Fundamentals of Intervention

0:00We're now at the second half or the second part of this book. Originally, when Man Economy and State came out, it was just Man Economy and State, the chapters we have so far covered. And this section, the second section was Power and Market and it was a separate book. There were various reasons for that I won't go into, but if I had to summarize each of the books, I would do it in this way. The first part of the book, or the Man Economy and State, part of Man Economy and State, and Power and Market was positive economics. It was an analysis. No, I misstated it. It was an analysis of the free market system. It was an analysis of how markets work and what are markets. And the assumption there was there was no violence. There was no initiation of aggression.

0:49There was just cooperation. There was buying and selling. And what are the implications of buying and selling? Now in the second section of this additionally bigger book, we now have a new area, again, which Murray is analyzing in a positive, not a normative way, but now he is analyzing in a positive way, violence, where people initiate violence against other people. Again, it's not normative. He's not saying that this is bad or wrong or unjust. He says that in his other books, but in this book, he is just doing a cold-hearted, calculated analysis, a positive analysis of violence.

1:35And as reasonable, he starts off with the institution of violence, namely the government or the state. And what he says is that the difference between the market and the state is that in the market, All interaction is voluntary, but when we deal vis-a-vis with the state, it's not, it's coercive. One person is the hegemon, or one entity is the hegemon, and the other is the victim. One is the invader, the aggressor, the other is the recipient of the aggression. Now, the mainstream so-called free enterprise economists, the minarchists, I think that's a very good word to describe minimal governmentists, These are not socialists. These are people who think we ought to have laissez-faire capitalism for the broad reaches of the economy.

2:23However, there are certain functions of the economy, namely protection against aggression, that can't be left to the economy, have to be given over to this new entity, the government. And the main function of this is to protect people against violence. And to that end you have armies to protect us from foreign bad guys, not to go out and attack foreign people as an imperialism, but to just defend against foreign invaders, police to protect us against local invaders or local bad guys or local criminals, and courts to determine who are the good guys and who are the bad guys and to adjudicate honest disputes between honest business people who it's unclear as to who is the invader and who is the recipient of the invasion.

3:13And what Murray says is that what you're really doing is making a category mistake. On the one hand, you want to have the free enterprise system. On the other hand, you're putting in a very core position in the free enterprise system, namely protecting against violence, namely defending the free enterprise system. You're putting in an entity which itself is not compatible with, is logically contradictory to the free enterprise system. And he sees this as a gigantic anomaly, and he's very much in the minority position among right-wing or free enterprise economists who are mostly minarchists, namely believe in minimal government, Ayn Rand, for example, Milton Friedman, for example. Most laissez-faire economists, so-called, would assign a government the crucial task of protecting against invasion.

4:05Murray says this is an insoluble contradiction. And he says that there are two things that the government does, that all governments do, and one is tax, and the other is demand a monopoly of defensive services within a certain geographical area. Well, taxes are different than voluntary payments. If you want to buy this wristwatch, you pay money and you get the wristwatch. If you don't want to buy it, you don't have to pay money and you don't get the wristwatch. But with taxes, when the IRS comes to you on an April 15th, they don't say, well, would you like our protection? If so, you know, these are the payments. On the other hand, if you don't want to, you don't have to. You can be a pacifist and not have any protection, or you can get protection services from the ACME company. That's okay. We're just an honest businessman.

4:58If they were saying that, then they would not be a government. They would be another honest businessman who is offering a service. It's just the US government private services. But that's not what they say. They say, pay up or we're going to send you a nasty letter and then we'll send you an escalating letter and then there'll be people at your door who will escort you to prison. And this is very, very different. And there are some people who can't see the difference. Do you know the difference between a bathroom and a living room? And the answer is if you say no, then don't come to my house. Well, the question now is, do you know the difference between invasion and voluntary trade?

5:46And if you say no, the answer is, well, then don't do political economy. Because this is the crucial, the essence, the basic premise of all political economy, to distinguish between voluntary trade and initiatory violence. Slavery and murder are not part of the market. They are part of a very different kind of a system. And if you can't see the difference, we have problems. But it's not only taxes. It's also, Ayn Rand has the view that we shouldn't pay taxes. There should be voluntary payments for contracts, what have you. In fact, there must be a monopoly of defensive services. There must be some one ultimate monopoly authority. So if somebody else, the Block, Gordon Company, sets themselves up to protect people, this would not be allowed.

