The Production of Law and Order: Natural Order, Feudalism, and Federalism

0:00In my previous lecture, I had in the title announced some more than I did, at least part of the edition I want to briefly touch upon. And this is again a very politically sensitive, if not to say dangerous subject that I want to bring up. Again, I must say, I dare to bring that up in my classes at my university also. And about that stuff I have not yet received any complaints.

0:46This is a table that is culled from a recently published book by Richard Lin and Tartu Van Hanen, who did some very simple and elementary investigation. And what they did was try to show, does there or does there not exist some sort of correlation between IQ and some economic output measures such as G and P.

1:33I should say from the outset that they did not just use one IQ measure for countries. They typically had from most of the countries several types of IQ measures available and showed first that they are all highly inter-correlated, so to speak, convincing us that we can put a certain amount of trust into the numbers that they use. And they also did not just use one economic output measured just as G and P, but also if it was available two or three, and again inter-correlated them and tried to show that there was a high internal consistency among the numbers.

2:38Now, the correlation that they established, I'll say immediately something about the interpretation of this table, is extremely high for social sciences. is close to 0.7, which is, if you have ever done empirical research in sociology or psychology or so, those are numbers that are mind-bogglingly high. I mean, people are usually impressed already if you have correlations of 0.2 or 0.3 or something like that. That is already will consider to be worth showing.

3:31So here we get very high correlations. The interpretation of the table follows simply from the heading. The first number refers to the IQ. The second number is the actual GDP in I think in 2000 or something like that in these places. And the third number called fitted GDP would be the calculated GDP based on a regression analysis.

4:16That is what we should expect the GDP to be given the IQ in that country and taking the stable relationship between IQ and GDP into consideration. I do not want to spend much time on this. The countries are ordered here in descending order as far as IQ is concerned on the backside that continues all the way to Zimbabwe.

5:04I should make one remark about the more underdeveloped countries. In the more underdeveloped countries, the actual GDP tends to be underestimated because in very highly agricultural societies, where there is a relatively high degree of self-sufficiency, We see GDP numbers understate, so to speak, the productive output, because GDP measures only goods and services that were actually sold and bought in markets. So if you grow your own tomatoes and your own potatoes, that would not be counted, whereas Perhaps if you grow potatoes and tomatoes and then sell them on the market, then they would be counted.

6:03Obviously, in terms of standard of living, that would make no difference, but in terms of GDP or GNP numbers such as this, in one case it would be counted, in the other case it would not be counted. So the overall impression that you get from this list is, those countries that have high IQs also have high GDPs. And those countries that have very low IQs have, on the average, very low GDPs. There are, however, some clear-cut exceptions, obviously, which would have to be explained differently.

6:57takes the case of China, which is here listed with an IQ of 100 and has a GDP of $3,000 and a calculated GDP of 16,000. Now here, obviously, the explanation is that China was and still is to a certain extent a communist country, leading, of course, to an extremely low actual GDP and leading us, on the other hand, to the conclusion that if this type of system would be abolished, the potential of China is significant.

7:54That is, we can expect GDPs of 16,000 per person or something in the neighborhood of that. There are also some countries that seem to be overperforming. The Germans produce a higher GDP than their IQ would indicate, for instance. The same is true for the U.S. if I remember correctly. The U.S. has an IQ of 98. So this is significantly higher actual GDP than predicted GDP based on the intelligence of the population.

8:47Which again we would explain, so to speak, with having a relatively, comparatively speaking, freer market system than some other places have. One might object to a table such as this doesn't intelligence also have something to do with picking the right economic system. So maybe there is something wrong with the Chinese after all, despite having such a great potential, after all, for a considerable amount of time, they lag behind to such a great extent.

9:35We can also, again, I do not want to overinterpret this table, but you can also see, for instance, how relatively vain the attempt is, for instance, to expect economic miracles in Africa from taking place. If you look at African countries and look at the IQs there, you will have a rather dim impression as far as the growth potential of those countries are concerned.

