The Economics of Law, Order, and Action According to the standard position of the economic mainstream, the efficient production of so-called public goods, including law and defense, requires the use of territorial monopolies of coercive force Two arguments are put forward for this position: a “positive” one, based on the claim that only such institutions can successfully supply society with crucial public goods, and a “negative” one, based on the claim that such institutions by themselves constitute inevitable “public bads” This book challenges this assumption by utilizing the insights of the Austrian School of Economics, New Institutionalism, constitutional political economy, and other heterodox economic approaches, combined with economically informed ethical analysis It puts forward a positive case for voluntary social organization that offers new insights into the intersection of economic logic, social philosophy, institutional analysis, and the theory of entrepreneurship In other words, in an attempt to draw on the interdisciplinary spirit of classical political economy, this book aims at providing a comprehensive economic and ethical case for extending the applicability of voluntary, entrepreneurial cooperation to the realm of creating and sustaining legal and protective services together with attendant institutional frameworks Jakub Bożydar Wiśniewski is an affiliated scholar and a member of the board of trustees of the Ludwig von Mises Institute Poland and is an affiliated lecturer with the Polish-American Leadership Academy He holds an MA in philosophy from the University of Cambridge and a PhD in political economy from King’s College London Routledge Advances in Heterodox Economics Edited by Mark Setterfield The New School for Social Research, USA Peter Kriesler University of New South Wales For a full list of titles in this series, please visit www.routledge.com/series/RAHE Over the past two decades, the intellectual agendas of heterodox economists have taken a decidedly pluralist turn Leading thinkers have begun to move beyond the established paradigms of Austrian, feminist, Institutional-evolutionary, Marxian, Post Keynesian, radical, social, and Sraffian economics – opening up new lines of analysis, criticism, and dialogue among dissenting schools of thought This cross-fertilization of ideas is creating a new generation of scholarship in which novel combinations of heterodox ideas are being brought to bear on important contemporary and historical problems Routledge Advances in Heterodox Economics aims to promote this new scholarship by publishing innovative books in heterodox economic theory, policy, philosophy, intellectual history, institutional history, and pedagogy Syntheses or critical engagement of two or more heterodox traditions are especially encouraged 34 Theory and Method of Evolutionary Political Economy A Cyprus symposium Edited by Hardy Hanappi, Savvas Katsikides and Manuel Scholz-Wäckerle 35 Inequality and Uneven Development in the Post-Crisis World Edited by Sebastiano Fadda and Pasquale Tridico 36 Keynes and the General Theory Revisited Axel Kicillof Translated by Elena Odriozola 37 Microeconomic Theory A heterodox approach Authored by Frederic S Lee Edited by Tae-Hee Jo 38 The Economics of Law, Order, and Action The logic of public goods Jakub Bożydar Wiśniewski The Economics of Law, Order, and Action The Logic of Public Goods Jakub Bożydar Wiśniewski First published 2018 by Routledge Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2018 Jakub Bożydar Wiśniewski The right of Jakub Bożydar Wiśniewski to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988 All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for this book has been requested ISBN: 978-0-8153-6787-1 (hbk) ISBN: 978-1-351-25632-2 (ebk) Typeset in Times New Roman by Apex CoVantage, LLC Contents Introduction 1.1 Preliminary remarks 1.2 Project overview An Austrian critique of the theory of public goods 2.1 2.2 2.3 2.4 15 Introduction 15 Non-rivalness, subjectivity, and capital: the theory 16 Non-rivalness, subjectivity, and capital: the application 21 Non-excludability, externalities, and entrepreneurship: the theory 24 Defense as a private good in a competitive order 41 3.1 Non-excludability, externalities, and entrepreneurship: the application 41 3.2 Short-range protection goods 43 3.3 Mid-range protection goods 44 3.4 Long-range protection goods 51 Law as a private good in a competitive order 4.1 4.2 4.3 4.4 4.5 4.6 Introduction 63 Legal polycentrism and victimless crimes 68 Legal monocentrism and the paradox of government 69 Other objections to legal polycentrism 76 Legal entrepreneurship and regime uncertainty 80 Legal polycentrism and contractarianism 82 Ideas, institutions, and preferences 5.1 5.2 5.3 5.4 63 Predation, not protection: the inevitabilist challenge 93 Answering the challenge: the importance of preferences 95 Collective action, cooperation, and collusion 106 The circularity problem 107 93 vi Contents The ethics of legal and protective polycentrism 115 6.1 6.2 6.3 6.4 Introduction 115 Moral philosophy, Austrian economics, and rationality 116 Well-being and objectivity 125 Robust political economy and the question of motivations 130 6.5 Legal polycentrism, the veil of ignorance, and brute luck 134 Conclusion 145 Index 151 Introduction 1.1 Preliminary remarks A recurring theme in the history of political philosophy is the suggestion that the existence of law and order requires the monopolization of violence in a given territory Similarly, a common opinion in mainstream economics is that monopolized violence is the only reliable tool for the provision of “public goods”, chiefly among them a well-functioning system of legal and defense services It might be argued that, widespread as they are, such suggestions and opinions contain at their core a rather conspicuous contradiction After all, it would seem reasonable to assume that the monopolization of violence promotes the use of violence, whereas a lawful and orderly society is one from which violence has been largely eliminated And similarly, it would seem reasonable to question the extent to which goods and services provided on the basis of monopolized violence – that is, in a paradigmatically non-consensual manner – can be seen as unambiguous public benefits Over the course of the history of social thought, this apparent contradiction has been especially emphasized and most eagerly explored by various schools of anarchism Unsurprisingly, the typical conclusion reached by them is that the monopolization of violence, far from promoting genuine law and order, is actually antithetical to it