6:38Yes, private detective agencies are allowed, but they have to be subservient to the U.S. government. So it's very different. So the essence of government is two things, coercive taxes and a monopoly, a compulsory monopoly that you can only apply to this group, not to any other competing group. And what we said about the benefits of competition in with regards to pens or shirts apply here as well. There's no difference for Murray Rothborn. Okay, let me consider some objections to this. One objection is tut-tut-tut, it's not really compulsory, it's like club dues. Look, you join the chess club or you join the golf club and you have to pay your dues.

7:24Well, you've just joined the US government club and now you don't want to pay your dues? Well, you're really stealing from us. We're the government and we're coming to get our club dues and you don't want to pay. Well, you know, you're stealing from us. It's not that we're compelling you any more than the golf club is compelling its members to pay their club dues. So, we have to ask, well, to what extent and in what regard is the government really like a voluntary club? Well, in a voluntary club, you agreed to join the club. Here, nobody agreed to join the U.S. government club. Consider the following scenario. Somebody's living out in Ohio or Western Pennsylvania in the boonies and there's the 13 colonies and some revenuer comes out to the western part of Pennsylvania or Ohio or West Virginia, wherever it is, on the outskirts of the 13 colonies and said, hey, guess what, we started this U.S. club and you're invited to join.

8:23And the guy says, well, you know, I'm not really a joiner, but I wish you guys the best of luck and I'll trade with you and we'll be friends and, you know, we'll have commercial interaction. And the guy says, you don't understand. You've got to join the club, whether you want to or not. Well, in what sense is that a club? A club that you have to join is not a club. It's a coercive institution. Another objection is, well, you can't really have a market unless you have defense services. So we must have defense services. Well, that's true. You really can't have a market unless you have defense services. But you really can't have a market We have food, or clothing, so by that token, the government should take over food and clothing.

9:11Namely, there's no difference in principle between these services. They're all important services, and looking at it this way really violates the diamond's water paradox, the marginal analysis, or the marginal insight. You know, all food, all clothing, all defense services, we can look at these things in a marginal way much better. Do we have a right to secede? The point is that if we all have a right to secede, that would be a state of anarchy. Well, you know, the only problem with slavery was that you couldn't secede. Otherwise, slavery was a pretty good deal. Now, people are going to take this out of context and say, aha, there's the Mises people, they're saying slavery is good.

9:58But let me continue and hopefully this will be taken in context. Look, slavery was, you know, you pick cotton, you sing songs, If you gruel, it's, you know, it's a gig. The only problem is you couldn't quit. If you could quit, then it would be innocuous. You know, the guy, the overseer comes around with a whip and says, whoa, what's this whip business? I'm not a sadomasochist, I'm out of here. And they say, no, you're not out of here, that's slavery. Well, the point is that if you can't quit, you're a slave. Well, you can't quit the US government. Yes, you can leave, not Cuba, but there are many countries which do not have laws against emigration. East Germany had laws against it, Cuba had laws against it, the U.S. does not.

10:45But the point is, why should you have to leave? The argument is circular. Where did they get the right to tell you to leave? Why can't you just say, well, you know, you leave? Look, suppose I move to a very bad neighborhood, and every day I'm robbed, and I go to the police and I say, you know, stop this, and the guy says, well, you know, you can leave. Well, the point is, it's my house, why should I have to leave? Take this guy in western Pennsylvania, he and his family have been homesteading this land for years, and all of a sudden he doesn't want to pay taxes and he's told, well, if If he doesn't like it he can leave. Well, where's the justice there? Where is the propriety? Where is the proof that the government has the right to tell him to leave?

11:36You know, this idea, if you don't like it, leave, that implies that the people who are telling you that have some sort of rightful ownership of the thing, whereas the way Murray Rothbard and libertarians see it, the people who have the right to the ownership of the land are the people who homesteaded it. The US government didn't homestead it. By stipulation, this guy out in Ohio or Western Pennsylvania was the first guy on the land. Why should he have to leave? Another point that Murray makes, I think this is a genius point, is there's an analogy between... See, the argument is, look, you people are all uncivilized. If we don't have a government ruling over you, you'll be at each other's throats. I mean just the other day you spilled water and you know this proves that you need a government.

12:24Okay well if this is true then we should not have a state of anarchy between countries because countries too are composed of human beings and they could be at each other's throat whereas right now the relationship between Portugal and China is one of anarchy. There's no government over Portugal and China. The relationship between Venezuela and England is one of anarchy. The relationship between Australia and Canada is one of anarchy. Namely, there's no world government. So, if you really think we need a local government, then, by the laws of logic, you must also buy into world government. Namely, world government is to national government, as national government is to individuals. Very few people favor world government. The problem with world government is, you know, where do you run?

