Richard Epstein on Property Rights, Law and Economics | Hoover Institution - The Capitalism and Freedom in the Twenty-First Century Podcast

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[MUSIC]

>> Jon Hartley (00:08):
This is the Capitalism and Freedom in the 21st Century podcast,
an official podcast of the HooverInstitution Economic Policy Working Group.
Where we talk about economics,markets and public policy.
I'm Jon Hartley, your host.
Today my guest is Richard Epstein,
who's one of the most cited legalscholars of the 20th and 21st centuries.
He's a longtime professor atthe University of Chicago and
New York University Law School.

(00:29):
He's also the Peter and Kirsten BedfordSenior Fellow at the Hoover Institution.
He's also the author of many books,including his Bang.
The Classical constitution,released in 2014.
Welcome, Richard.

>> Richard Epstein (00:42):
It's great to be here.
Thank you so much for having me, Jon.

So I want to first get into your early life.
You were born in New York City in 1943,when World War II is still happening.
Your parents were inthe medical profession.
How did you first getinterested in law profession?

Well, I mean, they were, but they were entrepreneurs as well.
My father was a sole practitioner andit was very common in those days for you
to take it basically in a semi attachedhouse, redo the first floor into offices.
And in my case, my father was aradiologist, so we had X ray machines and
so forth.

(01:20):
My mother ran the office and I wouldwatch them run upstairs for lunch and
then fall downstairs again.
And I began to realize very early onthat whatever they were doing, ie,
medicine was a business.
And they were extremely entrepreneurialin the way in which they did it.
I don't remember the war.
I was basically two when it ended.
But certainly by the mid to late40s I was reasonably confident.

(01:45):
And by 1950 I was an expert,quote unquote on the Korean War.
And I could tell you allthe electoral votes in 1952 in
the Eisenhower Stevenson campaign.
How did I become interested in law?
It was by a combination of observation and
a deep recognition of the fact thatI was a klutz in the following sense.

(02:07):
If you asked me to make anything, buildanything, fix anything, I could not do it.
So I was not going to makemy living with my hand.
I was going to make it with my mouth andmy pen.
And I knew that very, very early on lifeand the single biggest problem I had with
my parents was persuadingthem that my father.
Who was immensely good with his hand,

(02:27):
did not have a son whofollowed in his footsteps.
And I became more and more interestedin sort of the natural law tradition.
Now what do I mean by that?
From a very young age, I used tojust sit there and watch things and
I would watch everyday things andso, you know, how do lines work?
Going in and out of subways, for example,was a very interesting problem for me.
And if I wasn't looking at subways,what about delicatessens and

(02:50):
then what about banks and so forth?
And so my life began as somebody whosort of observed implicit regularities.
And kind of realized that the peoplewho were doing this stuff had no idea
of what they were doing and helped youstop them and ask them to explain.
And then probably they could.
Well, that turns out to be the origin ofa natural law theory which you develop as

(03:10):
you get somewhat older.
The reason they use the word natural lawis most of this stuff just happened.
And the way in which the great earlythinkers, which I was raised in,
I'll talk about that in a second anddevelop this stuff,
is by an incredible sense ofobservation of what had happened.
And then identifying the regularitiesthat the people who participated in these

(03:31):
events were often unable to do.
So I go through law school,rather through college, and
that basic temperament of mymind was very much set there.
The single most dominant constrainton my academic career is I
do not know how to take notes.
And I mean that quite literally.
And so I can't do any kind of archivalwork because it's utterly useless.

(03:55):
I can't take notes in class.
And it also was a case inwhich I like to flip back and
forth between areas and then figureout how they were put together.
So in my sophomore year, I go tothe dean at the college at Columbia,
a man named John Alexander,a great man, I might add.
And I said,I don't want to major in anything.
I like to concentrateon a bunch of things.

(04:18):
Math, I'm not very good at it,but good enough.
Philosophy, a little bit better andI did sociology.
And then I always took courses in thephysical sciences because largely under
the influence of my father,developed them by myself.
I became aware of the fact that mygeneral academic strength was an all
purpose guy without any distinctivepeak and without any real weakness.

(04:42):
And so I was able to move back and
forth across different areasmore rapidly than anybody else.
And so then in the college I did that.
And then where do you go to law school?
And I made the decision semi historic.
I like to think that I would try to getmyself a scholarship to Oxford, but
I would not study philosophy, politics andeconomics because I already had so

(05:04):
much of that stuff.
Because in those days at Columbia,in my third year,
I took graduate courses in philosophyas I just didn't think I needed.
So I said, I go there and Study Rome lawand medieval English law and so forth.
And by God, the program actually took andI did all the things that I said.
And so I come back to the United Statesand this is extremely important.

(05:26):
I'm a student who's out of syncwith the rest of the world.
I enter into the Yale Law School,half freshman, half second year student.
On the freshman courses,I had half of them in strange ways.
And I could still remember trying to gointo the intricacies of various rules on
civil procedure.
And the teacher didn't want me totalk about that detail tale at all.

(05:46):
But that's the way I'vebeen raised at Oxford.
And then I took the upperdivision courses and I,
you know, I had many influential teachers.
The one I'll mention most wasan economist named Ward Bowman.
He was not a lawyer, but he was a guywho always tried to figure out how these
institutions were put together.
And he often got it wrong.
But he was always on the right track.

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And sometimes he actually got it right.
So I leave the Yale Law School andI have this kind of strange background
that I have to interview fora teaching job.
And this is where fate intervenes.
It turned out it was the seventhgame of the Boston Red Sox St.
Louis Cardinals worker series and JimLomberg was pitching against Bob Gibson.