However, as convincing as their arguments might be taken to be, one of their potential shortcomings is that their acceptance requires certain prior moral commitments – for instance, a commitment to the ethics of universal and inalienable natural rights Thus, while they constitute an important challenge to the mainstream treatment of the subject of law and order in the field of political philosophy, they may be seen as less applicable to the parallel investigations in the field of economics This is because sound economics adheres to the principle of value freedom, and all that it aims to establish is the logical feasibility (or lack thereof) of implementing specific organizational solutions However, far from being uninteresting on account of its apparent ethical blandness, this is a highly value-relevant approach, because, by aspiring to show the impossibility of reaching certain goals, it also shows the futility of any ethical code that may motivate their pursuit In other words, even if a philosophical anarchist succeeds in demonstrating the ethical Introduction unjustifiability of social organization grounded in monopolized violence, he may still fail to answer the public goods argument drawn from neoclassical economics, thus facing the uncomfortable conclusion that the ethical strength of his principles clashes with their logical infeasibility The present book is sympathetic to the ethical concerns of the anarchist tradition insofar as it is skeptical of the suggestion that monopolized violence can credibly serve as a foundation of law and order At the same time, unlike the works of the majority of the classical representatives of this tradition, it makes explicit use of the tools furnished by the marginalist revolution in economics and emphatically recognizes the crucial role of private property and market entrepreneurship in creating advanced, well-functioning social orders Thus, it is perhaps particularly well placed to evaluate critically the cogency of the neoclassical public goods arguments, especially as it employs for that purpose tools and arguments drawn from an alternative economic tradition originating in the marginalist revolution – that of the so-called Austrian School of Economics and its parent discipline of praxeology (i.e., the logical analysis of human action) Moreover, it subsequently uses these same tools to engage in a similarly critical evaluation of the “dark obverse” of the public goods argument – namely, the notion that territorial monopolies of force are “necessary evils”, whose activities are hardly beneficial in absolute terms, but nonetheless cannot be replaced by any superior alternative In other words, the dual task of the present book is to highlight the shortcomings of the neoclassical and neoclassically influenced arguments in favor of the desirability or inevitability of territorial monopolies of force and to present a comprehensive theoretical framework for the voluntary, contractual provision of law and order It might be argued that a number of coinciding processes in the contemporary world make this topic particularly noteworthy First of all, in an increasingly globalized and specialized economy, international businesses engage in increasingly more complex transactions across territories that constitute jurisdictions controlled by many different local monopolies of force As a result, none of these monopolies can provide the businesses in question with a sufficient degree of legal and physical protection – both because none of them controls the whole territory within which they operate and because none of them is likely to keep pace with the complexity of their operations Thus, they either have to rely on the services of specialized private arbitration agencies or devise their own internal regulatory frameworks and coordinate them with those similarly devised by their business partners In other words, they have to provide themselves with the relevant “public goods” in a purely voluntary and contractual manner, and the present book supplies the logical framework for understanding this process Second, modern technological ingenuity allows for the implementation of organizational solutions that vastly increase the potential of entrepreneurial activities, including their potential for establishing effective governance structures For instance, big data processing allows for effective detection and prevention of fraud, advanced trading platforms allow for conducting complex online transactions protected by powerful security protocols and verification algorithms, and Introduction distributed ledgers allow for convenient record management free from the danger of moral hazard Again, such inventions, especially when linked with the global character of modern market entrepreneurship, vividly illustrate the emergence of contractual, polycentric legal orders and point to the desirability of subjecting this phenomenon to a broader theoretical analysis Third, the last decades have witnessed a rise in secessionist tendencies and sympathies for local self-determination And although many of them are associated with nationalist leanings, which are often comfortable with the use of monopolized violence, many others embody a genuine desire to use political decentralization as a tool to create social orders that are more in line with the principles of voluntariness, contractuality, and unanimous consent In other words, it might be plausibly argued that consensual secession and decentralization taken to their ultimate conclusion fully liberate the provision of law and order from the influence of monopolized violence, and many members of modern secessionist and decentralist movements seem to be motivated by this line of thinking And fourth, it is, perhaps, scarcely an exaggeration to suggest that the institution of the nation-state – the main contemporary locus of monopolized violence – has lost much of its prestige over the last few decades Part of it may be due to the lasting memory of the destructive excesses of nation-states during World War II and its aftermath Part of it may be due to the modern, technologically driven scrutiny with which we can observe the dark underbelly of political and bureaucratic operations And part of it may be due to the emergence of various intellectual traditions – such as the public choice school – that use modern social scientific tools to analyze political motivations in a coldly realistic manner Be that as it may, it seems fair to say that an interest in exploring alternative institutional arrangements is on the rise and that the present book may serve as a useful tool for guiding the relevant exploratory