10:23Let me end this discussion, and I think the table itself is highly interesting to study. Let me end this by saying that of course IQs are also not what we might call invariable biological constants. They are subject to variation as well, even though it is not as easy to vary them as many other things. Obviously, we would expect that the old Babylonians and the old Egyptians must have done somewhat better are much better than the present Babylonians and the present Egyptians, given their relatively low performance nowadays and their glorious achievements in the past.

11:32The most straightforward way to imagine that these numbers are, of course, subject to influence is just to realize that populations can, of course, engage in eugenic breeding practices, so to speak. Societies, for instance, were the upper classes, the more intelligent people, have it as a habit to have larger numbers of children, and the lower classes with lower IQs have smaller number of children that would lead over a few generations, obviously, to an upward lifting of IQs. The same thing, of course, also applies in reverse. That is, if you would have the lower classes with low IQ levels, so to speak, producing the overwhelming bulk of children and the upper classes, so to speak, producing very few or none than one would expect that the average IQ over the time span of several generations would fall.

13:14Hypotheses have been advanced, for instance, for why is it that Jews tend to have a very high IQ, even though Israel here is not particularly outstanding with an IQ of 94. But the Jewish population in the United States has an IQ of well above 107 or something like this. Partially that can be explained simply by migration. That is, the more successful people are more mobile and go to places where there is more opportunity for them and there is a larger concentration of those. For instance, they have done studies where they compare the IQ of Scots who live in London as compared with Scots who remain in Scotland and found that the IQ of Scots in London was significantly higher than Scots who stayed behind in Scotland. Again, that has a rather obvious explanation that is just the smarter ones, so to speak, move to the place. The East German cases, East-West German case is also interesting.

14:46They do not break it up here. Germany is simply listed as IQ of 102. But I have seen comparisons There is a difference between East Germany and West Germany and the other difference was that West Germany had one of 104 and East Germany of 98. And again, there exists a very straightforward explanation for a phenomenon such as this. East Germany was under socialist rule and expropriated, of course, most of the successful individuals and the most successful individuals left the country. So of course that lifted the IQ in West Germany and lowered the IQ in East Germany.

15:39Another explanation that has been advanced, coming back to the case of the Jews for instance, I tend to be somewhat skeptical about that one, but just for illustrative purposes I might mention it, The largest numbers of children were in Orthodox Jewish families typically produced by rabbis. If one assumes that the rabbis, so to speak, were the smartest of the bunch, then you would expect an upward tendency in IQs simply by different types of breeding behaviors.

16:24Okay, so much about this subject. Clearly, explanations along this line are not sufficient when it comes to explaining the wealth of nations. But I think one would also be blind to the facts if one simply dismisses things like this easily. The evidence that these people Lin and Van Hanen present is dramatic, overwhelming.

17:13You will be shocked to see how easy sometimes the explanation for phenomena is that other people struggle around for decades to not explain. Okay, with this, let me return to the topic of this lecture, which is the production of law and order within a natural order, that is the production of law and order without a state. Tomorrow I will talk about the origin of the state, but so far we are still considering, so to speak, what would naturally evolve.

18:06Just as division of labor naturally evolves, money as a medium of exchange naturally evolves, Capital accumulation will take place under decently favorable circumstances and not so much under less favorable circumstances. So it can also be expected that every society will of course develop some mechanisms in order are to defend itself against asocial individuals. As long as mankind is what it is, we will have people who engage in productive activities and have never any other desire but to be productive individuals. So long as that is the case, we will also have people who try try to hit other people on the head and rob and rape them and so forth and every society that wants to survive will have to do something about it.

19:31Let me first return briefly to the subject of property and property rights because what What it is that we want to defend in a natural order is, of course, property and the rights of people to their property. We have seen that people take it even from the very most primitive situation on for granted that they own themselves due to the direct connection that we have with our physical body. People also never had any doubt that those instruments that they themselves produced were their instruments and nobody else's instruments.

