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The Machinery of Freedom (1989) [pdf] (daviddfriedman.com)
62 points by olalonde 42 days ago | hide | past | favorite | 39 comments

Excellent book. I also recommend his recent "Legal Systems Very Different From Ours". It really makes you wonder to what extent our law may be in a local minimum.

Skimming the book there are number of issues which stand out.

With regards to 'selling the schools', in many places the charter school money just goes to tax exempt private landlords the charter school is leasing the building from without any substantial increase in benefits for students.

The section on taxes ignores state and local property tax and portfolio effect caused by deductions and expenses in federal income tax.

The chapter on money seems bad. Money is credit not a commodity. The simplest way to create money is through an equity loan not issuing gold certificates for gold bars. When someone wishes to take out a loan in 1M new-dollars on security of an estate worth 1M USD, the new dollars are a new unit of currency initially issued at a 1:1 ratio to USD which then floats.

The U.S. colonies did not originally have any gold. Issuing public money on security of estates allowed the colonies to provide a medium exchange for farmers without precious metals, raise revenue from interest payments without taxes, and economically develop despite mercantilist policies by Great Britain. During revolutionary war and war of 1812 the U.S. printed money and treasury notes to pay for existentially necessary expenses because taking out large loans in external currency which could not be paid off within 20 years or inflated was considered unethical to future generations.

Gold standard has caused lots of problems historically. Just going back to gold standard and depending upon private banks for money is not really solution. If a country does not have gold and residents are not allowed to domestically provide money as a public utility, on ideological grounds that anything 'public' is bad, this could prevent a country from developing if foreign lenders decide they can gain more through usury than by financing productive development, and could also prevent a country from financing defensive war during invasion.

I think the biggest problem of free markets is that they a great way to optimize the wrong thing. Anything that cannot be valued in money will be ignored (e.g. the environment), and what can be measured will fall victim of Goodhart's law, promoting narrow short-term interests over broad long-term issues.

As an optimization mechanism, failures of the market can be either one of two things:

- It optimizes the wrong thing, or

- It fails to optimize what it intends to optimize.

Externalities fit into the former category. Business cycles and some types of path dependence (e.g. Keynesian demand deficiency) fit into the latter.

The book is not juridically or economically naive. Externalities are considered.

The book is also not about moral philosophy and a priori concepts of property and freedom. Friedman is utilitarian, trying to figure the "machinery", like right property institutions and laws for difficult things like pricing carbon exhausts.

The book talks about the environment - and damage to the environment can definitely be quantified and you should definitely be able to agree on limits (or sue) with your neighbours. A third party judge could agree on the decision.

Long term issues are factored in the market. People will have different options about long term issues. Eg. If people think that global warming will be a problem for my house in 50 years that risk will be factored in the price of my house. If that risk doesn't materialise I may undersell my house.

Long term prediction are definitely not easy and the market reflects that difficulty.

> The book talks about the environment - and damage to the environment can definitely be quantified and you should definitely be able to agree on limits (or sue) with your neighbours. A third party judge could agree on the decision.

It is much harder than that. You can certainly sue a local company for obvious pollution (which is must be visible in the short-term), but who to sue for the dying coral reef, melting glaciers, bee extinction, or the increase in the incidence of lung cancer? We can measure these things, but who pays for them, and how much?

Even Friedman agrees (implicitly) this issue is above free markets, via carbon pricing, meaning that:

> Who gets away with it depends not on real costs but on politics.

I think DF will acknowledge most of those points, but also point out that current non market political systems don't handle them well either.

IOW, these problems may not have a great real world solution...

It is definitely a hard problem; we're not solving it at all in the current system. Look at how big oil colluded with the government and pushed for plastic we can't really recycle.

If we can measure it and trace it back to polluting companies, everyone should be able to pool their collective power, via their dispute resolution agencies, and demand a trial, imposing fines, limits and what not. It's not going to be easy, but it won't be harder than it is now: corruption should be harder with competing dispute resolution agencies and customers can actually walk away and stop paying them if they don't act in their interest.

Except that's not what happens in reality - the environment is a luxury good. It is taken care of best in capitalist/free market environments.

The PDF is the 2nd edition. There is a 3rd edition on Amazon: https://www.amazon.com/Machinery-Freedom-Guide-Radical-Capit...

I haven't read it, but I think I'll read the 3rd Edition.

This is my Bible.