impulses Furthermore, the ongoing economic globalization, social complexification, entrepreneurial emancipation, and technological progress are only likely to accelerate all of the processes mentioned earlier, hence making the topic of the voluntary, contractual provision of law and order all the more significant It is also likely that the unfolding of these processes will go hand in hand with the growing recognition that neoclassical economics – with its limited appreciation for entrepreneurial dynamism and its physicalistic presuppositions – is an inadequate tool for describing them in an accurate and illuminating manner Thus, it is hard to think of a better topic as a crucial litmus test for the continuing relevance and explanatory power of the Austrian School and other “heterodox” traditions in economics that follow the interdisciplinary spirit of classical political economy In sum, a critical evaluation of the neoclassical and neoclassically influenced arguments surrounding the issue of public goods and their constructive reformulation in the light of an intellectual tradition that is particularly cognizant of the productive power of entrepreneurial dynamism and voluntary self-organization can be seen as a natural combination of the right subject matter and the right analytical approach used at the right time It is my hope that the reader of the present work will walk away from it with a similar impression Legal and protective polycentrism 143 Hayek, F A (1978a), Law, Legislation and Liberty, Vol 2: The Mirage of Social Justice (Chicago: University of Chicago Press) Hayek, F A (2002), ‘Competition as a Discovery Procedure’, Quarterly Journal of Austrian Economics, (3), 9–23 Herbener, J (1996), ‘Calculation and the Question 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(1994), Losing Ground: American Social Policy, 1950–1980 (10th Anniversary ed., New York: Basic Books) Narveson, J (2004), ‘Maxificing: Life on a Budget: Or, If You Would Maximize, Then Satisfice!’, in M Byron (ed.), Satisficing and Maximizing: Moral Theorists on Practical Reason (Cambridge: Cambridge University Press), 59–70 Niskanen, W A (1996), ‘Welfare and the Culture of Poverty’, Cato Journal, 16 (1), 1–15 Nock, A J (1935), Our Enemy, the State (New York: William Morrow & Company) Oppenheimer, F (1922) [1914], The State (New York: B.W Huebsch) Parfit, D (1984), Reasons and Persons (Oxford: Oxford University Press) Pilon, R A (1979), ‘Ordering Rights Consistently: Or What We Do and Do Not Have Rights to Do’, Georgia Law Review, 13, 1171–96 Porter, M E and Kramer, M R (2006), ‘Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility’, Harvard Business Review, 84 (12), 78–92 Rawls, J (1971), A Theory of Justice (Cambridge, MA: Belknap) 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Austrian Economics, 14 (1), 56–65 Wisniewski, J B (2012b), ‘A Note on Being Healthy’, Diametros, 31, 133–5 Conclusion The aim of the present book was to investigate the putative theoretical desirability, both from the economic and the ethical point of view, as well as the practical inevitability of the presence of a monopoly of force in any given system of political economy As described in Chapter 1, the primary methodological tool used for this purpose was praxeological analysis in the spirit of the Austrian School of Economics, coupled with the analysis of institutional robustness of the relevant economic and social frameworks Chapter presented a general theoretical critique of the neoclassical theory of public goods, thus undermining the contention that their effective production requires the existence of territorial monopolies of force, as well as pointing out various logical problems with the concept of public goods as such Chapters and made the critique in question more specific and practically grounded by analyzing the ways in which the two most paradigmatic public goods in the neoclassical theory – namely, law and defense – could be effectively produced in a contractual, entrepreneurial order of legal polycentrism Furthermore, they suggested that it is not just the case that territorial monopolies of force are inferior producers of these goods, but that their production of these goods can even deprive them of their goods-character Chapter tackled the claim that, although not necessary for the production of public goods, monopolies of force are nonetheless inevitable due to the combined influence of the iron law of oligarchy and the collective action problem More specifically, it suggested that both of the aforementioned concepts appeal exclusively to the importance of incentive structures, while overlooking the fact that the shape of these structures is crucially conditioned by the configuration of the underlying preferences and ideologies, just as the shape of hard institutional frameworks is crucially conditioned by the configuration of the underlying customs, traditions, and social norms Finally, Chapter tried to pin down various ethical conceptions of public goods and argue that none of them can sustain the notion that a fully voluntary and contractual social order generates a tradeoff between efficiency and equity, which can be countered only by corrective interventions of a monopoly of force It claimed that, on the contrary, the order in question promotes efficiency and equity alike, while, in contrast to some of its centralized, coercive counterparts, remaining careful not to make any utopian, universal moral guarantees Hence, the conclusion of the present book is that neither economic nor ethical considerations surrounding the notion of public goods establish the desirability or 146 Conclusion inevitability of the existence of territorial monopolies of force, thus lending support to the suggestion that the emergence of a worldwide contractual, competitive, entrepreneurial order of legal polycentrism would be a welcome alternative This conclusion has some interesting implications for a number of related disciplines and fields of research Most importantly, it opens up new avenues for exploration in the area of institutional entrepreneurship Following Baumol (1990), entrepreneurship is typically divided into productive, unproductive, and destructive In the context of specifically institutional entrepreneurship, a parallel tripartite distinction has been suggested – that between abiding, evading, and altering variety of entrepreneurial activities (Henrekson and Sanandaji 2011) In view of this latter distinction, institutional entrepreneurship counts as productive if it strengthens institutions that promote market entrepreneurship or weakens (or reforms) those that hamper