Sanjeev Sabhlok's blog

Thoughts on economics and liberty

A public debate between Shanu Athiparambath and Sanjeev Sabhlok on the philosophy of freedom

This debate started on Facebook but we soon realised it is important to have this publicly, particularly for members of FTI to understand key perspectives on freedom. I'm posting the first few exchanges, but later exchanges we'll undertake directly in the comments' section.

This debate arose from a couple of my thoughts on Shanu's review of Breaking Free of Nehru at:

Addendum 21 July 2009: Avinash Dixit's work is extremely relevant to this: Avinash's 2009 presidential address to the American Economic Association in the latest American Economic Review is extremely pertinent. He has used game theory very elegantly to analyse society. Such analysis comes closest to representing the real world that I know of.

Addendum 2 September 2009: Extract from DOF: "Bhishma said in the Mahabharata (written between 3000-1900 BC): ‘A kingdom in which anarchy prevails becomes weak and is soon afflicted by robbers.’" [I don't think any modern thinker can beat this ancient finding by people who had a far closer and direct experience of anarchy than we have, and had therefore decided upon the Leviathan as a solution]

Sanjeev 23 June 2009
I'd encourage you, though, to read:
– an article I came by accidentally a few months ago but which broadly reflects the differences between classical liberalism and libertarianism. If you are open to classical liberal thought (which I view as far more robust than libertarianism, based on my extensive experience and understanding of human nature: a nature that is unfortunately deeply flawed, apart from being strategic and highly opportunistic), you may consider joining FTI.

Shanu 24 June
I read the article (by Samuel Freeman) you sent me. It seems that there are three types of Capitalists. 1) Classical Liberals who believe in a night-watchman state- like Ludwig Von Mises 2) Libertarian anarchists who believe all services including defense, law and police services should be provided by private business-Murray Rothbard and his followers. I am one among them. I think your son too belongs to this category. 3) Moderate interventionists like Friedman and Hayek. You belong to this camp, though you call yourself a classical liberal. It is the existence of the libertarian anarchists, you and the author of the article seem to ignore-though Samuel Freeman makes reference to Murray Rothbard, and your “The Discovery of Freedom” slightly mentions Hans Hermann Hoppe’s book “The Myth of National Defense”. In your book you give the impression that Nozick and Bastiat are anarchists. If you carefully read their works, you would realize that it is not the case. An anarchist is a person who believes that we should eliminate the state. Nozick and Bastiat clearly conceded the need for a state. Nozick is like the biggest enemy of Anarchy in the twentieth century, as he argued that in a society in which security is privately produced, a state would emerge.

We, libertarians don’t take a rosy view of human nature. We see human nature rightly, and admit all its flaws. Two things have to be pointed out-1) If you believe human nature is flawed, you have to admit that the politicians and bureaucrats chosen by these flawed creatures too would be of that sort, and there would be no excuse for state action. 2) A change in human nature is not necessary for libertarian anarchy to work. What libertarian anarchy does is that it leads to a system in which criminal acts are hard to perform. It also punishes those who resort to such acts in a just manner. Under the present system, a judge has no financial incentive to be honest and objective. He has only a moral incentive. Under anarchy, he would have both financial and moral incentive. Ask yourself which system will deal with criminals better. I don’t think we can eliminate wars completely without doing away with the state. Some estimates say that there were nearly 262 million deaths caused by the Government in the twentieth century. In the light of all this, I see no reason for a person who loves humanity to support the state.

The difference between Classical Liberals and Libertarians is that libertarians take the ideas of liberals to the logical extremes. Why do Classical liberals make an exception for defense, law and police? It should be obvious that in any sector, monopoly is bad. How do they get around this fact? In all other cases, Classical Liberals believe in the Non Aggression Principle. Why don’t they apply it to the case of Security? How monstrous is it to forcefully extort money from a person maintaining the pretense of protecting him? It could be argues that these are private goods and can’t be provided publicly. But, this argument was refuted several times. There was privately produced law in the ancient Ireland, for instance. And several thinkers have envisioned how libertarian anarchy would work- and it sounds perfect. (Kindly read “The Market for Liberty” by Morris and Linda Tannehill, &”Chaos Theory” by Robert Murphy). I don’t think it is fair to dismiss anarchy without refuting the arguments of anarchists.

I read your articles on Taxation. I completely agree with your views on Flat tax. I had read Rothbard’s essay on the subject before, and found myself in complete agreement with it. However, I don’t think progressive taxation, or for that matter, any form of taxation, is compatible with freedom. My arguments against taxation are fundamental.

1) Taxation is robbery
2) Taxation is slavery. We are not slaves to work several months a year for the Government.
3) Taxation violates the Non-Aggression principle.
4) Taxation discourages production.
5) Taxation diverts resources from the efficient to the inefficient and the society is made worse off.
6) Taxation prevents capital accumulation and would lead to lower wages and poor living standards. It causes capital decumulation and economic decline.
7) Taxed income is spent in current consumption and saving is prevented from happening.

Shanu 26 June
Well, I think I have said that we don't wish to change human nature. What we are thinking is, is a system which is consonant with human nature. And Anarcho-Capitalism is the only system which is consonant with it.Just ask yourself-Who is taking an unrealistic view of human nature? A person believes that a Government judge who has no profit/loss incentives will be honest and objective? Or a person who thinks that a private judge would be more fit for the task? And the problem of Economic calculation in a socialist society is a strong argument against minarchy. A single firm which provides security, too can't economically calculate and would lead to wasteful
allocation of resources.

Sanjeev 26 June:
Dear Shanu, a few points for you to consider:

a) Empirical: Human nature, as I have pointed out, has a very strong opportunistic and tribal element to it. That means when a government (including tribal chief/monarchy) falls, the vacuum of power is filled at once by the relatively powerful feudal lords (or underworld mafia) who exist in the society at that point in time. Thus, when the Roman empire fell, it was replaced at once by a host of small tribal fiefdoms, which ultimately led to medieval feudalism across Europe. Indeed, that is perhaps the best example of what happens under conditions of anarchy. People group instantly into small clusters for security as well as for ease of cultural relationships; the physically and economically powerful people soon form collusive relationships with others and form a monarchy/feudal system of control. That is why I say that Nozick's (1974) system will lead to feudalism. There have been thousands of opportunities for Anarcho-capitalism to form on its own in history. If it was any good as an idea, we would have had hundreds of examples of anarcho-capitalist societies by now. Even Iraq, the moment Saddam fell, could have converted into anarcho-capitalism. Afghanistan, virtually stateless even today, could well have convereted to anarcho-capitalism. Why did it not? That is something you need to address. In each case when the state has fallen away, another monarchy or feudal system has spontaneously arisen. We believers in freedom must pause and ask: if FREE people invariably converge to a state, what is the incentive behind it. It is not that someone forces them (it is quite easy for a bodybuard to kill the king and start an anarcho-capitalist society). There are very good reasons related to human nature which forbid the purely rational outcome that Anarcho-capitalists envisage. I like your logic as a curiosity, but simply note that you (or anarcho-capitalists) don't undertsand humans.

Now an extract from The Discovery of Freedom: "A.L. Basham noted that in ancient India it was a custom that: ‘As soon as a king has established himself on the throne he should, as a matter of course, attack his neighbours’. And Kautilya advised in the Arthashastra that ‘The king who is weaker than “the other” should keep the peace; he who is stronger should make war.’"

In other words, there are strong incentives in human socities for the big fish to eat the small fish, or else be eaten. This world is not a place for day-dreaming Anarcho-capitalists. Indeed, all anarcho-capitalists – without exception – ply their philosophies under the conditions of law and order provided by the very state that they oppose. If they are so clear about their views they must unite and overthrow the state and start their own libertarian societies. Without physically overthrowing the state they can't even start. But the state will NEVER let itself be overthrown. The power behind the state doesn't come from logic but from the General Will that Rousseau spoke of (even though that is an exaggerated collectivist idea, but it contains a deep element of truth). People WANT the state. They will not have any form of anarchy at any cost.

b) The problem of trust: Private judges are not particularly trustworthy (not that publicly appointed ones will be much more trustworthy without strong checks and balances, including jury systems). That is the general experience from history. While arbitration regarding civil contracts can be progressed through a village panchayat or a privately appointed arbitrator, matters relating to serious crime and harm cannot be aribitrated by a private judge. Consider a poor villager in an Indian village whose daughter has been raped and murdered by the son of the loccal Zamindar. The poor villager can't afford a private judge in the first place. Second, if he does appoint a private judge and pay him Rs. 100 as fee, the Zamindar will pay Rs. 20 lakhs as fee to the judge, thus setting up the scene instantly against the poor man. Third, even if the judge finds the Zamindar's son guilty, the judge has no physical power to punish the Zamindar's son, for which the poor man will have to then hire a private security agency by paying another Rs.100. Clearly that agency will not be able to carry out that punishment for Rs.100, and will let the Zamindar's murderer son go free. We are totally deluded if we imagine that justice is cheap and can be afforded by simply appointing a private judge. Justice is a 'public good' and is VERY expensive to operate.

Since the private system of criminal justice is not trustworthy, people instinctively look up to a 'king' to provide this service. That is why feudal societies form virtually instantly. People prefer the mafia Godfather to anarchy. The poor and weak will work hard for ANYONE who promises to deliver justice (even if rudimentary and inadequate).

c) The huge problem of collective choice: There are innumerable things a society needs beyond its bare minimum commercial transactions (leaving alone justice which I've discussed above). Things like roads, for instance. That basic economic theory of collective choice will show why such goods won't be provided privately for the most part (also confirmed through human history). Thus an anarchy will not lead to capitalism but to mayhem and poverty.

I quote three perspectives on the state of nature (anarchy), highlighting the crucial elements of human nature mentioned by these practitioners of human affairs:

Machiavelli: "For whenever men are not obliged to fight from necessity, they fight from ambition; which is so powerful in human breasts, that it never leaves them no matter to what rank they rise. The reason is that nature has so created men that they are able to desire everything but are not able to attain everything: so that the desire being always greater than the acquisition, there results discontent with the possession and little satisfaction to themselves from it."

Hobbes: (extract from my manuscript: Discovery of Freedom) In his forthright and pitiless analysis, he noted that there is a chronic competition for power in the state of nature (‘power’ meaning things like wealth and status). Arising from this ‘perpetuall and restlesse desire of Power after power, that ceaseth onely in Death’ , there is perpetual war ‘where every man is enemy to every man’ . This leads them to seek whatever security they can with ‘their own strength, and their own invention’ – leading to (without a state) to a ' solitary, poor, nasty, brutish, and short' life.

