Defining Public Goods

On p. 124 of Against Politics, Anthony de Jasay makes an illuminating point in discussing the “textbook division of the universe of goods and services into two exogenously determined halves, public and private”:

Nothing is “excludable” without further ado; for nothing can be sold without the seller incurring costs to exclude from access those who would not pay the price.

Exclusion cost is no more avoidable in a good destined to be sold than is the cost of production and transport. Everything is excludable at some cost that may be high or low, depending on a host of circumstances, of which the physical characteristics of the good is only one.

Over the universe of goods, exclusion cost is a continuous variable. … Providing a good publicly saves exclusion cost. This advantage may be partly, wholly, or more than wholly offset by costs arising from wasteful use of the good the consumer can have without paying for it, and from other, less direct risks.

If social choice were usually “collectively rational,” goods would be provided publicly if the saving of exclusion cost outweighed the disadvantages and added costs of publicness.

So, whether a given good is public or private is an economic matter not technological one. For example, when a store owner invests into video cameras and security personnel to deter shoplifting, he spends money on enforcing exclusion. But no one seriously suggests that this cost is a good argument for communizing supermarkets.

Note that the last paragraph of the quote does not supply a sufficient condition for producing a good publicly, because even if the savings are considerable, it may still be that the good ought not to be produced at all, whether privately or publicly.

Let’s dub the criteria for publicness as follows:

Excludable (costs of exclusion are low) – e-happy;
Nonexcludable – e-sad;

Nonrivalrous (marginal variable cost is low or zero, at least until a certain point) – r-happy;
Rivalrous – r-sad.


(1) e-sad, r-sad: common resource subject to overexploitation, tragedy of the commons, and pure costs that are not captured as benefits by anyone: no good solution;
(2) e-sad, r-happy: public good: government production;
(3) e-happy, r-sad: private good: market production;
(4) e-happy, r-happy: “natural monopoly”: still market production.

Regarding (1), for example, congested roads within a city generate the costs of wasted time and road rage which are offset with no symmetrical benefits. Like waiting in line, they are pure costs or human misery with no redemptive value.

In (3), entrepreneurs can compete both on price and product / quality; in (4) they can compete on product only, since the MVC is already zero.

Thus, a movie theater bears the same costs of production regardless of whether its rooms are filled to 10% capacity or 90% capacity. Since the products will all be different, each producer will have a “monopoly” on his own uniquely differentiated product. It will enjoy a natural unenforced monopoly in a vacuous or tautological sense.

Branches of Government and Anarchy

De Jasay concludes his essay on Hayek: his theory, he says,

leads straight as an arrow to the facile conclusion of an indispensable state that alone upholds property and contract. They exist by the grace of society acting through the political authority. They function as society chooses that they should.

The massive chorus we have been hearing from the left and center, chanting that property is a bundle of separable privileges granted and withheld by society, and the freedom of contract is subordinate to public policy, is vindicated by the very theory that should have prevailed over such a chorus with a clearer, a most powerful voice. (Against Politics, 129)

But Jasay’s condemnation of Hayek does not follow. I have suggested on this blog that the 3 branches of government exhibit different “privatizability.”

The judicial branch can and ought to be fully private;

the legislature is part-time, insofar as an occasional positive law or written custom can be a useful addition to natural law;

and the executive must remain fully public and probably tax-financed.

We can easily correctly judge property, freedom of contract, and natural law to be pre-state and rationally deducible a la Rothbard, while admitting that the public police is still “indispensable” for enforcing these.

Nor need we further entertain the grotesque idea that “property is what you can defend,” which would again imply that the state, in enforcing the law, determines the law’s content.

I therefore agree in part with the first paragraph of the quote while rejecting the second paragraph.

Whether Ideological “Values” Can Be Traded Off?

Anthony de Jasay issues a penetrating one-sentence summary of ideological politics:

Secular historical experience largely bears out that liberty has a cost in terms of security, security in terms of progress, progress in terms of equality, equality in terms of respect of rights, and so forth. (144)

According to this, are libertarians extremists who value liberty and progress and despise what are actually legitimate values of security and equality?

For example, in his discussion of inequality under laissez-faire capitalism (HA, 840-51), Mises advances no arguments against this “value” as such. He says only that

the inequality of incomes and wealth is an inherent feature of the market economy. Its elimination would entirely destroy the market economy. …

The triumph of this liberal philosophy produced all those phenomena which in their totality are called modern Western civilization.

However, this new ideology could triumph only within and environment in which the ideal of income equality was very weak.

But this is merely a reiteration of the incompatibility of equality and progress thesis. What can be replied to a man who desires to “exchange” some progress for some equality?

I think we have to condemn equality on moral grounds, as a perverse, evil value. The “trade-off” is of the same sort as the alleged trade-off between Smith’s desire not to be murdered and his desire himself to murder others. The latter is not a innocuous “value” that ought to be balanced with others. It’s entirely vicious and ought to be repressed by Smith within his own soul and deterred by threat of punishment by the government.

Similar with security (851-3): perfect economic security, understood as a government-guaranteed permanent place in the economy or at least substantial protection from competition that would otherwise come from new entrepreneurs, prevails in a caste society or under socialism of the Cuban pattern also at the expense of progress:

A characteristic feature of the unhampered market society is that it is no respecter of vested interests. Past achievements do not count if they are obstacles to further improvement. The advocates of security are therefore quite correct in blaming capitalism for insecurity. …

It is certainly true that the necessity of adjusting oneself again and again to changing conditions is onerous. But change is the essence of life.

In an unhampered market economy the absence of security, i.e., the absence of protection for vested interests, is the principle that makes for a steady improvement in material well-being.

This is somewhat better. “Security,” Mises says, not only conflicts with progress but is in a way inhuman. I agree with this 100%: human nature finds its fulfillment in everlasting progress. Coercively imposed “security” is contrary to natural law, another proposition of ethics.

Thus, libertarians, far from picking an extreme arbitrary combination of values, are in fact much better attuned to both economics and ethics than their opponents.

Liberties vs. Rights; Freedom Defined

De Jasay makes a distinction between these, saying, as I understand it, that a liberty to Smith presupposes a duty to Jones not to interfere with Smith’s exercise of the liberty; while a right entails a duty on the part of Jones to undertake a positive performance. “Only in the limit is bearing and fulfilling it a matter of indifference.” (219)

A ___ to “health care” should then be filled with “right,” because it coercively enjoins the taxpayers to pay for other people’s pleasures. But a ___ to “free speech” is essentially a liberty, since no one is required to do anything other than not to beat the speaker up.

The difference is well-taken, even though it is not generally observed in common speech.

Freedom to do X is best defined as at least one and normally both of the following:

(1) having no serious moral duty not to do X;
(2) facing no threat of punishment from the government for doing X.

This definition combines two “permissions,” as suggested by my understanding of metaethics: “internal,” as if from nature and nature’s God, to do X in the form of absence of a duty; and “external” or absence of threat of physical punishment. Again, duty is a categorical command; law backed by threat is a hypothetical incentive.

Thus, one would have no freedom to murder even in the absence of government in the state of nature from (1) alone, because there is a “serious” moral duty not to murder.

But one also has no freedom to exceed the speed limit from (2) alone: there is no serious moral duty to comply, but one is still afraid of getting a ticket.

Freedom typically prevails when both conditions are satisfied.