Tag Archives: libertarian

Ethics and fire fighting

I read this column in the NYT by Randy Cohen – The Ethicist and I was a bit surprised. I have seen columns written by agony aunts, sexperts, taxperts, career counselors etc etc, but one on ethics (exclude magazines with a religious flavor)?

Anyway, a person writes in asking that if some people in a community don’t pay for the purchase of fire fighting equipment, should such equipment be used when a non-contributor’s house is on fire? Cohen says-

You must. You would accept help from people 45 minutes away. How can you deny it to your neighbors? (I hate to use an ugly word like “hypocrite,” so picture it in a lovely floral typeface.)

Your alternatives are unappealing.

If you turn your fancy new hose on a nonpaying neighbor’s burning house, he is a free rider, exploiting your prudence. If you refuse, you are coldhearted. Either way, this privatized approach to mutual hazard will end in tears. That’s why much of the world has abandoned it in favor of community-wide solutions.

I don’t agree with “hypocrite in floral typeface”, but Cohen raises many valid points (including the fact that an uncontrolled fire may spread to other houses), and concludes by saying – extinguish the fire and bill the fellow heavily for the service.

I have a slightly different opinion. The people who refused to pay have basically said that they can manage things on their own after considering all the risks involved – they have decided to act penny wise pound foolish. So the private property equivalent of the medical DNR applies – Do Not Extinguish. We have two scenarios here-

  1. As long as other houses in the neighborhood are at a safe distance, the house should be allowed to go up in flames.
  2. If the houses are so located that the fire could easily spread to other houses, then use the equipment and extinguish the fire.

In the first case, if (and only if) the non-contributor comes running for help, extinguish the fire and charge him. In the second case, since extinguishing the fire is in the interest of the contributors, billing the owner of the burning house makes no sense at all. Can a case be made under tort law? Maybe.

All this sounds strange, but there have been cases where fire fighters have let houses burn down because of unpaid fees. Further, letting the government into the business becomes very dangerous, as this op-ed on wildfires shows.

PS: While googling for info on libertarianism and firefighting, I came across this article on Murray Rothbard. I have read one book by him, and am slowly reading “For a New Liberty”, but I will say this – as of today, if there is someone out there who can change my mind about Rand’s theory of necessity of government, it will probably be Rothbard.

A hired gun

Alan Greenspan, former Chairman of the US Federal Reserve, and the man everybody blames for the current financial crisis – the “housing bubble” that was a “result” of his loose monetary policy in the first half of this decade, was a close friend of Ayn Rand. In 1966, he wrote an essay – “Gold and Economic Freedom”

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (“paper reserves”) could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates. The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed.

In 1961, he spoke about “Antitrust”

“Competition” is an active, not a passive, noun. It applies to the entire sphere of economic activity, not merely to production, but also to trade; it implies the necessity of taking action to affect the conditions of the market in one’s own favor. The error of the nineteenth-century observers was that they restricted a wide abstraction — competition — to a narrow set of particulars, to the “passive” competition projected by their own interpretation of classical economics. As a result, they concluded that the alleged “failure” of this fictitious “passive competition” negated the entire theoretical structure of classical economics, including the demonstration of the fact that laissez-faire is the most efficient and productive of all possible economic systems. They concluded that a free market, by its nature, leads to its own destruction — and they came to the grotesque contradiction of attempting to preserve the freedom of the market by government controls, i.e., to preserve the benefits of laissez-faire by abrogating it.

The crucial question which they failed to ask is whether “active” competition does inevitably lead to the establishment of coercive monopolies, as they supposed — or whether a laissez-faire economy of “active” competition has a built-in regulator that protects and preserves it. That is the question which we must now examine.
[…]
The churning of a nation’s capital, in a fully free economy, would be continuously pushing capital into profitable areas — and this would effectively control the competitive price and production policies of business firms, making a coercive monopoly impossible to maintain. It is only in a so-called mixed economy that a coercive monopoly can flourish, protected from the discipline of the capital markets by franchises, subsidies, and special privileges from governmental regulators.

To sum up: The entire structure of antitrust statutes in this country is a jumble of economic irrationality and ignorance. It is the product: (a) of a gross misinterpretation of history, and (b) of rather naive, and certainly unrealistic, economic theories.