Locke: The state of nature is in reality ‘a condition, which, however free, is full of fears and continual dangers’. These dangers, he noted, come from constant exposure ‘to the Invasion of others’ and corruption and ‘vitiousness of degenerate men’ .

You are right, to an extent, tho
ugh. There are many issues and problems with the liberal state. Why would its monopoly not lead to perverse and wasteful outcomes? Indeed, they do. Public choice theory confirms that at multiple levels. However, we are FAR better off, overall, under the liberal state than under anarcho-capitalism (whatever that is). And we can apply a range of solutions like checks and balances and the study of incentives (participation constraint/ incentive constratint) to design the liberal state to minimise misuse of power by any single person.

In brief, I would rather devote my very limited energy to deal with the liberal state and how the problems found in the state can be resolved, than worry about shifting India to a stateless anarchy either of the sort you recommend, or Gandhi recommended.

A good and functioning state (despite its many shortcomings) delivers outstanding outcomes for humans. There is unequivocal empirical evidence in favour of this comment.

Your worry that the state itself is the cause of millions of deaths is based on a superficial reading of history. The deaths you refer to were largely caused by fascists, socialists, or dictatorships (or in fighting against them). Liberal democracies are unlikely to participate in such massacres (read Rudolph Rummel). My aim is to help make India a genuinely liberal democracy which will not threaten either its own citizens or its neighbours.

Let's discuss further in the comments section. Please note that I'm guilty of not having read what you've asked me to read. I apologise for the severe lack of time I'm suffering from. I trust we'll get a resolution with a brief and clear debate. If absolutely critical to your argument, I'll also read the particularly vital material you may refer me to.



Shanu, 28 June


Arguments against Empirically Verifying Anarcho Capitalism

1) All this is in the realm of apriori reasoning, and empirical evidence can’t prove or disprove theory. The Economic calculation problem in a socialist society, for instance don’t need any empirical evidence. We know through deductive logic that it is true. I don’t think it is proper to go into the epistemological problems in social sciences here.

2) It is true that pure anarcho capitalism was never put into practice anywhere. However, that can’t be an argument against anarchy. A person who invents an electric bulb doesn’t have to prove that there were electric bulbs in the past. A new invention, innovation or theory is something which crushes all existing conceptions. It is unprecedented. I think this should be obvious and it makes no sense to argue against it.

3) A fully consistent free banking system based on gold standard has not yet been achieved. Why do you then believe in a free banking system based on gold standard? Isn’t there adequate proof that mankind is not inclined to it, and human nature is averse to it? Obviously, these questions don’t make any sense. You support Gold Standard and a Free banking system as you know that it is rational. Same is the reason for my support of anarchy. Anarchy is rational to the core.

4) State is a relatively new institution. Mankind has lived hundreds of thousands of years without a state. If so, is that true that human nature is not inclined to live under a state? How come we are living under a state then? Slavery and serfdom existed for a long time. Doesn’t that mean slavery is consonant with human nature? If so, how men got out of it? Obviously, when people realized the advantages of co-operation, people shifted to the present system. When people realize the advantages of anarchy, they would move into such a system. No change in human nature is required. Blaming human nature for being flawed doesn’t make any sense. People are mostly corrupt under the present system as people respond to incentives. Under statism, men have every incentive to be corrupt. To say that anarchy won’t work as human nature is flawed is tantamount to saying that capitalism won’t work as most people are poor. A person who makes such an argument fails to understand that it is precisely the lack of Capitalism which made the people poor. The same applies to the previous argument.

5) There is no empirical evidence to prove that a constitutionally limited government is sustainable. Government power has increased steadily in countries like United States and Britain. Tax experts like Irwin Schiff has pointed out that according to the law and constitution of United States, taxation is illegal. He is in jail now, and his book “Federal Mafia” is banned. That’s not an aberration, but the logical end result of a limited Government. United States fell into a civil war, within 80 years after, and after that Government powers increased but semi anarcho capitalistic societies like Ancient Iceland lasted for 290 years without any civil war.

Empirical Evidence for Anarcho Capitalism
Anarcho capitalism was not practiced in most parts of the world for most of the human history. However, there were societies which were really close to anarcho capitalism. There were law merchants in the past, as Bruce Benson has pointed out. Such a system has worked in Iceland, Celtic Ireland, American old west, British colonies in North America, Rhode Island, Albemarle, and Pennsylvania. There is a lot of historical evidence to prove that these societies worked really well and had sophisticated legal codes. Crime rates were strikingly low. In Celtic Ireland, it lasted for nearly thousand years. It was a civilized, advanced society as there was no Government administered justice. Even when these societies collapsed, it was not due to extreme anarchy, but due to contradictions in the anarchistic structure. Iceland is a classic example, where chieftains were granted more power, and religious issues led to a civil war.

Poor under Anarchy
It is often argued that poor are defenseless under anarcho capitalism. However, the argument completely lacks sense-For several reasons.

1) It is very unlikely-nearly impossible that there would be extreme poverty as of now under anarchy.

2) Under the present system, a rich person can easily bribe a bureaucrat or a judge and get his things done as bureaucrats and judges are not risking their own funds. A private judge is risking his own funds and profits, and he would lose his income or profits if he isn’t honest or objective. It is very unlikely that bribery is going to work.

3) Customers would desert courts which have a poor reputation.

4) Insurance companies selling defense wouldn’t patronize corrupt courts as, if they do, their customers would patronize another Insurance company. Such a court would be soon out of business. Nothing like this happens under statism.

5) One might argue that public courts can work with proper regulation. It will inevitably founder upon these questions-Who regulates the regulators? What is the incentive? How does such a system make profit and loss calculations? Without profit-loss calculations, how does one know whether job is being performed well or not?

6) As Roderick Long has pointed out, “any court that got the reputation of discriminating in favor of millionaires against poor people would also presumably have the reputation of discriminating for billionaires against m
illionaires. So, the millionaires would not want to deal with it all of the time.”

7) Under anarchy, the media won’t have to spend most of its space on politics. They would divert more of their energy to exposing corrupt institutions and extraordinary achievements of men. People won’t deal with customers of dishonest defense companies, and these customers will be forced to move to another Defense company.

8) A rich person who commits a crime would suffer from boycott by his clients and customers when insurance companies reject him. Such a boycott affects the rich more than the poor.

9) Even if a poor person can’t afford to file a case, he can sell that claim, or part of that claim to a rich person. Such a system existed in Iceland. That would make sure that eventually, all sorts of criminals are punished. One can’t commit a crime against a poor person and go unpunished. If someone murders a poor person, the person who has homesteaded the estate of that poor person can file a case and get compensation.

Yeah. It is true that libertarians don’t believe in the Social Contract. Also, there is no theoretical or empirical evidence to prove that Roads can’t be privately provided. By 1800 there were over 60 private road companies in the United States and by 1830 they had built over 400 private “turnpikes” (highways). You might have time constraints, But I think it is worth it to read “No Treason” by Lysander Spooner (Social Contract), and The Privatization of Roads and Highways by Walter Block.

Sanjeev 28 June

Thanks Shanu

Empirical evidence is vital in the stream of scientific thought I come from. If a theory fails to find support in empirical study I tend to discard it.

Coming to the questions about social contract and human nature. In the formulation I have provided in DOF, all governance arrangements are a form of social contract – including the private contracts you refer to. No society has purely 'social' contracts. Even the most statist society has a large number of private contracts. I do note that only a few social contracts are compatible with freedom.

You have not yet shown me why any anarchy won't degenerate quickly into feudalism of some sort. Empirically, it is seen that the moment any vacuum of power arises, it is filled up. That has been the one foolproof law of human history. In other words, logic doesn't prevail in real life: people don't simply shake hands once a king falls and say: "Now we shall live in mutual contracted anarchy". They fight, they collude, they cheat, they kill. All for power. It is "Power after power, that ceaseth onely in Death" (Hobbes). The examples you cite of "Iceland, Celtic Ireland, American old west, British colonies in North America, Rhode Island, Albemarle, and Pennsylvania" are of great interest to me, if they were not 'governed' by some form of hierarchy. I'd like to know how their legal codes (that you cite) worked, for instance. How were they administered? Who made them? Etc. Please send in a reference and I'll explore these strange entities. You'll pardon my ignorance.

Re: the view that the "State is a relatively new institution. Mankind has lived hundreds of thousands of years without a state."

– I suspect you are referring to the modern nation, not the state as Hobbes (and I) refer to. A tribal chiefdom is a state. So is a monarchy. Each is a state based on some form of consent ('general will') social contract. For thousands of years, mankind has chosen to live in some form of hierarchical governance arrangement. Man has not chosen to live in anarchy. The state is therefore man's natural political condition. Anarchy is unnatural and unsustainable just as vacuum is unsustainable on the earth under ordinary circumstances.

Re: "There is no empirical evidence to prove that a constitutionally limited government is sustainable." I agree that USA is showing serious signs of intellectual decline. However, to say that it is not sustainable would be a great leap of faith. So also for India – essentially a highly sustainable nation now that it has become a broadly liberal democracy. These entities will of course need to keep refining and reviewing their systems. Continuous improvement is the mantra of the liberal.

Re: "Under the present system, a rich person can easily bribe a bureaucrat or a judge and get his things done" You are referring to India's rotten governance system. I don't think you are referring to modern Western systems, where such a thing as you allege is a tiny exception (if any), not the rule.

"8) A rich person who commits a crime would suffer from boycott by his clients and customers when insurance companies reject him. Such a boycott affects the rich more than the poor.

9) Even if a poor person can’t afford to file a case, he can sell that claim, or part of that claim to a rich person."

I am not clear how it would help the poor farmer whose daughter has been raped and killed. Please tell me in more detail how the poor farmer will find justice.

Finally, just one thing: How do you propose to shift India (or any society) from its current form/s of government to anarcho-capitalism? What is the plan of action? How does it work? As I suggested, the state won't simply give in and walk away. Indeed, the people won't let that happen. So aren't we talking too much theoretical stuff – an artificial curiosity like Rawls's 'original position'?

I do like to stick to reality – and the reality is quite harsh. It may be useful to prepare a plan of action to try your system in Afghanistan, which is already an anarchy (ie. half way there), and see if it can be persuaded to become a model anarcho-capitalist society.