13:10If Hitler takes over the whole world, there's no place to run. If George Bush takes over the whole world, there's no place to run. So, very few people who oppose anarchy save the world government, which shows that they're being illogical. In other words, the word ARCHY, A-R-C-H-Y, ARCHY, some people think it means something to do with arches or architecture in the sense of cohesiveness or rule-like behavior or support, and if you're an anarchist, you're against architecture against architecture or against archers or against civilization, you know, you're just a weirdo. The really, the word archie is not that, the word archie is arbitrary rule.

13:59So monarchy is rule of one person, oligarchy is rule of a few people, demarchie or democracy is rule of a majority. Anarchy is no rule of one person over another, arbitrary rule. So, don't swallow the idea that, you know, Anarchists unite is a contradiction. It's not a contradiction. I'm reminded of a story when I was a kid. There was the war in Vietnam and the lefties, we libertarians were marching with the lefties and lefties had banners, you know, U.S. out of Vietnam, which is all along good. We had a banner, U.S. out of the Bronx, which I think puts this in a very good way.

14:47Okay, I have many more objections to consider, but I want to get through some of what Murray says, not only on this, but also on the fundamentals of intervention, the autistic, the binary and the triangular. But before I get into that, I want to talk a little bit about what Murray says about how it would work. Okay, so how would an absence of government and an absence of monopoly work? Well, Murray says that it's very hard to predict the market. If shoes have been socialized for years and now all of a sudden some maniac was saying we should privatize the shoe industry, the questions would come thick and fast. Well, where would you buy shoes? How many shoe stores would be on each block?

15:34Would you have sneakers? And what about slip-ons? And how about the laces? How about the laces and who would put the laces and the shoes together and what about sneakers and all sorts of problems and, you know, would we have high-heeled shoes or not? And it would be hard to answer all these questions in the absence of a market. Similarly, we can now only speculate about what it would be like. We can't tell because there never has been a pure case, although there have been a few examples. There have been a few historical examples such as ancient Ireland, ancient Iceland. And some people say, well, ancient Ireland and ancient Iceland only lasted for three or four hundred years and therefore anarchy is a failure. I was talking to Roderick Long who did a beautiful piece, Ten Objections to Anarchism, a magnificent piece and I've cribbed some of his arguments that I'll get to later.

16:28And what he says is, look, if they say, if you had a failed anarchy, that shows anarchy is no good. Well, how about a failed state? Does that show that statism is no good? And there have been failed states. Nazi Germany was a failed state, the Soviet Union, the US, in different ways. So if you're going to say that since ancient Ireland and ancient Iceland are no longer functioning anarchist societies, that therefore anarchism is no good, well, then how about all the failed status societies? Does that show stadium is no good and we must reject it? Okay, how would it work? Well, Murray envisions one possible scenario that it would be done, and Hans Hoppe has done yeoman work on this as well, that there would be courts, police combinations, insurance, insurance courts and police companies that would have people as subscribers to their services.

17:23Services and if you were attacked by somebody they would protect you. Let me ask you this, I want to meet people tonight at three in the morning and I want to ask you whether you want to meet me in New York Central Park or in Disney World, in Disneyland and the right answer is not in Central Park or Audubon Park in New Orleans because the murder rate and the rape rate is very very high. Whereas in Disneyland, if you look obstreperous, you're immediately surrounded by a bunch of ducks and geese and mice, all packing heat, and they come up to you and say, sir, please step this way. In other words, the point is that right now, when a rape or a murder were to occur in Disneyland, they would lose big. So they have cameras, they have policemen disguised as ducks, God knows what they have. All I know is that it's very Very, very safe.

18:22Who loses money when a rape occurs in New York City Central Park? Does the mayor of New York City lose money, the parks commissioner? No, it's very unsafe. And the idea here is that just as the market can bring you a better orange juice or a better apple, it can bring you better services of protection. Protection services are indistinguishable in this regard of competition and profit and and loss from any other thing. Okay. So let's suppose that I'm having some difficulties with Mark. Mark and I are having a little dispute. And Mark and I both go to the Joe Salerno Court. Why? Well, Joe is Italian. He's in with the Sopranos.

19:09You know, he can keep order. So we have no problem because Joe is our court insurance protection agency and Mark and I will both go to Joe and Joe will give a view and Mark and I each agreed to the Joe services and there's no problem. Now let's take a more difficult case. Mark has Joe as his company and I have David as my company and again Mark and I have some dispute, commercial dispute, whatever it is. I accuse him of nefarious things, he accuses me of nefarious things, So I go to David and I say, David, I'm having a little trouble with Mark, and I invite Mark, I say, Mark, come to me to the David court and we'll settle this, and Mark says, David court, you must be kidding, David is a loon, you know, I don't trust him, and you refuse to come to the court, and you invite me to come to the Joe court, and I say, Joe, he's Italian, he's no good, you know, I'm not going to trust him. So now we each go to our own court. Now it's possible that David is a loon.