(06:31):
A friend of mine now retiredfrom Stanford, Tom Gray,
had put his name at the bottom of a listorganized by a man named George Lefkoe for
teaching at the Universityof Southern California.
And so I put my name down as 11thbetween his and Tom says, you know,
I already have a job at Stanford.
Shows you what the world was like.
You could take my interview.

(06:52):
And it was the last interview, andit was supposed to be for 20 minutes, and
it lasted for two and a half to threehours because we just kept on sparring.
And George was one of these guys who sortof liked to show how much smarter he was
than all the undergraduates inthe law school he was talking about.
And I would have nothing of that.
And so we got into a real tussle.
And one of the nice things about thatinterview is when George understood what

(07:15):
was going on, then he stoppedpretending to be a Grand Mass.
And he really had kind of cheekby jowl fighting and so forth.
And he invited me out to USC to teach.
It was kind of a wild time.
And so I tell this story to everybody, andyou have to believe me because it's true.
So I go out there andI get there for an evening dinner,
this very bright little kid,7 years old, is there.

(07:37):
And I think to myself,he's going to be a law professor someday.
And sure enough,he went to the University of Chicago.
Editor in chief, andhe became dean of law school.
His name, Mark Miller.
You could figure it out at that age.
And why could I figure it out?
Because I was kind of like that kid, too.
Precocious and slightly obnoxious,but very respectful of other people.
And then I kept on going the next day,on and on.

(08:00):
And finally, when it's all over, 14 hoursof straight interviews, a man named
Martin Levine, who just retired, I think,from usc, takes me to a topless bar.
That was the way in which we did businessin those days, rather differently.
And so I go back and I get the offer,
and I go out with Dorothy Nelson,who's still the dean.
She retired, but she's still alive andin pretty good health.

(08:22):
And so she says, well,what you want to teach?
And so I.
I didn't understand this question.
I said, well, Dorothy,what do you want me to teach?
And she said, I'm gonna do you a favor.
She says, I'm going to let you teachthe heaviest load on the faculty.
And thank God she did.
So I taught four major courses inthe legal writing program my first year.
And you asked about how I came towrite takings books like that.

(08:46):
Well, the answer is that book waswritten 17 years into my career.
And I started off as an Oxford kid,and I knew a lot of Roman law and
a lot of medieval law anda lot of tors law and so forth.
And as I went through all this stuff,my own sense of systematization took over.
And I found a lot ofthese areas very unruly.

(09:07):
And I became allergic to the view that ifyou don't understand the way things are,
that's because nobody canunderstand the way things are.
You have to sort of muddlethrough case by case.
But I had had been trained inthe sciences, in math, and
I always thought there wasa formal structure on this stuff.
And I worked very hard to figure out whatit was when I wrote my book Simple Rules

(09:28):
for a Complex World.
This was many years later when I kind offigured out what the basic outlines were.
And so as I went through the taughtproperty and contracts law and
restitution law and so forth,
I taught them all mainly because Iwanted to see how they fit together.
And what happens is I do all this stuff,and then I look at constitutional law, and
I said, you know,there's something deeply wrong here.

(09:49):
There are two sets of books,
there's this private world set of booksthat makes perfectly good sense, and
this public set of books,which seems to me to be stirred crazy.
So you ask, what was the mission inthe most general terms of my takings?
Well, it was to say that if youunderstood how the private world,
private law world looked, you couldthen translate it into a public world.

(10:10):
So you would not have two separate spaces.
You would have one comprehensive theory.
And then when you try to putthe two halves together,
a comprehensive theory essentially meantthat the public side was quite crazy.
And so I sat there, this is in the middleof the Reagan administration, so there
was some sympathy trying to explain thatyou have to start completely over again.

(10:32):
And once you do that,with some fairly innocent premises and
moving this way and that way, by the timeI got to page 281 of my Takings book,
it turned out I discovered thatthe New Deal was flatly unconstitutional.
So what was the reason behind that?
Well, the simplest version was thereare always collective action problems.

(10:55):
And the correct way to try to think aboutthem is to figure out what everybody's
initial stake is before you havethe government intervention and
then try to expand the pie withoutshifting resources back and forth so that
everybody gets an equal rate of return onwhatever investment he has in that system.
The modern view on this stuff was,yes, we put everybody into the pot.

(11:17):
And then what we can do is we could takethe surplus and move it wherever we want.
And by God,if we're really clever about it,
we can make sure that some of the initialendowment is transferred to somebody else.
And so what you did is you had thesetwo completely different versions of
the public sphere.
And my view was that the transfer for
society is always going to be unstablebecause the winners will be avaricious and

(11:40):
the losers will be desperate,and they'll constantly fight.
Whereas if you stayed in the first worldwhere you get pro rata improvements
on your investment,
the only way you could get better offis to make somebody else better off.
And so you have an expanding pie,not a shrinking pie.
And strangely enough,by having strong property rights and
a government that can get rid of thishigh transaction cost situation,

(12:03):
you're much better off thanyou are in this other state.
And this was decided 40 years ago.
I wrote many books in the interim,including or
afterwards includingthe Classical Liberal Constitution.
But if you're trying to figure outthe sort of the one thing that would be
the one that organizespretty much everything.

So I'm going to get to that and just, you know,
I guess go back to, you know,you've been teaching since the late 60s,
since 1968, and a lot of your work hasbeen focused on property contracts,
towards law and economics.
You've taught all these classes andmany more, and
from there you build this conception ofconstitutional interpretation from that.

(12:45):
A lot of this is discussed in your2014 book, House Global Constitution.
We just talked a little bit about yourfirst big hit in the legal profession,
which was on Takings andEminem Domain, and
you published this 1985 book,Takings Private Property.

Yeah.

Domain.