Shanu 29 June

How Anarchy Would Work
Defense companies would sell Insurance. If we both are customers of Smith Defense Company, and a dispute between us occurs, the dispute would be submitted to the court of Smith Defense company, or a court patronized by Smith Defense Company. The decision of the court would be respected. If you are found guilty, the Smith defense company, which also sells insurance, would compensate me for the damages done by you. It will be then the task of Smith Defense Company to get back their money by putting you in a debtor workhouse (prison) or by garnishing your wages. I and the defense agency would suffer some inconvenience due to the damages caused by you. So, it would be in the interest of defense companies to not sell insurance (or rate their insurance premiums up) to you, or other people with criminal tendencies. If a person doesn’t have insurance, no sane person would deal with him in any manner, as they won’t be able to claim compensation in case a dispute occurs. Almost every one would have Insurance under anarchy, as without Insurance, one can’t get a job, rent a house, buy a car or get into any other contractual situation.

In the case mentioned above, If I am a customer of Smith Defense Company, and you are a customer of Jones Defense company, our dispute would first be set for arbitration in the court of the plaintiff (I)-which means: a court of, or patronized by Smith Defense company. If the defendant (You) is found innocent, the matter would come to an end. If you are found guilty, then the arbitration would run in the Court of Jones Defense Company. If that court too finds you guilty, you would be punished.
If it finds you innocent, the arbitration would move to an appeals court. The decision of the appeals court would be respected. If a person (defendant) refuses arbitration, the arbitration would be held in the court of the plaintiff, and the decision would be binding. So, a person who didn’t commit a crime will be really stupid to refuse arbitration. If he disagrees with the decision, he can take the case to his court, or a mutually consented appeals court. The courts would try to be as honest and objective as possible, as their profits depend on the number of cases they receive for arbitration. People won’t deal with dishonest Insurance companies, or their customers, as no sane person would want to be swindled. So, a dishonest Insurance company would soon find it deserted by almost all its customers. An Insurance company which patronizes poor courts too would be soon deserted by its customers. (No change in human nature is assumed here. If you think so, please explain.)

Why do you think that anarchy would degenerate into feudalism? I truly have no idea of what you are talking about. Please clarify. Anarchy is not feudalism, and it doesn’t have anything to do with feudalism. Under anarchy, a person can acquire wealth only through meeting the needs of his consumers. Feudalism is a system in which ones position is determined by birth, not on his service to customers.

As Ludwig Von Mises had said, Economics is the science of human action, and there are no constants in human action. Hence, no measurement or empirical testing is possible. To empirically test, we need to isolate facts and control them. How is that possible in the case of Social Sciences? At any particular point in time, there would be several policies running, and how do we know which policy caused which, without having a strong causal theory? One might argue that the causal factors are obvious and is a matter of common sense. However, that doesn’t seem to be the case. Some theorems require an extremely complex chain of reasoning. Moreover, empirical theories should always rest on non-empirical assumptions.

Surely, one wouldn’t argue that we should empirically test the statement that “All bachelors are unmarried.” Austrians hold that an increase in the money supply would lead to a rise in prices than it otherwise would have, if the money people keep in cash balance remains constant. Why should one empirically test it when it is self evident? What if empirical testing contradicts this self evident truth? What if prices fall due to an increase in the supply of goods? What is the need of empirically testing the theory that Socialism lacks a genuine pricing mechanism? It is neither possible nor necessary to empirically test them.

It is a popular perception that Roosevelt got America out of the great depression. Austrians are of the opinion that Roosevelt prolonged the depression? How do we empirically determine between these two perceptions? How do we decide whether the US got out of the depression because of or in spite of Roosevelt’s policies? If someone advocates a particular policy with a notion that it would lead to a particular result and it happens so. What if someone argues that the particular result was achieved in spite of that policy? If his plan didn’t work out and he argues that it would have worked if his policy was carried out to the end-How would we decide whether it is true empirically? There is no empirical way to reach at a complex theorem like the Austrian theory of Business Cycles. But, we know that it is true as it is rational. As I have said earlier, there is no absolute empirical evidence that a pure gold standard or a free banking system would work, or that a constitutionally limited Government would last long enough. We reached there through apriori reasoning.

How anarchy worked in Iceland
There are several documents which provide evidence that anarchy worked really well in Iceland. Courts in Iceland used to deliver verdicts on cases brought to them. If the defendant is found guilty, he had to pay compensation to the plaintiff. If he didn’t, he was considered as an outlaw. Crimes done against outlaws weren’t punished. Anyone was free to kill an outlaw. No sane person, so, would choose to be an outlaw.

You have asked how poor would find justice in such a system.
In Iceland, victims were given a property right, which was transferable. He was free to turn over his case to someone else, partly or fully. If I am a poor person and don’t have the sufficient resources to prosecute a case, I can sell it to another. He can make a profit in money and reputation by winning the case and collecting the fine. Hence, crimes against poor people too would be punished perfectly.

What if a poor girl is raped under anarchy? Contracts with defense companies would have rape protection, and there will be provisions for financial compensation to the rape victim. In case the girl is unable to afford prosecution of the rapist, it is very likely that there will be charitable organizations which will finance the expenses. If not, lawyers would represent the girl for a part of the compensation. In case the rapist avoids the trial, or tries to escape from the punishment, Defense companies would use the most advanced technologies to hunt him down. If he is found guilty, and if he refuses to attend the trial, arrangements would be made to freeze his assets and bank account. Defense Company would make arrangements with private roads, airlines and railways to prevent him from leaving the place. Arrangements would be made with his water and electricity services, employer, grocery stores etc. to prevent him from making use of his services. He will have to spent his life in misery, if he is to live long enough to experience it at all. In short, life would be impossible for that person.

On Achieving Liberty
How the Government should be abolished is a hard problem. Not much work is done in this regard by libertarian thinkers. Firstly, I have to say that the most important part is in educating ourselves, and eventually, the general public, on the advantages and morality of liberty. What people hold is a set of economic, political and ethical views, and we can’t expect them to revolt against the Government without having a change in their fundamental views. If we jump into politics without learning the issues completely, people will easily find out what we hold are contradictory views. Political activism however is an important part, and I don’t think we will move into a libertarian society without getting into politics. It would be stupid to assume that politicians would give up their power when it is proven that liberty is far more workable. Already there are libertarian parties in some countries, and it is said that the libertarian movement in Costa Rica is a huge success. So, it is definitely possible to succeed in politics without compromising ones values. We will have to abolish taxation & central bank and most of the Government institutions should be privatized or abolished. Courts, for instance could be privatized instantaneously. Some are of the opinion that we should make it in the interest of everyone concerned to achieve liberty. I hold this view as we can’t move into liberty without the support of the large majority of people. A Government post office, for instance, should be handed over to the workers based on the homesteading principle, so that w
e get the support of workers too. Selling it to the highest bidder and compensating the workers is another option. To make it in the interest of welfare recipients, welfare should be abolished gradually, to avoid temporary hardships when moving into liberty. The same should be done in the case of Government education and healthcare. If it is possible to abolish it in one instant, it should definitely done that way. But, I am really doubtful whether we will get support enough to do that.

Sanjeev 3 July

– How is a company (insurance) formed? What are its rules? Who makes these rules? How? Who empowers them? Where is the company registered (if at all)? Who verifies that the company is viable, who checks if its governance is compliant with the standards necessary for a good insurance company to adopt? Historically, insurance companies have been particularly prone to fraud (and bad estimation of future liabilities). Just a few years ago HIH insurance, a mega-comany in Australia, collapsed. Recently, AIG collapsed and had to be nationalised. How does the anarcho-capitalist society ensure that such companies are viable and not a den of fraudsters? More important, if starting up insurance companies under conditions of anarchy was so easy why aren't they naturally formed in Afghanistan today (or formed in tribal societies found throughout history)? There are preconditions to the formation of such companies which you need to fully explore and address.

– You assume that everyone will be able to insure. That is a rather strange assumption. You are literally assuming away the poor farmer in the example I gave. Indeed, if insuring oneself was so easy why can't everyone in Afghanistan insure themselves today? What is stopping them? [Indeed, there is implicit insurance – my PhD thesis talks a lot about implicit contracts. The vast majority of insurance contracts are implicit, suffering as formal contracts do not only from transaction costs but moral hazard and asymmetric information/tacit information problems]. The study of contracts and insurance is a major discipline. You simply can't tell me that everyone in anarchy has the capacity to buy insurance. That's simply not possible, nor demonstrated in any historical situation.

– Evolution always leads to the most feasible and sustainable outcomes. As ideas and societies evolve, they naturally gravitate towards the most viable forms. As pointed out above, if the things you propose were so easy (being rational), why has anarcho-capitalism not been the dominant governance mechanism in society for thousands of years? Why have tribal chiefs always come into existence (In Western Africa, these chiefs sold their tribe members in return for a few baubles – that is where the vast majority of blacks in America come from: people whose ancestors were sold by their own tribal chiefs). And where such tribal chiefs were overpowered, why did kingdoms/ fiefdoms come into existence? The natural evolutionary process of mankind is to stumble from one mafia leader to another (including the state, which can theoretically be seen as a kind of mafiosi). Why has anarcho-capitalism (the solution of a free peoples) not been arrived at naturally over history when most of the time there was nothing to stop it from forming had it any merit?

– You ask why would anarchy deteriorate into feudalism? First, I have discussed clearly in DOF (the fortress principle) that no society of any sort can exist without a combined, joint defence (not police – the company you call defence company is a mere police company). The fortress is absolutely crucial to any society's existence. The provision of combined defence creates a state (of some sort; including tribal chiefdoms). If such defence were not to exist and if anarcho-capitalism were to succeed in making people rich, that 'non-state state' will be attacked by its neighbours and stripped bare in five minutes.

So the anarcho-capitalist 'state' will need to create a 'redistributive' defence force as a first step under a commander/leader without even dreaming of a police force, whether as a state based force or private insurance company. That itself is the monopoly state I am talking about. Indeed, I am very clear, based on an understanding of human nature, that the anarcho-capitalist state (with private police and no defence) will also fall prey to hungry vultures from within, who will soon take over as the mafia warlords (cf. Afghanistan, or consider literally point of time in ancient history, inducing in India/Europe). Feudalism of some sort is the natural state of affairs, not anarcho-capitalism (I've scanned and put up a section re: feudalism from E.K. Hunt here to show you how, in the absence of a strong state, the society invariably decays into some form of feudalism). Getting out of feudalism required the forces of the parliament to behead Charles II and to kick out James II. The physical force of the people has created the modern liberal demoratic state. The people are now (in a sense) the feudal lords. Hence we can hope for some peace since we can all become elected representatives and potentially control the defence and police forces. In other words, force has clashed with force and created the modern state. No miracle occurred. The power of people's potential violence underpins the state.

