classical liberal is willing to specialize with those things.

Now what is it that he’s going to be extremely doubtful about, given this long list of things that you’re allowed to do? I think the simplest answer is the classical liberal is always somebody who is deeply suspicious, if not outright hostile, to efforts at the covert redistribution of wealth that take place through schemes of regulation and taxation.

That is, we know in effect that if you don’t allow one person to take from A and then to give that property to B, you have to be very worried about a situation where you tax one person, take the proceeds, give those proceeds to the other fellow, and then he can buy the very property in question. Or in other words, if you really think that taking and transferring is a very difficult kind of situation, you’re not going to be happy with the following scenario, which I am going to impose in order to show that I’m an honest man.

Jeff, I would never want to take against your will anything that you ever owned, but on the other hand, I’m going to go to Congress sitting over here and announce that you are my debtor, so that I can now sue you to collect the debt that you happen to owe me. And so it turns out that when we’re worried about takings, we have to be worried about all of these fancy little connivances that individuals can use to convert him from somebody who’s an innocent victim into somebody who’s merely paying his just debts to society, i.e. me, right? (laughter)

You know, these problems are extremely serious. And to our great credit, in the Constitution it turned out for the most part we had a series of institutions that were designed within limits to try to deal with some of these problems. When it came to the question of taxation, for example, by and large the original Constitution tried to figure out ways in which you could stabilize the ends to which taxes could be used. And when they said that you could tax and spend for the general welfare, they did not mean that you could tax and spend for anything you damn well pleased to spend for.

They meant in effect that there were certain kinds of public goods of the sort that I’ve talked about and that the ability to extract revenues from each citizen from which they receive, in exchange for their pro rata share of the public good in question, was a perfectly legitimate function of government—which is very different from the situation of taking from the left side of the room in order to give something to the right side of the room, on the grounds that there are slightly more people sitting on this side of the room than are sitting on that side of the room, so that majority politics is able to do this.

In fact in the early Constitution, they even went one step further. They were so worried about the distribution of wealth between states that they had rules which said that poorer states had to pay a larger fraction of their local income to a common national project than the richer states so as to prevent these transfers from happening.

And those restrictions I think have essentially disappeared largely because people don’t have the same kind of powerful identifications with states that they had elsewhere. But one of the things that then happens is—where in the Constitution do you tend to fall down? And here I’m going to introduce a fatal, dangerous but very important word, which I think describes the failure of the judiciary to deal with the issues of the constitutional structure. And that word is deference.

Generally speaking, when you start to defer to somebody else, what you’re saying in effect is, “I know you guys are doing the wrong things, but I don’t have the courage to stop you.”

And that turns out to be the problem. This is not a critique that says that the courts in many ways have been too strong and have dominated the situation. They have been strong in many ways that are indefensible. But to the extent that there is a constitution which has property protections, powerful limitations on taxation, structures that are designed to deal with contracts and with commerce and interstate trade, it seems to me that if you’re faithful to the original doctrine, you have to be faithful to this underlying Lockean vision which by and large happens to animate it.

So the first question is, what do you do about progressive taxation, estate taxation, and so forth? And it didn’t take the 1937 New Deal to figure out how to punt on that one. Essentially what happened is, starting in the late part of the nineteenth century, people made the following argument: You can imagine taxes that are so horrendous that we will treat them as confiscatory and strike them down. On the other hand, we’ve yet to see one, and frankly, my dear, we don’t think that we ever will. (laughter)

And that’s exactly what happened with respect to the United States. An extreme level of deference, the idea that these splendid denizens whom we elect to Congress would not put their hands in each others’ pockets was enough to say to the court they don’t have to do anything. That’s because they don’t care about wealth. But let me now give you a situation which shows you that when judges do care, they can do things right.

One of the things that our Constitution has is privileges that deal with freedom of speech. And that of course is a rather important topic. You’ve got to be able to criticize government. And of course, governments don’t like to be criticized, and one of the ways in which they’ll start to stop criticism is to try to tax the people who criticize them, including newspapers and magazines.

And one of the things that you’re always going to try to do is to tax your critics more than your friends, if you could figure out a way to skew the taxes in order to do that. And in a case involving the Minnesota Star back in the early 1980s, what they did is they had a way in which they had a progressive tax dependent upon the circulation of a particular newspaper. And the same Supreme Court, which thought that progressive taxes were perfectly okay in the economic sphere, struck them down when it came to the First Amendment, about which they still care.

And the explanation is one that generalizes perfectly well. If you’ve got a revenue target, you could always reach it under a flat tax. The moment you start skewing it, we have to worry about whether you’re attacking your enemies in order to be able to help your friends. We’re not going to limit the size of the government directly, but the moment we start to put this pro-ration requirement on top of it, the willingness to tax is going to be much more reduced in virtue of the tax, that the tax has to be flat and the benefits have to be flat.

Nobody under these circumstances, where if you keep flat benefits and flat taxes, can essentially game the system. So by a series of very elegant, indirect constraints, the game theorist will confirm that you will try to vote for the optimal level of taxation.

Now I don’t think they quite understood that back in 1789, but it really is in fact the way in which the game starts to work. So that’s how the thing started to get unraveled with respect to the tax-type situation.

Now let’s go and look a little bit further. We’re going to start to talk about the property side of the situation. As I mentioned to you before, it is generally held that you cannot have a situation in which you take property from A and give it to B, because that’s the same thing as allowing a government to essentially organize the very kinds of thefts that it’s designed to prevent.

Well, what do we do in order to enforce that provision? The sensible thing that we ought to do, in effect, is to say that if we have the exact restriction on him, in order to protect him from various kinds of deprivations, what we have to understand, if his name is Ivan, is that he’s intrinsically unreliable, and if we stop the direct form of theft, he will try to figure out other devices that are a little bit more subtle, which will achieve much the same end. So what are friend Ivan and his cronies going to do to the virtuous Jeff on the other side of the room? (laughter)

Now, this is just a metaphor and an allegory, right? This is not a personal allegation, so he will understand that the only reason he is getting the criticism is because he is sitting on my left. Right? (laughter) If he had been sitting on my right, he would of course have been at this point a man of perfect virtue.

Now what does this man on the left decide to do? Well, let’s just take a kind of a very simple model. And I want you to conceptually expand yourself until you think of the world as a giant tic-tac-toe board. And there are eight squares around the outside of the board, all of which have been built up by their owners, and there is a ninth square in the middle which is now empty which is owned by Jeff.