Yeah, but before that, I should mention,
I wrote a bunch of articles ontort theory starting in 1973, 74,
75, and 1979, which developeda comprehensive theory of the private law.
And so starting on takings,
it was a question of figuring out whatI had developed, mentioning the method,

(13:26):
I told you, a translation, andputting the two things together,
which is very much not the styleof most constitutional lawyers.

And then takings work a lot of this was sort of explaining where
takings clause in New Dealjurisprudence went wrong.
And then fast forward to 1994, you writethis book, Bargaining with the State.
You articulate sort of a doctrineof conditions in where you
speak a lot about howthe government uses monopoly power,

(13:56):
received grants,licenses from the government.
Milton Friedman wrote a lot aboutoccupational license during his PhD thesis
and his book Capitalism Freedom,1962 book, one of his bestsellers.
Occupational Licensure has actuallygrown a lot since these books.

Only gotten worse.

Only gotten worse, now about 30% of the US workforce is licensed.
It's up from like say 5% in the 1950s.
I mean, explain your thinkingon occupational licensing.

Let me explain it.
What happened is you have to figureout what's the relationship between
the takings book andthe bargaining with the state book.
And what happens is in the takings book,at the beginning,
I put a picture of two piesliterally on page one.
And the first pie is the inner pie, and

(14:46):
it has slices that are reasonablydeterminate, a point that you could argue.
And then there's the second pie,which gets bigger than the first pie.
And the key element about the outer ringis it doesn't compromise the inner ring.
So the first set of insights abouta taking doctrine is that there's
somebody who has X set of entitlementsin the initial state of the world.

(15:09):
Either he keeps those entitlements orhe gets compensation from them for
everybody else.
So you can't have a situationof Pareto superiority,
I'm much better offthan you are worse off.
Because those things lead to exactlythe kind of political struggles that I
mentioned.
Well, I finished that,
and then I looked again at the outer ring,and I said to myself,

(15:29):
why are you saying that this outer ringhas to be proportionate to the inner ring?
Which is the thing that Ihad argued beforehand, and
I thought a long timeabout all of this stuff.
And then it turns to me that there's avery simple economic insight that allowed
you to know this.
So I'm going to ask the reader orthe listener to think of a world in

(15:50):
which you have the northeastquadrant on the Y axis.
You can improve one player by going up,and
on the X axis you can provethe other player by going down.
If in fact the only thing you believe in,in Pareto improvement,
your first move could beanywhere in that area.
So just to take two numbers,there could be either 5 for x and 1 for y,

(16:12):
or 5 for y and 1 for x.
But how do you decide which of those twothings is correct when they're both Pareto
improvement?
And the answer is,if you don't have a normative theory,
you're just going to fight.
And so if you had the optimal cooperation,you may have been able to get six units of
gain, but by the time you're done with theswabbling, you're down to two or three.

(16:34):
And so the question is,how do you discipline that outer circle?
And then what I did, I drew in line at the45 degree angle and I said, what happens
is, if you're serious about this, thedoctrine of unconstitutional conditions
said that you always have to be on thediagonal, that X has to be equal to one.
And so if you can do that, the onlyway X can go up is to make Y go up.

(16:58):
And so what happens is it necessarilyensures that there's an even
division of the surplus andstops dividing.
The next question is, can you generalize?
And the answer is you can.
What you do is instead of having a graph,what you do is you now have a multi tuple
thing of a jiggy and you have 22 people inthere, a one, a two, a three, a four, and
you figure out what it is.

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And what you do is you insist thatthere be a non discrimination rule, so
that the rate of gain of each of thesepeople from the original position is
also constant.
And so the insight about how you stabilizethe surplus turns out to be scalable.
And if it turns out to be scalable,then it turns out to be stable.
So you then have to do is you gotta lookaround the legal system and say, are you

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just whistling Dixie or there's somepeople out there who actually do this.
And it turns out there are a largeclass of rules both in private law and
in public law callednon-discrimination rules.
And what are those rules about?
They're about collective action problemswhere the non discrimination rule keeps
you on that diagonal and sotherefore prevents surplus dissipation.

(18:01):
And you see this in property, and you seethis under the dormant Congress clause.
And so what you come up with isthe best of all things develop a theory
abstractly seem to think thathas the right properties.
And then when you look around, you don'tfind the rare Avis that never appears.
It turns out that the huge numbers ofdoctrines that are developed which

(18:21):
actually comport to that situation.
And it was from that that I developedthe unconstitutional conditions doctrine.
And so what are the questions that youstart to ask is how do you figure out
what's a deviation from that doctrine andwhat's not?
So I'll just give youthe simplest of examples.
One of the questions youalways have to ask is,

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how does the state exercise itsmonopoly power when you wish to get
a driver's license and go onthe public roads, right, fair question.
And so I give people two statutes.
One statute said,if you wish to get a license,
then what you have to do is to registerto vote for the Democratic party.
And the other statute says if you wishto drive in this particular state,

(19:06):
you have to agree as a conditionof getting a license to resolve
any particular dispute that arisesout of accidents in this state.
In this state.
And that's an efficiency condition,because otherwise,
if you have somebody inMassachusetts who's from Wyoming and
somebody else is from Florida where theysupposed to litigate this suit, and so
what you do is go through all theconditions that can and cannot be attached

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and figure out whether or not theyhave efficiency properties or not.
This gives you the following enormousadvantage, which is you can now tie
everything up to the antitrust law insofaras it's the body of law which is trying to
figure out what particular private actionsare disadvantageous in a principled
fashion and which are the ones thatare justified on efficiency ground.

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So what I discovered iswhen I was a libertarian,
I didn't have much use for the antitrustlaw because it's not force nor fraud.
And you remember when you madethe introduction, you started to talk
about that principle, but it turns outyou have to keep that thing in place.
And so that the world is not dichotomous,
whether you're talking about the publicsector or the private sector.