– You do note ruefully that people don't want the anarcho-capitalist state (that is because they have far more sense than anarcho-capitalists do!). Isn't the liberty of people that you want? And their free choice? If so why do you wish to impose anarchy on them? You can't, in any event (they will simply boot it out), – and any imposition will be morally wrong anyway. So let's avoid living in a world of abstract theory that is totally divested from the underlying demand of real people who understand how the world runs.

Liberals respect people, including their choices reflected through markets (including political markets). And liberals know that people have always made a choice in favour of a strong state when they have been given such a choice. You are in a terribly small minority, and while your right to believe in your ideas must be protected, you do not have the mandate to dictate anarchy to people who are committed to the state.

– That said, I do appreciate your underlying approach which is eminently sensible – for instance, that police be privatised. And indeed, in England all police was employed by the local parish at one time. Centralisation took a long time to happen, so in a many ways police was private. That can happen again. But under the state. So the pathway to what you desire is this:

a) Build a classical liberal state

b) Ensure increasingly fewer functions with more delegatations to the market. That would be the closest to 'anarcho-capitalism' you would achieve.

In other words, I'd recommend that you spend your lifetime working to make India a classical liberal state. Then, some 100 generations later, privatisation of the sort you have in mind could well become feasible. Not before that, and through no other pathway. This is not a bad thing. Capitalism arose under the shelter of the state. It is almost impossible (from the perspective of theory and on empirical evidence from history) for capitalism to arise spontaneously without the state.

So let's work towards a minimal (just enough) state, and not aim to weave complex webs of logic that fail at the first exposure to reality. I'd recommend that you join FTI and work toward a sensible classical liberal government in India. That should be work enough for one lifetime.

If you are not into politics I will not pursue this debate further. Too little time to debate with academic philosophers. However, you could consider writing for India Policy Update ( that I launched a few days ago.

Shanu 5 July

An Insurance company would be formed just like any other company. Private individuals make them. It is not necessary to be registered anywhere. No single person or body should confirm that it is viable. The reality will confirm. Laws would be decided by Insurance/defense companies after making profit/ loss calculation. An example would suffice. Should drugs be banned? Presently, drugs are banned by the Government. In an Anarcho-Capitalist society, if a defense company ban drugs, it would be costly for the company, and it would have to raise its insurance premiums. It is very likely that a lot many of its customers would desert it-Most people won’t care enough to spend their hard earned money on banning drugs they have no intention to use. In that manner, the only crimes which would be punished will be initiation of physical force, or its substitutes or derivatives (Fraud, for instance).

Of course, I admit that Anarcho-Capitalism was not the dominant form of social organization for the large part of human existence. But so wasn’t democracy or a limited Government. These are recent developments. The limited Government in United States broke down after 8 decades as of a civil war-But it took 1000 years for the near Anarcho-capitalistic system to break down in Celtic Ireland, and 290 years in Iceland. Who do you support democracy and a limited Government then, when it is obvious that anarchy is far more workable? If the Government system collapses in a country without its people having an idea of how anarchic institutions would work-Of course, chaos would be the result. The default is chaos. Anarchy is not the natural state of social organization. Anarchy can’t come into existence when a large majority of people believe some sort of government is necessary. I never said that it is easy to achieve anarchy. It requires an education process which would take a long time.

You said that if people don’t want Anarcho-Capitalism, imposing it over them would be violating their freedom. If you tell a thief to not rob from your house, will you be imposing your views on him? If someone takes your money by force, gives you stale food, forbidding you from buying food from anyone else, is that right or wrong? If you tell that person to not do it, will you be imposing your views on him? Will you be violating his freedom? That precisely is what Government does. It forcefully takes money, gives poor quality defense, and forbid us from buying the service from private organizations.

Of course, I would join FTI and support your course. A limited Government is much, much better than the statist tyranny we suffer from, and we would be living in Utopian prosperity under such a system. I am in the final year of my course, and it would take me one more year to completely my degree. I will be joining FTI after that.

Fraud under Anarchy
Why do you think that credit expansion not backed by gold wouldn’t happen under a free banking system? Are these bankers angels? Are all human beings rational? Of course, you know that it is because credit expansion would be kept at minimum as they would lose gold to competing banks if they engage in fraud. The same is true of anarchy. Fraud would be kept at minimum as they would lose their profits if they don’t. You should refute by providing valid arguments if you think it won’t, instead of saying that human nature is flawed and irrational.

It is very important to understand what you are criticizing. So, I shall explain briefly why fraud would be much less under anarchy.

If we both belong to the same Insurance Company, Reliance, and you rob me, the arbitration would be held in the court owned by, or patronized by the Insurance Company. Reliance would pay me the compensation if you are found guilty. Then, Reliance would make arrangements with your employer (Australian Treasury) to garnish your wages. Most employers would have a policy to co-operate with the Insurance companies as they want to attract honest and reliable employees. . If the Insurance Company sets the compensation too low, no one would deal with the customers of Reliance, as they won’t be paid enough if a Reliance customer commits crime against them. If Reliance engages in fraud, most of its customers would desert it. If I am a customer of Reliance, and you, of Tata, the arbitration would be held in a court decided by both Reliance and Tata. It is in their self interest to decide on an honest, objective court and judge. A critic may point out that there is a possibility that both Reliance and Tata would battle in this case. But that is ruled out for two reasons. 1) Wars are costly, and would result in high Insurance premiums. Most customers would desert Insurance Companies with high premiums. 2) People won’t deal with the customers of warring defense agencies as they would lose in any case. As of it, the customers of the warring agency would be forced to patronize another Insurance company, if they want to get into contracts with other people. A court too should be honest if they want more cases handed over to them. What if a rich person bribes the court of Insurance company? If that is the case, most people won’t use those courts and Insurance companies. Nothing like that happens in the case of Government courts. People are forced to use them, even if they don’t trust them.

Don’t worry if you find this a bit confusing. It is. Read it once more so that you understand it perfectly.

The Case of Afghanistan
First of all, anarchy doesn’t exist in Afghanistan. Chaos is not anarchy. Chaos is the end result of coercion. People are not free to choose there. Multiple Governments and war lords monopolize law enforcement. There is of course, a Government, the Taliban and foreign troops which impose laws by force. They won’t accept private organizations. The mindset of the people is another big problem. It is very unlikely that Anarcho-Capitalism will sprout up in a place that has almost no knowledge of the enlightenment, any experience in individual property rights or advanced markets and has been in a state of constant war for 30 years.

At the same time, people of Afghanistan have created private black market security services – primarily to protect the drug trade, but still, where there's a hole in the market, someone will try to fill it.

There are mainly two reasons why Anarchy didn’t come into being in Afghanistan. One involves ideology: people would have to know about this option, and a critical mass of the population would have to consider it legitimate, f
or it to be viable. Second, since everyone expects a monopoly government eventually to win out, and therefore anyone providing alternative forms of service instantly put out of business, why bother?

The US is desperately trying to prop up a government, and they're importing plenty
of money and guns to make it happen. The same is the case in Somalia, though Somalia's been working out better because the population has a longer history of polycentric law.

Present day Somalia
Somalia hadn’t a central Government since 1991. Yet, it has an efficient telephone system and mobile phone network, which is far better than that of its neighboring countries. The same is true of the electricity system. The situation is Somalia is much more peaceful than it was under the Government, and hence it is easier to do business there. There is a clan system which enforces contracts, though there isn’t a monopoly Government to enforce law. There was an improvement in 14 out of 18 development indicators after the collapse of the state in Somalia. One indicator was the same, and the other one, GDP, was blown up by the Government during its rule. Peter Leeson points out that “Under statelessness life expectancy in Somalia has grown, access to health facilities has increased, infant mortality has dropped, civil liberties have expanded, and extreme poverty has plummeted. In many parts of the country even security has improved. In these areas citizens are safer than they’ve been in three decades.” Even World Bank Economists like Tatiana Nenova and Tim Harford admit that things are getting better in Somalis. These Economists aren’t anarchists by any stretch of imagination.

In Somalia, a “jilib” is formed by people descending from a common great grand parent. Each “jilib” has its own judge. Judges will have more cases handed over them if they are honest and objective. If a person belongs to a clan murders a person of another clan, the murderers clan gives the victims clan compensation. In that sense, a person is insured by his clan. A person committing crimes repeatedly will be expelled by his “jilib”. He can join another “jilib”, but it is very unlikely that he would be accepted, as it would cost the “jilib” money to accept such a reckless person. He becomes an outlaw then, and no one would deal with that person. He loses protection and is really vulnerable to crime from others. In this way, Somalian law works better than state controlled law.

Anarchy isn’t feudalism, and has nothing to do with it. Period. Statism, on the contrary is feudalism. The important characteristic of feudalism is that wealth is not acquired by production, but by conquest-by forcefully extorting wealth from its rightful owners. In which system is wealth acquired in that manner? Under anarchy, if a person wants to acquire wealth, he should trade his goods or services. Under statism, state and its parasites can tax productive individuals, under the pretension that they are giving services in return. Are you willing to tolerate feudalism (statism) just because you fear than anarchy would degenerate into feudalism? This is as naïve as saying that capitalism would lead to monopolies. The people who say that are willing to accept Government monopoly just because they fear that there is a possibility that Capitalism would lead to monopolies. Completely mistaken!

Sanjeev 6 July
I've decided to make a few notes in a haphazard manner and move on, so this response is a bit choppy.

– Anarchy vs. chaos
Anarchy is a state-less society. I believe a state-less society will inevitably drift towards chaos. Some of the pressures leading to that outcome I have already outlined:
a) Attack from neighbouring states
b) Breakdown due to high level fraudulent activities (arguably lesser than in a state but still very significant)
c) Human nature in all its range, e.g. power after power (Hobbes) and our tribal nature

Human nature is an overarching perspective on the documented, historically and empirically validated behaviour of humans. [A good example is the famous Milgrom experiment.] I have written about it at length in DOF. It is based on a substantial reading of psychology, anthropology, history, and economics, as well as experience of how powerful people behave behind closed doors. Not for nothing did Mao note that power flows from the barrel of a gun. There are huge pressures for power.

– Ireland and Iceland
Seems to be a common theme there: limited or absent attack from neighbouring nations, unlike in mainland Europe, India, or China. In other words, they had a natural fortress, being remote island states. I agree that a so-called 'anarcho-capitalism', or what Nozick calls ultra-minimal state, could potentially exist under such circumstances, but it would need someone like a philosopher king to kickstart the process; an enlightened ruler or leader.

I haven't found time to read more on this rather interesting examle but would like to, when I find some time. I do know a little bit about Ireland, that it ultimately came under English rule, being close to England. That surely ended its experiment with liberty, for it became an arch example of feudalism, that being (with its absentee feudal lords living in England) one of the main factors for its massive famine of 1850s.