20:27When it came to the development of settled agriculture, this idea was expanded to pieces of land. People then began to put up signs in order to claim certain land territories as theirs. And these signs consisted typically in doing something to the land visibly So that other people could see this is not a piece of uncultivated wilderness.

21:16This is a piece of land that has been worked on. Somebody has done something to it and I can see it. And as you will admit, of course, it is quite easy in almost all cases to distinguish between a piece of land that has been cultivated in any way by mankind and a piece of wilderness. Just drive through whatever the rocky mountains and you will see that most of the places are completely untouched. Nobody has done anything to these and you can see it that that is the case. On the other hand, drive through similar mountain ranges in Europe, let's say in Austria and Switzerland, you see that people have indeed cultivated the mountains all the way to the top of the mountain, that is visible for anyone who has eyes to see.

22:18And of course people will show willingness to defend themselves against invaders trying to take these cultivated pieces of land away from them. Let me emphasize again why it is that we need norms of property. If goods are scarce, then conflicts over these goods are possible. If we want to avoid conflicts over the use of scarce resources, there exists only one method to do it.

23:07And that is to formulate rules of exclusive use regarding scarce resources. That is, formulating rules that say you can do something with it, but you are excluded from it. As long as all of us have access to the scarce resources, conflicts are unavoidable. So we can say, property norms in this sense are natural and necessary institutions in order to avoid conflicts.

23:53And the rule of the first one to produce something, the first one to appropriate something, that he becomes the owner and not somebody else, the second one or the third one or the rest of the mankind sharing in what somebody else has originally appropriated. The naturalness of this rule you can recognize by recognizing that if mankind so to speak wants to act without conflicts from the From the beginning of mankind on, then the rule of the first one to use something becomes the owner of it, is the only rule that makes this possible.

24:42That is, that mankind can, from the beginning of mankind on, conceivably act without any conflicts. In this sense, these norms are natural norms or natural laws. No other laws have this advantage of making it possible to avoid conflicts between humans from the very beginning of mankind on. There's only one additional consideration that I want to present when it comes to conflicts over property rights.

25:27And that concerns the problem of easements. If I appropriate, oh no, this is the wrong thing here, right, but Lew is not here. This is high technology. Could not have happened with PowerPoint. So this is my piece of land, and I have no neighbors so far.

26:13And now I spew out smoke here and here and here and so forth, and after a while somebody settles next to me. Can this person B complain about person A that he causes physical damage to the property of B? And the answer is no, in this case he can't because person A has acquired what is called an easement.

27:06He was there first and nobody's property was damaged by his initial activities. If somebody else now comes along B, then what B has appropriated is from the outset soiled or dirty property. And if B wants to have unsoiled or clean property, then B must pay A to stop this. But A being there first has acquired an easement to continue with this activity if he so desires.

27:53B must pay A in order to stop it. If the situation is the other way around, that is, B is here first and then A settles next to B and then spooze out his smoke and whatever it is onto B's property, then the situation is different. B has acquired clean property and he has acquired an easement for his property to be left clean.

28:38In this case, he could take out an injunction against B and tell B, you must stop this, or you must pay me in order for me to let you continue with this activity. These are, so to speak, the elementary rules that have been accepted by mankind for thousands of years. Again, there exists, so to speak, disputes sometimes about who was their first and who was their second. But those rules were considered to be the basic fundamental rules of dealing with conflicts arising over who owns what and who is permitted to do what and who is not permitted to do what.

29:42So when we are talking about the production of security in a natural order, I have in mind the defense of these principles. Who has appropriated something first, has the right to defend it, who was there first without any neighbors acquires an easement, And if certain negative externalities result, or if negative externalities come later, then the initial owner has the right to stop these negative externalities.