And so now what goes on under these circumstances is, we believe in democratic politics. Right? And so we get the sober town people to come together and they will now propose a moratorium, which says, in perfectly neutral terms, nobody will be able to build anymore on the tic-tac-toe grid.

So all the guys on the outside on the eight, who’ve built their homes and have it exactly the way they want it, agree not to build anything more and old Jeff sitting over there, he can’t build anything either.

Now what has happened in this particular situation, which has a perfectly neutral rule, has a violently disparate impact with respect to the community under which it goes. And this fellow—who knew that he couldn’t take the land and use if for himself without having to pay compensation—because to the credit of the Supreme Court, if you dispossess somebody, you basically owe them top dollar?=He’s found a way to impose a land-use restriction, which gives him 90 percent of what he wants, for a zero price, or very, very close to it. So that the eight vote out the one, they all manage to gain a certain amount of money, and he gets wiped out. And this essentially has the following major proposition.

The United States Supreme Court—when it came to the question as to whether, by judicial artifice and device, you could in fact control somebody else’s land through a restrictive system—said you can do that, and you don’t have to pay him a dime, and let you completely wipe him out. And once you know the rule, you won’t wipe old Jeff completely out; you’ll just give him a little scintilla of something so as to keep the thing interesting. And in fact that’s exactly what has happened.

Once the rule became exactly the way I’ve said it, all the states said, you always build if you could go through enough hurdles, so that sometime in the next 40 years, you will be able to complete your project.

You think I’m kidding you. Right? (laughter) Well, there’ve been four or five major Supreme Court cases dealing with land-use restrictions of guys who haven’t been allowed to build on their land, and they all have one feature in common: it’s been at least 30 years since the application to build has been submitted, and there has been no positive response. You had the Swedam case, the Palazzolo cases had that, the Lectal cases had that, the Monterey cases had it. It’s not an accident that if these eight guys sitting over there don’t have to pay anything for restricting his ability to do it, they will take into account their private function, and they will ignore what happens to him.

And essentially in the property area, the inability, the unwillingness, and the—shall we say the stubbornness?—about insisting that land restrictions aren’t restrictions on property rights, has led to the rise of a zoning situation, which has probably resulted in the destruction of hundreds of millions, probably hundreds of billions of dollars of real property in the United States.

There were rules which would adjudicate the boundaries between these people, and these were rules which essentially said that when you built your house, you can’t build a stink factory if it’s going to blow toward everybody else. Anti-nuisance restrictions were always part of the Constitution, the common law. They should be part of the common law as well.

All right, so that’s the second part of the way in which we’ve fallen from the promised land. But let me just talk about at least two other elements which are of extreme importance in trying to understand this game.

As you recall, I said sort of one of the standard bundle of the “natural rights”—it seems to have been part and parcel of our traditional heritage—is the ability of every individual to dispose of his or her labor to other individuals in whatever ways they see fit. And I’m going to put aside a serious caveat having to deal with the application of the anti-trust laws, because I will only talk about regulations which have nothing to do with the creation, perpetuation, or expansion of monopoly power. Just trying to talk about ordinary variety regulations of one kind or another.

If you go back to the period between 1865 and 1937, there were a lot of technical constitutional hijinks, so that the story as a doctrinalist was not all that clear. But it was remarkable how astute these characters were in trying to figure out what the basic system of entitlements was. And their view about it was that the basic liberties that people had—protected either by the privileges and immunities clause, which is the natural home, or the due process clause, which was the actual home—included the right of people to dispose of their labor as they saw fit.

These were rules, by the way, which had tremendous liberalizing effects. For example, they were used systematically to protect aliens against discrimination by domestic people who had the vote, when the aliens in many cases did not.

The most famous case on this particular sort was the case against Lochner against New York, where Lockner was a German immigrant who employed German immigrant workers, and they worked more than 10 hours per day. And this was in violation of the statute. None of the workers seemed to complain. That’s why the case is Lochner versus New York, but what happened was that the state decided to punish him criminally for exploiting a series of workers in question. And the issue was whether or not they could justify this particular regulation on grounds of health.

And what happens is, there is in all of these cases the following very important dichotomy; it’s stated to be for health, but it may be to suppress competition. And in this particular case, we’re pretty confident that the suppression of competition was the dominant element, because if you look at the rest of the statute, it contains provisions which talk about the requirements for adequate ventilation in sleeping quarters. And what happened in the Lochner case is that the non-union bakers slept on the job so they worked more than 10 hours a day. The union bakers did not. And what therefore happened is when you put this 10-hour-a-day work rule into place, the union bakers would in fact be able to survive and the non-union bakers would be driven out of business.

And when the Supreme Court struck this thing down, what they were trying to do in effect was to create a level playing field between two different forms of industrial organization, at which point the unions would run into rough sledding, because the competition from outside would deprive them of their monopoly rents or the opportunities to acquire them.

And the thing to understand about this case is, it’s exactly the same case, analytically, as the property case that I talked about before. Just imagine eight union guys on the outside, and this non-union guy sitting in the middle. And what they all do is they agree to a regulation that says that nobody can work for 10 hours a day or more, and eight of these guys are perfectly content with the restriction, and the ninth one is wiped out. That’s exactly the same thing that you did with respect to the land-use restriction, and it’s the disproportionate impact which is the dead clue that something’s wrong and the argument is that this was destined to protect the health.

And Justice Peckham said, whose health? Nobody said that the bread was bad. Nobody said that the bakers were dying. Whose health are you protecting? Please tell me.

Well, that, in effect, was a powerful argument, and you have to understand just how far it goes. If in fact you take that position that labor contracts are immune from government supervision, unless you could find a powerful health justification for either workers or customers to do so, you can’t have minimum wage laws, it’s hard to have any maximum hours laws, you can’t have mandatory bargaining and collective unionization laws, but you can have unions, if they can organize and persuade an employer—God bless them—and so forth and so on.

So that’s essentially the way in which the system starts to break. And if I had more time, which I do not (and I respect the orders of the court), I would talk about the federalism kinds of issues, which some of you have asked about, and quite simply say this: The early nineteenth century, essentially when it looked at the powers of Congress to regulate commerce, said: We think you can regulate commerce to the extent that you open up borders on various state lines and facilitate the creation of a national market.