As a last resort, some people argue that at least the antitrust laws haven’t done any harm. They assert that even though the competitive process itself inhibits coercive monopolies, there is no harm in making doubly sure by declaring certain economic actions to be illegal.

But the very existence of those undefinable statutes and contradictory case law inhibits businessmen from undertaking what would otherwise be sound productive ventures. No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible.

In 1963, he wrote about “The Assault on Integrity”-

Protection of the consumer against “dishonest and unscrupulous business practices” has become a cardinal ingredient of welfare statism. Left to their own devices, it is alleged, businessmen would attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings. Thus, it is argued, the Pure Food and Drug Administration, the Securities and Exchange Commission and the numerous building regulatory agencies are indispensable if the consumer is to be protected from the “greed” of the businessman.

But it is precisely the “greed” of the businessman or, more appropriately, his profit-seeking, which is the unexcelled protector of the consumer.

What collectivists refuse to recognize is that it is in the self-interest of every businessman to have a reputation for honest dealings and a quality product. Since the market value of a going business is measured by its money-making potential, reputation or “good will” is as much an asset as its physical plant and equipment.
[…]
It requires years of consistently excellent performance to acquire a reputation and to establish it as a financial asset[…] Thus the incentive to scrupulous performance operates on all levels of a given field of production. It is a built-in safeguard of a free enterprise system and the only real protection of consumers against business dishonesty.
[…]
To paraphrase Gresham’s Law: bad “protection” drives out good. The attempt to protect the consumer by force undercuts the protection he gets from incentive. First, it undercuts the value of reputation by placing the reputable company on the same basis as the unknown, the newcomer, or the fly-by-nighter. It declares, in effect, that all are equally suspect and that years of evidence to the contrary do not free a man from that suspicion. Second it grants an automatic (though, in fact, unachievable) guarantee of safety to the products of any company that complies with its arbitrarily set minimum standards.
[…]
Government regulations do not eliminate potentially dishonest individuals, but merely make their activities harder to detect or easier to hush up. Furthermore, the possibility of individual dishonesty applies to government employees fully as much as to any other group of men. There is nothing to guarantee the superior judgment, knowledge, and integrity of an inspector or a bureaucract—and the deadly consequences of entrusting him with arbitrary power are obvious.
[…]
Capitalism is based on self-interest and self-esteem; it holds integrity and trustworthiness as cardinal virtues and makes them pay off in the marketplace, thus demanding that men survive by means of virtues, not of vices. It is this superlatively moral system that the welfare statists propose to improve upon by means of preventative law, snooping bureaucrats, and the chronic goad of fear.

(All three essays are available in the book – Capitalism: The Unknown Ideal)

Here was a man who was absolutely against regulation – at least he wrote and spoke about the issues involved like he was. And then he went ahead and joined the very Federal Reserve, the very Regulator that printed paper and called it money, and controlled competition among banks, and sanctioned fraud under the guise of “fractional reserve banking.” But he has an out. He is supposed to have told a colleague “to distinguish carefully between what he believes personally and how he acts as chairman of the Fed.”

To the present, according to Greenspan, in March of this year, he said – “Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief.” In a NYT article that “takes a hard new look at a Greenspan legacy”, he is quoted as saying-

“In a market system based on trust, reputation has a significant economic value. I am therefore distressed at how far we have let concerns for reputation slip in recent years.”

and

“Risks in financial markets, including derivatives markets, are being regulated by private parties.”

and

“There is nothing involved in federal regulation per se which makes it superior to market regulation.”

He is right most of the time, except for when he is in a state of “shocked disbelief.” He shouldn’t be in such a state because he should know that under the system he was working, institutions could palm off doubtful loans to Mae and Mac and earn “commissions” for their services, banks no longer needed to have any reputation or manage risk like they would have had to, if they were on their own – the Fed allowed them to “create credit”, they were “too big to fail” – government rules had replaced the need for reputation. Now all that the businessmen had to do was to make money without bothering to create trust in the market – the government had done the dirty work for them. As Andrew West writes in the aftermath of the Enron-Arthur Anderson fiasco-

I suggest that Alan Greenspan, forty years ago, identified the most fundamental cause of auditors’ current moral and professional grayness. Government regulation has diminished the value of establishing one’s reputation on the free market, and thus reduced the benefits of differentiation. Why compete to be the “best” governmental-form-filler-outer? When standards are seen as government-authorized, there is little reward but great risk in deviating from or going beyond those standards. Of what value are notes one makes on the margins of one’s IRS Form 1040?