30:33Now, in a natural order, first thing that I want to point out, that this does not only include, of course, self-defense. I've already mentioned the fact that insofar as we control something, we automatically would defend ourselves against people who try to take control away of things that we ourselves are in control of. We also, from the very beginning, select the places where we have our property, partly, partially, with consideration of how easy or difficult are these things to defend where they are.

31:38To just give you examples, for instance, the location of Venice is somehow in the marshes. But it is difficult for invaders, especially at an age when you had very limited technological abilities, The idea is to invade a place like this because you have to go through the water and the water is flat and you don't know your way around it and so forth. It is easier to defend a place like this. So the location of many places was chosen precisely with this idea in mind.

32:25Is it a place that can be easily defended? Of course, if there's nobody around for ten thousands of miles, you are alone, then that might not be an important consideration for you to choose certain locations. But if you are surrounded by other people, then these sorts of considerations are of importance. The same thing is true for the low countries, the Netherlands. They also offer certain possibilities of defending yourself by flooding certain areas and making an invasion of other people very difficult.

33:11Another example would be the valleys in mountain regions. Some people settled in Swiss valleys, very remote valleys, in high elevations, precisely because they knew that those were places that were comparatively easy to defend and very difficult to occupy. And in modern times this has made a difference. The Germans could have probably because of their significantly larger size invaded a country such as Switzerland.

34:08What Switzerland had on the one hand a militia with every man being armed and having semi-machine guns at home with ammunition in the closet. Still remember how impressed my children were when I took them to some of my Swiss friends And then he opened the closet and there was a big gun and enough ammunition to kill half of the German population. And also, of course, because a country like Switzerland, because of its mountainous terrain, is very difficult to invade and occupy. You can see that again how our brave soldiers in Afghanistan struggle up and down the mountain to find the people that they are looking for.

35:18or take a place like San Marino, which sits on top of a thousand feet mountain with a big fortress around and a population of 8,000 people which made up San Marino were able to defend themselves for 1,500 years from any invasion. Now, the second thing I want to point out is how obvious it is is in which way in small societies justice will be done.

36:20We always hear about the necessity of a state in order to do justice. Again, the world provides us with hundreds of thousands of examples how absolutely ludicrous this idea is. In every little society encompassing a few people, there are very quickly a few people rising to the rank of some sort of authority. They are braver, smarter, more successful, more trusted than others. You can see that in every village.

37:06And whenever there is a conflict, that is, A steals something from B, or A knocks over B, and they fight over who did it and who didn't do it, while it was possible that they engaged, so to speak, in vigilante justice, that is, tried to beat the crap out of each other right on the spot. In most cases, and for good reasons, they don't do that because it is very difficult then afterwards to justify themselves before the other members in the village.

37:53So they turn to people who have more authority than others do and these people, let's call and call them nobles or whatever, or aristocrats or the elite, whatever the term is, it doesn't matter. These people will then act as judge, typically without charging any fee, just out of the responsibility of being a leader of a small community. And based on their judgment and on their authority that they have among their fellow men, this judgment then will be enforced automatically.

38:39In most cases, there is not even violence necessary in order to enforce it on the person who was found to be guilty. The person himself will accept it and will be willing to do restitution, because otherwise he will be expelled from the community, he will be an outcast, and nothing is in those societies worse than being an outcast. Again, even in modern times, this sort of ostracism works magnificently in many professions.

39:32I met a main, large grain dealer in Switzerland at some time. And they did dealings with grain dealers all over the world. And he reported that they had some quarrels with certain qualities of grains or delay of delivery from some grain dealer in the Soviet Union. Until at the time when the Soviet Union was intact, no regular court was involved, just the Association of Grain Dealers was involved in this.

40:21The proceedings took place in the Soviet Union. And the unanimous verdict was the guy in the Soviet Union had done wrong and the judgment was enforced and this person was thrown out of this association of merchant dealers, of grain dealers. Nobody ever dealing in grain would have had anything to do with this person again. Fear ostracism was entirely sufficient to do it. Now of course you also have sometimes recalcitant people and those people then get hit on the head, just like we do it nowadays, also with those people who are not willing to listen and they are, were by and large forced to do compensation to the victim.