(20:13):
It's a trichotomy.
You have to have anti force andfraud rules,
you have to have pure competition rules,and then you have to have rules regulating
monopoly powers of which the most commonare common carriers in public utility.
So at this point,what you do is, you go back and
you start to read some of this stuff.
And amazingly enough, these guysknowing nothing about anything, okay,

(20:36):
what they were able to do is to intuitthe rules that you had to put into play.
And so there are geniuses like the mannamed Matthew Hale who figured out that
you needed to have some form of rateregulation on what you can charge
if there Was only one harbor in townto which all boats had to come.
And he developed a very sophisticatedtheory which essentially,

(20:57):
200 years later, was carried over intothe American rate making business by name.
And then we had all the great issuesthat basically came with the rise of
the railroads and so forth andtelecommunication in the period, roughly
speaking, between the end of the Civil Warand the beginning of the Second World War.
And when I look back at these principles,I said, who are these bozos?

(21:19):
They seem to understand what was going on.
And so, even if their rationales werenot always the most precise, and
they were not always wrong by any means,they were.
They seemed to have a very intuitivebranch of what was going on.
And so that point you developa theory of judicial knowledge.
And it turns out there are very fewjudges who are as nutty as I am and
constantly go back to firstprinciples in this way.

(21:42):
But these are people withan immense amount of experience.
And what they do is they havea keen sense of observation, and
they put it all together and they developa system, Tinker with it a little bit.
Make the occasional mistake here,but essentially the great genius of
the American law is inthe period of industrialization.
If you start looking at what legaldoctrines start to take place in what

(22:04):
space, it turns out most of the stuff isreasonably benevolent and quite good.
And so they would make mistake at theedges, but they had the right attitude on
rate regulation, right attitude onassumption of risk and various kinds of
cases, Very strong and skillful ruleswith respect to intellectual property,
including both copyrights andpatents and so forth.

(22:25):
A pretty good sense of how it is thatfederal jurisdiction should apply.
And so you come out of the 19thcentury and you say, my God.
Now, let me contrast that withthe general view in the legal profession.
We have a dirty word in law calledLochner, do you know what Lochner is?

No. No, I'm not.

Lochner is a case called Lochner against New York.
It was decided in May of 1905, and
it had to do with the question asto whether or not the state could
impose a maximum hour regulationon workers in the bakery industry.
And it turned out this casewas deeply problematic, and

(23:12):
in the court below,the state regulation was upheld 4 to 3.
And it comes up to the Supreme Court.
And by five to four,
they say that this regulation isnot a legitimate health regulation.
It turns out they regarded itas an imposition on commerce.
So you now put yourself in the positionof the New Dealers and so forth, who, for

(23:34):
the most part, did not think thatthere was any logical preference for
monopoly by competition over monopoly.
And the denunciations pretty muchwere everywhere about this case.
And it became known as the Lochnet era,
as if it defined every case thattook place between 1870 and 1940.
Because what it did is essentiallyit invalidated safety regulations of

(23:58):
some sort or another.
And so I start looking at this case.
And there was also a lot of work by DavidBernstein, who did a lot of this stuff.
And all of a sudden I realized that this,this case was perfectly sensible.
They actually knew what they were doing.
What they did is they did notlike monopoly regulation.
What they did is they didn'tmind safety regulation.

(24:18):
But if you looked at this particularstatute and saw who was covered by it and
who was exempted by it, it turns outit was a classic illustration of what
economists know to be the case, which isyou can have fake health care regulations
in an effort to distort the competitiverelationship between two rival firms,
one of whom is under the regulation andone of whom is not.

(24:39):
And sothat led me in part to the Takings book,
realize that many of the things thatmodern constitutional law regarded as
abhorrent were essentialparts of my system.
So then there is thisfollowing contradiction.
If you looked at the progressives,their attitude would be, my God,
we've got all this kind of regulation.

(24:59):
The world must be comingapart at the seams, right?
Exploitation everywhere.
You then look at the economic position and
what's the period of greatestgrowth by far in American life?
1870 to 1940, same period.
So they just got everything wrong aboutthe way in which the system started

(25:21):
to work.
And then if you start looking atthe justifications that take place in
the New Deal,
the central proposition the New Dealshave is we are completely indifferent
as a constitutional matter about therelationship of competition to monopoly.
And if what we want to do is to puta monopoly statute in place, God bless us,

(25:44):
you're not allowed to stop it.
And so there was a famous casecalled Nebby against New York,
in which what they did is they decidedto have price controls on milk,
right, in a perfectly competitiveindustry demanding minimum prices.
Now standard regulation is a monopoly inwhich you put maximum prices skillfully

(26:04):
determined to prevent that kind ofextraction, making sure that the firms
get enough money sothey could recover on their capital.
But.But
this was a case in which they putminimum prices at the request of
the farmers to essentially ensurethat they could organize a cartel.
And it was upheld in these things.
And so that's the kind of model you have.

(26:26):
And in the post war period,there's this constant struggle.
Are we trying to protect monopolies?
Are we trying to undermine them?
And what happened when I started writingin the Reagan years, for the first time,
there was a reasonably coherent group ofindividuals, of which I was one, who said
the distinction between competition andmonopoly is well worth making.

(26:47):
And the Takings book was meant to makesure that monopoly type regulations that
the state gave to its favoriteperson could no longer survive.
We were called to be ruthless individuals,but this was, I thought,
the most social program possible.
And so you put the whole scheme together,we're kind of moving that way.
Did Milton Friedman and so forth andGeorge Stigler understand it?