20:11David will say, you know, Walter, I like you, you're a great guy, but in this case, Mark is correct. Or Joe might say to Mark, Mark, you're a great guy, but in this case, David is correct, that Walter is right. Or we might have an opposite thing. Well, okay, so in that case, there's no problem. Both courts have agreed, and if Mark or I get snotty, then the David and the Joe courts both combine and come out after the one who will not go along with the the decision of both courts. Everyone following me so far on this? Okay, but now let's take a tougher case. Let's take a tougher case where the two courts, the David and the Joe court, disagree. Now it's possible that David will support Mark and Joe will support me, but let's take a more reasonable case where David supports me and Joe supports Mark. Now here is where Ayn Rand has written about it and what she says at

21:08this point is blank out. And all the Randians since then have said blank out. The anarchists have no answer to this problem. All that will happen is David and Joe will fight and we'll have chaos and anarchy in the bad sense. What these people do is they don't reckon with a whole bunch of literature. The main The main contributors to which are Roderick Long and Hans Hoppe and a few other people, where they go over this in great detail. David Friedman also, he's no Austrian, but on this question he's very, very sound. And what the answer is emanating from all of these sources is the following. There will be two kinds of courts, bandit courts and legitimate courts.

21:56And how do you distinguish them? Well, the bandit courts will even not have anticipated this. David and Joe will not have anticipated that once in the future they might be on the opposite sides of a decision, and then what? Either they won't have anticipated, or if they do anticipate it, they ignore it. Whereas the definition of a legitimate court is they have anticipated and they've acted in a rational way. David and Joe have a contract with each other. They say if in the future we ever come on opposite sides of a dispute, we'll go to Tom, or we'll go to Jeff, or we'll go to Bob, or we'll go to Lou, or Peter, or anyone, or we'll make a list of all those people that I mentioned and we'll draw straws as to which one we'll come to, namely, we will have some sort of peaceable settlement.

22:47I mean you have to have a final decision maker and the Joe and the David sub courts will go to these other courts to be their supreme court. In another occasion, Peter and Jeff might also be courts and they could pick Joe as their supreme court. So in other words, there's nobody who's a supreme court but all these courts could be supreme courts in certain cases and not in other cases. Now there are examples of this sort of a thing occurring. For example, there is an admiralty law, there is a whole bunches of courts of that sort. There's, I have a list somewhere here, of private courts, Sharia, Bet Bin, which is a Jewish court, Episcopal courts, Catholic courts, the law merchant, admiralty law, common law.

23:40For example, one of the things that came about during the medieval period was there'd be some farmer in England who would send over a hundred pigs to somebody in the Netherlands and the guy in the Netherlands said, well, I only got 90 pigs and half of them were sick. And now one is in England and one is in Netherlands and now what do they do? Well, they would go to admiralty courts or law merchant courts. And the only sanction was that if you didn't abide by that, nobody else would trade with you. So, you know, every dog gets one bite, you can have a problem, but this was a very severe sanction. Another one was, suppose my boat capsizes and you rescue the boat and now you bring it into the port.

24:30Well, who does what? Do I tip you? Do you keep part of the boat? Well, the admiralty courts decided that the owner of the boat only gets two-thirds of the value of the boat, and the salvager get one-third of the boat. Well, is that right? Should it have been 30%, 70%, 60%, 40%? I don't know. I don't think libertarian praxeological theory can say. Rather, what we do is we rely on private courts, and the consensus of the private courts is one-third, two-thirds, and I think that's reasonable, but the point that I'm trying to make is that This is an example of how private courts have functioned for many years. Okay, I think I have said enough about how this would work.

25:16I think I've addressed the blank out question with the appeals court. David Friedman makes the point that those courts that agree to be bound by a Supreme Court will have a competitive advantage over those that don't agree. The point is that it's much more expensive to fight than to just go to a Supreme Court. And every time a bandit court comes on the other side of a dispute, he'll have to fight, whereas the legitimate courts will only have to fight the bandit courts. So if you believe that fighting is more expensive, there will be this weeding out process of bandit courts. And also there's this point about legitimacy. One of the reasons that the state is so powerful is that it has legitimacy.