41:23That was the principle of punishment, to do compensation to the victim. You realize, of course, that criminals nowadays do not compensate their victims at all. As a matter of fact, victims typically have to shell out more money so that recalcitrant criminals can do table tennis, watch TV, engage in workouts, get the right muesli and whatever it is in present, very different situation than that that would exist in a natural order. But even on this relative primitive level, we would of course expect that there are certain There are some limitations to self-defense, that people would want to rely on specialized defense providers.

42:34They want to take advantage of division of labor also in this field. Not everybody is equally good at protecting somebody else. And ours usually have big time people standing in front of the door and making sure who goes in and doesn't go in and not teeny old ladies. So yes, division of labor is as important in that area as it is in others. And what I want to do now is to describe, so to speak, first how this system of defending oneself against aggressors worked during the feudal age, during the middle ages.

43:31A time when no state existed. Just a large number of highly decentralized lords and vassals and so forth. And then in the next step I will explain with some cues taking from the feudal order How such a system would work in modern times? I don't know how far I get, obviously a little bit behind in my plans here, so I might have to keep you on Saturday as well.

44:16So in these feudal times there existed, so to speak, landlords, owners of pieces of land, and they had tenants, tenant farmers, both were contractually connected. Most of the stuff that we learn about feudalism tends to be half-truth at the best. Feudalism has a very bad name, undeservedly bad name. And the contract between the landlords and the tenants typically provided for, the landlord provides protection and the tenant works for a certain period of time for the landlord and is in cases of conflict also willing and prepared to fight on the land.

45:24Law, as Joe Stromberg mentioned in his lecture, law at that time was considered something that was given. Law was not considered to be something that was made by people, but something that existed People learned what it was. New law was from the very outset considered to be suspicious, because law had to be old. It had to be something that had always existed.

46:09Anybody who came up with some sort of new thing was automatically dismissed as probably a fraud. The subjects, the tenants, had a right to resist. They were not subject to their lords no matter what because, as I said, there existed an eternally valid law which protected the tenant as much as the landlords. And if the landlord did break this law, then the tenants had the right to resist, up to the point of killing the landlord.

47:02These landlords in turn had been contractually tied to other landlords. The lords had, so to speak, other overlords. And again, these contracts provided by and large for mutual assistance agreements. If such and such happens, you will provide so and so many soldiers or peasants to do this, and you do such and such, and so forth. And what came about was called a feudal pyramid.

47:52That is, again, another contract with somebody who might be even more powerful, meaning in this case who had even larger land holdings and larger number of tenants and so forth, all the way up to the king. Not only that, people frequently had contracts with various lords, with competing lords, so to speak, as some sort of insurance policy. That is, if this guy does something to me, I also have another protector. And in combination with these sorts of multiple alliances that existed, they typically agreed that if it would come to a conflict between their two lords to which they had pledged Peasants who were not associated directly with any particular Lord in some sort of protection agreement, who were, so to speak, either the Lord or the Lord, isolated peasants usually chose the king as their protector.

49:32There is someone slightly more removed, but they also received some sort of legal protection by associating them with the king directly. There existed also so-called allodial owners, that is people who were big land owners on their own and had no allegiances to anyone and would meet the king, so to speak, on an even level. They had less land than the king might have had and so forth, and less tenants and less soldiers working for them.

50:27But they were in dealings with the king, his equals. The lords on their territory had complete jurisdiction over their territory, including over all those people who lived on that territory. That is, they were the judge over their peasants, their warriors, their house personnel, and so forth. Intervening into the internal affairs of the Lord was not permitted.