(27:11):
Want the real answer?
Not really, because they had a verydifferent way of looking at the world.
And not a bad way because it wasimmensely important at the time.
All of these guys basically grew upin the 30s and the early 40s, right?
They're born 1912,stick on 1911, coast 1910.

(27:32):
And what they do is they come upin a world where New Deal cartels
are riding on and their firstinstinct is to be anti cartel guys.
And it turns out in these industries therearen't any real particular reasons why it
is that you need any form of rateregulation at all because they're
competitive industry.
And so their great contribution wasto say, strike this thing down,

(27:55):
get rid of this one and so forth.
Market liberalization waswhat they were behind.
Then you start getting to other kindof industries where it's not so
clear that you could havea competitive market.
It's a network industry and so forth.
Or you have the, the great problem,
the marginal cost problemwith respect to the bridge.
You remember that one, Jon?

(28:15):
You know, you have,you have to build a bridge over a river.
And you can do it one of two ways.
What you can do is you can say, okay,
we'll let the guy chargewhatever he wants.
And it turns out that if he does that,he gets a monopoly, right?
Or you say we can regulate him, at whichpoint you run the risk of confiscation.

(28:36):
And so you know what they did in theactual contracts in the 1880s, incredibly
clever, they said, we're going to give youa period where you can get prices above
the variable cost until you pay off theunderlying front end cost, after which you
can only charge for the variable costsince you paid for the equipment.
It was a two tiered system andit was written about by both Vickery in

(28:58):
the United States andRonald coast in England, if you recall.
Right.
Now, what they did is they kindof devised the same problem.
Because what they saw is if you don'thave a competitive solution, what you
have to do is to figure out which kindof inconvenience you can live with and
which kind of inconvenienceyou have to bear.
And so instead of developing a model ofideal behavior which we all love to have.

(29:23):
All of a sudden you're in a very differentkind of world saying which of the two
risks that we are facing in thisparticular case is the greater?
And how do we figure out institutionalarrangements that were counteracted?
And so what happens is, if you could geta competitive market, really want to keep
it, but if you can't get it, then youenter into this terrible space where
you're trying to figure out what kindof regulation is better than what other

(29:46):
kind of regulation, knowing that whatyou do, you can't quite get it perfect.
And so the thing that you have to learnas a lawyer is when there are competitive
situations that are ideal,don't mess with Mother Nature.
But if there aren't, then the questionis how you rig a system to figure out
the way in which you put, for example,the fixed cost with respect to a bridge.

(30:08):
And this becomes the same problemthat you face with patent law.
So friend of mine named John Duffy wrotea nice piece applying the marginal cost
controversy to patents andwrote it 15 years ago.
And what you can see that was thatthe doctrines that apply to 19th century
problems also carry over to20th century problems, and

(30:29):
you have to be able tokind of deal with it.
And so I never got myself involved withintellectual property as a serious
matter until I was hired by somebodywho said, we have this serious problem
on an inducement to breach of contractclaim, which is something I worried about.

(30:50):
Inducement to breach of contractis something that, you know,
under the name of tampering.
So the most famous case was there was thatfamous opera singer named Ms. Wagner,
and she was under contract to perform forone movie theater or opera's house.
And somebody else stole her contract awayand said, you have to work for me for
a higher price.
And the question is,

(31:10):
what remedies did the person who madethe original appointment have to stop her?
And it turned out it's not an easyquestion to figure out what goes on.
But they allowedthe injunction to take place.
They wouldn't allow the woman to beforced to sing for the first part.
Ms. Wagner was from Germany.
She could have gone back to work forthe first company, but

(31:31):
the ground was so spoiled that what shedid is she went back home to Germany.
And the lesson, of course, was very clear.
There was certainly a lot of gains tobe had by having her sing in England.
She was a great singer.
And somehow or other, after they ballseverything up, all that stuff gets lost.
And so one of the things that you thendo as a business lawyer is you say

(31:53):
if I have something that lookslike it's heading down the road,
how do you figure out a wayto prevent the abuse?
By one party, on the other hand, withoutkilling off the deal on the other hand,
because both of theseare completely undesirable outcome.
Now this, of course, then explainssomething else about why I'm a kind of
a strange constitutional lawyer, right?

(32:14):
Very few constitutional lawyersactually are business lawyers, and
I've always been a businesslawyer from the first day.
And understanding how these businessarrangements work then gives you a sense
as to what kind of regulations that youput on top of them are likely to make
sense and what kind of regulationsare not going to make sense.

(32:35):
And so you tailor your situations there.
And so this pattern that I had in collegewas know a lot about everything, but
huge amounts about nothing.
It turns out to be the rightstrategy as far as I'm concerned,
because you get a range out of academicstuff that you can't get if you deeply
specialize in one particular area.

On Sea Monopoly.
I think that's a great summary.
I mean, it's amazing to see howpowerful the administrative states
become at the federal level,the congressional power there.
We'll talk a little bitmore about that in a bit.
Occupational licensing at the state level,rapidly, not only do we license doctors,
but we also now license dog walkers, nailtechnicians and braiders and so forth.

(33:25):
I want to sort of get more intoconstitutional interpretation because I
think that this is really where the focusof a lot of your career has been
in the past few decades.
And so, in 2006, you wrote howprogressive we wrote the Constitution.
2011, you wrote Design for Liberty,Private Property, Public Administration,

(33:46):
and the Rule of Law.
I'm just curious, how might your thinking,you're thinking, you know,
you say you're inthe natural law tradition.
How might it differ from original, let'ssay, Bork and Scalia, who you were on,
Chicago law faculty with at variouspoints, and they were legal positivists.