– Afghanistan
I give this is an example of the great difficulty (if not impossibility) of 'anarcho-capitalism' arising spontaneously. This part of the world has historically been over-run by external hordes and has, over time, developed a very violent sub-culture of tribal groups and honour killings (also because of its difficult geography). Afghanistan's constant threat from outsiders has created a different pressure on it than the isolation of Iceland. Strong rulers did emerge from time to time to unite it, but whenever that has failed it has reverted to primitive tribalism.

– Insurance company example
I know it may sound really statist for me to say this, but in a modern liberal democracy there are three sets of insurance unlike in the model you've provided which has only two.

a) self-insurance through a wide range of options
b) formal insurance
c) fall-back superinsurance by the state

In other words, if an insurance company defaults under the liberal state, it is likely that the state will (be compelled to) undertake these actions on behalf of the insured (who could now be potentially bankrupted if the insured event occurs). The state generally does these things:

(a) reviews the regulations to ensure more prudential insurance practice;
(b) wages battle against the owners of the insurance companies in court; and
(c) channels relief of some sort for those most seriously affected by insurance fraud.

By the very act of regulating such companies, the government becomes a party to the transaction. It is also, under the social contract, the deemed super-insurer. Whether this amounts to forced redistribution in some cases, and is inefficient, is a moot point, but the basic fact is that people would rather trust a liberal state with its justice system than an entirely private system with defence and private courts. I know this sound harsh, because private courts may well have incentives to provide honest justice, but people know themselves better; they understand how easy it would be the purely private system to beome of den of coll
usion. There are severe principal-agent problems that your model does not even begin to understand. And Marxians are not total fools. They do have a point of sorts when they emhasise n-ach of McClelland through their numerous treatises on power and hegemony. You need to find out why people prefer the state as a super-insurerer in many cases.

Bot systemes are flawed. The issue then is whieh is better? We have the difficulty of estimating the risks of failure of these two systems. The conditional distributions and risks are very hard, if not impossible to calculate (history is only a guide: it does not predict the future). Therefore people use their knowledge and experience to assess which system is more likely to fail. The tendency is to support the 'known devil' in favour of the unknown. In DOF I propose a social contract where (among other things) people make conservative estimations and prefer the odd chance of a fraudulent judge in a liberal state to the odd chance of a fraudulent judge in the private system. Through a democracy people believe they will be able to build checks and balances to prevent the excesses of state, even as they gain many of its benefits.

I believe that a liberal state provides us with the optimum moral status – ie. least fraud within government and society, and a reasonable chance of a decent defence force. You are wrong (I believe) to say: "That precisely is what Government does. It forcefully takes money, gives poor quality defense, and forbid us from buying the service from private organizations." That may well be true of socialist governments and welfare states. It is not at all true of a strong but small and effective liberal state. Let me take unpack these three points:

a) Forcefully taking money: By performing predominantly the basic functions, the classical liberal state keeps tax rates low. And all its taxes are voted by the people: no taxation without representation. There is no force involved.

b) Poor quality defence (and police): Not true. While the USA may, for instance, not have most efficient defence, but it is far superior to the defence that Celtic Iceland hand (of course, US is not classical liberal; if it were, its defence would be more effective and much cheaper).

c) Prohibition on private organisations: Not true. The classical liberal state doesn't provide any service, including the services it enters into on grounds of the social minimum. Everything (including defence production) must be privatised or outsourced with strong and effective regulation.

I therefore would like to spend time thinking about (and ecourage you to think as well) regulatory in a classical liberal society to achieve minimal government interference, than dreaming about anarcho-capitalist utopias.

Some random questions:

– Spy agencies. Why are spy agencies a common denominator across all societies in history? Does that ring a bell? Why did Kautilya speak of the art of state in a manner similar to Machiavelli? Isn't history telling us something? Why are there layers and layers of strategy and deception in real life? That requires our being adept at the practical arts, not merely dreaming of an abstract theory.

– Why do democratic governments swear an oath to take power at a public event? Why are bureaucracies empowered to operate the machine of government (without taking any major decision) during the interregnum? Can we extend the caretaker period for ever? Why/ why not?

– Why do people prefer elected democratic governments which they can periodically overthrow to a permanent protective association to which they can switch their allegiance but can't change the management of? What if a particular family becomes a permanent owner of such a protective association?

– What would happen if protective associations started calling themselves by tribal names? Would people's tribal nature overpower their self-interest and lead them to war?

– Why, if private operations are so self-correcting (without external regulation) do people like Bernard Madoff arise so frequently in the marketplace? What makes people trustworthy, and why are so many people untrustworthy?

– Do you know that on the blog you post ( there was a post made by a person ( claiming bribery to be moral? Similarly, I have had the experience of two of India's well-known (in public) defenders of liberty stooping quite low: one stole the website of India Policy institute; the other took Rs.10,000 for a particular purpose but when that was not filled, refused to return the money. Both these were fixed through a lot of exertion on my part and the use of the internet, but why it that among 'libertarians' are people with really lowest moral standards? (That is just my experience and I should not generalise, but liberatarians, I thought, should hold a higher standard of morality than normal).

– If people are rational and will always do the right thing in a logical manner, why do we have so many suicides each year (‘More people die from suicide than in all of the several armed conflicts around the world.’ (click here))?

– And why do the vast majority of people do things they know are not good for them (e.g. not exercise, eat and drink too much, even prescription drugs – cf. Michael Jackson)? And why do many of us prefer to hand over control our ourselves, in part, to external people (e.g. attending boot camps)?

– Why do organised gangs of criminals exist (e.g. bikie gangs/mafia/KKK)? Why do makers of viruses (and hackers) exist?

I can go on and on.

Opportunism; heuristics; strategic behaviour; irrational exuberance and depression…

The point I'm making is: we can't ignore the phenomenon called human behaviour by arguing for a deductive system (anarcho-capitalism). We need a combination: deductive (from fundamental premises), and inductive. The inductive approach tells us what actually works (the why comes next). That is the only scientific approach towards society. We can only struggle to achieve an approximation ot a free society. The thing that works well is a good regulatory sustem and checks and balances.

We do seem to agree on some basics:
I believe that the 'state' you propose is a distant dream (at best) and not of interest to me in this life. It can exist only under the shelter (fortress) of a liberal state, so it may be better to get that happening than waste time on a distant dream. You too seem to agreed to this (at least partially), thus:

a) "Anarchy is not the natural state of social organization. Anarchy can’t come into existence when a large majority of people believe some sort of government is necessary. I never said that it is easy to achieve anarchy. It requires an education process which would take a long time."

b) "It is very unlikely that Anarcho-Capitalism will sprout up in a place that has almost no knowledge of the enlightenment, any experience in individual property rights or advanced markets and has been in a state of constant war for 30 years."

You therefore face two serious challenges:

i) Persuading the practitioners of human affairs (like me) about the ultraminimal 'state' (ref. my outline critique of Nozick in DOF for a critique. In particular, I note that: "Nozick thus believes, with (almost delusional?) optimism that ‘generally people will do what they are morally required to do’"
– I may agree to that at a broad level, but the conditions that create it are complex and require a very strong enforcement mechanism, as well.) .

Your challenge is made even harder because most mainstream economists, after reviewing all types of systems, are generally wedded to classical liberalism or its forms. Moving the intellectual debate towards anarcho-capitalism is a mega-challenge.

ii) Getting from persuasion to action is an even bigger challenge. The state you propose is non-violence and based on economic calculation. So why will a bunch of economising people want to topple the state which provides them with 95 per cent of what they want. Note that Nozick himself discusses the motivations of democratic rule which lead to middle class welfare: democracies are essentially a competitive contest between the self-interests of various groups. Whatever else you can obtain democratically, you cannot dissolve the state democratically and create anarcho-capitalism.

What next?
This debate is now becoming somewhat repetitive and not adding much value to either of us. I therefore suggest that we close it and move on. I am unlikely to (having read Nozick and some of your arguments) change my considered views about classical liberal capitalism. And so I'd like to stay rooted to the practical level.

I'll be quite happy if I can help (in the smallest possible way) India devleop a strong liberal party that champions the liberty of all people. Indeed, the people of India first need to agree to capitalism, leave alone anarcho-capitalism. So we need to work on incrementally moving towards a liberal state. After 100 generations an ultraminimal state may well appear, that looks similar to an anarcho-capitalist society.

I have enjoyed our debate so far but it is taking too much of my time with increasingly diminishing returns. So this will be my last post on the subject. I need to finish DOF and do a few other things. You will also exuse me if my arguments have sounded bumpy and incoherent. I do work full-time and then virtually every spare minute of my waking day, so my brain is virtually exhausted at the moment, but I need to finish this and move on.

I look forward to your considering FTI in due course as a platform where you can meet like-minded people.

Addendum 7 July:
As is widely understood in the economics literature, two key problems restrain private clubs or associations from taking charge of all our needs (for public goods). The first is free riding and the second the huge transaction cost each citizen will have to undertake in order to sign separate contracts for each public good, and to enforce and monitor those contracts (to exclude those who have not signed up for the good, and to ensure regular payment for these goods). It is enormously cheaper for us to force everyone in society to pay in some form or other for public goods and also to select a representative who will decide most public good provisions on our behalf, thus saving us time and money in monitoring and enforcing these.

Shanu 7 July 2009
I would suggest that you read Hans-Hermann Hoppe's essay, "Fallacies of the Public Goods Theory and the Production of Security" in his book, "The Economics And Ethics Of Private Property.The book is available for free download at .You just have to go to the literature section and search. Hoppe is of the opinion that the concept of public goods is purely arbitrary and doesn't make any sense. Moreover, he points out that even if these goods won't be provided adequately on a free market when a person says that it should be provided collectively is getting into the realm of ethics. However, mostly, proponents of this theory lack a comprehensive ethical theory.

Sanjeev 7 July 2009
Ethics do not exist in a vacuum nor is there a book of ethics that God has personally signed and provided online for us to refer to. In other words, questions about ethics should be included in a political philosophy only to the extent we are discussing agreed accountabilities. There are no ethics in the state of nature.

The assumptions used by many libertarians are often highly flawed (as in Nozick's assertion that people have rights – a claim I have vigorously opposed in DOF). These flawed assertions could well be used to construct palatial ivory towers and systems of moral philosophy, but these are merely pieces of paper without enforceable clout.

