Greetings,
I'm new to posting here but I've been reading along on and off for quite a while.
I'm writing my thesis and was asked by my promotors to also include a chapter on externalities in an absolutely free market, since they feel that I haven't adequately covered the subject in my proposal papers about how a free unregulated market is supposed to cope with for example factories in one location polluting water supplies around the globe or thinning out fish supplies on which others might depend. The main thing here perhaps is that it is impossible to point out which particular factory polluted which particular fish which lead to poisoning a food chain and possibly another person a few years later who ate a different fish that was higher up the ladder and still had concentrations of the pollution in its system.
Another one of the top of my head; when I build a house somewhere and 5 years later somebody builds a chemical plant right next to it on land which they rightfully bought and what have you, but which might or might not cause increased likelihood of cancer and which severly decreases my property value, how do we go from there (not the same as buying the land with the factory already there, it came after you paid the full price for the property). Or what if an airport opens nearby causing excessive noise, etc. What about sour rain passing over, or nearby farmers shooting up thunderstorms which maybe ends up with you having less rain. Perhaps ludicrous examples but I feel that there is and should be a good way of refuting them, I'm just not sure on how to do this in a sufficiently satisfying manner.
To be clear, I'm not the one that needs convincing, I'm as die-hard laissez-faire as it gets, but I don't know a good way to go about really tackling the problem clearly and properly instead of just saying "the market will fix it and that's all you need to know", because that's not going to cut it and I can't really blame them to expect something more.
I searched the forum but I can't seem to find that much precise information about externalities as such (possibly looked over some of it, please feel free to direct me to other threads as well or copy-paste something here if you don't feel like typing something out, although it would be very appreciated).
So I wonder, what are people's thoughts on externalities here?
Edit: a bit off topic, but I don't want to spam new topics all over the forum: I sometimes run into some problems when I on the one hand say that there should be little to no taxation, but people reply by asking how I am then going to uphold a military against foreign invasion of organized states and how the courts and police will be paid for.
"Socialism is the philosophy of failure, the creed of ignorance, and the gospel of envy."
http://www.last.fm/group/Anti-Socialism
Christophe:I'm writing my thesis and was asked by my promotors to also include a chapter on externalities in an absolutely free market, since they feel that I haven't adequately covered the subject in my proposal papers about how a free unregulated market is supposed to cope with for example factories in one location polluting water supplies around the globe or thinning out fish supplies on which others might depend. The main thing here perhaps is that it is impossible to point out which particular factory polluted which particular fish which lead to poisoning a food chain and possibly another person a few years later who ate a different fish that was higher up the ladder and still had concentrations of the pollution in its system.
I have such little patience for critics who accuse the market of creating externalities.
The government is nothing but one giant externality.
A crack head over doses, I pay for it.
G.W. Bush starts a war, I pay for it.
Someone lights their house on fire, I pay for it.
Someone loses their job, I pay for it.
Someone steals a car, I pay for it.
General Motors loses money, I pay for it.
Property rights is the mechanism humans have created to deal with externalities, so its no surpise that the government, which always ignores property rights, does nothing but create externalities.
Peace
Life and reality are neither logical nor illogical; they are simply given. But logic is the only tool available to man for the comprehension of both.—Ludwig von Mises
Life and reality are neither logical nor illogical; they are simply given. But logic is the only tool available to man for the comprehension of both.
Externalities are almost always BS: Their actual existence is often scientifically debatable, and their actual effects are often subjective and difficult to measure. However, if and when they do arise, they are the result of ”public" property and NOT private property. In fact, they are the result of lack of property rights and lack of their enforcement and not the other way around.
Consider for example that in a free society, all property is privately owned. In that case, all externalities would be treated as costs. For example, a factory could not dispose its toxic waste into a river because that river would be owned by somebody. The factory would be forced to compensate the owner or/and find alternate methods for disposing its waste. In this way, no factory could just pollute endlessly without bearing the costs. External affects would be regulated by the price system of the market. It is because "public" property that such problems arise in the first place. The river is owned by the "public", so that the factory can lobby the politicians in charge of the river to wave any costs. Pollution in effect is subsidized by the State! The State could not efficiently regulate such activity even if it wanted to due to the Calculation problem of Socialism. All those pointing to externalities as examples of market failures are, as usual, misdiagnosing the disease. If they take the current public “goods” as an a priori, then it is almost impossible for them to understand the cause of the problem.
As DD5 said, all of the pollution issues are resolved with respect for property rights.
This may help you with your chemical plant and airport problem: http://mises.org/story/3506
Christophe:Edit: a bit off topic, but I don't want to spam new topics all over the forum: I sometimes run into some problems when I on the one hand say that there should be little to no taxation, but people reply by asking how I am then going to uphold a military against foreign invasion of organized states and how the courts and police will be paid for.