(34:06):
It's textualists,they help [INAUDIBLE] meaning of the text.
Is it fair to say that they're,you know, maybe similarly unhappy with
the progressive legal movement during the20th century, you know, having, you know,
maybe calling that sort ofliving Constitution, you know,
being promoted during the Warren andBerger courts.
And we also have, I'd say,other sort of ideas, jurisprudence,

(34:28):
say Adrian Vermeul's commongood constitutionalism,
which is also very different.
I'm curious, you know,what is your synthesis of constitutional
interpretation that's embedded inyour 2014 book, the Classical.

Okay, well, I mean, where do we start to go back to Roman law?
And it Turns out that the rulesof interpretation that Scalia and
Bork tend to believe in bear norelationship to the historical rules of
interpretation done bylarge numbers of people,
none of whom you would call progressivesor Marxists or anything of the sort.

(35:04):
They were people who, I think,
were much more sensitive to the wayin which language worked and
developed a whole series of protocolsto understanding what went on.
And so before I did the bookon the constitutional law,
I spent my timeinterpreting the lexicolia.
And that's a statute,which I'm sure is on the tip of your lips,

(35:26):
but it roughly said, in effect,anybody who kills a kidder unlawfully,
a slave, or a herd animal shall be liableand damaged by some rather arcane formula.
And so you look at this statute, and thenyou say, well, how do they explicate it?
And it turns out that they spent 30 or40 pages figuring out what it means to

(35:50):
kill things and what it means forthese things to be unlawful.
And they didn't quite get it 100% right.
But essentially what it did is it tied inwith a very powerful theory of how you
organize a case, which was alsocaptured in the Roman pleading laws,
which that are develop rulesthat develop at the same time.

(36:10):
So essentially, the way to understandlanguage is what it is is it's a game
of successive approximation betweenthe descriptive and the normative.
And the question is,how do you make these steps and why?
And the first thing that everybody notesabout a particular language is you can't
say everything at once.
You can't say everything first.

(36:32):
What you have to do when you're thinkingabout language is to start with the notion
that what you're trying to do is tofind a way to get clear the message so
that you don't get overwhelmed bythe noise that's surrounding it.
And so the pleaders essentiallystarted in the following way.
What I have to do is to explain to youwhy it is prima facie as a first look,

(36:55):
you should be liable to pay damages to me.
And it has to be a clear enough reasonthat everybody can understand it.
And it has to be operative sothat other people can apply the rules that
are applicable to it in a way that doesn'tlead to hopeless squabbles and division.
And it turns out the way in whicheverybody starts this is with a phrase

(37:18):
which says, you can't hit anybody else.
Now, what does that mean?
And then you realize it's a funny word.
You could hit somebody in the senseby giving them a love tap or
you could hit somebody andtry to maim them.
And what's quite clear is you're nottrying to rule out beneficial conduct.
And so what you're trying to do is tofigure out that situation which by either

(37:41):
a physical or a chemical change,results in the position of the party who's
been hit having beenessentially made worse off.
And so what do you do?
You have to worry about describing it,then you have to worry about evasions.
So you have to have a clear principle andthen recognize that somebody who's going
to be tagged for a large liability willdo an enormous amount of singing and

(38:05):
dancing in order to escape it.
And you have to be able toprepare countermeasures, right?
So it's a kind of a game.
And so I will give youthe illustration that does this,
involving my 5 year oldnephew at the time, and
he was acting up like a 5 year old andI said to no, stop hitting me.
So what do you think he did?

(38:25):
He kicked me.

Maybe.

Now what, what was he thinking?
He said, well, you said I can't hit you.
Everybody knows that the wordhit involves the hand.
So you didn't tell me I couldn't kick you.
And then somebody says, as an outsider,
is that what you really meant interms of the social situation?
What you say is Noah's evasion of the hitnorm resulted in the same amount of harm.

(38:54):
And it turns out you said,don't hit me with your hand.
So I take a stick andI start hitting you with the same thing.
So we have what we call the need fora description of what's wrong.
And what's wrong turns out to be, to usethe phrase that they eventually hit upon
the application of force by oneperson against the body of another.
And the Romans called that corporakapori by the body to the body.

(39:17):
Right.
And the reason they do that rather thanthe other phrase is because of the anti
circumvention norm.
And they wanna make sure that allapplications are force of court so
that you can't play these kinds of games.
And so you start to see that andit develops in the Roman law.
And then you go, you look at the Englishlaw many hundreds of years later and

(39:37):
you know what happens?
They do exactly the same thing.
Now why are they doing this thing?
There may have been some cross influencebetween them, but even if there is,
you have to say, why is it thatan Englishman would accept a set of rules
developed by a bunch ofRomans 1200 years before,
when their cultures are manyways are completely different?

(39:59):
Well, it turns out.
There is an answer, andthat's the natural law answer.
You can think of a state ofthe world in which presumptively,
it's better for one people to useforce hostilely against somebody else.
And so if you figure out in Rome,
you're going to figure outthe same thing in England.
And the reason there would be a reception,which it sometimes is,

(40:21):
is because the same conditions apply.
And this is true whetheryou hit me with a gun or
whether you hit me with a sword ora howitzer or a laser beam, right?
And so it turns out thatthe principle is pretty universal,
as is the question about controllingthese evasions so that you use that term.
But people are much more clever.

(40:41):
So the second thing that comes up and thenI'll fig out is, okay, I won't hit you.
What I'll do is I'll set a dishof poison in front of you and
tell you that it's helpful.
That's not the application of force.
So in every system,what develops is what they
call an action under the specialcircumstances, where in effect,
if you give something somebody andthey consume it under mistake or

(41:04):
under coercion, you treat it justas if you had done the other thing.
And it turns out that'sdeveloped everywhere.
So now you look at constitutional law.
What does this have to dowith constitutional law?
What you do is you get the state right and
it says that it's not allowedto take anything from.
So what it doesn't do is it doesn'ttake it, it just simply blows it up.