By the time we got to the commerce clause in the New Deal period, it was completely inverted. The traditional classical model was a little bit uneasy about how it dealt with private monopolies but was dead opposed to the creation of state cartels, which backed in effect monopoly structures with state powers. That’s the ultimate sin. It is no accident that if you look at the cases which result in the expansion of the commerce power, to give the federal government plenary power to regulate essentially every economic activity under the sun—not to create competitive markets—you will find that they did so in two cases: one to rig national agricultural markets and the other to create mandatory collective bargaining systems under the National Labor Relations Act.

So if you’re trying to figure out, structurally, what it is that accounts for this sort of change in attitude, let me just put it to you this particular way. The old Lockean synthesis, when you get to the root of it, was essentially one that says you want as much government as is necessary, but no more, to create competitive markets on top of some kind of state coercive system. The modern view says: Why do you want to stop with competition? If it’s good, then state monopolies are great. And if the legislature wants to, in effect, empower certain individuals to wipe out their rivals, they’re able to do so.

Once you have that political dynamic, you have got a wealth destruction machinery in place which can, in fact, do exactly what it was that that particular title to my lecture said: result in the massive contraction of liberties, the massive expansion of government.

And it’s a true national tragedy when somebody who calls himself a Republican in fact performs on these particular issues far worse than that other Democrat whom he happened to replace.

Thank you. (applause)

Jeffrey Rogers Hummel

Well, I’m really honored to have been invited by David Theroux and the Independent Institute to share the podium with so distinguished a legal scholar, especially after he calls me a man of perfect virtue. (laughter)

Richard A. Epstein

I knew you were commenting, not him (laughter).

Jeffrey Rogers Hummel

And I do want to make one minor correction in my intro. I’m a former national fellow at the Hoover Institution. That was a year appointment which ended over a year ago, but I am still a visiting scholar at the Social Science History Institute, which is at Stanford and related to Hoover.

One thing I often like to do in my presentations is survey the audience. So can I see a show of hands, how many in the audience consider themselves either libertarians or classical liberals? Well, so Richard’s right. We are among friends. (laughter) And that gives me an excellent excuse to focus on the weaknesses of his position and his latest book rather than the strengths.

Richard A. Epstein

Attack from the right. (laughter)

Jeffrey Rogers Hummel

That’s right. Now before I do so, I want to emphasize that I do admire this book. I think it is always interesting and challenging and sometimes even inspired. It attempts to do two vital tasks. One is to ground classical liberalism in some solid theoretical and empirical foundations, and the other is to defend it from some of the more recent sophisticated criticisms—philosophical, psychological, and empirical—of people like Amartya Sen, Gerald Cohen , Robert Frank, and some of the behavioral economists. And in fact one of my favorite parts of the book comes in chapter nine, where Richard offers a Hayekian perspective on the efficient market hypotheses, and that I may assign to my students, some of whom are in the audience.

Now, do I get points for that?

Richard A. Epstein

Yes. (laughter)

Jeffrey Rogers Hummel

If I were to pick the book of Richard’s that sort of summarizes his research agenda in its title, it would be Simple Rules for a Complex World. And there are two tiers, or levels, at which Richard seems to be pursuing that goal: one at the level of law, law between individuals, and one at the level of government, simple rules confining government. So I have really two related problems with Richard’s position. One is that his simple rules for a complex world, as they apply to government, are not simple enough. And the second argument is that the justification he gives for government is caught in an inner contradiction.

No one has ever accused Richard of being an anarchist, or being a consistent opponent of taxation, and in Takings Richard enunciated the simple rule that he has repeated here—basically that government is not allowed to intervene unless the gains exceed the losses and the losers have to be compensated. And what has always disturbed me about this rule is not some of the standard objections that you might get from other critics. It’s not his reliance upon the economic concept of efficiency as a normative standard, nor is it in his consequentialist approach to these problems. I’ve always found that the consequentialist/natural rights controversy is in large part a semantic quibble with no substantive content.

Richard, in a recent debate with two anarchists, David Friedman and Randy Barnett, concluded after the debate that we are all consequentialists now. And I think that if you read closely the modern libertarian natural rights theorists like Rothbard, Machan, and George Smith—we’ve always been consquentialists all along, at least in a certain sense.

My objection to his rule is that it is not simple enough to frame an effective bulwark against state power. And I’m going to pick one issue out of the laundry list of essential government functions that Richard gave us to explore this weakness, and that’s antitrust.

Now, I don’t know—Richard may clarify this later—but I get the impression from reading Skepticism and Freedom that he’s actually changed his position slightly, because the standard neo-classical objection to monopoly is that it’s inefficient, which is to say that it produces the wrong quantity of output. But in Skepticism and Freedom Richard seems to be objecting to monopoly because it charges too high a price. And that segues into suggested regulations of price discrimination.

Now this, for an economist, is a slippery slope. Nearly every principles text will tell you that price discrimination, which is pervasive in the modern economy, is a primary way of eliminating the inefficiency of monopoly. And in fact, if you’ve got a firm that can engage in perfect price discrimination, it’s perfectly efficient, but using Richard’s criterion, or as I understand it, it would be bad because it would capture nearly all the consumer surplus.

Now, again, it’s hard to gauge how far Richard is willing to go on this anti-trust issue, and my reading of the book may be that all he wants is the common law refusal to enforce contracts in restraint of trade, and that’s certainly a loophole that most of us could live with, in part, because it’s pretty much non-binding. Firms can get around that through merger. And so if you’re really serious about anti-trust, you’ve got to move from not enforcing the contracts to government regulations of mergers, and it seems to be that we’re now in an issue where there is no obvious bright line, no shelling point, of where does it stop.

And if I can’t even figure out from reading Richard’s book how to translate this into an understandable rule that’s simple, how can the business community do so?

On the whole issue of anti-trust, I realize this is invoking authority, but I am reminded of one Thanksgiving I spent in San Jose at the home of David Friedman. Milton Friedman was there, Rose Friedman was there, Arron Director, Robin Hanson, and all David’s kids. It was a pretty intense event. (laughter)

And in the course of the evening, Milton said, “You know, we were all in favor of anti-trust regulation in the past. And now, none of us are. Isn’t that right, Arron?” And Arron just sort of nodded.

Jeffrey Rogers Hummel

And Richard provides the argument for Friedman’s position on page 193 of Skepticism and Freedom when he’s talking about harm without legal injury. Most or many economists—many free-market economists—have reached the conclusion that in the case of anti-trust regulation, even though there are inefficient monopolies, the cure proves worse than the disease.