The best quote:

”The concept of property is fundamental to our society, probably to any workable society. Operationally, it is understood by every child above the age of three. Intellectually, it is understood by almost no one.”

While I'm not an anarchist, I find that David D Friedman has some remarkably compelling ideas. I encourage anyone to read a book of his or listen to a lecture on YouTube.

Anarcho-capitalism ≠ anarchism

Some ancaps prefer the term 'voluntaryist' to describe their position. Though I think it is fair to call Anarcho-capitalism a form of anarchism because it posits no state and no rulers, though laws would still exist.

I like the voluntaryism rebrand. When you talk about anarchy people mainly think of anarcho-communists (because historically they had the name first).

Semantically an - arkhos just means "without rulers"

> Though I think it is fair to call Anarcho-capitalism a form of anarchism

It's just not. There's no way using the historical understanding of Anarchism where the following scenario wouldn't be seen as completely absurd:

"Hi HeckFeck! Yeah, this is an anarchist society, we have no state and no rulers, well, except for Fred. He owns all the Water. He inherited the rights from his great grand father that bought it for grains from the starving citizens, yeah, he owns all the land too. Anyway, welcome to Fred's coal mine, grab your hat."

Anarcho-capitalism is not anarchism, because anarchism opposes all hierarchies, and private property (and corporations, and everything that stems thereof) is a hierarchy.

As has been said elsewhere, anarchism means 'without rulers' and anarcho-capitalism fits this definition as it strives to remove the state, while individuals will retain their property rights. Private and voluntary institutions (both for-profit and non-profit) will supersede the role of the state.

However, if we limit anarchism to its more historic meaning, which is anarcho-communism and related ideologies, then you'd be correct. To avoid confusion this is why ancaps are using the term 'voluntaryism' to better describe their position.

Corporations wouldn't exist in an ancap society, as they rely on limited liability, meaning their executives are not legally responsible for their decisions. Such an arrangement can only exist under a state. (cf. https://www.opendemocracy.net/en/corporate_responsibilities_...) Holding directors accountable to their lenders, customers, investors, etc will strongly disincentivise the short-term mindset we see in corporations today.

anarcho-capitalism isn't really anarchism, in the sense that anarchism is historically opposed to wage labour & private property because it represents a form of coercion. I don't just mean this in a normative sense - whatever you think of the merits of either, anarcho-capitalism doesn't have much historical or theoretical continuity w/ anarchism.

It depends where you land on the semantics vs etymology debate.

Well, we'll agree not to coerce anyone to adopt a particular definition. ;)

The problem with libertarianism is the subjective theory of value, the idea that everything is worth what the purchaser will pay. Under this framework any action which boosts the relative exchange price of an asset can be claimed to create value, even if the action is purely destructive. A gain in relative exchange price can be achieved without engaging in production merely by increasing scarcity of alternatives. In other words by increasing the marginal unhappiness felt by dispossession of an asset, by destroying the productivity of the commons and quantity of freely available alternatives, without increasing happiness for anyone. If a government creates money to purchase assets and services at subjective prices it could be promoting unhappiness rather than happiness. At least at the interface between the public sector and private sector (taxes, spending, public loans & grants) some other ideas are needed.

That sounds a bit off. Presumably something is worth more to you than what you pay for it -- otherwise you wouldn't buy it. If someone drives up the price of something by making it artificially scarce, its value to you hasn't gone up; the only thing that has gone up is the purchase price, which has been brought closer to the subjective value you place on it, reducing your gain from the trade.

(Also it's not obvious to me what this has to do with libertarianism, at least of the sort discussed in this book.)

This is called consumer's surplus, where there is a single market clearing price but the subjective value placed on a good by each consumer is not actually that exact price, so those who place greater value receive a surplus. There is also producer's surplus, as the producer may have been perfectly willing to sell for a lower price, but the market clearing price happened to be higher than that.

This is why companies often attempt to engage in some form of customer segmentation or price discrimination, to take some of that consumer surplus and capture more of it as producer's surplus.

The entire basis of welfare economics and the ethical argument in favor of markets at all is that, at least under conditions of pure competition and in the absence of externalities, market clearing prices will always settle on a Pareto optimal point where the net surplus of all parties to the transaction is maximized.

We obviously don't actually have those conditions, but what Dr. Friedman is attempting to do is figure out from theory and history ways we might be able to via better systems of law and property than what we currently have.