Greenspan is responsible for the mess because he accepted the job of Fed Chairman, because he chose a job that necessarily meant an intervention in the market – distorting the market. Once he does that, he has no business being shocked at the different ways in which such intervention influences people’s behavior. However, placing the entire blame on him is unfair. Intervention in the market is bad – it is a statist idea. But Greenspan was simply a hired gun, one among many; it was the government that hired him.

“[Atlas Shrugged was written] to glorify the real kind of productive, free-enterprise businessman in a way he has never been glorified before. [But] I make mincemeat out of the kind of businessman…that runs to government for assistance, subsidies, legislation and regulation,” Greenspan’s close friend Rand is supposed to have said about her magnum opus. Sadly, those are the only ones that are left. A system of government intervention can never make people virtuous. But there are two things it can do better than no other system can – strip some of them of their virtues – break them, and make beggars out of the rest. Greenspan is an example of the former.

A “convincing explanation”

Jacob Weisberg of Slate writes (link through Antidote)-

A source of mild entertainment amid the financial carnage has been watching libertarians scurrying to explain how the global financial crisis is the result of too much government intervention rather than too little. One line of argument casts as villain the Community Reinvestment Act, which prevents banks from “redlining” minority neighborhoods as not creditworthy. Another theory blames Fannie Mae and Freddie Mac for causing the trouble by subsidizing and securitizing mortgages with an implicit government guarantee. An alternative thesis is that past bailouts encouraged investors to behave recklessly in anticipation of a taxpayer rescue.

There are rebuttals to these claims and rejoinders to the rebuttals. But to summarize, the libertarian apologetics fall wildly short of providing any convincing explanation for what went wrong. The argument as a whole is reminiscent of wearying dorm-room debates that took place circa 1989 about whether the fall of the Soviet bloc demonstrated the failure of communism. Academic Marxists were never going to be convinced that anything that happened in the real world could invalidate their belief system. Utopians of the right, libertarians are just as convinced that their ideas have yet to be tried, and that they would work beautifully if we could only just have a do-over of human history. Like all true ideologues, they find a way to interpret mounting evidence of error as proof that they were right all along.

First, any intellectually honest person will note that libertarians are simply saying “I told you so”. They are agitated and angry, but they are not “scurrying around” because they don’t need to – they are not in power and they didn’t run the economy into the ground. Its the likes of Bush, Brown, Sarkozy, Chidambaram, and (surprise surprise) Putin who are scurrying around, and Chavez and Co. are a bit uncomfortable because falling oil prices might derail his slick socialism. Second, libertarianism’s biggest flaw is its broad definition – the situation is comic, adjust a couple of definitions and Hitler might probably qualify. The libertarianism I believe in is – limited government, zero regulation, and an absolute right to life, property, speech and expression. To my knowledge most libertarian philosophies are in agreement with this; other flavors, I don’t care. As for Greenspan calling himself a libertarian – there is a huge difference between actions and words; Bush supposedly stands for freedom. Concentrate on the actions, and you will know the man.

I dislike (hate is a better word) utilitarianism and utilitarian defenses of liberty. Since a lot of liberals and weak kneed capitalists defended capitalism on utilitarian grounds and went on about how capitalism and free markets were good because they raised standards of living, brought about competition, etc, instead of saying that free markets are right because they are free, because freedom is right, because freedom is moral, these “defenders” find themselves unable to answer criticisms regarding “market failure”. Blaming bad laws and excessive regulation, though these are to blame, does not cut it. And the backlash led by some sections of the illiterate public and a “too literate” media has successfully convinced people that the”free market” is to blame.

Unlike dodo-nomics, the predominant economic theory of our age – pushed to the forefront by the greatest dodo of them all – John Maynard Keynes, and new dodo-nomics, something his worshipers adhere to (ad hominem? guilty), libertarianism believes that government intervention in the market is bad – unconscionable. And unlike some people who can only slot men into two categories – conservative or liberal, without recognizing other forces at play such as communism / socialism and fascism/ corporatism, libertarians understand both, and hence oppose both. Its a nice trick Weisberg plays – saying that Marxism and libertarianism are on the opposite sides and are stricken by the same illness – dogma.