it, and counts as destructive if it strengthens or utilizes institutions that hamper market entrepreneurship or weakens those that promote it Because the institutions in question are typically implicitly assumed to be political in nature, an institutional entrepreneur is typically assumed to be a political entrepreneur of some kind He is also typically assumed to combine the roles of a political and market entrepreneur insofar as he treats exercising an influence on political institutions as a means of furthering his business activities In view of the critical arguments raised in the present book regarding the notion of public goods and the supposedly necessarily political character of their effective provision, the relationship between market entrepreneurs and their impact on political institutions can be cast in a new light Most significantly, it has to be noticed that, as far as the inherent mode of operation of all political institutions is concerned, the attitude of market entrepreneurs towards them is assumed to be evasive by default; otherwise, such institutions would be maintained on the basis of voluntary contributions or fees, not on the basis of coercive taxation The coercive nature of all political institutions coupled with their non-competitive character makes it a legitimate question whether they can be truly conducive to, let alone necessary for, productive entrepreneurship In light of the tenets of methodological individualism and subjectivist economics, their coercive character precludes their existence and operation from being Pareto-superior, because they run contrary to the demonstrated preferences of market entrepreneurs (who, by definition, are assumed to prefer to spend their tax money on other purposes), and their monopolistic, non-competitive character necessarily separates them from the allocative rationality of the market price system At the same time, it is clearly not the case that entrepreneurs are assumed to adopt a default evasive stance towards political institutions because they not desire effective provision of law and order After all, their competitive advantage lies in operating effectively in the business environment, which implies at least an elementary (and more likely a fairly advanced) understanding of the necessary preconditions of a robust commercial culture, an equally robust legal and protective framework being the most important of them Nor can the majority of them be reasonably accused of trying to engage in free riding – the arguments adduced in Conclusion 147 Chapter of the present book suggest that every entrepreneur worthy of the name realizes that the business environment confronts him with what is essentially a repeated prisoner’s dilemma situation, where in the long run free riding is a suboptimal approach In other words, it is reasonable to conclude that by assuming an inherently evasive attitude towards inherently coercive, monopolistic political institutions, market entrepreneurs not act against law and order, but against their inefficient, morally objectionable, and emphatically non-entrepreneurial methods of implementation Thus, insofar as market entrepreneurs are assumed to adopt a default evasive stance towards political institutions, and insofar as productive institutional entrepreneurship of the altering variety is typically described as altering political institutions in the direction of their greater conduciveness to market entrepreneurship, it seems logical to conclude that the ultimate culmination of productive institutional entrepreneurship in the political context would be to replace political institutions with market-based entrepreneurial institutions.1 In other words, the tripartite distinction between abiding, evading, and altering varieties of institutional entrepreneurship should be supplemented with the fourth category – creative institutional entrepreneurship, that is, the art of establishing competitive, contractual structures of law and order tied directly to the informal institutions prevailing in a given society Introducing and analyzing such a category would, I believe, be particularly helpful in shedding new light on what has been called “the paradox of embedded agency”, the theoretical puzzle concerned with the following question: “if actors are embedded in an institutional field and subject to regulative, normative and cognitive processes that structure their cognitions, define their interests and produce their identities , how are they able to envision new practices and then subsequently get others to adopt them?” (Garud, Hardy and Maguire 2007, p 961) In the context of opening new avenues for analyzing this puzzle, it might be argued that political institutional entrepreneurship undertaken by market entrepreneurs – be it of the abiding, evading, or altering variety – is truly productive only insofar as it embodies elements of creative institutional entrepreneurship Given that market entrepreneurship is inherently characterized by innovativeness, alertness to profit opportunities, and the ability to forecast the uncertain future, it should not be surprising that its power to create and modify institutions is capable of discovering the kind of mix of institutional stability and adaptability, or predictability and dynamism, that allows the society relying on it to enjoy robust rule-based order while remaining open to creative evolution Thus the paradox of embedded agency loses much of its paradoxical nature Furthermore, the insights concerning the potential of entrepreneurial, competitive institutional creation may prove useful in shedding further light on the nature and importance of cultural entrepreneurship Because, as was repeatedly pointed out in Chapter of the present book, the efficiency of specific incentive structures depends crucially on their grounding in prevalent social preferences, beliefs, and ideas, it becomes clear that a crucial and perhaps the hardest part of creative institutional entrepreneurship is the preparation of fertile ground for cultural 148 Conclusion and ideological change Moreover, because, according to the new institutionalist hierarchy of levels of social analysis (Williamson 1998, 2000), soft institutions – that is, the fundamental cultural-normative core of the hierarchy in question – emerge largely spontaneously and develop in an evolutionary manner spanning many generations, it appears clear that influencing them and speeding up their development in a desirable direction through entrepreneurial efforts is a singularly difficult and elusive task However, the fact that there exists a considerable amount of evidence of substantial ideological