He is actually a frequent commenter on Scott Alexander's blog and has been for a decade, and is quite a joy to read and converse with. His arguments are well researched, well backed, and compelling. The only blind spot seems to be with respect to climate, where he continues to assert that we cannot even know whether the sign of the change will be negative at all as equatorial regions become unlivable but tundras fertile, which is maybe true over a long enough span of time, but seems to me like saying we cannot know for sure Thanos isn't right and killing off the half the population now won't make the world better off in a thousand years and forever thereafter. It doesn't seem like a good argument in favor of letting it happen.

If there are 5 wells and an owner of 1 well poisons 4 of them, they are able to charge more for the remaining clean water, and possibly acquire money for a commodity which was previously available for free, by increasing scarcity. In a private government concerned only with maximization of income of its owners or investors such pathological outcomes are possible. In the U.S. idea of a republic it is usually thought there should be a public government concerned with the maximization of happiness of residents, something which many libertarians or anarcho-capitalists do not agree with.

In page 60 or so the document talks about how to impose laws and security without a govt. There's also a section on non-government approaches to make polluters pay. Presumably the owner of the well would end up much poorer for their actions than when they started.

Destroying other people's property is bad, yes.

> any action which boosts the relative exchange price of an asset can be claimed to create value, even if the action is purely destructive

Usually, only actions which increase (price * quantity) are claimed to create value.

For example, no one is claiming that the current US gasoline pipeline shutdown is creating value. Price increases, quantity decreases, everyone is sad except maybe a few margin traders who got lucky.

If an oil pipeline breaks and destroys available sources of potable water, it may increase price * quantity for companies selling bottled water, but the price increase is due to increased rent paid for access to clean water, due to an increase in scarcity caused by environmental degradation.

Additionally NIPA consider interest payments on debt financed speculative asset purchases and late fees paid to banks to be output. And in talks with local governments, property investors regularly claim that any project which might increase speculative land prices creates value when asking for tax abatements.

As part of that problem it also takes no real account of marginal utility (the strong basis for progressive tax).

You can make a reasonable utilitarian argument for some kind of redistribution, progressive tax, welfare, etc., based on poorer people having greater marginal utility of money. The book's reply, in the "Robin Hood Sells Out" section (starting on page 15), is -- and I'm making way too short a summary here -- that in practice the system we have doesn't really do this overall. Governments help poor people and hurt poor people, and the author argues that (at least in 1970's USA) the poor are overall more hurt than helped.

Well, if you include poor people everywhere, governments are massively hurting them via immigration restrictions. With no gain to balance.

I don't think social security has worked out to be regressive the way he proposes in the robinhood section.

The real returns chart here shows it is progressive between low middle and high earners considering four different scenarios:


Poor generally have better technology available compared to the past (thanks to capitalist-driven technological advancements), so they may have more comfortable lives than in the past.

Given the massive increase in inequality (which is often driven by government policies, see quantitative easing, covid lockdowns) it does seem like our current system is favouring the ultrarich.

This book offers some of the most cogent arguments for anarco-capitalism, so I want to give a brief illustration of what an Objectivist counter-argument would look like.

(For the uninitiated, Objectivism is a philosophical system that agrees with libertarianism on some points and disgrees on others. It's difficult to summarise all of the differences because modern-day "libertarianism" is quite a vague term. However, Objectivism is definitely opposed to the anarcho-capitalist wing of the libertarian movement. For the curious, [1] is a good basic introduction to Objectivism, and [2] contains a slightly more technical introduction.)

Page 62 of David Friedman's book:

> In such an anarchist society, who would make the laws? On what basis would the private arbitrator decide what acts were criminal and what their punishments should be? The answer is that systems of law would be produced for profit on the open market, just as books and bras are produced today. There could be competition among different brands of law, just as there is competition among different brands of cars.

> In such a society there might be many courts and even many legal systems. Each pair of protection agencies agree in advance on which court they will use in case of conflict. Thus the laws under which a particular case is decided are determined implicitly by advance agreement between the protection agencies whose customers are involved. In principle, there could be a different court and a different set of laws for every pair of protection agencies. In practice, many agencies would probably find it convenient to patronize the same courts, and many courts might find it convenient to adopt identical, or nearly identical, systems of law in order to simplify matters for their customers.

It's precisely this point that every pair of protection agencies needs some kind of prior agreement that prevent normal market dynamics from applying to dealing between protection agencies in such a system. In normal markets any firm is free to walk away from any deal with any other firm, and find an alternative. This freedom to walk away and find an alternative offer is what gives both sides negotiating leverage.