Now I could mention other hard problems, but I want to be clear about what I’m not claiming. I’m not claiming that a lot of the hard problems that Richard brings up have easy answers. A lot of the hard problems that Richard brings up have been the subject of uncountable late-night bull sessions among libertarians since I was in college. And most of them are still unresolved. And one of Richard’s most vital services in his work has been sort of to elevate these issues from the level of bull sessions into rich and nuanced legal discourses.

So I’m not going to complain about the issues he’s not gotten into or not resolved to my satisfaction. One of the most powerful arguments in Richard’s book is that the hard problems are at the margin. and that it does not undermine the value of the simple rules that provide straightforward, sensible guidelines for most of human interaction.

So my objection to Richard is that he doesn’t take that advice far enough. He doesn’t push the argument far enough. Because no matter how many hard cases you can come up with where you might admit individual exceptions to simple rules about coercion, they in no way constitute a justification for a morally and legally privileged institution that’s empowered to regularly violate those rules, to regularly do things that no individual or private group is ever entitled to do. And what do we call that institution? We call it the state. And the quintessential privilege is taxation, which when attempted by private individuals is referred to as theft.

Now one can justify government if one is willing to embrace an ancient or medieval worldview which explicitly endorses political hierarchy and privilege with some people entitled to rule over or enslave others. But what characterizes modernity is the widespread belief in some kind of equality—legal, moral, or otherwise—where every adult individual’s preferences count.

Now different political philosophies work that principal out differently, but this is a shared moral premise, shared between Richard and his critics, and therefore, quite properly, he doesn’t even bother to defend it. But once you accept this premise, it becomes impossible, in my view, to justify government, which by its nature will violate that premise.

The great failed effort of modern political philosophy is to square this circle, to show how the state gains powers that no individual or group possesses. Some conservatives have abandoned the quest, like James Burnham in a very old book, Congress and the American Tradition, says we can only end up with mystical justifications for the state.

The most famous attempt to solve this problem, of course, is Locke’s social contract. Richard doesn’t adopt that in its strict form, and what he does is he falls back on a consequentialist justification from necessity: only the state’s coercion can provide certain public goods.

Now I accept the force of the public-goods argument in all of its manifestations. There are many situations where self-interested, voluntary action does not achieve optimal outcomes where private gains can lead to net social losses, theft being the perfect example.

In fact, one such public good, and arguably the most important, is liberty itself. Creating and maintaining Richard’s ideal limited government faces enormous free rider problems, rent seeking, etc. Repealing inefficient taxes is usually a pure public good. If I spend a lot of time working to repeal an inefficient tax that you pay, and I succeed, I can’t charge you for the benefits. And thus, we have a sub-optimal level of tax repeals under government.

Richard A. Epstein

That is true.

Jeffrey Rogers Hummel

And so as I argued in my review of Takings in the Texas Law Review back in 1987, either the publicgood problem is decisive or it isn’t. And if it’s decisive, Richard’s limited government is necessary, but unobtainable. If it’s not decisive, Richard’s limited government is obtainable, but unnecessary. If it’s not decisive—in other words, if people can surmount the free-rider obstacle sufficiently to roll back the state to Richard’s ideal—they should also be able to provide other public goods as well.

As Douglass North, the renowned economic historian who emphasizes institutions, has observed, the public-goods problem taken to an extreme proves too much. It leaves “no way to account for a good deal of the change we observe in history.”

And that brings me to the closing of my remarks and to the billing of this talk, “The Promised Land of the Free.” And strategy, a subject that Richard tries to steer clear of, at least in Skepticism and Freedom: How do you motivate people to eschew the free-rider incentives in order to create either my freer world or Richard’s slightly less freer world?

And consequentialist arguments are fine. They can be useful, but I think that you shouldn’t forget that they can be reinforced with moral arguments based on shared moral premises.

In my opinion the most impressive achievement of classical liberalism is not the United States Constitution, which has become the sacred text of America’s political religion. Everybody invokes it. No one follows it. (laughter)

The most impressive and enduring accomplishment of classical liberalism was the abolition of chattel slavery in the nineteenth century. In fact, it was so impressive, and so enduring, that we sometimes underestimate the significance of it. We forget that slavery was a labor system that was ubiquitous on every continent in every civilization. And then, within a little more than 100 years, we achieved a world where slavery still exists clandestinely in certain areas, but where no ruler, no matter how brutal or dictatorial, would dare get up and publicly defend owning another human being.

And how was that done? It wasn’t efficiency arguments. Economic historians today are still debating whether slavery was efficient or inefficient. Now, as some of you know I have my own opinions on that issue. The major ingredient was moral appeals. The moral appeals of the radical abolitionists who believed in self-ownership, who condemned slavery as morally wrong, referred to it as man-stealing—and I think that’s an important lesson for the kind of moral arguments that will help us achieve a freer world.

Taxation is theft. That is a powerful moral statement. Everybody understands the argument. If they don’t understand it, you can start with rape, right? Is rape okay if one person does it? No. Is it okay if five people do it? Is it okay if we vote to do it? Why is taking money different?

Now once understanding the argument, people do not embrace it because they think that taxation is a practical necessity, as does Richard. And so we also need to supplement the moral argument with empirical studies about doing without taxations for providing a lot of these services, which I think exist.

But the fact that we need these empirical studies is no reason to abandon the moral higher ground. And unless you want to remain stuck in the gravity well of the client-centered, power-broker, welfare/warfare state of today, you are going to need to motivate people with more than cost/benefit analyses. For in strategy, as elsewhere, it’s simple rules for a complex world that work best.

Thank you very much. (applause)

Ivan Eland

I’m going to further limit our First Amendment rights of our speakers here, but I am going to give them each two minutes to have rebuttal here. So I’m going to time it very strictly so we have time for a question and answer.

Richard A. Epstein

Wow. Two minutes is kind of difficult to do so, but I think I do disagree with much of what Jeff says, but I’m always happy to be attacked from this side rather than that side, because I think it does put the things into arguments.

Look, the basic question about how one deals with an antitrust law does run into the question of whether or not when it’s so misapplied the entire thing just simply blows up. I give a much fuller treatment of that in the book on Principles for a Free Society than I do in the Skepticism and Freedom. And you have to understand that in certain cases you can’t get around the monopoly problem when you have local exchange carriers, you have patents, and so forth. It is a very difficult question to figure out how they’re justified and when they ought to be used.