Communism, the purest form of socialism, will never work without a despotic government and without force – the philosophy places society above man, and only an idiot will work watching others eat while others eat watching him work – “from each according to his ability, to each according to his need.” Its bound to fail, and it will kill many in the process. And Marxists cry that it failed because people are not good enough.

Libertarianism, on the other hand, places the individual above society. It derives individual rights and freedom from natural rights, not out of some fuzzy concepts like democracy (rule of the mob). It does not claim that it will lead to some kind of Utopia – such an event depends on how individuals interact with each other in a free society. And libertarianism does not claim that it can somehow control human behavior – it does not recommend selective lobotomy on people’s brains to meet its ends. So, if companies and employees gave out loans without checking the credentials of the borrowers, they were doing it either because they were stupid, or greedy or scared. And libertarianism does not have a cure for this behavior. The punishment, a harsh one, is provided by an “unfettered” (TRULY FREE) market where such companies will sink, such employees will lose their jobs and won’t get new ones (how did you sanction a loan to someone who does not have a regular income, Mr. X? No answer? Good bye.) and governments won’t have the power to bail them out. But the pragmatist that Weisberg is, he is not willing to let this happen, or give ordinary people who took bad decisions “a wonderful lesson in personal responsibility”, or tolerate the creation of “thousands of new jobs in the soup-kitchen and food-pantry industries,” a reference to a massive systemic collapse, depression, joblessness – 1929 redux. The difference between Marxism and libertarianism should be apparent – clear as daylight, at least to those who have not shut their eyes purposely.

Weisberg writes further, “any competent forensic work has to put the libertarian theory of self-regulating financial markets at the scene of the crime.” But of course – you let the murderer go and catch hold of the one that called the cops while the murder was in progress – plot of Bollywood film #362 of 1986. Worse, the murderer is judge, jury and executioner. I say, go right ahead. It makes no difference. Tighten the screws as much as you want. When the most feared regulator in the world – the Soviet Union – couldn’t stop its economy from collapsing – what makes people think that more regulation will somehow prevent the next disaster? In Book II of Aristotle’s Politics, the greatest philosopher in the history of mankind defends the institution of private property from Plato’s totalitarian republic and its communal laws. And while his defense talks of “censure” (modern day regulation), and he feels that ethics and politics belong together, he points out a very important problem with human nature-

It is clearly better that property should be private, but the use of it common; and the special business of the legislator is to create in men this benevolent disposition. Again, how immeasurably greater is the pleasure, when a man feels a thing to be his own; for the love of self is a feeling implanted by nature and not given in vain, although selfishness is rightly censured; this, however, is not the mere love of self, but the love of self in excess, like the miser’s love of money; for all, or almost all, men love money, and other such objects in a measure. And further, there is the greatest pleasure in doing a kindness or service to friends or guests or companions, which can only be rendered when a man has private property. The advantage is lost by the excessive unification of the state. Two virtues are annihilated in such a state : first, temperance towards women (for it is an honourable action to abstain from another’s wife for temperance sake) ; secondly, liberality in the matter of property. No one, when men have all things in common, will any longer set an example of liberality or do any liberal action ; for liberality consists in the use which is made of property.

Such legislation may have a specious appearance of benevolence ; men readily listen to it, and are easily induced to believe that in some wonderful manner everybody will become everybody’s friend, especially when some one is heard denouncing the evils now existing in states, suits about contracts, convictions for perjury, flatteries of rich men and the like, which are said to arise out of the possession of private property. These evils, however, are due to a very different cause — the wickedness of human nature. Indeed, we see that there is much more quarrelling among those who have all things in common, though there are not many of them when compared with the vast numbers who have private property.

The magic potion that cures wickedness (and if you read further, ambition and hedonism), where is it?

His final words-

The worst thing you can say about libertarians is that they are intellectually immature, frozen in the worldview many of them absorbed from reading Ayn Rand novels in high school.

Intellectually immature and frozen in a Randian world view. That’s right. In a constantly changing world, we need to be “pragmatic.” All doors should be kept open. If there is a heavy food shortage sometime in the future, we should institute rationing. If that doesn’t suffice, we could think about population “rationalization”. One should not be dogmatic about concepts like freedom and rights – only the foolish libertarians do that. We, on the other hand, are pragmatic because we have declared that we are ideologically bankrupt.
And you could do much worse than read Ayn Rand; read Jeremy Bentham. Rand is good. So are Mises, Bastiat, Rothbard, Hazlitt and Hayek.