In my view as discussed in DOF, the concepts of ethics must result in shared explicit understandings articulated through the legal system; no matter what their origin. If two people can disagree on things like abortion/ according homosexuality legal status, then you can well understand the impossibility of using a view of moral philosophy and imposing it on an entire society. Indeed, libertarian views (such as Nozick's 1974 view) often violently oppose what the majority of the people consider ethical and moral. It is not clear, for instance, that insisting on relying purely on charity to abolish poverty is ethical or will be perceived as such by the common man. How has any libertarian helped any poor scavenger orphan? There can be, in this sense, many views of ethics.

While Kantian principles could lead to the harsh form of ethics that Nozick applies, they can also lead to a softer version (indeed, many softer versions). I do not believe in harsh unilateral perspectives on anything. There must be persuasion and agreement (shared understanding).

Thus, while I am broadly aware of the stream of libertarian thought (and I'll try to read what you've cited) I'm not sure if you or any other libertarian has studied the enormous challenges of real life economic issues, such as the principal-agent problem, transaction cost analysis, and the theory of contracts and property rights, among others. I will, when I find time, read your references (and I thank you for these in advance). I am concerned that the harsh and self-proclaimed ethical posturing of liberatrians is unlikely to lead them to a postion from which they can persuade people. Do not throw the book of ethics at anyone. Form shared undersatndings. And do get into details. I find the talk about anarcho-capitalism too fluffy and absent in any realistic detail that I can get my hands on. The only such book (with similar ideas) I've gone through is Nozick's 1974 book and it implodes with its first sentence.

Shanu 8 July

Dear Sanjeev,

What I meant was this: It is understandable if someone says that law and defense services can't be provided satisfactorily by the market. He is not making any moral judgment here. He is not getting into ethics. However, when he says that these services should be provided by the Government, he is making a moral judgment. He is getting into the realm of ethics. The statement that the Government should protect people from theft and murder implies that theft and murder are immoral from your view point. Even if you prove the evil consequences of these acts, it is not at all evident that these acts should be met with retaliation. What if a robber thinks that he should be free to rob, or a murderer thinks that he should be free to murder? Why do you stand against his position? How do you justify that stance? It is not sufficient to simply state that murder and theft are wrong, you have to logically, objectively prove your position. To prove it, one need a theory of ethics.The question is-Why do you make moral judgments when you think th
at ethics is subjective, and people have no rights? Isn't that a contradiction?

I brought this up because you said I would be imposing my views on others by bringing Anarcho-capitalism into existence.When you say that no one should initiate force against you, or any other person,under any circumstances, that is not imposing views on them.It would be considered that way only under an irrational concept of freedom. Not under a rational concept of freedom. I know that you are familiar with Ayn Rand's works and is in agreement with some of her positions.I don't know whether you have gone deep into it.She has a very rational code of ethics.

Sanjeev 8 July

Dear Shanu

In BFN and DOF the key point I make is that each freedom is accompanied by its matching accounts (accountability) including attributions. This concept of accountabilities is underpinned by ethics. Thus freedom and justice are two sides of the same coin.

However, and this is the key – there are no ethics in the state of nature. Biological evolution has not created any ethics or rights in any animal. Biological evolution (and our design as animals) is amoral. Everything goes in the state of nature. Might (or cunning) usually becomes right. Our brain – and we do have a weak moral sense – yields a "weak ethics" in comparison to modern, much stronger, ethical conceptions which aim to use purely rational arguments of ethics (but our brain is not rational at the operational level: it runs as a whole, and includes irrational elements in abundance. E.g. hormonal changes can create excitement/ euphoria/depression and affect our ethical sense).

I claim therefore (and this a scientific observation) there are no innate rights or ethics but ONLY negotiated rights and ethics created and enforced a social contract (whether explicit or implicit). I won't repeat the entire section from DOF here but I'd refer you particularly to the detailed discussion on accountability in Chapter 4.

I therefore make no assertion about rights (unlike libertarians). I make assertions about negotiated rights, instead. These are totally different approaches. One is near-delusional (libertarian); the other is scientific. Rights have no meaning without enforcement, so a philosophy of rights without a detailed discussion of enforcement is meaningless. And enforcement must be based on the analysis of real institutions, and real history, not imaginary protection associations and insurance companies (which never existed precisely as libertarians imagine them, nor will; being totally unstable and incompatible with the way humans actually work).

In other words I believe libertarians are like mathematicians and may provide useful insights with their imaginary models. But at the end it is the engineers who will pick and choose what results of that mathematics, if any, they will apply to take society from say, socialism, to capitalism. Classical liberals are scientists not dreamers. And we believe in looking at real societies and nudging them towards desired goals of freedom. That is a totally different science, primarily inductive.

I therefore look at humans with the lens of science. How do they actualy behave (not how they should behave). I look at society scientifically, as well. How does it actually behave? How do mobs come into being? How to groups of people react to incentives? That helps me propose principles for human co-existence that are scientific and taken into account the ideals of rights and ethics. Classical liberalism therfore does not make any assertion. Only observations. And from simple things like the value of life and liberty, seeks to design rights and ethics that we want. It therefore creates freedoms for mankind from a state of nature where there are only animal rights and where might is the only right.

I obviously have a personal ethical code (I am not bound by any single person such as Any Rand but all ethical codes boil down to the same principles), and I demand an ethical society in India (or elsewhere) but I know that ethical theories are meaningless without a legal framework and enforcement mechanism. Ethics is thus, to me, a tiny subset of political philosophy. Moral philosophy is an outcome (in practice) of political philosophy, not the other way around.

Shanu 8 July 2009
Dear Sanjeev,

Libertarians believe that a rational code of ethics is possible based on human nature.I don't think it makes sense to argue that human beings don't have a nature. And, if human beings have a nature, that fact doesn't change when they interact with other human beings.Based on human nature, we can say what is good for human beings and what is not.Classical Liberals are mostly Utilitarians, and they are of the opinion that most people value happiness over misery, and wealth over poverty and life over death.Utilitarians, however don't have an answer to a person who claims that he values death over life.They don't have a justification for initial allocation of property rights either.How could an Utilitarian justify the way property was acquired in the past? Why should those property titles be respected, if acquired through force?

An Objective code of ethics is based on human life.It could be defended in several ways. One, value presupposes a process of valuation, and values are impossible in the absence of life.Another is that a person can't claim that he values life over death, as if that was the case he won't be alive and taking part of the discussion. He would be contradicting himself. If a person truly valued death, he would be removing himself from the picture, and his position is not relevant.Socialism should be rejected on this code of ethics on the basis that most of the mankind would perish, and ethics should permit the survival of mankind.

I think we should leave it here,so that you can focus on your book, and I on mine. I hope to convince you better through the parts on "Ethics" and "Anarchy" in my book.

Sanjeev 8 July 2009

Yes, we should park it here (at this stage). I don't think you are getting my point at all. I now feel you've read DOF very sketchily else you wouldn't have even brought utilitarianism into the picture (I have a separate subsection critiquing it). I have also roundly critiqued, in DOF, the Nozickian conception of compensating those who come later on the scene. You can't go back 70,000 years. And if 70,000 years then why not 4 billion years? In the view I have outlined, all property rights as of the date of creation of a nation must be respected, else they are not property rights as negotiated. I.e. the date India was formed, all property rights were to be respected. No exceptions (link this comment to BFN where I strongly argue for such property rights).

The conception of ethics you have in mind is incompatible with the social contract and negotiated accountabilities. It seems to stand alone in aether. I don't see such ethical standards anywhere, no matter how hard I look. In Myanmar, in Zimbabwe, in North Korea?

And which conception of ethics is acceptable to all? Show me one. These thigns totally disprove the possibility of a single ethical standard. All genuine standards are negotiated standards, albeit very similar in conception (being based on 'tit for tat' model or Golden Rule).

People are strategic. That sums it all. Those in positions of power maximise their power (and wealth); those not in positions of power also maximise their power (by colluding with those that have it). This is a simplistic depiction of th
e game theoretic conception of the balance of powers social contract in DOF, where everyone is trying to grab just a bit more for themselves through 'hook or crook' and what appears to be the case on the surface is not what is just below it. Deception and counter-deception rules in the model I have in mind, but ethical standards emerge strongly from this through self-interested game players.

In this strategic real world, the nonsense of 'rights' is seen as a theoretical construct with no meaning. Ask the people of Zimbabe or North Korea what rights they have! Anything that is not universal is nonsense, to say the least. Why do 80 per cent of the people on this planet not have rights if these were innate?

The most powerful books ever written were these: The Art of War by Sun Tzu, A book of Five Rings by Miyamoto Musashi, Art of War by Mao Tse Tung, Machiavelli's Prince, and Kautilya's Arthashastra. In similar vein other books include the recent The Master Strategist by Ketan Patel and many others like it.

The point I make is this. I don't know where you physically reside but the peace and security you find yourself in (and which gives you the opportunity to read and write) has been created by strategists and warriors, not by sterile moral philosophers.

Classical liberal includes real-life fighters like Locke, Jefferson, and Washignton who fought for freedom. Rajaji fought for India's freedom, similarly. These people engaged with the real world to nudge it towards desired outcomes (of liberty), one step at a time. They knew that what blocks liberty is not sterile philosophical debate about rights and ethics but the ability to build the demand for freedom and organise people.

While I have a very clear (persuasively logical, being inductive) theory, you must read and understand my particular theory and not mix it with all kinds of things you may have read in relation to classical liberalism. I am, in brief, more interested in the application of the theory to India.

The conception I have is of leadership. We need leaders for freedom. Not just abstract thinkers. I'm looking for people who can write sensibly and cogently on this subject and produce brochures and flyers (stories) that will motivate the people of India to demand freedom and overthrow corruption. That is a task far more important to me than sterile debate.

I seek your help in achieving this common goal: of nudging India one small (tiny!) step towards greater freedom in our lifetime. Let's forget theory for a while (I have no intention of becoming an academic) and move into reality.

A few days ago I chanced upon the writings of one Kelley L. Ross at: where he writes: "Since I became persuaded of Classical Liberal (i.e. libertarian) ideas" etc.

I wrote to him thus: "Just a quick email to note that classical liberalism is dramatically different from libertarianism."

It turns out that this gentleman was a Libertarian Patry (USA) candidate "I had run for office as a Libertarian seven times — four times for California State Assembly, 1994, 1996, 1998, & 2000, and three times for Congress, 2002, 2004, & 2006." – see:

It also turns out (happily for the future of the world, I believe) that by 2008 he got totally disillusioned by libertarianism. Kelley Ross replied thus to me today: "Well, yes. See Best wishes, Kelley Ross".

Have a read of both these articles. These are very long and often localised (US issues), but a useful (not perfect) source of some key differences between libertarians and classical liberals.