and cultural change throughout history (North 1981, 1990), sometimes within surprisingly short time frames, indicates that the task under consideration is not insurmountable This should direct the attention of entrepreneurship researchers to the question of which factors and what circumstances are particularly conducive to successful cultural institutional entrepreneurship – and if they find out that some features of the present-day socioeconomic environment (e.g., the development of social media, cultural globalization, increasingly universal access to repositories of specialized knowledge, etc.) count prominently among them, it might strongly suggest that the ascendancy of competitive, contractual structures of law and order is closer than most expect Finally, the conclusion of the present book may have important implications for the field of business ethics As noted by several authors (Marcoux 2009; Rasmussen and Den Uyl 2009), a fairly common approach to business ethics is to try to turn it into a form of political philosophy, with the ideal business firm treated as the “private workplace equivalent of [a] cradle-to-grave welfare state” (Marcoux 2009, p 25), which is an approach that crowds out any serious philosophical concern with the practical ethical problems faced by entrepreneurs and other participants in commercial culture However, if we accept the conclusion that, far from operating purely reactively within a given framework of formal and informal institutions aimed at enabling and facilitating social cooperation, market entrepreneurs are actually capable of actively creating such frameworks, it might be suggested that it is not just inappropriate to try to turn business ethics into a form of political philosophy, but that it is appropriate to eventually turn political philosophy into a form of business ethics Such a suggestion might be treated as a qualitatively novel attempt at reconciling philosophical anarchism with the necessity and desirability of effective and just governance, as well as a reconsideration of concepts such as the social contract, the unanimity principle, and the stakeholder theory in the light of praxeological economics and the theory of institutional entrepreneurship In other words, it might indicate that the scale and scope of ethical considerations that entrepreneurs are uniquely suited to undertake and address are much greater than most contemporary business ethicists, let alone lay commentators, could reasonably imagine In particular, it might indicate that entrepreneurs are uniquely capable of dealing with so-called moral dilemmas, that is, situations in which the complexity of moral reality outruns the usefulness of all ethical master principles and theoretical systems, confronting a given person with the moral necessity of doing something morally wrong Insofar as it might be argued that the only way to deal with such situations is to try to minimize their occurrence through keen forecasting skills and careful attention to specific Conclusion 149 circumstances of time and place (Wisniewski 2011c), it is not unreasonable to conclude that entrepreneurs, with their expertise in uncertainty bearing and utilizing tacit knowledge, should be thought of as particularly capable of taking on this challenge In sum, I believe that it would not be an exaggeration to suggest that the research avenues opened by the central conclusion of the present book – the economic and ethical viability of replacing monopolistic, coercive institutions of law and defense with their competitive, contractual, entrepreneurial counterparts – are as disciplinarily wide-ranging as they are far-reaching Thus, their pursuit promises to be a fruitful, challenging, and potentially groundbreaking scholarly endeavor Note Upon being confronted with this conclusion, the majority of present-day entrepreneurs would probably shy away from it, but this could be explained in a number of ways without questioning its validity First, the competitive advantage of entrepreneurs is practical business acumen, not theoretical political economy; thus, they might need some time to familiarize themselves thoroughly with the relevant arguments and think them through before passing an appropriately informed judgment on their cogency Second, their short-term prudential concerns might prevent them from being completely honest about their views on the matter And third, just like the majority of people, they might turn out to be victims of the standard psychology of authority, which, as it is sometimes argued, is largely based on ultimately non-rational factors, as shown, for example, in the Milgram and Zimbardo experiments (Huemer 2012, ch 6) Bibliography Baumol, W J (1990), ‘Entrepreneurship: Productive, Unproductive, and Destructive’, Journal of Political Economy, 98 (5), 893–921 Garud, R., Hardy, C and Maguire, S (2007), ‘Institutional Entrepreneurship as Embedded Agency: An Introduction to the Special Issue’, Organization Studies, 28 (7), 957–69 Henrekson, M and Sanandaji, T (2011), ‘The Interaction of Entrepreneurship and Institutions’, Journal of Institutional Economics, (1), 47–75 Huemer, M (2012), The Problem of Political Authority (London: Palgrave Macmillan) Marcoux, A M (2009), ‘Retrieving Business Ethics from Political Philosophy’, The Journal of Private Enterprise, 24 (2), 21–33 North, D (1981), Structure and Change in 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good in competitive order assurance problem 54–55 asymmetric information problem 57 Austrian critique of neoclassical theory of public goods: background information 15–16; capital application and 21–24; capital theory and 16–21; entrepreneurship theory and 10, 24–35; externalities and 24–35; non-excludability theory and 24–35; non-rivalness application and 21–24; non-rivalness theory and 16–21; overview 8, 145; subjectivity application and 21–24; subjectivity theory and 16–21 Austrian School of Economics (ASE): desires and 117; ethics of legal and protective polycentrism and 116–125; inevitability of monopoly of force and 2, 4; institutional frameworks for economic activity and 10; moral desirability of monopoly of force and 116–125; moral philosophy and 117; neoclassical theory of public goods and 8, 16; well-being and 117; see also Austrian critique of neoclassical theory of public goods autonomy 128–129 bandits, roving 108–109 bargaining, contractual 93 Barnett, R 73 barter economy 110 Bastiat, Frédéric 56, 97 Baumol, W J 146 beneficiaries of public goods 28, 35 Biostatistical Theory (BST) 126–127 Block, W 45, 104 Boorse, Christopher 126 Boudreaux, D J 85 brute luck 138–140 Buchanan, J M 