(41:26):
And the question is, can you recoverunder the constitutional norm for that?
And you could see immediately how it isthat you're going to need the same anti
circumvention norm there to preventessentially the willful aggrandizement of
one person's property atthe expense of another.
And so you go through all these cases and
what you discover is exactly the sametechnique of interpretation is given

(41:50):
to the use of force in public lawthat is given in private law.
Because what's common about thesesituations are the sort of invariant
physical conditions against allwhich this stuff takes place.
They're the same in every language.
So what happens is,if you understand the physical stuff,
you sort of understand wherethe universality comes from.

(42:12):
Well, that's part of it, but then you gotother things you have to worry about.
So somebody says, well, yes, I hit you.
And then he turns around and he said,you know, but I did it in self defense.
Well, you assumed the risk.
And so all of a sudden what you're sayingis, yes, your prima facie case is right,
but there are reasons why it isthat you should not be able to

(42:34):
make good because it turns out thatyou were really the aggressor, right?
You were not the aggressor,self defense is why I hit you.
And so the plaintiff was saying youwere an aggressor, but you weren't,
you were responding to his threat.
And what you slowly dois build out the system.
And it turns out the same invariantrules apply whether you're
building it out in modern England,ancient Africa, Roman society.

(42:59):
Because the physical and
chemical constants are whatdrives a particular analysis.
And so when you do comparative law,what you almost always discover is that
all the differences that you findare on second order question.
I mean, so to give you what's the secondorder question you ask, right.
Well, suppose somebody'staking your property and

(43:22):
it's the person who gave it to you.
What kind of remedies doyou have against them?
Well, the Roman remedysaid that you could never
get a declaration against the partywho was about to take your property.
You had to wait until it was taken andthen bring an action for being evicted.
The American law allowsa declaration that you can't do it.

(43:43):
Well, what's the differencebetween the two of them?
Not all that much.
Right, but there is a difference.
And why the difference?
Well, the Romans were very much moreconstrained on the resource side, right?
You can imagine.
And so what they did is they waited to thelast possible moment they had before they
applied the remedy.
Whereas in America and England, you havemore prophylactic abilities to do so, so

(44:05):
that you're willing tointervene a little bit sooner.
Now, how much ofa difference does this make?
Well, in certain situations it couldbe very important, but in most cases,
let me ask you the question.
How many times in your life have you feltuncertain about the possession of your
property vis a vis somebody else, that youfelt necessary to consult the lawyer as to
whether or not you were entitledto some kind of protection?

(44:27):
And they answered that question.
What are you talking about, Guy?
Right, so the reason thatthese things don't matter and
do matter is in the large society, if youlook at the kinds of cases, the great
achievement of the legal system is notthat it solves disputes after they occur.
It's that what it does is itguides people's conduct so

(44:49):
they don't engage in stealingother people's property.
So you don't have to figure out whatthe remedies are when they start to do and
then which cases get to the lawyers?
Well, it's not the caseswhere everything goes right,
it's the cases whereeverything goes wrong.
And at that particular point,it was a very rarefied subset.

(45:09):
And now all of a sudden, all theseremedial complications make a great
deal of importance to the way in whichparticular cases should come out.
So that when I started teaching law,my view was always to look at a particular
dispute and figure out who was right andwrong and what remedy applied and why.
And you could get a lotof divergence of opinion.

(45:30):
And it's very important to be able to dothat because that's what litigators do to
this very day.
But as I became a little bit older andmaybe wiser less so, what happens,
I realized that the great importance ofthese various rules was not in the way
that they necessarily solveddisputes that took place, but
the way in which they limitedthe number of disputes that occur.
And so when you start then lookingat all constitutional law,

(45:54):
it's the same method,First Amendment freedom of speech.
Well, there are a lot of caseswhere you're asking whether or
not somebody is engagedin freedom of speech.
If what he does is he yells fire ina crowded theater, takes out a rifle and
says, I'm gonna shoot you unlessyou capitulate, and so forth.
And so now what you do is you have a rulethat says freedom of speech is protected,

(46:16):
but the threat of force is not right.
Well, you then have to figure out,well, how do you know which it is?
And so the famous case from private lawwas somebody who said to somebody else,
if this were not a size time,I would run my sword through you.
And so the first thing you ask is,what's the size time, right?
Well, size time is the judges are intown and what the guy is saying,

(46:38):
I would kill you except forthe fact that they hear.
Now the issue you then have to ask,is he faking or is he telling the truth?
He's saying that becausehe's going to kill you and
he wants you to put your guard down ornot.
Well, that's a fact intensive dispute.
Fast forward 2000 years or whatever it is.
And now you have somebodywho's in an assembly and
what they're trying to do is to encouragepeople to rebel against the state.

(47:03):
And so what are they doing?
Is it a bunch of people readinga Marxist tract about the necessity for
class warfare, or is it a bunch of guyswho's sitting there trying to tell you how
it is that you put together a bomb andplant it on somebody.
Right.
And so it's the same question.
This is anticipatory conduct.
Can the First Amendment catch it?

(47:23):
And here there's no immediate threat.
But as the famous judge said,the threat may not be immediate, but
if you wait until it is immediate,it's too late.
And so,this was a problem of international law.
What are the intermediate cases?
Well, you look at Grotius,the great 16th, 17th century writer, and
he posits one case to which we yetto have an answer.

(47:45):
He says,what you do is you have an enemy, and
what they do is they amass on your border,but they don't attack.
The question is,can you have a preliminary attack or
response against them, or do you haveto wait until the attack is imminent?
When was the last timeTime that problem came up.
In Iraq, Iranian, right?