51:20In this sense, they had a similar status that, let's say, embassies have nowadays. Whereas the United States cannot simply go into the embassy of China and then do whatever they want. In the Chinese embassy, the Chinese rule themselves. So the lords were in charge of their dominion and they represented their tenants or vassals in external affairs. The king was typically a person who came from a particularly noble family, a family that was recognized as a family of great achievement, and was always chosen from this family but was not hereditary in the sense that it was perfectly clear who would become the next king.

52:41It was all the other nobles who were contractually all connected with each other who determined unanimously who of the members of this king family should become the king. Eventually, this type of principle that combines, so to speak, hereditary elements with elective

53:42These assemblies of lords that selected the king became in a way the precursors of what we consider to be parliaments. But of course, only nobles, that is, landlords themselves, not tenants, were in charge of electing the king. The King's main task consisted with the agreement of his assembled nobles to declare cases of emergency, war or something like this.

54:50But only with the consent, with the unanimous consent of the nobles assembled in this parliament. And in addition, the king had, so to speak, the function of some sort of appeals court. That people who thought that an injustice had been committed against them, including an injustice by their own lord, could appeal to the king for final justice. The early feudal kings traveled around frequently from town to town.

55:39They were, so to speak, wandering judges. There existed no such thing as capitals. In the German case, for instance, There were places where regular court sessions were held in Nuremberg, in Augsburg, in Regensburg, in Frankfurt, in Prague, in Vienna and several other places. All of these places had, so to speak, an elevated status as places where one could seek justice, but no capital existed.

56:25The king could also not tax. Taxes in the modern sense did not exist. The king lived of his own estate, just as all lords lived of their own estate. All that he could do is, in cases of war, go to his various nobles there and beg them, Give me a little bit, give me a little bit, or something like this, whereby every noble was perfectly entitled to say no, and nothing would happen to him.

57:13The task of the king was also, besides with the agreement of the nobles to decide about cases of war, to establish on the outskirts of these loose associations of lords and nobles and so forth, There were those so-called protection villages where people were settled, selected due to their particular abilities as fighters in order to protect, let's say, Christendom from the Turks or something like this.

58:08They were called Wehrdörfer, who were fortified, especially because their task consisted in the defense against societies that were considered to be other than the society that was combined or integrated through this intricate system of feudal contract relationships.

58:48Not only did the right to resistance exist among the tenants against their landlords. Very importantly, it was also possible that these tenants, if they felt oppressed by their landlord, could run away and simply associate and get protection from a neighboring lord. Which was, of course, the best protection that you can have, so to speak, from being oppressed in the first place, knowing that all you have to do is run away and attach yourself to some other protector and thereby you get rid of your previous lord.

59:40On this point in particular, that is the ability of people to run away and attaching themselves to a different protector, I want to quote Herbert Spencer, who describes the situation in ancient Rome, which was very similar in its feudal structure as Europe during the Middle Ages. Herbert Spencer there says about early Rome, in early Rome, Rome is also famous place for complete domination of the master of the household over his tenants and servants, including his children and wife and so forth.

1:01:06He writes there, in early Rome, while coercive rule within the family and the group of related families was easy, There was difficulty in extending coercion over many such groups, fortified as they were against one another. Moreover, the stringency of government within each of the communities, that is each of the clans, constituting the primitive city, was diminished by the facility of escape from one and admission into another.

1:01:59As we have seen among simple tribes, desertions take place when the rule is harsh, and we may infer that, in primitive Rome, there was a check on exercise of force by the more powerful families in each settlement over the less powerful, caused by the fear that migration might weaken the settlement and strengthen an adjacent one. Thus, the circumstance were such that when, for defense of the city, cooperation became needful, the heads of the clans, included in its several divisions, came to have substantially equal powers.

1:02:48The original Roman Senate was the collective body of clan elders, and this assembly of elders was the ultimate holder of the ruling power. It was an assembly of kings. Now let me emphasize at this point again. Just as important for the successful development of Western Europe, it was that there was a separation between church and state, different from all other regions on the globe. So it was of utmost importance for the dynamic development of Western Europe, that Western European Europe was, so to speak, a political anarchy. That is to say, thousands of independent landlord nobles somehow connected together through contracts and so forth, but each being his own man, and the ease with which people could move from one jurisdiction, so to speak, and another which tends to contribute of course to moderation on the part of each one of these rulers.