17, 73–74, 84–85, 93 business ethics 148–149 calculation argument 51 Cambridge-changes 118–119 capital: accumulation argument 51; application and Austrian critique of neoclassical theory of public goods 21–24; theory and Austrian critique of neoclassical theory of public goods 16–21 capitalism 68 Caplan, B 69, 71 Carens, J H 133 cartels 8–9, 32, 74, 106–107 case probability 26 charitable giving 119, 131–132 checks and balances principle 73–74 “chiseling” 74 circularity problem 107–110 classical liberalism club goods: debate about 20–21, 63–64; defense and 21–24; defining 15; desirability of monopoly of force and 16, 24; efficiency and 20; free rider problems and 23; law and 21–24; market failure and 15–16; movie theater as 16–20; production of 18–20; pure 15; surveillance cameras as 21–22; tax levy and 20 152 Index Coase, R H 58n2, 59n8 Coase theorem 43 coercive redistribution 136 coercive transactions: defense 42; disutility and 29–30; explicit 31–32; implicit 31; in legal polycentrism 70–71; negative externalities and 26–27; Pareto-inferiority and 31; public goods production and 115; pure 36n10; social interactions and 33; social utility and 30–33; systematic 31 Cohen, G A 133 collective action problem 71–72, 95, 106–107, 145 collusion 106–107 commerce clause of U.S Constitution 75 common goods see public goods common good, the 73 common law system 78–79 communism, Soviet war 30 compensation 83 competition: cartels and 8–9, 106–107; circularity problem and 107; diachronic 72–73; as discovery procedure 23; eliminating potential 6–7, 23; entrepreneurial 132; government, lack of 104–106; incentive argument and 51; market 6, 18, 107, 109; minimal state and 59n5; political 104–106; predatory 105; price systems and 22–23; synchronic 72–73, 81 composition, fallacy of 104 conceptual unanimity 84 consistency 34 constancy 34 constitutional constraint 76 constitutional economics 10 constructive rationality 64–65, 135 consumer preferences 9, 20, 28–29, 34, 80 consumption of goods, final 19 contractarianism 8, 82–86 contractual bargaining 93 cooperation 106–107 corruption 70 cost efficiency 23, 58 costless consumption, myth of 24 costs, theory of 17 covenants, restrictive 45 Cowen, T 94, 100–101 creativity 42–43 critical rationality 64–65 cultural entrepreneurship 147–148 cultural evolution 78 Cuzán, A 105 decision-making structure 20–21 defense as private good in competitive order: anti-ballistic missiles 51–58; assurance problem and 54–55; entrepreneurship and 41–43, 52; externalities and 41–43; free riders and 45, 47–49, 53–54; incarceration of criminals and 50–51; infighting of private protection agencies and 55–56; legal plunder and 56; localonly agencies and 53; long-range protection goods 51–58; mid-range protection goods 44–51; monopoly of force and 1; non-excludability and 41–43; nuclear weapon deterrents 51–58; overview 8, 145; price system and 23; rogue protective agencies and 56–57; scarce goods and 23; shortrange protection goods and 43–44; success of market and 58; surveillance cameras 44–45 delayed feedback problem 73 democracy 97 democratic elections 71–73, 75 design elements 126 desirability of monopoly of force: arguing for 2; club goods and 16, 24; investigating 4–5; overview 8, 145–146; public goods and 16; see also moral desirability of monopoly of force desires 117–120, 141n5 destructive aggression-overcompensation cycle, avoiding 63 diachronic competition 72–73 diffused benefits of goods 28 disutility 27–30 division of labor 94 Dworkin, R 140 econometric equations, unsuitability of use of 26 economic means economics and freedom efficiency: club goods and 20; cost 23, 58; economic 7, 9, 11, 27–28, 30, 41, 115, 132–133; of entrepreneurship 85, 107, 109, 137–138; equity and, tradeoff between 11, 115, 130–135, 142n13, 145; institutional 98, 107, 109, 138, 147; judicial 72, 74, 77, 83; of monopoly of force 8; of play the game 10; of voluntary transactions 30 egalitarian simulated market 133 embedded agency, paradox of 147 Index entrepreneurial activity level in social analysis 80–81 entrepreneurship: creativity and 42–43; cultural 147–148; defense as private good in competitive order and 41–43, 52; efficiency of 85, 107, 109, 137–138; excludability and 43; ideas and 9; incentives and 132; institutional, exploring 146–148, 149n1; institutional frameworks and 146–147; legal 80–82; market 2, 10, 146–147; nature of 132; political 81; preferences and 9; theory of 10, 24–35 equity, economic 11, 115, 130–135, 142n13, 145 ethics of legal and protective polycentrism: Austrian School of Economics and 116–125; background information 115–116; brute luck and 138–140; institutional robustness and 130–134; moral objectivity and 125–130; moral philosophy and 116–125; objective goods and 125–130; overview 9, 145; rationality and 116–125; social justice and 132–135, 137; veil of ignorance and 134–138; well-being and 118–119, 125–130 evolutionary process, bottom-up 110 excludability 43 experience 118 externalities: Austrian critique of neoclassical theory of public goods and 24–35; defense as private good in competitive order and 41–43; internalizing 45; negative 26–27, 34–35; positive 24–25, 27, 34–35; public goods and 24–35; restrictive covenants and 45 factors of production 19 favoritism 81 feedback, problem of delayed 73 Fielding, K T 63–64 formalism 118 fractional-reserve banking 35 Frankfurt, Harry 120, 141n5 freedom and economics free market/enterprise system 7, 30, 42–43, 57, 94–95 free riders: anticipatory 44; defense as private good in competitive order and 45, 47–49, 53–54; free market order and 94–95; identifying 48–49; “insiders” as 45; lighthouses and 48; monopoly of force and 43, 50; non-action and 28; 153 ostracization of 43, 49, 53–55; “outsiders” as 45; penalizing 50; problems 23–24, 41, 42–43; social gains of 16; spillover effects and 15; welfare recipients as 44 full-reserve banking 35 game settings to institutional frameworks 29 global economic problems 16 globalization government: Buchananite protective 97–98; communism, Soviet war 30; competition and, lack of 104–106; democracy 97; functioning 108; Holcombian limited 96–99; human preferences toward 95–106; inevitability 98–99; Nozickian night-watchman state 98; purpose of 96–97; social democracy 33, 130–132; voting public and 71–72; world, non-existence of 103–106; see also paradox of government “grapevine” knowledge 54 Great Depression 80 Griffin, James 118 group benefiting rules 78 hard institutions 5, 64–65, 80, 108–110, 145 Hayek, F A 18, 23, 64, 77–78, 121 Higgs, Robert 80 Hobbesian jungle 83 Hobbesian war 55 Hobbes, T 93 Holcombe, R G 85, 94–96, 98, 104 Hoppe, Hans-Hermann Huemer, M 135 