You've come to the right place!
To answer briefly: Privately, or in another word, voluntarily.
People would hire security and pay for court services, just like any other industry. Included in fire insurance would be fire fighters, and included in home/personal insurance would be armed patrol. And these private police would actually exist to protect you, unlike government police who exist to protect the state by controlling you.
If a person didn't wish to spend his money on a new iphone would you consider it immoral to force him to buy one? Or in other words, to steal his money in exchange for the phone. Why should it be any different for so called "miltiary protection." Let people pay for as much as they want. If no one in a town acts to defend it preferring to let someone else do it, then when they are conquered they will all have received their preference.
But ultimately the existence of a state makes a population more vulnerable to invasion not less, as citizens of a state provide the chains of their enslavement to their conquer. All the conquerer must do its capture the state, and with it he receives the entire populice which it holds hostage.
Regarding the thinning of fish supplies, Rothbard addresses that subject in "For a New Liberty", chapter 13, pages 314-317. Basically, the problem is a lack of private property rights in the ocean. Nobody can own a part of the ocean, so instead of farming and conserving the resources within a given section of ocean, fishing companies are encouraged to gather as much as possible during the fishing season before their competitors can get those resources.
So, as others have said, it is a lack of private property rights that had brought on the externalities.
Christophe:The main thing here perhaps is that it is impossible to point out which particular factory polluted which particular fish which lead to poisoning a food chain and possibly another person a few years later who ate a different fish that was higher up the ladder and still had concentrations of the pollution in its system.
the science of forensics surrounding pollution, indeed the science of the environment is held back by the relative weakness of property titles, and the difficulty of recieving just recompense from polluters. If there was a more propertarian system, then profit and loss would lead to the improvement of science and technology in precisely the field where it is now lacking, a science of how much can my air be polluted before its unsafe and my insurance company will take pains to keep my air clear. a science of "where did the pollution that is on my land, or in my air, come from..."
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Thank you all for your replies, the part about lack of property rights on what at the moment are "public goods" is as obvious as it could be but I'm afraid I have to admit that after all these years of thinking long and hard about capitalism I never looked at "externalities" in that way. It's disturbing how much one is conditioned in just taking public property as a given.
Having said that, if you have more to add to what has been said already on the subject of "externalities", please don't hesitate.
One more thing though, does this mean that for example if I have a company and land somebody on Mars, I get to claim Mars as my own?
Does one own water or air? How far does property extend above and below the surface of land or water? What about genetic codes (I hear there are patents being taken out on unmodified genetic codes, which seems a strange thing to me since they're in everybody's body so basicly everybody already owns a set).
As to the other part, playing the devil's advocate some questions still remain:
JonBostwick: People would hire security and pay for court services, just like any other industry. Included in fire insurance would be fire fighters, and included in home/personal insurance would be armed patrol. And these private police would actually exist to protect you, unlike government police who exist to protect the state by controlling you.
I get the theory of it, but a village by village security force isn't going to be much help I think if for example China in a decade or two decided to invade a capitalist country that runs along the lines of private security forces. I don't see how global warfare like a world war is resistable by a capitalist region, because there should be no illusions I think that the best one could hope for within the next 500 years or so is small region-sized capitalistic areas at best in a sea of big state countries.
As for private court services, what's keeping courts from being "bought" by the wrongdoer, and who decides what the law is if there is no constitution or set of laws to follow (who decides them if there is no single set being set by a state-like organism).
Christophe: One more thing though, does this mean that for example if I have a company and land somebody on Mars, I get to claim Mars as my own?
Only if it transforms the natural state of the land into something useful. Only that part of the land could be claimed. See Homestead principle.
Christophe: I get the theory of it, but a village by village security force isn't going to be much help I think if for example China in a decade or two decided to invade a capitalist country that runs along the lines of private security forces.
I get the theory of it, but a village by village security force isn't going to be much help I think if for example China in a decade or two decided to invade a capitalist country that runs along the lines of private security forces.
Actually a free society could pose serious tactical problems for a foreign State military. For one thing, individuals in the free society are not restricted in any way from bearing arms. Military Invasion is one thing, but keeping it occupied is another. There is also no logical reason to as why the market could not respond to a demand for protection from foreign enemies. Defense services require scarce resources, thus, the economic problem of allocating resources that have alternative uses arises. There is no good economic explanation to as why a centrally planned defense agency (such as the US military) is somehow an exception to economic laws and therefore, must be superior to a free market one. If contemporary wars have proved one thing, it is that a big centrally organized military is not necessarily superior to a more decentralized army: Look at the Israeli-Hezbollah war in Lebanon a few years ago. One thing for sure, wars are extremely costly in both Capital and lives (human Capital). There would be no economic incentive to instigate a war. Defense would evolve in the market for just that: Defense!