The one simple observation I would make is that merges are not always a substitute for cartels. Cartels, you can have separate firms, they don’t have to have a complex ownership such as they don’t have to swap shares and all sorts of other things. If you stop the cartels and you allow the mergers, there would be at least some set of transactions that would not go in that particular direction. And even if you allowed the mergers and the firms became inefficient, other people coming from the outside would in fact quickly undermine the situation.

So don’t give up on this. I think in effect you can do a better job than we’ve done. And here I would point out that the improvement in the antitrust philosophy under the Chicago influence between 1960 and 2000 is so vast that one should not completely despair. That’s an area in which we’ve gotten better, not worse.

With respect to taxation and slavery and theft, I agree that powerful metaphors always work. In fact I often tell the story: It was one day when I was sitting in a Liberty Fund conference, similar crowd, and I was giving some of these consequentialist jargon arguments, and there was an English professor sitting beside me from Warford College. And he just looked at me after listening to this for about 15 minutes, and he said, “Professor Epstein, I don’t know you, but I can tell you the following thing. Having heard you for 15 minutes, I am perfectly confident that I could have you committed in any state of the Union.” (laughter)

And that is because the jargon did not work well. And in fact, one of the things that I constantly stress, not in this lecture, but in other lectures, is that you cannot get by and unless you can translate the consequentialist jargon that you have into ordinary life.

Now let me just explain to you how that works. If you want to figure out why it is that people will respond to the movement to abolish slavery, but won’t respond to the movement to abolish taxation, you can’t just look at what’s-taken side, you’ve got to look at the benefit side of the transaction.

And with slavery ask the following simple question: If I were to enslave X, what’s the return benefit to him? And the answer turns out to be rather small. If we were to have a situation in which we impose a 2 percent tax on everybody in order to fund defense, courts, and public roads, to which all have equal access, the return benefits are rather larger. And under these circumstances, there’s an old maxim which says if you have an average reciprocity of advantage, that’s the kind of situation in which it’s more likely that coercion will flourish, and it’s the inability to make taxation flunk that test when slavery does that I think distinguishes them. I’ll stop right here.

I won’t charge him for that time. (laughter)

Jeffrey Rogers Hummel

I’ll only make one quick point because I want to hear what the audience has to say, but I agree that it’s much easier to abolish slavery than to abolish taxation, which is why one has succeeded and one hasn’t yet. But that’s not the question. The question is, what kinds of arguments and what kinds of simple rules, what kinds of principles, are most likely to give us the kind of society, the kind of free society, that both Richard and I would like to live in? That’s the essential issue.

Ivan Eland

We’re ready to throw it open for question and answer. I’d like to ask you to keep your questions brief so that we give the panelists a chance to answer them. No speeches, and please wait until Alice comes with the microphone after I recognize you before you ask your question so everybody can hear. This gentleman right here is first.

Audience Member

What is a behavioral economist? And what is a consequentialist?

Richard A. Epstein

You know, those are real questions. (laughter) This is the jargon problem all over again. Right? It turns out we know what we’re talking about, and many people who aren’t in the business don’t.

Let’s just start with the consequentialist. The technical philosophical definition is, the consequentialist is the opposite of the de-ontologist, which I’m sure solves all of your questions. I mean, what it means is, the ontologist is somebody who says you figure out whether actions are right or wrong by looking at them in relationship to past things that have happened, so that it is wrong to hurt another individual. It’s strongly intuitive, it’s consequenting on what you did to him, what he did to you.

The consequentialist says, “Look, these are the ways in which you enforce norms.” But you’re concerned about them with respect to the way in which they structure long-term social interactions, that is, with their consequences. And so, instead of simply saying that there’s a “moral obligation” to keep your promises, you say, “If you don’t keep your promises, how are you going to have exchange work? And if you can’t get exchange work, how are you going to be able to get social cooperation? And if you can’t get social cooperation, how are you going to be able to eat?”

And I think that what happens is that there is a very powerful connection between these two theories in the following way. And that is, if you look at all the traditional, natural bromides, which are given this kind of abstract truths without any real foundational work, most of them square up amazingly well with sensible consequences.

And here I would simply state that I began my life as a Roman lawyer, not that I practiced in ancient Rome, but when I went to Oxford to study the first thing they ever taught me was Roman law. And they basically were big believers in natural law. And if you look at the system they developed, their instincts were so unerring in the kinds of midlevel commercial transactions with which they were able to work that they rarely made a mistake.

And 2000 years later to the extent that you’re dealing with partnership rules, and loan rules, and bailments, and sales, we, even in the United States, use rules that are about 99 and 44/100 percent Roman, except for the bad parts, which we’ve added by statute. (laughter)

You want to take on the behavioral economic stuff? Or should I? You take a shot.

Jeffrey Rogers Hummel

Let me give a quick answer on consequentialism.

If you’re not a consequentialist, if you believe in de-ontological ethics, you believe certain things are right or wrong despite the consequences. Whereas, if you’re a consequentialist then your moral views, or your moral principles, at some level are informed by the consequences.

Richard A. Epstein

And it’s harder to be an absolutist as the consequentialist. So the tension is: The strong “Why-is-slavery-wrong?” question is easier to answer as a de-ontologist— “It’s just wrong to enslave another human being”—than it is as a consequentialist, who’s going to say, ”Well, suppose it improves the GNP?” Right?

And you say, well, that’s not the kind of consequence you want. And so what happens is you then have different kinds of consequentialists. And let me mention one of the profound splits. Those of us who came out of the old de-ontological tradition—as I do (that’s where I started)—tend to be what we call parishionists. That’s another term. That is, we believe that consequences are only better if every individual under the new state of the world is better off than they were under the old state of the world, so that you don’t have some prosper and some who get hurt. You’re trying to do that.

And there are other people who say, “No that requirement really isn’t there. So that if you can make one sort of person a slave and 10 people are left better off, go right ahead and do it.” So you have that real split within the consequentialist community, and most libertarians are strong consequentialists—meaning the rising tide has to raise all boats—and very deeply suspicious of selective rules.

And then the question is, can you justify which form of consequentialism, based on the consequences that they have for political life? I think you can. The moment we make it free for ten to enslave the eleventh, there is always going to be the question: Who’s the odd man out? And the general answer is, it’s always the guy who’s got the shortest straw.

Jeffrey Rogers Hummel

I’ll do behavioral—Richard actually probably knows more about it, but I can give a shorter answer. (laughter)

Behavioral economists are economists who have conducted various kinds of experiments and field work in order to look at human behavior. And some of them, not all of them, have concluded that sometimes people behave in ways that are counter to the underlying assumptions of economic rationality.