26:01One of the reasons it has legitimacy is because of court intellectuals. The point is that these bandit courts wouldn't have much legitimacy. They would be dismissed by all in sundry. And Jeff Hummel makes the very important point that the pen is mightier than the sword. And you think, to look at it, I mean, the pen is this long and the sword is as long as my arm. and how could the pen out do the sword? His point is, and this is a point made by Rothbard and other libertarians, is that the pen determines in which direction the sword is pointed. So I think this is a very crucial insight. Okay, let me move on to fundamentals of interventionism. What Murray says is that there are three types, autistic, binary and triangular.

26:52The autistic one is the government or the invader orders somebody to do something or to refrain from doing something. So, for example, and the relationship is not binary, which I'll get into in a second. For example, don't do drugs. I can just see Mr. Mackey from South Park, you know, drugs are bad and K, remember him? So, the autistic is sort of like the state saying, drugs are bad and K, this is bad and K, That is bad, okay, so that's autistic. Binary is where the state tells the person pay taxes, or be my slave, or murder would be a binaristic intervention, because it's one person doing something to someone else.

27:38Triangular would be the government or the invader, and there can be private invaders, there are rapists and murderers and criminals, and the way I like to see it, The way I like to think of them is they are engaging in state-like activities. In other words, there's nothing, what's the word, heavenly, not heavenly, there's nothing unique about government. Government is just a big robber gang puffed up with legitimacy, false legitimacy. There's no difference in principle between a government and a private criminal gang. And sometimes you make mistakes in libertarian theory when you give them some sort of extra power. Murray says that it's interesting that the right is sort of bad on autistic intervention.

28:31Namely, they want to have laws against all sorts of individual rights to consenting adult behavior with regard to sex and drugs and whatever. Although the feminists on the left are not so good either, But supposedly, the people on the left are more for free speech, whereas the triangular one, price controls, rent control, minimum wage laws, things like that, the right is somewhat better on that than the left, although it's not very much better. I remember listening to one of the debates that Ron Paul was in with McCain, and McCain used the word profits, and he sort of sneered at it. You know, this is profits. You know, we want something more important than profits. So, even people on the right are not as good as they could be on triangular intervention. What are the direct effects of intervention, whether binary, autistic or triangular?

29:20Well, there's more conflict, the welfare goes down, welfare decreases. What Murray says is that there is no way you can prove that government can promote welfare. Welfare, because all government can do is, remember, autistic, binary or triangular. And in each case, well, why does the invader do this? Well, presumably he's making the world a better place than it would be had he not done that. He's engaging in human action, okay? So he's benefiting, okay, but the victim is losing. So all you can say is that there's no way to prove that government intervention is beneficial for all concern, because there's always one person who was being forced to do it and if it was beneficial they wouldn't have been forced to do it in the first place.

30:10There's this guy, Brian Kaplan, who criticizes Murray Rothbard on the grounds that Murray is too moderate here, Murray is not a good anarchist, Murray should say you can actually prove that all government intervention is disutility or decreases welfare And Murray is taking the moderate view. I think Roger Garrison once wrote this paper, Why Austrianism is the Golden Mean between... Milligram. Milligram between... Well, Murray Rothbard is a moderate here. He's the moderate anarchist. He's not saying that government necessarily reduces welfare. He's just saying you can't prove that it increases welfare. Brian Kaplan is saying, no, no, no, you're a wuss. You're a wimp. You should be saying that government necessarily reduces welfare.

30:57But my view is that Brian Kaplan is missing out on interpersonal comparisons of utility. Because there's always someone who gains, namely the government, and someone who loses. So how can you say that on net balance there's a loss? I think you can't. Murray goes into class analysis. The Marxists, of course, see the classes of employer versus employee. But Murray relies on Calhoun, who sees the classes in terms of net tax gainers and Net Tax Losers, I've written a little bit about this, sort of, a little critical, one of my favorite characters in Atlas Rugged is Ragnar Danischkold, who takes money from the government and gives it to the good guy businessman, well suppose Ragnar came down from heaven or from Mars or wherever he came from and never paid a penny of taxes, all he did is take money from the government, would he be a good guy or a bad guy? According I think he'd be a bad guy, but I think we have to think about that.

31:59The next thing Murray talks about is democracy, and he says that, you know, just because a majority vote for something doesn't make it right. Look, suppose five people break into my house and they're walking off with my TV, and they're a philosophical gang, so they're willing to dialogue with me, and I say, tut-tut, this is staff. He says, oh, no, that's so fair. We're democratic, and they say, let's have a vote. How many think we should take Walter's TV, and the four of them raise their hand. And to be fair, they say, how many think that we shouldn't take Walter's TV, and I raise my hand and say, see, it's democracy. Well, you know, Hitler came to power through a democratic system, so democracy is not such a great thing. There is such a thing as totalitarianism, majoritarian totalitarianism.