This might be difficult -- if a startup makes iPhone apps, they will find it difficult to avoid dealing with Apple, but they do have options -- they can switch to making Android apps, convert their apps to purely web apps, petition Goldman Sachs to fund the next generation of iPhone-killing smartphones, and so on.

However, if Bob's Local Small Town Protection Agency (with 50 employees) is signing a deal with WalMart Mega Protection Agency (with 2 million employees), Bob has to agree to whatever terms the WalMart agency sets. If he does not, if there is ever a conflict between one of Bob's clients and one of WalMart's clients, the WalMart agency can simply send their vast army over and force Bob's agency to submit. Assuming that Bob and WalMart both realise this when negotiating their deal, both will also realise that Bob effectively has to agree to whatever terms WalMart sets.

The takeaway of all this is that it is not logically possible to have a system where "every chooses their own 'brand of law'". The reason is that since anyone can hypothetically interact with anyone else, whatever legal system you choose to adopt will have to "interface" with every other legal system, on terms that are ultimately set by naked force. Or: no matter which "personal legal system" you choose, you're locked into the same "meta-legal system" as everyone else, one with a very odd structure.

One million scientologists demand that anyone who criticises scientology be heavily fined? You have to pay the fines, unless your agency is able to fend off the scientologists. One hundred thousand Salafists declare that they will kill anyone who criticises Islam? Unless your protection agency is able to shut them down, you have to remain silent.

(The logical endpoint of these dynamics is that everyone subscribes to a few very large protection agencies, and anarcho-capitalism ends up looking something like medieval feudalism, where everyone ultimately relies on a few powerful "dukes" and "kings" for protection.)

> In such a society law is produced on the market. A court supports itself by charging for the service of arbitrating disputes. Its success depends on its reputation for honesty, reliability, and promptness and on the desirability to potential customers of the particular set of laws it judges by.

This creates an enormous incentive for protection agencies to covertly lie, smear, and destroy the reputations of competing agencies via whatever means available.

[1] https://theobjectivestandard.com/what-is-objectivism/

[2] https://objectivismindepth.com/introduction-to-objectivism/

> Consider, as a particular example, the issue of capital punishment. Some people might feel that the risk to themselves of being convicted, correctly or incorrectly, and executed for a capital crime outweighed any possible advantages of capital punishment. They would prefer, where possible, to patronize protection agencies that patronized courts that did not give capital punishment. Other citizens might feel that they would be safer from potential murderers if it was known that anyone who murdered them would end up in the electric chair. They might consider that safety more important than the risk of ending up in the electric chair themselves or of being responsible for the death of an innocent accused of murder. They would, if possible, patronize agencies that patronized courts that did give capital punishment.

> Disputes between two anti-capital-punishment agencies will, of course, go to an anti-capital-punishment court; disputes between two pro-capital-punishment agencies will go to a pro-capital-punishment court. What would happen in a dispute between an anti-capital-punishment agency and a pro-capital-punishment agency? Obviously there is no way that if I kill you the case goes to one court, but if you are killed by me it goes to another. We cannot each get exactly the law we want.

> We can each have our preferences reflected in the bargaining demands of our respective agencies. If the opponents of capital punishment feel more strongly than the proponents, the agencies will agree to no capital punishment; in exchange, the agencies that want capital punishment will get something else. Perhaps it will be agreed that they will not pay court costs or that some other disputed question will go their way.

This is exactly the consequences of "everyone chooses their own laws" put into action. Not only can we not get "exactly the law we want", we have to either pay off or haggle with everyone who wants a competing law (the amount of payment driven by how strongly either side "feels" about the issue in question).

I've heard ancaps argue that the current system in the West is similar (in that you have to accept the laws that the majority votes for). The current system is certainly not ideal. My point is that an ancap-style system doesn't even lead to anything resembling what most libertarians are looking for in a free society. (Anyone curious can read the two links in the post above for references to more material on what I think a rational path to a free society would look like.)

Another hn comment about the same part of the book (from 2009) : https://news.ycombinator.com/item?id=783458

Honestly, it sounds like anarchocapitalism would quickly devolve into something resembling street gang rivalries (barring an completely unrealistic, near-religious commitment to the principles of anarchocapitalism by all members of society). It's hard to believe that "choose your own laws" won't end up with many, many groups choosing "the law is we get what we want, and you have to support us or be punished."

This book sounds like social-science fiction.

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