Ivan Eland

Let’s have another question.

Richard A. Epstein

Yes. I will, I mean, the sub-schools are as follows. Dan Kahneman won the Nobel Prize because he proved that no matter what experiment you gave to people, they always got it wrong. To him the world is not perfectly rational. We always use heuristics, a fancy word for a rule of thumbs, and they always lead to biases.

The other school is actually run by a leading—there’s a German fellow named Gerg Gigerenzer and his title of his book is not heuristics and bias, it’s Simple Heuristics That Make Us Smart. And guess who I’m more friendly with when it comes to sort of the intellectual orientation?

And it’s not field work that drives the cognitive guy. It tends to be very stylized laboratory experiments with college students who don’t understand the instructions to the question that they’re given, and who never are doing it in a real world context. To the extent that we do have field evidence, it turns out if you put people under pressure they actually do a little bit better when they’re just thinking idly, because there’s so many sort of deep wiring kinds of arrangements, which help to keep them in line. And by the way, I have two full chapters in the book on this if you’re curious.

Jeffrey Rogers Hummel

And they’re good chapters. (laughter)

Richard A. Epstein

That’s something he won’t disagree with on me. Go ahead.

Audience Member

Yes. Thank you. I thoroughly enjoyed your talk. I’m wondering if you could you elaborate a little bit on something from yourvery brief two-minute rebuttal. I’m not sure if you really had an opportunity to respond to what I thought was maybe Jeff’s harshest critique of your position —

Richard A. Epstein

Which is?

Audience Member

— that your justification for the classical liberal versus libertarian position is essentially a public-goods problem, but that good government, itself, is a public good, and you are caught in a problem of the impossibility of a desirable minimal state. And I’m wondering how it is that you answer this critique?

Richard A. Epstein

That’s a very powerful critique. And the answers I would give are two-fold. The first one has to do with the self-interest model. It’s very instructive, if you go back and you read the Hobbesian view of self-interest. It’s relentlessly individual. More so, in fact, than the biology would support, because it doesn’t allow for sharing within kin and within family.

The more accurate account of the way in which this thing works, I’ve always thought, was the Jungian account of individual self-interest, which was individual self-interest tempered by confined generosity, meaning in effect that there is a certain level of empathy that people have with other individuals, which will force them to curb the way in which they respond to certain things, and to act in somewhat non-selfish fashion some of the time.

And if you actually look at the empirical evidence, and there was just a recent study reported in The New York Times- in which it turns out that if you shock one person with pain and you look at the mental lobes of another individual, they respond in a hurt fashion. And it’s that ability to sort of work on these kinds of residual interdependent utilities, which essentially means that we are not caught in this impossible box because the economic assumptions of relentless self-interest don’t work. That’s the first point.

The second point is a profoundly anti-Hayekian point about the way in which this works, which is the single most successful constitution that we’ve had—either the national one or some of the state constitutions. Far from being the result of spontaneous elaboration and evolution, we’re the result of constant deliberation by individuals who, for some weird reason, were put into a situation where it was no longer politick for them to act in selfish and provincial fashions.

Now, how did this happen? Well, you put them in a crisis situation, and sometimes if the whole ship goes down, the fact that you’re on the top deck of the Titanic and the last to drown isn’t going to help you. You want to make sure the whole thing doesn’t shipwreck.

And a little bit of that problem took place with the Articles of Confederation. And so given the fact that you face mutual ruination there was a strong incentive on the part of self-interested people, tempered by this generosity, and understanding something about their own weaknesses, to opt for structures which were coherent.

And the thing that’s most impressive, and here I disagree with Jeff, is if you look at the American constitutional experience to the extent that these Supreme Court judges, the same judges, believe in the dominance of competitive equilibrium over state monopoly. Let’s leave it like that.

Their rules on freedom of speech, interstate commerce, and so forth, are so good that you could write economic answers based upon what these judges do. Then you get them into a situation where they don’t believe this stuff and they write gibberish. And so a large portion of it—you get these split brains—depends on exactly what we’re doing here. The way in effect you form The Independent Institute and a thousand other organizations, is there are some people out there who realize that knowledge is a public good, and you’re trying to push the debate.

And the truth about the matter is on many fronts, we are worse off than we were 40 years ago, but on many fronts we are better off. And antitrust paradoxically is one where, I think, everybody would agree, it isn’t perfect, but it’s certainly a lot better than it was in the peak of the Warren Court. I mean, that court made a Supreme Court clerkship, I have to tell you. Because somebody said, what do you think of the Warren Supreme Court antitrust opinions? I said, they’re sick, essentially. And that ended it.

Jeffrey Rogers Hummel

I want to make a quick comment. I don’t share Richard’s constitutional fetishism. (laughter)

Richard A. Epstein

I’m not a fetish. (laughter)

Jeffrey Rogers Hummel

From the perspective of American history, I would argue that the problem with the Articles of Confederation was that it created a government that was too strong, not a government that was too weak. And to the extent that we had limited government under the U.S. Constitution, I don’t think it was as a result of the Founding Fathers. It was a result of the political constellation of how the Constitution was interpreted and implemented.

In other words, I don’t assign this stellar role to the judiciary. And in fact if I were to identify one sort of organization that was most responsible for limiting state power in American history, it would have been the Democratic Party as organized by Martin Van Buren. But I think there were myriad other influences as well.

But that points to the fact that the Constitution is not a magic bullet that will solve these problems.

Richard A. Epstein

It can improve the odds.

Jeffrey Rogers Hummel

Because the Constitution has to be interpreted, and it will become and its interpretation will become the result of politics, and that means that you have this ongoing problem of fighting, rent seeking, and preventing special interests from capturing the state.

Ivan Eland

Okay, this gentleman.

Audience Member

Yes. The underlying premise I think of what you’re saying is that freedom is diminishing on a monolithic basis with certain exceptions such as antitrust law. Isn’t it a fact, just going a little bit towards the other way, with things like the Internet, which liberates individual people and is essentially uncontrollable by government, and taxes at one point were 70 percent top rate and now they’re much lower. And the Heritage Foundation, I believe, does a study internationally and finds indexes of freedom actually increasing somewhat. Haven’t we reached a point where things will tend over time to become more free?

Richard A. Epstein

Look, I agree with some of that. I’m not a complete pessimist. But remember the time span under which we were talking. Most of the reforms that I talked about on the Federalism issue, on the labor regulation issues, and so forth, that deal with the modern American system, were reforms that were introduced in the Progressive Era between 1915, say, and 1937, as a rough point. Where every single important American public intellectual figure thought that a larger government was a better result and the courts responded in time.