1:04:19Each one must be afraid if I am too draconic in my punishment of my own men, then they will attach themselves to somebody else and strengthen people who in some situations might become my enemy. In addition, one more element should be mentioned in order to characterize, so to speak, the feudal world, and that is the existence of cities. These cities were typically founded either by bishops or by nobles, by lords, or by associations of merchants.

1:05:25And in some cases, of course, also by, as in the case of Switzerland, for instance, by Eidgenossenschaften, what would be the appropriate term for that, Joe? Sworn communities, which is, so to speak, the structure that the initial founding cantons in Switzerland had, where all three men swore in oath that they would come to mutually assist each other in case of an attack. attack against them.

1:06:17And these cities had frequently written law codes, that is, Magdeburg law or Hamburg law Law, or Hanover Law, or Lübeck Law and so forth, so that people who moved to these cities knew what law code would apply to them, and when new cities were founded, the normal thing The first thing to do was to adopt one of the already existing law codes and maybe make a few amendments to it.

1:07:05That is, some law codes became the law codes not just of one city but of many, many cities who adopted the initial example of some place that first took the initiative to write these laws down. In this connection, a little side remark. In English-speaking countries, America and England, there is a certain amount of pride in having the so-called common law, which is in a way non-codified law, case law.

1:08:08The Continental tradition, as you know, has been for a long time different. That is, there we have had codified law taken from the Romans, especially from the East Romance, who had codified this law for the first time in an extensive manner. And then of course, in modern times, the Code Napoleon, which has been taken over by most continental European states in one form or another with some modification or another.

1:08:59And as I said, Anglo-Saxons look down on codified law and hail their non-codified common law. I want to just remark that, for instance, Max Weber has a very interesting observation Regarding this, he sees the reason for the non-codification of the common law in the self-interest of the lawyers to make the law difficult to understand for the layman and thus make a lot of money and emphasizes that codified law, of course, makes it possible for the layman on the street who can read to study the law book himself and go to court himself and point out here, this is written down and so forth.

1:10:04So maybe this excessive pride that the Anglo-Saxons have in their common law might be a little bit overdrawn. In terms of punishment, as I said, compensation to the victim was the main principle and there was worked out relatively quickly some system of paying fines for various types of offenses. And by and large, they've accepted the principle of proportionality.

1:10:54If you killed somebody, then you had to pay more than if you cut off somebody's arm. If you cut off somebody's arm, the fine that was imposed on you was higher than if you cut off somebody's toe and so forth. But most of the punishments were indeed in the form of fines, either monetary fines or fines in the form of natural goods. So now I should come to the modern world. I'm realizing that I'm running somewhat out of time.

1:11:42But let me, yeah, let me just begin at least. Now obviously we cannot go back to this feudal system. My purpose was only to show that we do have historical examples where societies have developed relatively effective means of protecting themselves through systems of alliances. In the modern world, we would expect, of course, a slightly different setup. and this setup would be composed mostly of three institutional devices.

1:12:41On the one hand commercial insurance companies, on the other hand freely financed police forces, and freely financed arbitration and judging agencies. We can imagine that these three institutions would operate separately from each other but be contractually aligned with the others or we can imagine that these three institutions would be vertically integrated, that is to say an insurance company would also have a police division and a judge division attached to it.

1:13:37It doesn't really matter whether it is vertically integrated or we have independent institutions. The decisive element here would be again that the relationships between all of these institutions would be again contractual, voluntary, similar to the situation that existed during the feudal era. And I want to explain in particular that through such a set up, we would gradually create also something like the unification of law.