32:46Speaking of our previous session where people take a little bit of what Murray says and write whole books about it, Hans' book, Democracy, I forget the title of it. Democracy, The God That Failed. I'm not sure how Hans would see it. I think he would agree with me that what he did in large part is take a little bit of what Murray wrote about democracy and wrote a magnificent gigantic book, except for One Foot, Not Where He Attacked Me, but we won't go into that. I think it's a magnificent book, and this is just one more example of people taking a sentence or two or three of a Rothbard and just running with the ball.

33:26Oh, what about the, what about the fact that when we stop the invader, we're reducing his utility? or what about the fact that, see we have this claim that the market benefits all participants and now Murray deals with the objection, what about the rapist? The market is going to stop him, namely the market of defense agents is going to stop him, so how is it helping him? And the answer I think is the market protects or the market increases the welfare of all participants, but not everybody is a participant in the market. A rapist is not a participant in the market. What What he's doing is not a market-like activity, he's doing a violent type of activity. Similarly with the horse and buggy people, the horse breakers and the whip makers and the bridle makers and the horseshoe blacksmith types.

34:18You might say, well the market hurt them, didn't it? And the answer that I give my students when they come up with this counter example, bless their little hearts, is, well they're not, they used to be participants in the market, but they're not now participants in the market, because participants in the market doesn't And even if you just sort of sit there and occupy space, it means you're making an offer that other people are willing to buy. So at time T1, they were market participants. At time T2, they're not. And you can't say that the market is not improving the welfare of all market participants, even though they're worse off in some ways because they're not market participants anymore. Then he deals with envy. He says, well, what about envy? Bill Gates get rich. I don't like it, therefore, you know, government should take money from Bill Gates and give it to me.

35:08And what Murray says is that envy is a thymological thing. We know what envy is. It's a perfectly good English word. But praxeologically, you have no way of demonstrating that you're envious and that, therefore, welfare is decreasing. And I think that's a very good point. Okay, I now want to turn to some questions that students have asked. One person says, where is it, state action or economic redistribution can indeed increase social utility. My argument for this is simply that in a hypothetical society with completely identical individuals, total equality would maximize the total utility due to the law of marginal diminishing marginal utility. Well, I don't really see how that can be because what the government is doing is taking from Peter and giving to Paul. Obviously the government is hurting Peter and helping Paul, but how social utility can increase even if Peter and Paul are otherwise identical, it seems a little difficult for me to understand. Another one says that government investing in a power

36:20plant in your area and providing with you a job, won't that be a benefit? Well Well, Hazlitt and, what's that French guy who followed Hazlitt? Bastiat had the seen and the unseen, look, I'm getting old, you know, you're lucky I'm not drooling. You see, it's true that one of the disutilities of an old duffer like me speaking is, you know, I'm just sort of falling apart and I don't know what, I'm just blabbing, but on the other hand, I'm a link with the past. For instance, I was a student of Menger, an undergraduate student, and I was a graduate student of Boehm-Bawerk. And Mises and I were contemporaries.

37:06I'd co-authored five articles with Mises. So, you know, there are benefits and costs of everything. Seriously, there is a link. I once shook the hand of Mises. So, it's a nickel to shake my hand now. Murray Rothbard took a bunch of us living room types. I don't think you were, you were probably too young, Joe. You just missed that. Joe is a young pup. He has no respect. And I shook the hand of Mises. And I also have a picture of me playing chess with Hayek at some conference or other. So you know, if you want to touch my garment, it's a nickel each. So I do have, you know, one of my functions, even though I'm losing it and I'm senile and all this, I do have a connection with some of the past. Okay, what I now want to do is go over how would a mainstream economist look at this.

37:55How would a mainstream economist analyze these sorts of questions? And the way they would do it is they would have, they would look at it in two ways. First of all, here is a thing that I already put up on the board. And this is a thing called external diseconomies. No, this is external economies.

38:23The idea is you have the private demand and private supply and you have an actual amount of production, but we have external economies or positive externalities. So the real demand curve or the real total demand curve is D prime, and the difference between D prime and D is the externality, the private benefit, the public benefits. Public benefits, in other words, there are private benefits of education, you get smarter. The public education, public benefits of education or the external benefits of education is you're a better citizen, you can vote better, you'll be less of a criminal. I already dealt with this in a previous thing when I snuck up when it wasn't my time and I said that, you know, these externalities, it's very subjective as to what the function of education is.