Hülsmann, J G 105 human preferences toward government 95–106 ideas and entrepreneurship ideological unity 101–102 ignorance: rational 71, 97–98; veil of 134–138 immediate ostracism 55 incarceration of criminals 50–51 incentive argument 51 incentives 95, 97–98, 109, 132 indirect contractarianism 83 inefficiency, economic 19 inevitability of monopoly of force: Austrian School of Economics and 2, 4; challenge 93–95; circularity problem and 107–110; collective action problem 154 Index and 106–107; collusion and 106–107; cooperation and 106–107; dilemma of 99–100; human preferences and 95–106; overview 8–9, 145–146; predation and 93–95, 101; secession and 103; stateless societies and 102–103; world government and, non-existence of 103–106 information asymmetry 57 “insiders” 45 institutional efficiency 98, 107, 109, 138, 147 institutional entrepreneurship, exploring 146–148, 149n1 institutional frameworks: creating 11; entrepreneurship and 146–147; game settings of 29; ideas and preferences shaping 56; in investigating robustness 4; of legal polycentrism 8, 69–70; preferences and 102; regression theorem of 110; rules of the game and 10 institutional robustness: charitable giving and 131–132; ethics of legal and protective polycentrism and 130–134; investigating 4, 16; legal polycentrism and 8, 130; maximal 25; moral desirability of monopoly of force and 130–134; motivations and 130–134; paradox of government and 70 institutional settings, relationship between 10 intellectual capital 76 interdisciplinary developments from studying monopoly of force 140, 145–149 invisible hand-driven contractarianism 83 iron law of oligarchy 94–95, 109, 145 irrationality 34, 69, 98, 119–121 justice, social 132–135, 137 Kingma, E 126 knowledge argument 51 Landes, W M 76 Lange, O 18–20 large-scale protection goods 22, 51–58 law as private good in competitive order: arbitration procedures and 66–67; background information 63–68; constructive rationality and 64–65; contractarianism and 82–86; critical rationality and 64–65; legal order and 65; monopoly of force and 1; objections to legal polycentrism and 76–79; origins of law and 64; overview 8, 145; paradox of government and 69–76; price system and 23; regime uncertainty and 79–82; rogue protective agencies and 67–68; scarce goods and 23; social order and 65–66; victimless crimes and 68–69; see also legal polycentrism Leeson, P T 99 legal monocentrism 69–77, 79, 81, 86n5, 108–109 legal order, functioning 108 legal plunder 56 legal polycentrism: assumption strangers will obey same rules and 77–78; background information 63–68; brute luck and 138–140; circularity problem and 108; coercive transactions in 70–71; common law system and 78–79; contractarianism and 82–86; feature of, unique 109; functioning market and legal order and 108; governance structures and 8; institutional framework of 8, 69–70; institutional robustness and 8, 130; macro-scale fixity of 82; as market democracy 69; micro-scale flexibility of 82; non-circular claim of 109–110; paradox of government and 69–76; regime uncertainty and 79–82; spillover effects and 76–77; theorists 63; theory of 108; veil of ignorance and 134–138; victimless crimes and 68–69; voluntarist 137; see also ethics of legal and protective polycentrism legal rule-following paradox 70, 83, 85, 86n9, 87n10, 109 legal services and market see law as private good in competitive order legitimacy of monopoly of force 5–6 liberalism, classical libertarianism 100–101 lighthouses as public goods 48 lobbying, political 78 Locke, J 63 long-range protection goods 22, 51–58 Long, R T 75 luck, brute 138–140 macro-scale fixity 82 mainline economics 11, 12n4 Malkin, J 15 market: anarchism 75; competitive 6, 18, 107, 109; democracy 69, 73; entrepreneurship 2, 10, 146–147; failure Index 15–16, 54; price system 22–25, 42; process theory 10–11, 19; uncertainty 80 materialism 118 maxificing 122–123 means-ends structure 123–124 Menger, C 110 micro-scale flexibility 82 mid-range protection goods 21–22, 44–51 minarchism 33 minimal state 59n5, 82–84, 99 Mises, L von 33, 116, 118, 123 moderation 122 Molinar, Gustave de 51 monetary economy 110 monocentrism 8, 42, 45, 51–52, 66, 108; see also legal monocentrism monopolization of violence 1; see also monopoly of force monopoly of force: analyzing 4–5; arbitration and, inability to perform 63; benefits of 115; characteristics of 5–7; common good and 73; compelling purchase of goods and 7, 16; contractual bargaining and 93; contradiction of 1; creativity of controllers of 42–43; decision-making structure and 20–21; defense and 41; defense as private good and 1; defining 5–7; efficiencyenhancing role of 27, 56; efficiency of 8; factors of production and 19; final consumption of goods and 19; firm granted government privilege to produce a good versus 6; free riders and 43, 50; institutional robustness and 4; interdisciplinary developments from studying 140, 145–149; involuntary donors and, constant threat of 136; law and 41; law as private good and 1; legitimacy and 5–6; management of production by 23; negative justification of 4; non-common goods and 24–25; as noteworthy topic of study 2–4; positive justification of 4; price system and 25; production of public goods and 24–26; public goods and 1, 15; quasi-market procedure and 18–20; tax levy and 20, 23, 26; ubiquity of 57–58; varieties of 2; welfare policy in 132; see also desirability of monopoly of force; inevitability of monopoly of force moral commitments moral desirability of monopoly of force: Austrian School of Economics and 116–125; background information 155 115–116; brute luck and 138–140; institutional robustness and 130–134; moral objectivity and 125–130; moral philosophy and 116–125; objective goods and 125–130; overview 9, 145; rationality and 116–125; social justice and 132–135, 137; veil of ignorance and 134–138; well-being and 118–119, 125–130 moral objectivity 125–130 moral philosophy 116–125 motivations and institutional robustness 130–134 movie theater as club goods 16–20 Narveson, Jan 122 national identities 104 nation-state 3, 104 natural elements 126 naturalistic approach to urgency of needs 125–127; conventional approach to urgency of needs 127–130 “natural” monopolies, nonexistence of 64 needs, urgency of 125–130 neoclassical theory of public goods: Austrian School of Economics and 8, 16; evaluating 2–4; intersection of constitutional economics, neoclassical theory of public goods and entrepreneurship theory and 10; non-excludability and 7–8; non-rivalrous consumption and 7–8; see also Austrian critique of neoclassical theory of public goods; public goods nirvana fallacy 42 non-action, human 28, 35 