Pseudonym Writes

[Epistemic status: sounds vastly more confident than I actually am.]

“I have your answer. But I will have to make something clear before I deliver it. If you will permit me?”

Lord Iron opened his hand in motion of deference. Olaf cleared his throat.

“Wealth,” he said, “is not a measure of money. It is a measure of well-being. Of happiness, if you will. Wealth is not traded, but rather is generated by trade. If you have a piece of art that I wish to own and I have money that you would prefer to the artwork, we trade. Each of us has something he prefers to the thing he gave away; otherwise, we would not have agreed on the trade. We are both better off. You see? Wealth is generated.”

-Daniel Abraham, “The Cambist and Lord Iron”

I’m far from the first to notice that Libertarians, as a group, seem to have very different view on the world to other people.
As a political movement, of course, they don’t quite seem to fit onto the familiar spectrum. We all know there’s the radical Left, the moderate Left, the moderate Right, and of course the radical Right – with possibly some room for “centrists” in the middle – but where Libertarians fall on this scale is unclear. These “classical liberals” believe in relaxing our restrictions on sexuality, drugs, and even such unquantifiables as “freedom of speech” and “freedom of movement” – yet their attitude, to liberals, is baffling. They side with the rich, the upper-class, the system; they battle hardest for the freedom, not of peasants, but of kings. In short, they vote Republican.

But it is in arguments that these deep-rooted disagreements truly reveal themselves.Libertarians see the world through a different paradigm than other people; yet this paradigm uses familiar words to express itself. In conversations and debates involving libertarians, people often talk past each other, sometimes without noticing. They draw on different assumptions, and people often find themselves stymied by the other side’s apparent inanity or simple evil. “Wealth creation”, “initiation of force”, “market inefficiencies”; terms that are at once commonplace, and frustratingly idiosyncratic in the encoded assumptions they bear for both sides.

But, of course, the central thesis of libertarianism is simple. Any libertarian can explain it to you, and usually will, when your point of disagreement becomes clear. And yet, it seems that most people cannot see it’s obviousness, it’s intuitive appeal once understood.

Why?

II

The central thesis of libertarianism, as an ideology – and I can say this, for once, without fear of contradiction; for it really is extraordinarily simple – is this:

Imagine a world in which there is no such thing as force. There is no violence, no coercion.

But neither is this world perfect; there is inequality, and want, just as in our own. Different people have different resources, different skills.

Now; suppose a rich woman, in this universe, possesses something that a poor man desires dearly. Let us say that it is food; and without it, he shall starve. But the only thing he has that the rich woman desires is his own back-breaking labor; the metaphorical sweat of his brow.

She offers him the food, barely enough to scrape by, in exchange for toiling painfully in her food mines. He accepts.

What just happened?

From a traditional liberal perspective – now there’s an oxymoron for you, politics fans; aren’t liberals supposed to be the great innovators? – the woman has just exploited her advantage over the man to force him into helping her, at great cost to him.

But how can this be? We specified that there was no force in this world, no coercion. He agreed to the contract of his own free will; no force on this earth could have compelled him otherwise, by definition. Indeed, even now, he is free to walk away from the deal.

So why did he agree?

The answer, of course, is simple: he valued the food more than the pain of the labor. Indeed, the rich woman has helped this man out; she exchanged her food for something worthless to him, an act which saved him from starvation. There is no conceivable way she has harmed him; if she were to disappear, he would die for want of her help.

(The man doesn’t have the right equipment to refine food ore into edible food himself.)

The utility calculation is simple:

Poor: death costs 100, work costs 50
Rich: workers add 10, food costs 1
(This is just an example)
Trade: -50, +10, -1 = 41 sadness
No Trade: -100 = -100 sadness

Restricting trade is evil; free trade both saves an improves lives. How could it not? Both parties will only agree to a deal if it benefits them, so every deal made must benefit both parties.

This is a very persuasive argument.

