Rasmusen Weblog

... The hard question is not to define property rights. Indeed, economics tells us that if the initial allocation isn't efficient, people will trade to get to an efficient allocation, so long as they must trade rather than just take. But that is the catch. Why should they prefer trading to taking? Or, to put the aphorism a bit differently, why make instead of take?

The classic answer, which I will teach tomorrow unless I convince myself otherwise, is that we create government to defend property rights. A group of people chip in taxes for a government to hire police and soldiers who prevent people in the group from stealing from each other and outsiders from stealing too. Each person in the group realizes that the police will keep him from stealing too, but he accepts that, since stealing is inefficient, reducing the group's total wealth.

One of the readings for my class tomorrow classifies property as individual, communal, and government. That's not a bad way to do it, but in thinking about the purpose of government, it has some problems. It is not hard to see that individual property rights are usually what we want; the problem is how to enforce them.

Hoppe says somewhere that this classic answer is wrong. Government is not the defender of property rights, but the biggest threat to them. This has some truth to it, but in a perverse way. It is quite true that the government is the biggest threat to my property. Besides the 10% or so of my income that it takes for the legitimate purpose of fending off other internal and external thieves and for providing public goods, it grabs another 10% for transfers to people more politically powerful than myself-- the old, the poor, people from small states (but two senators nonetheless), and so forth. If we look at government laws and regulations, we see much the same proportion-- some laws are for the common good, and others for special interests. I lose a trivial amount each year to private thieves, and none at all to foreign thieves, so the government is the biggest actual thief and the biggest threat for increasing thieving.

But the government is the biggest thief only because it so effectively blocks other thieves. If we got rid of the US and Indiana governments would I be 20% richer? No. If I did nothing, then internal thieves would take my car and other movables, and extort my liquid assets by threatening to kill me and my family. External thieves would move in with their armies and, most likely, wipe out the internal thieves and reduce me to slavery.

Of course, I'd do something. I'd buy guns. Better than that, I'd chip in with the neighbors to buy some professional soldiers. We could even make a profit off it, by using our soldiers to pillage neighboring Elletsville and rural Monroe County. But other localities would do the same. We'd soon see that since fighting costs a lot, and the biggest army would win, we'd be best off by joining forces and just requiring everybody to pitch in to pay for it. And so we'd be back to our status quo-- including the 10% government thievery, since it's hard to keep a big organization like that from taking advantage of its power.

That's the flaw in anarcho-capitalism-- when you think about it, the private protection agencies would evolve into pretty much what we've got now.

No-- the real problem is think how to keep a government, a monopoly provider of security in a given geographic locality, from stealing too much.

This could use formal modelling, I think. I started trying to put something together on these lines. Suppose we have 100 people, 100 guns, and 1000 cows, with guns and cows allocated as property according to some arbitrary initial distribution. Everybody is risk averse, and there is no production. Anybody with a gun can try to steal from someone else, with a certain wastage of cows in the process, unless someone with a larger number of guns intervenes to stop him. A starting position can either have someone with a large number of guns volunteer to be a policeman for one or more other people, or not.

Any group of people with more than 20 guns can declare a revolution. If they do, then two things happen. First, there is some chance each of those people is killed. Second, property is reshuffled. There is a probability distribution over the new possible property allocations, with a significant chance either that the revolutionaries gain a lot (success) or lose a lot (failure). Also, there is wastage-- 50 cows die in the revolution.

The question is which property allocations and police systems are stable and which have the greatest number of cows. If nobody acts as policeman, then there will be theft, with a certain number of dead cows. If too many people are too poor, yet have guns, they will declare a revolution, so that allocation is unstable, and inefficient since it leads to a revolution that kills cows. Probably in equilibrium we'd have someone with lots of guns acting as policeman, who would get cows from everyone else in return for protecting them, and although he'd charge them a lot, he'd refrain from stealing or overcharging in order to avoid revolution.

To a non-economist, this probably sounds silly and unserious. Formal models sound like that, which is one reason-- the main reason?-- economists use X and Y instead of guns and cows. The mathematical notation scares off the boobs so they don't make fun of us. But I'll make a more honest defense. Trying to understand something like the origins of society is like trying to tell a persuasive story, one that hangs together and sounds like it would work. This is hard, and to be persuasive needs to be understandable, which means it needs to be simple. The style of political philosophy is to be verbal and vague, which may sound profound but actually slides over the hard points. Economic models insist on the rigor of setting up the choices people have and then seeing what they will choose, rather than just loosely saying what will happen. This results in a story that is stylized but not vague. It lacks the details of reality, but that is good, not bad, because the aim is to strip the situation down to its essentials.

For more on that, see the Introduction to my Games and Information, which is a bit unusual for an introduction in that I actually try to teach something important.

If I could put together a formal model of the guns and cows, not an easy task, I would then be ready to attack the harder question of the psychological costs of revolution, and the shape of that transition matrix from the initial allocation to the post-revolutionary one. That is where things such as moral and religious principles would enter-- legitimacy and guilt. Libertarians tend to downplay the positive theory of legitimacy, though they often make a big deal of the normative. For present purposes, though, what matters is why some people would not start a revolution even though they would personally benefit; why some people would die for the status quo, and how others can be induced to die to upend the status quo.