39:09You know where rent control is most popular? in the People's Republic of Santa Monica, in the People's Republic of Ann Arbor, in the People's Republic of Cambridge. It abolished Cambridge. Oh, was it? But for many years... For many years. Will you stop ruining my example? I'm kidding. Joe is right. It was just abolished very recently, but for many years... Well, what do Cambridge, Ann Arbor and Berkeley all have in common? Zillions of college students. They're taught that rent control is great. So, you know, What we should really do is look upon it not in this way, if any, and I'll get to the lighthouse and national defense, the topic of my discussion in a bit, with a different diagram. The way we should look upon it maybe is that education is an external diseconomy or a negative externality.

39:57The usual example of that is pollution, namely we should tax education. I'm not advocating that, but if you go along with this line, there's just as good a case and maybe even a better case to tax public education. Look, what they're doing in the sociology and political science and history department is just Marxist obscurantism. And economics is a little better, but they're not any better than they should be. Okay, now here is the pollution case. The idea is that the market has... The big three market failures are monopoly, externalities and public goods. And I'll get to public goods in a second. We're now doing externalities. as we did external economies, now we have external diseconomies. Here, the example is pollution. And the idea is I make these podiums, and in order to make these podiums, I have to pay land, I have to pay labor, I have to pay raw materials, I pay insurance.

40:49There's one thing I don't pay, and that's when I waft over pollutants onto your lungs and onto your laundry. And I don't take these costs into account. So what the government has got to do either with cap and trade, which Bob Murphy has recently written, or the Pagovian, A.C. Pagu had this idea where you just have a tax on pollutants. Murray wrote this magnificent piece, a really magnificent piece that first appeared in the Cato Journal. It's something called air pollution and a whole bunch of other words. I don't remember the title. You must read that. Look on the Mises Web, Murray Rothbard, air pollution. It's a magnificent thing. The first half of it really isn't on environmentalism. It's sort of on law. A magnificent treatment of law and the second part he applies legal theory to the environmental issue.

41:40Attacking the watermelons, you know, these are people who are green on the outside and red on the inside. Okay, so the way Murray analyzes it, it's a little historical thing which he gets from a guy named Horowitz. Not our Horowitz, but the Harvard guy, the Harvard historian. Do you know his first name? Robert, not Steve. And what he says is in the 1830s, things were pretty good. We had, in the US, I'm not familiar with other countries, what happened would be some little old lady would come to court and say that their factory is polluting my laundry. I hung it out, it was wet and clean, I came back an hour later, it was dirty and dry and that there manufacturer polluted my laundry and I want two things, I want an injunction, court order to stop them and I want damages or a farmer would say that their railroad came by choo-choo-choo and it had sparks and it got my haystacks all burnt and I again want damages and an

42:52injunction and in the 1830s 40s and 50s not all these environmental plaintiffs won their case, but the courts were open to it, and this had several salutary effects, namely people would engage in smoke prevention devices, people would use anthracite coal, even though it was a little bit more expensive than, what do you call it, sulfur coal, which was cheaper, but dirtier burning, and then you'd get all these little old ladies and farmers on your neck. There was even environmental forensics. You've seen CSI. They're very interested in blood and hair follicles and semen and stuff like that. Why? Because we have laws against murder and rape. If we didn't, who would be interested in that stuff? Well, in the 1850s and 1860s, there was interest in environmental forensics.

43:40Namely, here's a little dust particle. Where did it come from? Let's go throw that guy in jail. Namely, there were no externalities. Namely, all the costs were taken into account. Not just the land, labor and other costs, but the costs of pollution. And they were even putting little catch things in the smokestacks to catch the pollution before it went elsewhere. So the market was working pretty well, environmentally speaking. Then came the progressive period. When I say progressive period, you're supposed to boo, boo, you know, progressive, no good. And then the motif that Murray says is the U.S. had to be number one. You know, like you see that football field out there when their team comes, you know, Well, Auburn is number one. Well, the U.S. had to be number one. Who was number one at the time? England. How do you get to be number one?

44:26By allowing environmental plaintiffs to come in and mess with the railroads and manufacturing? No. So the next time the farmer or the little old lady came in the court, the court said, yeah, they're violating your property rights. You're sticking lousy, selfish private property rights. We have something more important involved, and that's the public good. And you have a drum roll when they say public good. And what the public good consists of is manufacturing. They did give one little sop to the environmental plaintiffs, and that was minimum smokestack height regulations. See, previously, the smokestacks were 30 or 40 feet high. Now they had to be 100 or 200 feet high. So now the little old lady and the farmer weren't getting victimized by the local people, but instead of hiding it under the rug, they were hiding it in the clouds.

