In a world where individuals were perfectly equal, they would be perfectly solitary. Individuals try to trade—exchange goods and services, including personal sentiments—because it is in each one’s interest to do so; and it is in their interests to do so because they are unequal, that is, different in their preferences (tastes) or in their production possibilities, or typically in both.
If you have an orange and I have an apple while I prefer oranges and you apples, we will trade.
But even if we have the same preferences—to take a simple example: we both prefer a diet of 1/3 apples and 2/3 oranges—it will be in the interest of each of us to specialize in the production of one or the other fruit as long as each has different production possibilities, whatever the source (nature, nurture, habit, or even third-party interference) of this difference. If I have to sacrifice the production of more apples when I produce an orange than your own production cost (of an orange in terms of apples forgone), I will produce only apples and you will produce only oranges. By trading the largest part of my apple production against the largest part of your orange production, I will obtain more oranges and you more apples. This is called the law of comparative advantage; more complex models can be entertained, but the result remains basically the same. (Don Boudreaux has an especially clear and short explanation at Café Hayek, March 31, 2022.)
One implication is that bans on exchange by a third-party—for instance, the current American and international sanctions on exchanges involving certain Russian individuals—impose a cost on both sides. The only reason, if there is one, for such bans is that they are temporarily indispensable to maintaining a general context of free exchange in the future. (One caveat is that “temporary emergency” is not an expression that Leviathan recognizes.)
Bans are coercive and are imposed and enforced by political authorities (or mafia- or mob-types of authority), which raises the whole problem of the justification of the state and state action. James Buchanan’s economic approach to this pollical-philosophical problem is especially interesting: it considers politics as another type of exchange, this one regarding the basic rules of life in society (see my review of his book Why I, Too, Am Not a Conservative in the current issue of Regulation, as well as my review of his joint book with Gordon Tullock, The Calculus of Consent, on Econlib). In Buchanan’s perspective, political authorities are justified to impose such rules only if a strong presumption exists that they are in the interest of all their subjects or citizens, which is the same as saying that they are indispensable to maintaining a general context of free exchange for the future. Note that given the moral values at the basis of the (classical) liberal society, the welfare of foreigners must also, in some way, be taken into account.
Whether Buchanan is right or not on the details, understanding the issue in economic terms, which means in terms of exchange between parties supposed to be “natural equals” (even if their preferences and circumstances are different), does seem essential. In Why I, Too, Am Not a Conservative, Buchanan wrote (p. 17):
Without either a generalized understanding of basic economics or a widespread willingness to defer to the warnings of those who do understand, maintenance of any liberal order becomes impossible.
READER COMMENTS
Craig
Apr 1 2022 at 12:25pm
“(One caveat is that “temporary emergency” is not an expression that Leviathan recognizes.)”
Currently looking it up there are no fewer than 41 different national states of emergency, one of which goes back to Carter, many go back to Clinton…..illegitimate is as illegitimate does.
Roger
Apr 1 2022 at 3:32pm
Excellent points!
Ike Coffman
Apr 1 2022 at 2:43pm
I take issue with your statement “political authorities are justified to impose such rules only if a strong presumption exists that they are in the interest of all their subjects or citizens” because not only is it impossible to gage the interest (or the utility) for all subjects, I contend that satisfying the interests of the last 20% (I am thinking of the 80/20 rule) would impose costs greater than whatever positive interest would be generated by satisfying the 80%. In fact, I contend that even attempting to satisfy everyone will leave most people dissatisfied.
My answer would be to figure out a way to maximize positive utility, which would obviously involve not even attempting to satisfy some people. You might argue that it would be difficult to determine what that maximum utility would be, but it would certainly be no harder than attempting to determine what the interests of 100% of the people are. Not only that, but as an economist you are certainly familiar with the process of integration. It sounds really simple when I say that all you have to do is maximize the area under the utility curve. Easy-peasy.