1:14:31Just as we have the world becomes unified through one money, the world becomes unified through worldwide division of labor, So the world would also become integrated through a set of universal standards of law. Now how would this happen? I think the main impulse in that direction would come from insurance companies.

1:15:23All institutions in the modern world, all firms, all companies, everybody having an enterprise requires insurance. To operate, so to speak, without insurance is almost impossible in the modern world. You can only be a very small scale entrepreneur and do entirely on your own without having some sort of insurance protection.

1:15:58Because of this, it would not be possible, As some people have argued, that there would be, so to speak, that all institutions, all places would lay down their own peculiar rules and laws. That is, the mall has the mall laws, the school has the school laws, the steel factory has the steel factory laws. At Stringham's house, the laws would be if somebody comes in there, that he has not invited, there might be automatic shooting devices that kill the person who comes in and things like this.

1:16:50Why would that not be the case? Because insurance companies would of course insist that many of these practices are simply not insurable. They would insist on a certain amount of uniformity of standards that all of these insured companies would have to adopt. They would eliminate, so to speak, arbitrary rules applying at this place or at that place and insist on rather general and generally known rules. On the one hand in order to reduce, so to speak, general uncertainty and on the other hand because only if they lay down rather general rules will they be able to attract a large clientele, which is of course their desire.

1:17:53Secondly, insurance companies will have an inherent interest, a financial interest in imposing on everyone who is insured by them a defensive behavioral code. The reason for this is you can insure yourself only against risks over whose outcome you have no personal control. You cannot insure yourself, for instance, against the risk that I provoke him and he then smashes me in the face Then I go to my insurance company and say, he smashed me in the face and now defend me against him.

1:18:46The insurance company would say, look, you have to behave in an entirely defensive way. The attack must have been entirely unprovoked. Only then will we defend yourself, but not if you have anything to do with the attack yourself. I cannot insure myself against the risk of burning down my own house. I can insure myself against the risk that my house burns down, but no insurance company would insure me and allow me to burn down my own house and then make payment for it. So insurance companies will insist, in order to cover you for any type of contingency, that you have to commit yourself to a fundamentally defensive form of behavior and conduct.

1:19:50Why? They are very nature. They want to minimize damage. Minimizing damage is, so to speak, the business in which they are in. Otherwise, they would have to pay up. What we would get is insurance companies might offer a certain variety in the types of contracts that they offer. Let's say an insurance company might specialize in Catholic clients and impose certain types of punishment for whatever, committing adultery that other companies would not have in their repertoire.

1:20:49are, but they cannot be fundamentally different in the type of codes that they would offer. And moreover, because it is now possible that conflicts arise between members of different insurance agencies as slightly different as the contracts of these different insurance When there are conflicts between people being insured by different insurance agencies, the only peaceful resolution that is possible is to go to an independent third arbitrator.

1:21:35And this independent third arbitrator, again that might be agencies that offer, so to speak, they would be independent of both companies, these independent arbitration agencies of which they exist again competing once, and no arbitration agency can be sure that it will be chosen again in such cases. These independent arbitration agencies have now obviously an interest in order not to lose their clients, that is the two conflicting insurance companies, to develop a set of law that can be regarded as acceptable to everyone regardless of what his particular or specific insurance company is, with which he deals in most cases.

1:22:38That is to say, these independent arbitration agencies would create, in a process of competition, something like a universally valid international law. And thereby, through a process of competition, lead to a situation where we have a unified law structure that is valid, so to speak, throughout the entire world, more or less. And this completes, so to speak, the process of economic and social integration. integration through division of labor, integration through money, and integration through some international law that binds all societies together, however different their internal law structure might be.

1:23:46This is how I think a natural order would look like roughly in the modern world and effectively defend the property rights of individuals. And with this I have again overdrawn my time and beg for your forgiveness. There will be more time in the lectures to come, especially in the last one when I talk I'm going to talk about strategic ideas, so I would ask you, since I'm dried out in the meantime, to hold back with any questions and delay them until the next time. Thank you again.