45:16And then from the 1890s, Murray has this wonderful quote from some case in 1911, some Athens Empire laundry company, where the court said, well, pollution is not actionable. Well, if pollution is not actionable, then any good businessman, a Christian or an ethical or religious businessman who didn't want to pollute, and he used the more expensive anthracite coal, he would go broke. Namely, the invisible hand was choking instead of helping. Do you see the point? If you try to act environmentally soundly, you'd go broke. And if you used the dirty colon, you didn't care about research and development in smoke prevention devices, things would be bad for you.

46:02OK, then what happened is the 1950s, 1960s, for almost 100 years, things were bad. And then you had the Environmental Protection Act. But this is the wrong way of looking at it. In other words, what this is, is an invasion. Look, if I take my orange peels and eggshells and coffee grinds and dump them on your front lawn, we know what that is, that's trespass. But suppose I burn them first and then I send them over to your front lawn through the air. This is somehow according to the... In other words, this is a government failure. The bloody government is supposed to protect property rights. They didn't protect property rights in the progressive period and thereafter. And that's why we have the problem. Not because there's anything intrinsic in the market, it's rather intrinsic in government. Okay, the next way to look at this, the next objection that would be likely to emanate from the mainstream is a thing called public goods.

46:54Am I running out of time? Well, okay, well I... Somebody asked me a question about this. No, I, well, let me just take two minutes on, how much more time do I have? Okay, I'll just take two minutes on this stuff and then I'll open it for questions. I've already dealt with some written questions, but I'll take verbal questions. See, the idea here is, what, excludability and rivalrousness, the way the mainstream divide up all goods in terms of excludability and rivalrousness. So, what is excludability? That is, can you exclude non-payers? Or do you get free riders?

47:40Rivalrousness is, if you get the service, does it detract from my service? For example, if the TV program is blasting off and we add one more viewer, are you taking anything away from me? No. So, the question is, is it excludable or not? Wait, let me do a different one. This is a better example here. OK, so the hot dog is excludable because if you grab a hot dog without paying, the cops will get on your case. So we can exclude non-payers by the police. Is it rivalrous? Yes. If you eat it, I can't eat it. The radio and TV, is that excludable? Yes, we can have pay TV and pay radio. We can blast out the TV program and then stop it, what do you call it, interfere with it, but then sell you a box or render you a box so you can unscramble it.

48:33So it is excludable, but it's not rivalrous because the marginal cost of adding one additional person or zero. So what they say is even though you can exclude, you shouldn't exclude. So this is a private good and this is a public good. Is this a public good also? You see, yes, it's also a public good because you can exclude even though it is rivalrous. If you have a crowded city street and one more person comes, it's rivalrous because he slows down everyone else. But can you exclude? No, it's hard. What are you going to do? Sell a ticket to Broadway and 42nd Street where there are masses of people? You can't exclude. And then this is a pure public good because now it's not excludable. You can't exclude from the lighthouse. You can't exclude from national defense. And also you shouldn't exclude because it's not rivalrous because if one more boat comes out, he can see the lighthouse.

49:20And if one more person comes by, You can still threaten the law-born into the men's room of the Kremlin and you can still protect everyone else. So this is the argument. Don't think that the mainstream think that there's 25% in each case. They would concede, at least the right-wing ones would, that most of the goods are like here. But this is the market failure of public goods. The Austrian criticism is, just means the government can't exclude, doesn't mean private people can't exclude. We can give everyone a little repel like this on 42nd Street And if they don't have it, we might not catch them now, but we'll catch them eventually, and we'll, you know, give a severe punishment. Similarly, with the lighthouse, we can threaten to shut off the lighthouse one day, when only your boat is out there, if it's a sort of a clear night, and all of your sailors know that, so you're going to have to pay your sailors extra if you don't subscribe to my lighthouse.

50:11Same thing with national defense. You can exclude non-payers. If they don't have this little thing, you send out a message to the Kremlin or to the mafia, So you're saying, hey, David Gordon is a pacifist, he refuses to pay, he doesn't have that little slip. He has the slip without paying, he's guilty of fraud. He doesn't have the little slip, he's free, I'm not going to protect him, go get him. So you can exclude non-payers, and it is rivalrous because Murray says, well, if you're defending the East Coast, you have less money to defend the West Coast. Okay, so this is a very quick rundown of the fallacy, of the market fallacy argument of the mainstream.