Actually a free society could pose serious tactical problems for a foreign State military. For one thing, individuals in the free society are not restricted in any way from bearing arms. Military Invasion is one thing, but keeping it occupied is another.
There is also no logical reason to as why the market could not respond to a demand for protection from foreign enemies. Defense services require scarce resources, thus, the economic problem of allocating resources that have alternative uses arises. There is no good economic explanation to as why a centrally planned defense agency (such as the US military) is somehow an exception to economic laws and therefore, must be superior to a free market one. If contemporary wars have proved one thing, it is that a big centrally organized military is not necessarily superior to a more decentralized army: Look at the Israeli-Hezbollah war in Lebanon a few years ago.
One thing for sure, wars are extremely costly in both Capital and lives (human Capital). There would be no economic incentive to instigate a war. Defense would evolve in the market for just that: Defense!
Christophe:Does one own water or air? How far does property extend above and below the surface of land or water? What about genetic codes (I hear there are patents being taken out on unmodified genetic codes, which seems a strange thing to me since they're in everybody's body so basicly everybody already owns a set).
Homesteading theory asserts that you can only own what you have brought into productive use; if you own land, you don't own a cone extending from the centre of the earth to the high heavens!
For two good papers on law and economics see:
Law, Property Rights and Air Pollution and
The Idea of a Private Law Society
Irish Liberty Forum
Justin Spahr-Summers: Ayn Rand also briefly covered how a government could make money by charging a fee on every contract, so that this fee would effectively be the payment for the legal system which would enforce said contract. I don't know if she developed this idea on her own, but it's certainly worth considering.
That is as coercive as a fee can get! Ayn Rand was great but she sure did box herself into a corner.
I'm afraid I'm still not completely clear on air and water.
I breathe the air I breathe, doesn't that count as homesteading? And if not, why not?
Also pollution to me still seems to be an issue, you still have public property of sorts if you don't own the cone under and above your plot of land and nobody has "homesteaded" the unused underground, but groundwater underneath your property gets polluted for example by a chemical plant.
And what about somebody who starts digging a tunnel underneath your plot of land and mines something from right under you (no collapsing or whatever); it's all free game as long as they tunnel from a piece where they own the ground level?
Also, say that I own a piece of ocean, any piece, doesn't that imply that anybody who pollutes anything into the ocean de facto will have to end up paying me. If the guy who owns the plot of ocean next to me sells pollution rights then my piece of ocean will get polluted as well; who's responsible: the guy next to me or the original polluter who ends up paying the entire ocean as one thing links to another?
As far as fishing stocks are concerned, a lot of fish are migratory: they're the property of whoever's stretch of ocean they happen to be in at the time?
I agree that there is no incentive to start wars in a capitalistic world, but I also think you don't have to kid yourself into thinking that that's ever going to happen; you'll always have non-capitalistic regions as well and they'll go to war sooner or later. The death toll for decentralised armies tends to be a lot higher, etc?
It also seems to me that if I manage to get to Mars first the first thing for me to do is to set up pointless stuff to count as "homesteading", all the while creating as much pollution and noise etc as possible as to cause that everybody who then comes to Mars has no claims on me polluting and such whatsoever as I "homesteaded the pollution". In all if anything I think the idea of being able to homestead pollution, while I in theory do not have serious problems with under normal circumstances, in practice to me seems more like an incentive to over-pollute in all kinds and forms from the start to homestead higher levels of pollution than you'd actually emit, just to be on the save side to avoid claims over non-homesteaded pollution.
Keep in mind in practice what counts as "homesteading" is up for courts/arbiters to decide (and will likely vary according to local standards.) The court may require particular transformations before it is willing to uphold a property title as "legitimate", and these may even be standardised to facilitate dealings with other courts. If it refuses to, the person claiming the property may lack enough recognition from other members in society to be seen as having legitimately homesteaded it, and have trouble defending it... especially if other parties they enter into transactions with consider this an issue.
Freedom of markets is positively correlated with the degree of evolution in any society...
Externalities are a very real factor in the world, and in the mainstream view of the markets where each individual pays for his own costs, they are a troublesome deviance from the market-mechanism because it involves an individual forcing the costs upon another individual even though the former benefits from the while the latter does not (I find this to be one of the weaknesses in the mainstream view of markets, yet I don't know how to elucidate upon that point now). However, a large portion of all "externalities" are the fault of a nation's legal system, and the lack of private property rights. I speak more of externalities here if you're interested.
Abstract liberty, like other mere abstractions, is not to be found.
- Edmund Burke