Like other ideologues, libertarians react to the world’s failing to conform to their model by asking where the world went wrong. Their heroic view of capitalism makes it difficult for them to accept that markets can be irrational, misunderstand risk, and misallocate resources or that financial systems without vigorous government oversight and the capacity for pragmatic intervention constitute a recipe for disaster.

Unlike the Marxists and the pragmatists, the libertarians don’t have a “model” beyond freedom and rights. They don’t plan to control the economy or society nor do they have some “desirable” ends in mind with people being the means to such an end.
Yes, they idolize capitalism – because its a system that guarantees freedom.
A market is not a person – reason is an attribute of a living person – a stone cannot be rational or irrational. But I am nitpicking; he meant irrational people, of course. Further, to know whether a market is “misallocating resources”, one should know what is the best allocation of resources; who decides that? Perhaps spending billions of dollars in Iraq by squeezing American taxpayers, or stealing from them through an inflationary monetary policy, or giving out loans to Wall Street based corporatists is. What is the definition of disaster and why is it so bad? What is “pragmatic intervention”? These are all undefinable concepts thrown up based on an assumption that there is someone out there who knows more about the market than its participants do – the government.

They are bankrupt, and this time, there will be no bailout.

Keep dreaming.

Now the question that I would have said blows a Titanic-sized hole in the “under-regulation is the root cause” theory, if this were not the case-

But Born was not questioning bets on pork bellies or wheat prices, the bedrock of futures trading in simpler times. Her focus was the arcane class of derivatives linked to fluctuations in currency and interest rates. She told a group of business lawyers in 1998 that the “lack of basic information” allowed traders in derivatives “to take positions that may threaten our regulated markets or, indeed, our economy, without the knowledge of any federal regulatory authority.”

The future that Born envisioned turned out to be even riskier than she imagined. The real estate boom and easy credit of the past decade gave birth to more complex securities and derivatives, this time linked to the inflated value of millions of homes bought by Americans ultimately unable to afford them. That created a new chain of risk, starting with the heavily indebted homebuyers and ending in a vast, unregulated web of contracts worldwide.

or this

The 1933 Glass-Steagall Act, which set up the Federal Deposit Insurance Corporation and separated commercial from investment banking since the Great Depression in the US, was repealed in 1999. This meant that deposit-taking commercial banks like Citibank could underwrite and trade instruments such as MBS and collateralised debt obligations (CDOs), and set up structured investment vehicles (SIVs). In 2000, the elite investment bank J P Morgan which was reeling from an erosion of its traditional high margin investment banking business consolidated with Chase Bank.

or this, the innocuous “margin call”-

The AIG story illustrates two important aspects of the current crisis of confidence within the financial markets. First, AIG’s collapse in a matter of days resulted from the collateral requirements under the terms of contracts that are opaque, unregulated and difficult to track on corporate financial statements. As Buffett and others have suggested, the risk in the AIG derivatives portfolio was explosive — and ignored until it was too late.

Second, the AIG story illustrates how a collateral call under a CDS contract can have the effect of positioning the CDS counterparty — the institution on the other side that claims rights to the collateral — senior to the AIG policy holders and bondholders.

– while the crisis had its roots in sub prime loan defaults and the crazy proliferation of “unregulated” esoteric derivatives obliterated the “unregulated” investment banks, how did the “regulated” AIG suffer a near collapse and how did “regulated” banking behemoths like Citibank develop billion dollar leaks in their balance sheets?

The articles above give a clear answer – a combination of lack of regulation (derivatives) and failure of regulation (Greenspan). Monetary policy (government) and lending money to people who don’t deserve it (market, and government) still bear the primary responsibility. But lets try to understand the socialist view point – the government is ready to bear the risks related to monetary policy, and even that related to “housing for all”; what its not ready to bear is the cost of the havoc that has resulted from trillion dollar unregulated gambles. What answer does utilitarian libertarianism have to this problem? The socialists say if the derivatives market had been regulated, this bust would not have happened. Allowing for Murphy and the law of unintended consequences, I would agree with them purely on utilitarian grounds. Since the government is not going to give up economic stimulation or stop regulating or stop its bailouts anytime soon, the market will necessarily get distorted, and since the free market does not exist, it won’t be able to punish bad business decisions. The only utilitarian argument I can make is that if a “true” free market were to exist, it would be better for all concerned. But then as Weisberg says, that sounds just like the Marxists. The truth is this – you cannot defeat socialism by turning socialist yourself.