non-aggressors 69, 81 non-common goods 24–25 non-contrarianism 93 non-excludability 7–8, 41–43 non-excludable goods 8, 24, 45, 50, 67 non-payers see free riders non-rival consumption: application and Austrian critique of neoclassical theory of public goods 21–24; function of 17; movie theater example 16–20; theory and Austrian critique of neoclassical theory of public goods 16–21 non-rival goods 7–8, 17–20, 22, 24 Nozick, Robert 59n5, 82–84, 88, 98 nuclear weapon deterrents 51–58 objective goods 125–130 oligarchy 94 oligopoly 73 156 Index Oppenheimer, Franz “original position” 134 ostracization of free riders 43, 49, 53–55 “outsiders” 45 pacifism 23, 59n10 paradox of embedded agency 147 paradox of government: avoiding 86n7; checks and balances principle and 73–74; constitutional constraint and 76; constitutional enforceability and 70–71; defining 70; democratic elections and 73, 75; external arbitrator and 70; institutional robustness and 70; legal monocentrism and 69–70, 75; legal polycentrism and 69–76; legal rule-following paradox and 70; market democracy and 73 Paradox of Libertarianism 100–101 paradox of rule-following 70, 83, 85, 86n9, 87n10, 109 Pareto-inferiority 29–31, 34, 106 Pareto-superiority 29–32, 41, 84, 106, 146 Parfit, Derek 117–118 passive ostracism 55 payment, shirking 48; see also free riders perception of being cheated costs 17 philanthropic desire 119, 131–132 Pilon, Roger 129 planning 121–122 play of the game 10, 80 plunder, legal 56 political entrepreneurship 81 political lobbying 78 political means polycentrism 42, 51; see also ethics of legal and protective polycentrism; legal polycentrism; protective polycentrism Posner, R A 76 power 70 predation 93–95, 101 preferences: consumer 9, 20, 28–29, 34, 80; demonstrated 20; entrepreneurship and 9; government and human 95–106; incentives and 97–98, 109; institutional frameworks and 102; social order based on particular set of 102; volatility of 123 preferred principles of justice (Rawls) 134–137 price of public goods 18–19 price system 22–25, 42 Principle of Generic Consistency (PGC) 129 private gains 16 private goods 27; see also defense as private good in competitive order; law as private good in competitive order private property see property rights private protection market and services see defense as private good in competitive order profit orientation 42–43 property rights 2, 23, 27, 140 protective polycentrism 42, 52; see also ethics of legal and protective polycentrism psychological costs 17 public goods: beneficiaries of 28, 35; category of 93, 115; coercive transactions and production of 115; consumption of, final 19; contractarianism and 82–86; contractual basis of 85; debate about 20–21, 63–64; defense as pure 8; defining 15; desirability of monopoly of force and 16; diffused benefits and 28; ethical 11; externalities and 24–35; law as pure 8; literature on 15; market failure and 15–16; monopoly of force and 1, 15; price of 18–19; production of 24–26, 115; pure 8, 15–16, 36n5; social gains and 16; spillover effects and 8, 15; see also neoclassical theory of public goods pure public good 8, 15–16, 36n5 quasi-market procedure 18–20, 36n2 rational ignorance 71, 97–98 rationality: consistency and 34; constancy and 34; constructive 64–65, 135; critical 64–65; desires and 117–120; economic 52; ethics of legal and protective polycentrism and 116–125; moral desirability of monopoly of force and 116–125; regret and, feelings of 34; satisficing and 122 Rawls, John 93, 134–137, 140 regime uncertainty 79–82 regression theorem of institutional development 110 regret, feelings of 33–34, 120 reluctance, feelings of 120 rent seeking 78–79 restrictive covenants 45 risky procedures 82–83 rival goods 24 road privatization 45–48 rogue protective agencies 56–57, 67–68 Rothbard, M 27, 115–116 Index roving bandits 108–109 rule-following paradox 70, 83, 85, 86n9, 87n10, 109 rules of the game 10, 81 Samuelson, P A 15 satisficing 122 scalability objection 110 Scanlon, T 125 scarce goods 23 scarcity, ubiquity of 122 Schumpeter, J 68 secession 103 second-order desires 120 self-deception 120 self-determination selfishness 130–131, 141n12 selflessness 131 shared monopoly 73 short-range protection goods 43–44 single vote, insignificance of 71 Slote, M 122 social analysis levels 80–81 social consensus 127 social contract 63 social democracy 33, 130–132 social duty satisfactions 133 social interactions 30–31, 33, 69 socialism social justice 132–135, 137 social order 2, 33, 65–66, 102 social safety net 11 social utility 11–12n2, 27–33, 82, 118, 131, 139, 149 social welfare criterion 33 social work-oriented activities 11 soft institutions 5, 64–66, 68, 76, 80, 108–110, 111n10, 111n11, 148 specialization 94 spillover effects 8, 15, 76–77 stateless societies 102–103 Steele, D R 133 street patrols 44–50 Stringham, E P 99 subjectivity: application and Austrian critique of neoclassical theory of public goods 21–24; theory and 157 Austrian critique of neoclassical theory of public goods 16–21; welfare economics and 31 Success Theory 117–118 surveillance cameras 21–22, 44–45 Sutter, D 94 synchronic competition 72–73, 81 tacit information or knowledge 11–12n2, 20, 149 tax levy 20, 23, 26, 31 Taylor, F M 18–20 technology 2–3, 48–49, 76 Thrasymachus tragedy of the commons 45 Tullock, Gordon 78 uncertainty: market 80; planning and 121–122; regime 79–82 uniform elements 126 Unrestricted Desire-Fulfillment Theory 117–118 urgency of needs 125–130 utility maximization 33 utility, social 11–12n2, 27–33, 82, 118, 131, 139, 149 veil of ignorance 134–138 vertical structure of public sector 20–21 victimless crimes 68–69 voluntariness argument 51 voluntary transactions: arbitration and 66; defense and 41–42; efficiency of 30; social utility and 29–32 voting public 71–72 Walrasian auctioneer’s role 18 wars 52 welfare economics 7, 28, 30–31 welfare theory/policy 32–35, 132 well-being 117–119, 125–130 Wertfreiheit principle 23, 33 Wildavsky, A 15 Williamson, O E 80–81 will, weakness of (akrasia) 119–120, 123, 141n5 world government, non-existence of 103–106 ... Edited by Tae-Hee Jo 38 The Economics of Law, Order, and Action The logic of public goods Jakub Bożydar Wiśniewski The Economics of Law, Order, and Action The Logic of Public Goods Jakub Bożydar.. .The Economics of Law, Order, and Action According to the standard position of the economic mainstream, the efficient production of so-called public goods, including law and defense,... conclusions on the intersection of constitutional economics, the theory of public goods, and the theory of entrepreneurship These conclusions suggest that various levels of social and institutional