Coase, Smith, Justice, and Liberty

The Smithian and classically liberal conception of justice, as explained by Dr. Dan Klein, is, to put it succinctly: don’t mess with other people’s stuff.  The flipside of justice, liberty, is consequently other people not messing with your stuff.  On the surface, this seems like a rather simple ethical basis.  The rule is very clear: if you mess with other people’s stuff, you are committing an injustice and violating their liberty.  But an ethical rule is not valued in its simplicity, but rather its robustness to the real world.

While Smith does regard justice as a sacred virtue, he does carve out exceptions to its enforcement.  There may be times when the strict rules of justice may not or cannot be enforced without a detriment to overall liberty.  In these cases, someone’s stuff has to be messed with.  While this statement may be jarring to the classical liberal, let’s consider an example from modern law and economics.

Let’s consider Ronald Coase’s famous example of the farmer and the rancher.  The farmer raises crops on his land.  The rancher grazes cows nearby.  The rancher’s cows sometimes, accidentally, graze the farmer’s crops that are too close to the fence, either the crops hang over the fence for the cows to eat or the cows stick their heads through the fence (that is, the farmer’s “stuff” is being messed with).  However, if there are restrictions on where the cows can graze, then those restrictions are messing with the rancher’s “stuff” (they are limiting the rancher’s use of his cows).  So now we have a conflict: the use of each person’s “stuff” may conflict with each other, resulting in mutual messing with each other’s stuff.

Who is in the right?  Who is in the wrong?  A simple appeal to the rules of justice cannot solve this: the farmer’s crops are being messed with, yes, but so are the rancher’s cows.  Some rule would be required to address this matter.  That rule would, necessarily, violate the strict rules of justice.

Let’s take, for example, a rule that the farmer has the property right to his crops and any damage must be compensated to him by the rancher.  The rancher’s “stuff” is now being messed with.  He’d need to figure out some way to corral the cows, or limit their grazing, or negotiate some kind of bargain with the farmer…some solution would be acquired.  However, this bargain would constitute a “messing” with the rancher’s stuff since he now has to alter his behavior beyond what he ordinarily would have chosen to do.  Some use of his property is now beyond his control.  We can make a similar argument by giving the property right to the rancher, or even if we say “caveat emptor” and say any crops that spill over the fence can be eaten and any cow over the fence can be shooed away.

While one person’s individual liberty may be decreased (ie, someone is messing with his stuff), overall liberty may increase (ie, there is generally less messing with stuff).  Rules, laws, customs, etc are necessary because they create reliability.  If we reasonably believe a given rule will be enforced, then we can act in a given manner.  If I believe my ownership of my car will be enforced should someone steal it, I am more likely to buy a car.  If I do not believe the ownership would be enforced, I’d be less likely to purchase a car (and/or spend more resources to ensure it doesn’t get stolen).  Just as stable rules can grow the economic pie, stable rules can grow the liberty pie.  Rules that develop to make virtues like justice predictable by all and create stability that allows exchange, production, and general improvement to flourish.  Without predictable rules, the concept of justice may simply become ad hoc and something of a Hobbesian jungle may arise as the costs of production/protection rise and the costs of predation fall.

Some libertarians/anarcho-capitalists get nervous about the implications of Smith’s comments regarding sacrificing individual liberty for overall liberty.  The primary concern I hear is such an argument can be used for an expansion of the state into all manner of things.  While a naive interpretation of Smith could justify such an expansion, I think a closer reading of Smith, especially in the context of his overall writings, suggests that the “overall liberty” criteria are a conflict resolution tool rather than a “behavioral control” tool.

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