The argument is not about economics, its one about philosophy. The philosophy that lies at the heart of Weisberg’s writings and modern day government is pragmatism – the philosophy of compromise. A government based on such a philosophy does not care about rights; it simply want to serve an end that was conjured up centuries ago, and use people as a means to that end. You are not allowed to ask why that end, or, why should I be the means to such an end? The end is unfulfillable in a free society – rational people don’t enjoy self-flagellation, and so governments demand that it can only be fulfilled if people are “good”, or if they are forced into being good. People are told to be pragmatic. The end I refer to is egalitarianism – forcibly equalizing the unequal; and it has been actively pursued. Since making people rich is difficult (fiat money is not wealth; if it were, Mugabe would be the richest man on the planet), the policy has always been to steal from the rich – make them poor. This is where the idea of regulation comes from. Governments cannot create any value on their own, yet think that they know how to lecture others about the same, and how to “allocate” resources. And when people won’t agree to their diktats, or worse, question them, they come down to their real avatar – the brute brandishing a stick – if you don’t listen to me, I will beat you. A utilitarian defense of capitalism and free markets plays into their hands; that the “greatest happiness principle” is as bad as “from each according to his ability…”, if not worse, is a different matter altogether.

Any attempt at compromising with such an ideology necessarily means a destruction of your own.

Rumor mongering and free speech

ICICI Bank has filed a complaint with the police and is planning to approach regulators regarding “malicious” rumor mongering that some brokers and websites have supposedly indulged in-

“The concerted effort to spread malicious rumours could be a new form of economic terrorism (akin to counterfeit currency being put into circulation), the complaint said. According to the complaint, one of the SMSes read, “Kindly withdraw all your deposits and cash in account with ICICI Bank as ICICI Bank has already rushed to RBI for insolvency.”

KV Kamath has issued multiple clarifications on the issue, the credit rating agencies Moody’s and S&P’s have reconfirmed their ratings, a RBI report says that the bank’s CAR is better than that of SBI, and the Indian government has told some of its companies (public sector undertakings) to “increase their deposits in the bank”. A similar thing happened sometime in 2005-2006 when there was a run on some of the bank’s Gujarat-based branches, but things came back to normal pretty soon. Basically, ICICI is “too big to fail”, and even if something goes horribly wrong, there is no way Chidambaram (the Indian government) is going to let the bank go under – its the country’s second-largest bank for god’s sake; we are no Iceland, and we are not a laissez-faire economy either. That said, the situation is similar to the March 2008 rumors about Halifax Bank of Scotland (HBOS) – short sellers and their trash ‘n’ cash strategy.

Well, this post is not about ICICI Bank, or the credit crisis – let Chidambaram, the RBI and the Indian banking sector deal with the headache – but about free speech. If you had asked me about this a week back, I would have said rumor mongering, slander, libel, defamation – anything that results in damage to someone’s reputation (and therefore business) is not covered by free speech, and that action should be taken against the “perpetrators”. But, today, I feel that there is no such thing as a “right to one’s reputation”. Sure, if someone slanders me, it will make me very angry and if I had the time and money to traverse through the minefield that is the Indian Justice System, I might even be tempted to get the law involved. But I am now convinced that slander is not a legitimate exception to freedom of speech. The right to free speech, if it is to mean something, has to be an absolute one.

In For A New Liberty: The Libertarian Manifesto (pdf), Murray Rothbard writes-

It has generally been held legitimate to restrict freedom of expression if that speech has the effect of either falsely or maliciously damaging the reputation of another person. What the law of libel and slander does, in short, is to argue a “property right” of someone in his own reputation. Yet someone’s “reputation” is not, and cannot be “owned” by him, since it is purely a function of the subjective feelings and attitudes held by other people. But since no one can ever truly “own” the mind and attitude of another, this means that no one can literally have a property right in his “reputation”. A person’s reputation fluctuates all the time, in accordance with the attitudes and opinions of the rest of the population. Hence, speech attacking someone cannot be an invasion of his property right and therefore should not be subject to restriction or legal penalty.