And, of course, the conclusion naturally follows:

The reason the real world is so unhappy, so unlike the model, is obvious: some people are using force, which upsets the model. We imagined a make-believe world where everyone played nice; but this simply isn’t so. By forcing people to take “deals” they don’t want, or preventing them from making deals that would benefit everybody, we have allowed sin to enter into the world.

III

This is a very persuasive argument.

Seriously. It’s just unintuitive enough to be insightful; and it explains everything. Best of all, it’s essentially airtight; what I just presented was a crude sketch, an example of something that has been proven mathematically. It’s a damn theorem. Free trade is always, always better than preventing trade.

Yet I don’t buy it.

Here’s a question for the non-libertarians in the audience: what should the woman do?

… well, she should just give him the food, if he needs it that badly. It barely costs her anything.

Now, hang on a second. I’m getting at something important here.

This is the utility calculation for charity:

Poor: death costs 100, work costs 50
Rich: miners add 10, food costs 1
(This is just an example)
Trade: -50, +10, -1 = – 41 sadness
No Trade: -100 = -100 sadness
Unbalanced Trade, -1 = 1 sadness

That’s pretty damn good, no?

That’s a tiny fraction of the downsides in our trade; and it’s a hundred times smaller than the downside of the baseline situation. (It is, in fact, the optimal situation.)

In fact, this is something like what mathematicians call the Ultimatum Game. In the Ultimatum Game, one player offers the other a sum of money; no more than $100. If the other accepts, they keep the remainder. If they refuse, both players get nothing. The rich woman holds all the cards; the poor man has only the option of refusing her offer. In the Ultimatum game, as in our deal, the incentives converge on a single solution: the rich woman gets almost everything, the poor man gets a pittance.

Yet in reality, people refuse to act that way in the Ultimatum Game. When offered an “unfair” deal, they would rather everyone suffered than allow that sort of thing to continue.

This is, from a traditional perspective, irrational. It can be proved mathematically. No money is strictly worse than only a small amount of money.

Why do they do it?

Incentives.

When the Ultimatum Game is iterated – when the same people play it against each other over and over – then it becomes rational to refuse poor deals. By showing the other player that you demand fairness, you force them to take your own happiness into account; not merely their own. In the end, the risk of refusal is too great to risk anything but a roughly 50/50 split.

In a way, refusing the money in the iterated Ultimatum Game is a form of implicit threat – “do as I want, or I will damage your profits”. It’s a way of introducing force into the forceless, abstract world of the game, in a way. (And, of course, because people behave in this manner, real players in the Ultimatum Game know to propose a reasonably fair deal.)

In the real world, however, we have other means. We have governments, and laws. We have morals. And, yes, we have force.

Coda

https://twitter.com/robertskmiles/status/550990465366249472

So what does this mean for libertarianism?

I lied, earlier. Libertarianism is about more than this one argument; about more than just free trade. They also have a great appreciation for the effect of incentives on human behavior, and of corruption in governments and other institutions where pay is not determined by results. Those things are important, and we need people who pay attention to them.

But … no. There are other flaws in the idea that markets lead to ideal outcomes; tragedies of the commons, externalizes, and simple irreconcilable differences between the model and reality. But ultimately, these were all caveats; you can add epicycles, ways to allow the model to account for only most of reality. But it doesn’t. At all.

Markets are useful things. Incentives are important. But the incentives of markets do not align with ours. Markets force people to innovate and actually perform, yes, but they also force them to charge whatever the market will bear.

Our example earlier was unrealistic; in truth, the rich person would have demanded almost twice as much work, only slightly better than dying. Markets grind slowly, but they grind exceeding fine, and who among us can resist them?

Bringing a free market into existence really doesn’t usher in utopia. Utopia is possible (I hope.) But that particular way of organizing things doesn’t summon it. The invisible hand of the markets reallyisn’t friendly (or Friendly), no matter how much it’s direction is derived from your own wishes.

All it summons is a vast, omnipresent demon, to drain away our last vestiges of morality with tempting bargains that spiral us all ever downward.

Hail, Libertare, god of the markets.