If you take the last 50 years on balance, I think it’s been very complicated. There’s no question that you’re right about cyberspace, and you’re right about the Internet. I think that the attitude towards many New Deal regulations on whether banks can sell stocks and stuff like that—we’ve repealed the Glass-Steagall Act, not that anybody really cares any more, but you did. And you know what? The world didn’t fall to pieces, and these commercial markets became much better.

We’ve done infinitely better on the tariff fronts than we used to do a hundred years ago. In real terms, they’re down. Now when you support the sugar tariff you actually have to be embarrassed about it as opposed to treating it as simply business as usual.

But there are some areas in which it goes in the opposite direction. There is no question in the United States that the regulation of the employment relationship, which is one of the things which is most easily marketized, without any regulation whatsoever, has increased, first in the New Deal, but unlike the antitrust law, it didn’t moderate when you got to Johnson or the modern age.

So that if you start in the 1960s you get the anti-discrimination laws, mild and moderate, we were told by Hubert Humphrey, but a 900-pound gorilla. By the way, there are no Republicans in this room, I hope. (laughter) But the thing to remember is when it came to age and disability, family leave and things like that—you had a bipartisan coalition.

When they eliminated mandatory retirement, against which I railed—I mean, voluntary mandatory retirement in the university—it was 94 to 0 in the United States Senate. I mean, you’ve got to understand where it was. That’s an area in which it’s clear that we’ve gone south.

On the other hand, union power in the United States in the private sector: way the hell down. But union power in the public sector: way the hell up to the point where there are now more members, or will be within a year, more members of public service unions than of private unions in the United States. Where these states are so feckless they essentially order their local municipalities to cave in to a union. They can’t even fight them, which is why the growth has happened.

So it’s just highly variegated. It’s a complicate situation. And all I was doing was picking on some strands where I think things have gone worse. But if you’re asking me where it is on balance, we’re in slightly better shape today, I agree with you, than we were, in my judgement, when I became an academic in 1968. Jeff, you agree or not?

Jeffrey Rogers Hummel

I agree. (laughter)

Ivan Eland

You in the front.

Audience Member

One thing I think that does limit the power of government is a concept of individual rights. And you can have a constitution, but if you don’t have a more limited government, individual rights, then you really don’t have anything to sustain the government in its pursuit of respect for people’s rights. And I wonder, I think that Jeff would agree with the concept of individual rights. I don’t think that you really do agree with such a concept, because you believe that it is proper for the state to take people’s money from them without their consent. How is this different from simply robbing somebody?

Richard A. Epstein

Well, I mean, the robber doesn’t give you back anything in exchange.

Audience Member

Well, suppose he did. Would that make it right?

Richard A. Epstein

Well, yes. (laughter) The answer is yes, and no.

The answer is surely no if what you did is the robber took something from you and just gave you something as one person as an individual. But if there is a serious coordination problem, and you take from everybody, and you give back to everybody something which they could not achieve through voluntary arrangements (that’s the logic of forced exchange) then you have an economic improvement in which if you ask people up or down—not whether they could opt out of this system, be the free rider—but whether they would have everybody taxed and everybody benefited or nobody taxed, and nobody benefited, they would all vote for the tax.

That’s what James Buchanan called the unanimity principle, and in effect, in this hypothetical world, that’s the way in which it works. That’s the essential argument,and essentially the way in which I put it, if you go through my Takings book, which is a constitutional interpretation, because our Constitution is not a libertarian constitution. It says, “Nor shall private property be taken for public use without just compensation,” which means that it can be taken if just compensation is provided.

Essentially, what I concluded was, magically, if you actually ran this thing through systematically, it meant in effect that you could do only positive-sum projects, subjectively measured. So this is individualism in the strong sense that you are the master of your own utility function. You decide what you value and what you do not—and that in effect that nobody could be prejudiced, subjectively speaking, by a government program when all of its systematic pluses and minuses were taken into account. And that’s very different from robbery.

It seems to me, in fact, the political point that I would make is, in this room the taxation is theft argument may have a chance and probably would win. But if you try to go out into an audience which is essentially small-government types, you’re going to lose. And you’re going to win on slavery and lose on taxation. And the reason is the distribution of return benefits is so radically different under the two systems that you must take that into account.

Let me give you another illustration. Gary Libecap and other people have worked about common pools, getting oil and gas out of the ground. And it turns out the optimal size of a farm is much smaller than the optimal size of a pool. If you try to do this by voluntary organization, as opposed to mandatory state pooling, the amount of oil and gas that you’d get out in profits probably goes down by a factor of four or five.

And you ask, “What’s the number of people which creates this impossible blockade system?” Empirically, the number is around six. I mean, very small numbers create immense amounts of chaos. And what you see is the oil and gas men, these hearty individuals, go to the Texas state power government and say, ”Please, help us organize these fields before we kill each other.” So there is a difference.

Ivan Eland

Okay, Jeff, you want to make a comment?

Jeffrey Rogers Hummel

Just a quick comment. I can see that the taxation-as-theft argument is, at least the first time you present it, by itself going to fail with a general audience, but so is the New Deal-is-unconstitutional argument also going to fail with a general audience. I don’t see how far that gets us.

Richard A. Epstein

Well, no, the answer is you don’t present the New Deal argument like that. You sort of slowly build up to it. (laughter) And you show that it doesn’t require you eliminate taxation.

Ivan Eland

This gentleman right here in the front.

Audience Member

It seems to me that the main argument that the common voter has for transfer taxation is that capitalism itself is based largely on some element of luck; It’s not all ability.

Richard A. Epstein

Yes. Absolutely.

Audience Member

And therefore, it seemed to them that in sort of the Christian morality idea that we share by force. (laughter) How do you respond to that argument that we’re only readjusting this unjust system—because Bill Gates is brilliant, but not a million times more than the common man.

Richard A. Epstein

I actually wrote a paper called Luck.

“Come bad chance and we join to it our strength and teach it odd and length itself or us to advance.” That was John Donnethat I quoted. But anyhow, let me give you the first thing.