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Our politicians have no option but to be corrupt

Sanjeev Sabhlok

This article was published in the June 2009 issue of Freedom First.

No other well-established democracy generates the super-corrupt, even criminal political leaders that ours does. This month I outline why we necessarily end up with corrupt politicians.

Black money – the fuel of our democracy

India is a mega-democracy. Our average constituency has more people than many countries do. Therefore, if a candidate wants to reach out to the 15 lakh voters of the average Indian constituency, many of them living in remote villages, he has to spend quite a bit of money. Most major candidates spend a few crore rupees in each election, and someone who spends only within the official limit of Rs. 25 lakhs per constituency is almost certain to lose.

Further, we Indians are somewhat peculiar. We contribute a lot of our time and money to NGOs, schools, and temples, but refuse to pay a single paisa to political parties. So how are our parties to find the crores of rupees they need to contest elections? The answer is self-evident: By entering India’s underworld and tapping into its huge rivers of corrupt black money. Criminal ‘businessmen’ who want to take undue advantage of corrupt politicians are the major financiers of political parties. But far more money is collected by incumbent governments directly – through ‘cuts’ from government contracts, under-the-table charges for admission to government medical colleges, and auction of ‘lucrative’ government jobs to the highest bidder. A huge mafia is busy at work, running our country round the clock.

Laws designed to keep out the honest

In addition, our electoral laws weed out all competent and honest persons. This is how:

Filter 1: Monetary losses keep the prudent out Consider Mr. Harishchandra’s case. He is an honest (and modestly competent) middle class person who wants to be our political representative and is determined to spend only up to the prescribed limit. He manages to raise 5 lakhs in ‘white’ money from his supporters, and then needs to borrow the remaining Rs. 20 lakhs. But because we do not reimburse candidates the costs of contesting elections, a simple calculation shows him that even if he wins, he will lose a fortune (this wouldn’t happen in Australia where they reimburse candidates a small amount for each valid vote polled – see my book, Breaking Free of Nehru, for details.) Being prudent, he (wisely!) pulls out. Thus, our laws filter out 99 per cent of our population at the first step. The entire poor and middle class, and all the prudent rich are ‘legally’ deemed to be ineligible to contest.

Filter 2: Low salaries keep out the competent Now, there may well be some really competent people out of the remaining one per cent (imprudent rich). But they will be compensated very poorly for their time if they get elected – only Rs. 33,000 per month (about 20 paisa per year per voter). Therefore only those who are capable of earning equal to or less than an MP’s salary will join politics – mainly the incompetent children of the imprudent rich.

Filter 3: Perjury keeps out the honest Since winning elections requires spending at least a multiple of the official limit, and that can only be done by spending black money, almost all our successful candidates must necessarily lodge fraudulent electoral accounts. Perjury is therefore a basic requirement for becoming an MP. But of course, that completely rules out all honest people.

The socialist intervention of electoral expenditure limits

Some of us remember that banning the import of gold in the 1960s and 1970s merely created gangs of smugglers. Similarly, forcing political parties to restrict their spending is guaranteed to make politics a den of crime. But we must also object to this restriction on philosophical grounds.

A free society must never restrict any activity unless it has been conclusively proven to harm others. So on what basis can a free society impose such limits on electoral expenses, since contesting elections is a perfectly legal activity – indeed, a sign of good citizenship? Everyone must therefore remain free to preach their political views without any ad hoc restrictions. Let’s say the supporters of a popular leader want to fund his campaign heavily. On what basis do we restrict the freedom of citizens of a free country to fund their preferred leader? (That also rules out limits on donations to political parties.) Why do we care about how clean money is used – if its purpose is honest? The problem, surely, is only with black money. So let us have policies that deal with that problem, and not randomly block freedoms by imposing arbitrary restrictions.

But apparently, some socialists feel that imposing limits helps us to level the playing field and reduce any undue advantage that candidates who spend more apparently enjoy. But contesting elections is about our freedom to persuade others, not about equal opportunity. And if we are really so keen about equal opportunity, why not simply ‘elect’ our representatives through a random lottery among all citizens?

Finally, we all know that merely throwing wads of money at voters never got anyone elected. Our slum dwellers are sharp enough to take bribes from everyone but then vote, inside the secrecy of the polling booth, only for the candidate of their choice. There is thus not one sensible argument in favour of imposing socialist limits on electoral expenses.

Worst of all, these limits are never enforced, anyway. There is no requirement to independently audit and publish all political receipts and expenditures. Only those without ethics (the hypocrites) can therefore mingle with such a political system. And thus, so while the Westminster model we follow is able to generate competent and honest leaders in Australia, our version only generates the most dishonest. And after (thus) hiring the most dishonest, we hand over the keys of the public exchequer to them! We elect thieves and then act surprised when they loot the nation.

The reforms we need

If we really want honest politicians, we must demand the abolition of socialist election expenditure limits, and build audit systems to enforce the use of white money in elections. We can begin this task right now, by getting a copy of our local candidates’ electoral accounts from our Returning Officer for Rs. 1, auditing these accounts, and publishing our findings.

In addition, the state must partially reimburse candidates (say, Rs. 15 for each valid vote cast). That will make it easier for honest people to contest elections. Finally, we must increase the wages of MPs and MLAs at least by a factor of ten, while getting rid of their hidden perks. That will encourage competent people to enter politics. While our citizens will still need to start contributing to political parties and get more actively involved, at least we will then be on the way towards an honest government.

Freedom Team of India (FTI)

Let me assure you that these reforms won’t happen by themselves. Liberals will have to implement them by first forming government. The FTI ( is working towards that objective for 2014 and beyond. It has released its first draft policy (on religious freedom) and has invited comments on its website. I look forward to your active participation and support.

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Is liberalism on the decline?

An academic from Russia asked me the following questions (in bold) a few weeks back. I'm posting my responses here for the record, noting that I did not have much time to respond and so the language and argument could well have been significantly improved. But a blog is meant for such things: both semi-finished and finished products.

1. Is liberalism of Western type on the decline from both political and intellectual point of view? If it is so, can you define what is the concrete expression of this decline, and what can be a possible transformation of the whole notion of liberalism? If you disagree with this point of view, how could you define the present political and intellectual status of liberalism?

As is well known, there are a range of Western-type political conceptions that consider themselves liberal: the defenders of liberty. I subscribe to the version broadly classified as classical liberalism. In my view, later (mostly 20th century) versions of ‘liberalism’ do not defend our liberties but are in essence a form of welfare socialism. A great amount of mercantilism and statism also continues in the West today, masquerading as liberalism.

So we would need to know what ‘liberalism’ we are referring to (e.g. to suggest that there is a liberalism of the ‘Western type’ is a very broad generalisation that simply cannot capture the differences among these various forms). Since, in my view, the West has hardly ever been fully liberal in the classical liberal sense, there cannot be a decline of liberalism. Merely variations in the levels of welfare socialism and the like.

Whether liberalism is on the decline, one thing is sure: the freedoms of the West are currently declining badly. Illiberal ideas seem to be growing stronger in the West with each passing day, though the recent elections in the European Union given pause to such growth, indicating that the common citizen is beginning to dissociate himself from the false claims of social democrats and welfare socialists who have denied the value of liberalism in modern society.

My regret is that many policy makers in the West have refused to recognise that the recent ‘global financial crisis’ (GFC) has been caused primarily by their rejection of freedom (see [Addendum: this has moved – search on google) for arguments to illustrate my contention). The type of illiberal policies instrumental in precipitating the GFC include the centrally administered price of money by central banks (noting that central banks are essentially Marxian, being one of the ten pillars of communism: classical liberals do not advocate centralised money or banking or the administered price of money). Western welfare socialism has also meant a major government subsidisation of banks and mortgagees and a range of other bad practices too many to recount. Welfare socialism in its various forms seems to be very attractive to politicians in their short term interest, but it badly price signals and confuses investors, leading to huge wastage of capital and hurting the consumer. Poor regulation of the investment banking system and financial derivatives has added to the mix of problems for the West. None of these problems have come from freedom that is constrained by accountability. There has been either too much interference with markets, or too much freedom given without prudential regulation.

Sadly, the solutions currently being advocated by governments in the West will inevitably increase its economic problems in the face of rising competition from China and India.

There is only one long term solution for the West (and the world, more generally): to reinstate and advance freedom with accountability. Fortunately, the internet has prompted a revival of the ideas of freedom. The battle for the hearts and minds of policy makers is being furiously waged today. It would appear that the ultimate victory and resurgence of freedom is inevitable, given historical trends of the past few hundred years. I refer to the long term-trend towards increased freedom in the world. But I do not believe the West (or the rest of the world) will adopt liberalism and freedom easily. In the draft manuscript of my next book, The Discovery of Freedom – ( I have noted that: “Given the early stages or freedom in the world today, it may take another 200 years or more for the policies of freedom to become more widely adopted.”

It is heartening to note the growing number of educated people who are beginning to question illiberal policies. A recent example of the debates against centralist or statist interventions in the area of higher education and research and development is found in the book, Sex, Science and Profits by Terence Kealey, which I have reviewed at:

In brief, the fight for our freedoms worldwide has only just begun. There will be many temporary setbacks on the journey, but despite them liberalism will keep spreading and expanding across the world.

2. If you agree with the point of view that today liberalism is undergoing a period of crisis, why do you think there has been no ideological alternative to it within other schools of thought? Do you consider such an alternative possible or should we simply wait for the "rebirth" of the liberalism (meaning that a new version will reject some of its forms that have become unacceptable by now)?

As noted above, I do not believe that any ideological alternative to classical liberalism is needed. Only its continued and steady resurgence. This statement might sound too complacent, but liberalism encompasses an inbuilt need for continuous improvement. As Hayek said, “There has never been a time when liberal ideals were fully realized and when liberalism did not look forward to further improvement of institutions.”

3. Do you agree that one of the factors that led to a decline of liberalism, was the misuse of the notion during Bush era, when neo-liberal ideology got associated with militarism and 'spreading democracy’ by force? In that case, doesn’t it signify a serious political and ideological defeat for the West?

While there has been no decline of classical liberalism, there has been a noticeable decline in freedoms in the West over the past fifty years or so.

Regarding the recent economic plight of the West, the GFC has little or nothing to do with the former President George Bush’s drive to spread democracy ‘by force’ (that would be a serious misrepresentation of Bush’s stated and implied goals). It has, however, everything to do with Western (Bush’s including) illiberalism in the economic policy arena.