It is, of course, immoral to level false charges against another person, but once again, the moral and the legal are, for the libertarian, two very different categories.

Rothbard goes on to say that if laws on libel did not exist, people would be less willing to believe a particular piece of gossip unless it was supported by evidence. The existence of the laws only makes them believe in gossip because, if it were false, “why doesn’t he sue for libel?” is the question they ask. It thus becomes a case of guilty until proven innocent as far as public opinion is concerned. According to him, the law discriminates against the poor because the rich can use it to suppress genuine free speech – poor people don’t have money to hire lawyers and fight court cases to prove their innocence. While specifically addressing the case of banks, he writes-

It is also illegal, under our banking laws, to spread rumors about the insolvency of a bank—an obvious case of the government’s extending special privileges to banks by outlawing freedom of speech in opposition to their use.

In Law, Property Rights and Air Pollution (pdf), Rothbard writes-

Legal and political theory have committed much mischief by failing to pinpoint physical invasion as the only human action that should be illegal and that justifies the use of physical violence to combat it. The vague concept of “harm” is substituted for the precise one of violence.
[…]
In the law of torts, harm is generally treated as physical invasion of person or property. The outlawing of defamation (libel and slander) has always been a glaring anomaly in tort law. Words and opinions are not physical invasions. Analogous to the loss of property value from a better product or a shift in consumer demand, no one has a property right in his “reputation”. Reputation is strictly a function of the subjective opinions of other minds, and they have the absolute right to their own opinions whatever they may be. Hence outlawing defamation is itself a gross invasion of the defamer’s right to freedom of speech, which is a subset of his property right in his own person.

In his post on “Freedom of Speech”, K.M. says that speech “is just a form of action. There is nothing about speech that does not apply to other actions.” Only those actions that result in an initiation of force (contractual fraud is initiation of force; shouting “fire!” in a theater is an initiation of force against the property of the owner) can be subject to government regulation. About the impossibility of outlawing lies, he writes-

The initiation of physical force (whether direct or the violation of a contract) is an objective standard. There can be no honest disagreement about whether a particular case involves the initiation of physical force in the presence of witnesses or evidence. Truth is often not an objective standard legally nor does it apply to all statements. A statement such as “X is incompetent to complete project Y on time.” is a matter of individual judgement and a prediction about the future. Truth does not apply to it. (Update: Look at the comments below for more on this) A statement such as “Candidate X believes in sorcery” cannot be judged objectively as there is no way to either prove or disprove it. A legal system that allows laws without objective standards will soon disintegrate into an arbitrary rule of men. (emphasis not mine)

In a reply to a comment on his post, K.M. clarifies that the “concept ‘objective’ as applied to law means ‘demonstrably true’, not ‘corresponding with reality’”, and that it is only in the presence of “concrete physical evidence” that a conviction (retaliatory use of force by government) can be made. What about lies – false assertions? This is what he has to say on the subject-

There are two positions on punishing false assertions that I can think of:
1) A person making a false claim should be punished if the claim results in damage to others
2) A person making a false claim should be punished irrespective of whether it causes damage.
I believe you are in favor of the first. Evaluating whether a false claim resulted in damage and determining the extent of damage necessarily involves a judgement (in the sense of my previous comment). The judgement involved becomes even more non-objective (in a legal sense) if you include emotional damage or damage by a chain of consequences. It is impossible (even in principle) to have an objective implementation of laws that punish such damage.
The second position that any objectively false claim should be punished implies that men has a legal responsibility to always speak the truth. I will not go into detail here, but this position is absurd.

Read his complete post and following comments.

I think that in the face of all these (convincing) arguments, laws that penalize slander, libel, defamation, rumor mongering or any action that is not an initiation of force are nothing but a restriction on freedom of speech and expression, and are therefore unjust.

Libertarian law

In Law, Property Rights and Air Pollution (pdf), Murray Rothbard writes about criminal and tort law from a libertarian viewpoint. He also talks about how the laws regarding libel are a restriction on freedom of speech, how property rights in airwaves can be implemented, difference between aggression/ trespass and nuisance, homesteading and easement on pollution – noise and air etc. The essay clarified a lot of minor doubts that I had on the above mentioned issues.

I have now changed my opinion regarding laws relating to slander. There is so such thing as the “right to your reputation”. And K.M.’s post on “Freedom of Speech” convinced me about it.