That is, the basic principle of rectification for wrongs is always what you have done to me. To the extent that those are relatively infrequent, you could run a system of rectification, which has individual responsibility for individual action. One of the problems that you get when you use luck as a test for entitlement is, you can’t figure out who it is who’s suppose to do the paying. I mean, in terms of coercion system. Because what happens is you’ve had bad luck, you got hit by a truck, but lady, you’re the one he’s trying sue and you just lost a relative the other day, and it turns out if you’ve ever worked in the academic business with students in trouble, everybody’s had bad luck.

The second point about it, because this is actually the more serious half of it, this is not an idle consideration. The traditional libertarian view on charity was that it was an imperfect obligation. It was not essentially a matter of free choice. And what they meant by imperfect was that, as a matter of conscience and social practices, other people would call you wrong if you had plenty and you left nothing for anybody else.

But two things were true about it. One is, you could aid anybody who you damn well pleased. You didn’t have to help everybody. So that the matching problem, which I mentioned for luck is a social thing, essentially disappears.

And then, in effect, once you do all this stuff, if everybody else fills in the rest of the gap, it will work. And it is quite striking that if you actually look at the level of charitable contribution for the poor before the rise of mandatory systems, you’ll discover that there was nobody who died on the street, notwithstanding bad luck, because of all these second-tier institutions, which managed to hold it. And this is true when the total income on a per capita basis or the per capita basis income in the United States was about a tenth of what it is today.

So I think in the end that one of the great tragedies of the welfare state is it killed private benevolence, substituted very powerful coercive systems, which are then spent in such a promiscuous way that the tough love, which makes charity work, is no longer possible, because why go into a religious program that’s going tomake you do something to get something if somebody’s going to give you that and tell you you’re just a goddamn victim and you have nothing to do but to worry for yourself?

So I mean, there is a kind of an answer to this problem within the system, but I think in effect, it’s extremely difficult to talk about as an entitlement, and this is my answer to Bill Gates.

I said, Bill—this is a true story, not that I told him, but I would if he came by. (laughter)—I said, “Look, you miserable human being, you. You earn $80 billion. You can’t figure out a way to spend it on Matisses, and your original idea was to basically hold it until you died and then give it to a charitable foundation. And even you weren’t so thick to just keep it there when you could do something in your own life, and shape it.

“So all of a sudden you created a foundation of $20 billion here and gave out money there. In effect, your wealth has done more to help the poor people in the United States than if that wealth had been evenly distributed, by virtue of the fact that you’re entitled and able to implement a program, privately conceived, that responds to all the difficulties, which we have said.

“And it’s not the estate tax that’s driving you on this particular thing. It didn’t drive John D. Rockefeller. It’s your own sense of shared humanity. It’s that little element of empathy, which becomes a little bit larger for guys who’ve got $80 billion in the bank.”

Ivan Eland

The last question here.

Audience Member

I’m not sure if you answered this in your book, but it seems as if many conservatives can justify social regulations, social control, using basically a public good argument, as well as a cost benefit analysis, and one example of that might be the legalization of drugs. How do you answer that?

Richard A. Epstein

Drugs is an extremely difficult question to deal with, and let me tell you the way in which I answer this question, and the approach that I would give to it. And then Jeff can come back in the sort of small-state world and figure out whether or not he would do more or less the same thing.

I mean, my first—I do it with a series of shifting presumptions. And the first presumption, if there’s anybody who wants to blow his own particular brains out by taking these drugs, do it. That’s fine.

But on the other hand, if you then ask the next question, when some people take these drugs, they not only blow their own brains out, but they act in asocial behaviors with respect to others. Then, in effect, what you have to do is have a system in which you punish the wrongful conduct which they engage in. All right? And you don’t allow them an excuse based on non-responsibility in virtue of the drugs that they’ve consumed. And if you did that, that would be a start.

The hard problem about this for regulation is a hard thing for every one of us. Suppose you have somebody who takes a drug, and you don’t know whether he will or will not engage in various forms of violence. And you do know that if he does engage in the forms of violence, he will not be able to provide compensation in question.

What you then have to do is to make a very difficult risk analysis as to whether or not the dangers of non-compensation of people, who in fact use these sorts of drugs, and cause harm to others, is so great that you will limit the consumption in question. We make these choices all the time. When you tell people they can’t drink alcohol after 3:00 in the morning, what you’re saying in effect is, we think that the likelihood of drunk driving at that particular time, with that level of imbibement, is a real danger.

And so what we do is we criminalize things which have high positive consequences. So to me the drug debate is whether or not driving while drugged is like driving while drunk. And if it is, I’m going to regulate without embarrassment. And if it’s not, I’m going to let him do it. But I’m going to let them do it, you’re grown men and women. I’m not going to give you an excuse from the criminal law. And I’m not going to subsidize your use by bailing you out after you’ve gone.

We’re running a cold-turkey operation, because right now what we do is we throw people in jail, which costs everybody money, and then we subsidize their rehabilitation programs, which costs everybody money. I think, in effect, what you want to do is to stop the potential and certain harm, and leave the improvement to private agencies that are bold enough or foolish enough to try undertake that form of rehabilitation. Now, do you agree with that or not?

Jeffrey Rogers Hummel

No. (laughter)

Richard A. Epstein

I didn’t think so.

Jeffrey Rogers Hummel

A simpler solution is privately owned roads in which the road owners establish the rules.

Richard A. Epstein

Well, since somebody brakes on the road drunk and runs down one of your drivers...

Jeffrey Rogers Hummel

But we’re both talking about ideal solutions, right?

Richard A. Epstein

I’m talking about one. I think you could reduce subsidies and increase penalties, which are tied to wrongful conduct. And I think in fact one of the improvements in the criminal system is that there is a noticeable reluctance of people of all sides of the political spectrum to allow the personal excuses based upon fatigue, insanity, drug use or anything else to interfere.

And we’ve done a better job on the criminal side in the last 40 years than we did before. There used to be something known as “Is Durham Mad?” which meant that all you had to do is prove that your conduct was the product of a mental defect undefined, and that was fairly widespread. And the rules today make it exceedingly rare that one actually hears anything about the insanity defense. I mean, so I think that’s a general improvement.

And it ties in with your theme, which is this is a case where individual responsibility really does apply, and we do see, in effect, fairly high standards in the criminal relative to what we used to see when Durham was decided 50 years ago.

Ivan Eland

That’s all the time we have tonight, and I’d like to thank everybody for coming, thank our speakers for making excellent presentations, and I think we had a good debate. So give them a big hand. (applause)

Now don’t forget—one last thing, don’t forget to pick up the copy of the book on your way out, and don’t forget Jeff’s book as well. Thanks for coming.

END



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