In the draft manuscript of my book, The Discovery of Freedom I have suggested that the West should stop wasting money on foreign aid and shift its focus to supporting freedom throughout the world in non-militarist ways:

“The West could therefore look for ways to teach its ‘fishing methods’ to the poorer nations, and stop providing them with ‘fish’ (which does not reach them, anyway). Doing so will not only be cheaper, it is the only ethical way to help one’s fellowmen without doing their work for them. And of course, before it claims to teach freedom to the East, it is obliged to throw open its markets and stop hiding behind trade barriers. But instead of doing these things, the West has spent, and continues to spend, trillions of dollars in strengthening its defences against its unknown enemies from the East. It then fights with a vengeance over trifles, and pours hundreds of billions of dollars into its ferocious wars. While that may be sensible if the West expects the world to last only for another twenty years, it will be more sensible for it to spend far less money – but on the right things: in spreading the message of freedom.”

I have also outlined many ways by which the West could support freedom. None of these methods include invading any countries.

4. Has the current global economic crisis brought an end to the global liberalization?

I assume you are referring to what is commonly called globalisation which includes both internal liberalisation and external (trade and investment) liberalisation. If so, I doubt it if the GFC has brought an end to globalisation.

First, the so-called global liberalisation till before the GFC was very patchy and incomplete. While more open than at any time in the past century, the world was still very closed. That is why many battles for freedom of trade and investment were still being fought at the WTO. Most countries had still not opened up their economies as would be desired, nor freed their foreign exchange markets.

After the GFC it is true that there has been a growing demand for welfare socialism and restrictions on trade and investment (with USA taking the lead). However, this is likely to be a temporary phenomenon, given the long-term trend towards greater freedom and liberalisation.

Second, it is worth recalling that in 1750, China accounted for 33 per cent of world’s manufacturing output and India 25 per cent. That situation will likely re-emerge in the coming 100 years. But the only way it can happen is for these two countries to liberalise dramatically. Therefore India and China are unlikely to push back their liberalisation. Even the West will sooner or later pull back from its current protectionist phase and re-assert its leadership in freedom.

But the GFC throws up a great once-in-a-lifetime opportunity for developing countries to follow the best policies of freedom and liberalism and to race ahead of the West.

5. If liberalism still has some potential, what versions of liberalism can be acceptable today? What liberal ideas the West will never reject?

Tolerance and democracy will likely remain the minimum expression of liberalism in the West. But if the West continues to harm down its economy then even these freedoms could be threatened. Thus, once the USA nationalises its banks and major industries, it will then be on the early stages of becoming an India, if not a USSR. Fortunately for the USA, I believe it has a good Constitution and it will pull back before the brink.

6. Is religious liberalism possible in any form in present-day society? And what could its possible forms be?

Religious freedom is a mandatory requirement of liberalism. Tolerance for all religions, under the overarching supremacy of the rule of law – a law made by elected citizens – is the way of freedom. Religious liberalism is feasible in all societies, even Islamic ones.

What does the word ‘liberalism’ mean for India ? How has the very notion changed during last decades? Has it been used as a political tool and for what end? Is being called a ‘liberal’ in today’s India a sign of condemnation or praise? And why?

India has been a socialist country ever since Nehru got enamoured by it in the 1920s and 1930s. It therefore remains predominantly socialist even though notionally a few of its economic markets have now been freed up (many restrictions still remain). Indian intellectuals have, by and large, still not understood liberalism and freedom, and are reluctant to call themselves liberal, being happiest to call themselves socialist. Thus there is no liberal political party in India even now. Trying to get one up and running is one of my objectives.

Addendum 13 June 2009. A sensible article by Paul Kelly in The Australian today. Fix it, Don't Break it.

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Sex, Science and Profits by Terence Kealey

The death knell of government funding of tertiary eduation, science, and research.

I accidentally came across this book (London: William Heinemann, 2008) while browsing a bookshop last week and bought it because it was very well written and dealt with economic policy. By the time I finished it (just a few hours after starting it, so engagingly written is this book!) I found that I now have another personal companion for life: a book to live with; to carefully re-read when one has some time on one’s hands. It is on par with my top favourties: Julian Simon’s The Ulitmate Resource; Milton Friedman’s Capitalism and Freedom; Ayn Rand’s Capitalism: The Unknown Ideal.

What I like is that F. A. Hayek is very strongly vindidated through this book (even though Kealey doesn’t cite Hayek even once). The book offers the strongest possible support for sponteneous order and self-interested drivers for the advancement of science and technology. It tells us that freedom should be our first priority in life, along with the accompanying systems of justice and law and order. Everything else we can take care of ourselves. We want our governments to stay away from us as much as possible for they harm us badly each time they try to help us.

The book sends higher education and science bureaucrats packing! They won’t like it one bit. Indeed, the collectivists, mercantilists, and statists in our midst (most ‘intellectuals’ fall in one or other of these categories) will resist the message of this book and keep harping on the need for government funding of higher education and R&D for apparently that is the only way to foster innovation. But Kealey shows that innovation has overwhelmingly come through privately funded initiatives. Indeed, wherever the government supports higher education and research, expect it to damage all prospects of innovation.

Sadly (and as expected), many modern economists with fancy toolkits but with little understanding of business, science, or society have fared rather poorly. But the book vindicates some of my favourite economists: Adam Smith, Joseph Schumpeter, Armen Alchian, von Neumann, and Robert Axelrod, among others. The book has also reminded me that I should try to read up more on Thornstein Veblen when I get some time: a person much neglected today. Also William Baumol and a few other modern economists. Unfortunately, one simply doesn’t have the time to read everyone.

What was really surprising, though (and this is simply an aside; nothing to do with the book’s main theme), was my discovery that Keynes once thought that The Origin of the Species is ‘economics couched in scientific language’ (p.361). That is quite startling, for it implies that Keynes possibly had a broader, evolutionary view of society and understood the nature of competition and spontaneous order – but that view doesn’t seem to come through in his rather statist General Theory that demands collectivist intereference in our freedoms by the state.

Either way, the classical liberals have been strongly vindicated. Most mind blowing (as far as I am concerned) in the book was the vindication of Thomas Jefferson’s famous belief that ideas should be free. As he had said, “He who receives an idea from me without lessening me, as he who lights his candle at mine receives light without darkening me.” Kealey confirms that Jefferson was right and that governments should not issue patents (except in the pharmaceuticals industry) for issuing patents almost invariably harms innovation and significantly reduces wealth – including the wealth of patent holders themselves! Even patent holders are far better off by using their findings commercially and letting competitors try to improve things: that triggers further innovation rapidly and yields the highest profits for everyone.

This book strongly reinforces the purely market-based model for university education (supported by loans from government for students) that I have advocated in Breaking Free of Nehru. In particular, for the Freedom Team of India, my message would be: we shouldn’t advocate government funding for universities in India. Let the market work out what it needs, including the science it needs. Much material from this brilliant book will now find its way into my second book, The Discovery of Freedom in the coming weeks. It supports everything I have been saying. No wonder I like it so much!

A brilliant piece of work! STRONGLY recommended!


Excellent article by Peter Roberts in AFR 21 October 2010, p.68, “Funding’s role in science”

From catalaxy files

Terence Kealey on the economics of scientific research

A summary of the book appeared in a series of posts on the Cat a few years ago and this is theconsolidated summaries.
A few extracts to give the flavour.
Chapter 5. The Agricultural Revolution.
The area of innovation shifted to Holland and England. Vital innovations such as crop rotation and systematic improvement of crops and pastures were driven by gentleman farmers such as “Turnip” Townsend and associations such as the Lunar Society which consisted of a mix of scientists, engineers and industrialists.  By 1850 agricultural productivity in Britain was increasing by 0.5% per annum, unprecedented in history. Laissez faire ruled (almost) and there was no state involvement in research or industry policy.
Chapter 6. The Industrial Revolution.
Between 1780 and 1860 the population of Britain tripled from 7.5M to 23M and the real per capita income double in real terms across all classes.
The drivers were increased productivity of machines and the movement of labour from the land (and Ireland) to the factories.  The driver of machine technology was NOT science as predicted by the Bacon but the improvement of existing technology by ingenious artisans such as Newcomen, Watt, Trevithic and Stephenson. Amazingly, the scientists were struggling to keep up with the tradesmen! Hooke (the scientist) told Newcomen that his idea would not work while he was developing it (fortunately he persisted) and Carnot’s work on thermodynamics was prompted by Watt’s steam engine which could not work according to the laws of science as they were understood by leading scientists at the time.
France followed the Bacon model and set up glittering science laboratories and institutions of learning, while the state ran on the basis of taxes extorted by an army of Farmers-General (tax farmers) working on a commission basis with draconian powers of search, detention and confiscation. Hence the Revolution, while the science laboratories produced scientific advances without any impact on technology or the wealth of the French people.
Chapter 7. Economic History since 1870
This chapter is about the comparative economic performance of nations with some warnings about the valid and invalid comparisons that are often made. Invalid comparisons are often used to promote the Baconian approach to science with the aim of getting more state involvement by way of industry policy and public spending on science and education. A classic example is the comparison of Germany and Britain post 1870. Bismark’s warfare/welfare state sudsidised and protected local industries, especially steel. With the inflated cost of German steel it made sense for England to produce less and buy from Germany, still a lot of people just saw the decline of an industry, not wealth transfer from Germans to Britons. They also misread the play on technical education, being over-impressed by the network of state-funded technical colleges in Germany and forgetting about the 700+ industry-funded mechanics institutes that were established  in Britain between 1820 and 1850.
There is a stunning table on the economic performance of the current (1980) 16 richest nations from 1870 to 1980. These figures indicate  GDP per capita in 1870 adjusted to the $US in 1970.
Australia at 1393 leads the UK 972, Belgium 925, Holland 831, Switzerland 786, US 764.
On an index of  productivity Australia scored 1.3 compared with UK 0.8, Holland US and Belgium 0.7. Australia was at the bottom in growth of productivity since that time.
Chapter 8.  Science Policies of the Twentieth Century
In this chapter Kealey traced the evolution of science policy in the US and Britain. They both started with a substantially laissez faire economy and also minimal state involvement in science, then during the 20th century the Baconians and the Czars of science took over and they went for central funding and control in a big way. For those who have been receptive to Kealey’s argument thus far, the results are  predictable (cw 18th century France).
Chapter 10.  The Real Economics of Research
In this chapter Kealey looks at the economics of R&D and then the economics of academic science, in each case asking whether government funding is required to optimise spending.
He confirms three Laws of  Funding for Civil R&D.
First Law. The % of national GDP  spent increases with national DGP per capita.
Second Law. Public and private funding displace each other (compete). So public funds tend to displace private funds.
Third Law. The public/private displacement is not equal. Public funds displace a larger volume of private funds than the public input. (net loss).
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