Pierre Lemieux
Apr 1 2022 at 9:20pm
Ike: You raise important points but we cannot, in discussing them, ignore a century of economic analysis. Finding (“constitutional”) rules which could presumably gather unanimous consent is not easy but not methodologically impossible. Think of “you shall not torture babies”—although more general rules are more useful. To get an idea of the economics and political philosophy of unanimous rules, see my Econlib review of Buchanan and Brennan’s The Calculus of Consent or, for introductory reading, my Regulation review of Buchanan’s Why I A Not a Conservative.
As for maximizing “social utility,” it is not only difficult, but it is methodologically impossible. Since Pareto, Hicks, and Robbins, we know that utility can only be an order of preference, not a cardinal number. An individual utility function is unique up to a linear transformation (or to an affine transformation), so their sum across individuals is meaningless; thus, there is nothing to integrate even if one knew all the (infinity of) numbers.
Perhaps my post “Covid-19 Vaccines and Cost-Benefit Analysis” can also be useful in your exploration.
Roger
Apr 1 2022 at 3:36pm
Hayek wrote in Fatal Conceit that religion motivated people who don’t know economics to follow long term principles for which no short term reason to obey existed, such as respect for property. What Haywk refused to admit was that the only religion ti do so is Christianity.
Jon Murphy
Apr 1 2022 at 4:58pm
Judaism as well. Just look at the 10 Commandments and the Law books.
I don’t know enough about the other religions to comment for sure, but others have shown that respect for property has arisen independently in cultures all around the word, so I don’t think non Christian religions necessarily preclude those principles
Pierre Lemieux
Apr 1 2022 at 6:12pm
Jon: Good point. It would be interesting to know what Hayek thought about Judaism or Islam. He was only supportive of religion to the extent, and only to the extent, that it supported “traditional rules of morals” conducive to an abstract social order.
Roger
Apr 1 2022 at 7:32pm
Good point! Of course, Christians include the Hebrew Bible in their canon.
Pierre Lemieux
Apr 1 2022 at 6:06pm
Roger: You are broadly right: it’s chapter 9 or The Fatal Conceit. In Law, Legislation, and Liberty, he made the same sort of argument:
He was critical of some strands of Christianity, though:
But he appeared to be more critical of “primitive” religions, so perhaps he did implicitly admit the usefulness of Christianity or some strands in it:
However he also criticized the Catholic Church’s flirt with “social justice”:
Roger
Apr 1 2022 at 7:30pm
Good points. Yes, Hayek was an agnostic. But Hayek held a Montpelier meeting at the University of Salamanca, Spain, after learning that its theologians first distilled the principles of capitalism from natural law and the Bible during the Reformation. Hayek, Rothbard, Schumpeter, Chafuen and others saw those Salamancan scholars as the true founders of economics especially the Austrian variety.
Roger
Apr 1 2022 at 7:42pm
I wrote more about the Christian origins of capitalism here:http://rdmckinney.blogspot.com/2020/02/the-christian-origins-of-austrian.html?m=1
Laissez faire was Christian economics in the US in the 18th and 19th centuries. Then liberal “Christianity” denying the deity of Christ became popular and they saw Marx as the savior of the world. Europe had taken that path 50 years earlier and socialist Christians were all Hayek and Mises knew.
MarkW
Apr 2 2022 at 8:04am
That’s too strong. Humans are naturally social animals. But it is fair to say that humans would have far less contact with those outside their communities and family/friendship networks. They would have little reason to interact (peacefully anyway) with those who live at a distance, speak different languages and have different beliefs and values.
Pierre Lemieux
Apr 3 2022 at 11:46am
MarkW: It may be too strong (not qualified enough) but I don’t think it’s for the reasons you mention. First, note that I wrote “in a world,” not “in a [specific] society.”
Second, whether individuals in a perfectly equal specific society would have more or less contacts with the outside world depends on preferences and comparative advantage. Assume that, in Alaska, there exists a tribe of perfectly equal individuals who all love grapefruits (same preferences). All would want to import them from elsewhere in the world (in exchange for the bows and arrows in which they all have the same comparative advantage).
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