(48:06):
What happens is the Israelisare sitting there.
Do you have to wait untilthe bomb is in the air?
Can you take outthe Phillies preemptively?
And it turns out it's a very delicatecalculus as to what you do and
all of these things.
The strategy is you're alwaysmaking approximations,
you're always doing the public andthe private law comparison.
And essentially what you do,

(48:27):
I think in the last of these casesis waiting is utterly futile.
What's the seriousness of the intention?
Well, the first thing you dowhen you're doing this stuff,
if somebody says he really hates you andhe wants to kill you and
he's going to do everything he possiblycan to achieve that, you believe it,
you know, and you know, that's the rule.
So whenever you gothrough a security line,

(48:47):
remember they always tell youwe take all jokes seriously.
Right.
So don't talk about carrying a wetpenny because we're going to respond.
And so we basically wean ourselves fromthe immediacy rule, which is a very
safe rule in the sense of preventing undueaggregations of force, but it's a very
dangerous rule because it could let theamassing take place until it's too late.

(49:11):
And if you recall,the Israelis have faced this before.
They faced it in 1967, right,when the Egyptians blockaded.
First question,is a blockade an act of war?
The answer is yes.
Does it involve the use of force?
The answer is yes, butyou haven't shot anybody.
But it's a threat of force madecredible by the weapon you have.

(49:32):
And the Israelis basically attacked.
And then the question is,you look at the United Nations Charter and
it says anticipatory,the self defense is not allowed.
So what do you thinkhappens to the charter?
It gets junked because it's toorestrictive a condition nobody's going to
abide by.

I guess one question I just have is like in terms of a lot of
this, you know, I guess taking a propertycentric kind of lens of constitutional
interpretation, like, you know,how do you determine,
you know, what is property andwhat are limitations, I guess in.
Terms of what is property?
Well, well, I mean, I mean you can seethese, you know, issues like for example,
you know, can, can people be property andyou know, think servitude?

(50:15):
I mean, these were huge issues that weresort of left somewhat open that depending
the country andthere was a civil war fought over it.
Even now there's some questionsof can you indenture yourself?
Can you sell shares in youryourself for,say, student loans,
income share agreements?
Is there something that,you know, Friedman?

Well, I mean, it's a very interesting question.
I will tell you whatthe historical argument was.
There is a huge debate intothe literature as to whether or
not self ownership is a coherent concept,right?
I own my arms, butthere's no doubt that anybody has
that you can own the ring on your finger.

(50:57):
And so the question is how you defend theperson if you're not quite sure of this.
And in the end,what people do is they fudge it.
They treat it as thoughit's a property protection.
But in effect,
they then use the word autonomy todescribe what it is that you have.
And it then becomes exactlythe gate presumptively.

(51:19):
The argument has always been youdo anything as a purpose of agent,
then you've done it foryour own advantage.
So if we start the Pareto ball rolling,we have somebody who's better off and
by definition nobody else who's worse off.
And so the argument in favor of freedomis that condition is desirable.
But remember I started to talk aboutdefenses, self defense and so forth.

(51:44):
Suppose now the thing that youwant to do is to take a saber and
put it through somebody's heart.
At this particular point, the defensebecomes credible because the gains to
the other side are so enormous thatwhat we do is we allow it to stop.
The central classical liberal thing issuppose the guy doesn't want to beat your
brains out, but you're sellingmushrooms on a corner stand and

(52:07):
he decides to go to anothercorner of the street and
sell mushrooms of a higher quality fora lower price.
What happens?
He said, I'm really being hurt.
And you're saying this is justan exercise of my liberty.
And why is it that you're right andthe other guy is wrong?
Because you can figure out these disputessimply looking by the two parties to
the disagreement.

(52:28):
There are customers out there, and in thecase where you kneecap somebody to prevent
them from selling to the customers,it's not just a rival who's worse off,
it's all the customers whocan't get the business right.
But if what you do is to cause the sameamount of economic dislocation by
offering a better price product ata lower price at that particular point,

(52:49):
the consumer welfare flips over 100%.
And so what we develop in a veryprincipled way is the classical liberal
distinction between force andon the one hand, and
competition on the other,where one is Allowed and one is not.
And then we developedthree separate phrases and
three different ways to explain this.
The Romans understood this,sort of, and they called this.

(53:14):
And what the hell does that mean, right?
Well, damn means harm,ab square means without legal injury.
And what they're saying, in effect,
these are the kinds of harms that you'reabsolutely privileged to complain.
And you then ask,
is there a complete theorizationof this in the Roman leadership?
Answer no.
You then ask the second question,

(53:35):
do they make any fundamental mistakeswith respect to the court case?
The answer is no again.
And so what it is, their rough intuitiveempiricism steers them away from problem.
Now when you come to the economists andso forth,
they start talking about externalities,right?
And what kind of externalities are these?
Are these legitimate externalities?

(53:55):
Are they illegitimate externalities?
And what they want to say is,they may be just pecuniary externalities.
You've heard that term, right?
It's one of the more useless termsin the English language because it
doesn't distinguish between twoconditions, between competitive losses and
losses to a monopolist who essentiallyhas some ability to exclude you from

(54:18):
a particular market.
And then the lawyers,they have a third term for that.
They talk about actionable injury asopposed to non actionable injury.
But the only way you can solve the problemis to go from the two parties who
are conflicting and take intoaccount general equilibrium analysis
about the way in which theirdispute affects everybody else.

(54:39):
And so the force case has negativeexternalities to third parties, but
the competition cases,positive externalities to third party.
They're going to be some funny cases inbetween, as you always know, like trade,
slander and so forth.
But the point is, if you understand theeconomics correctly, merge it with law,
all of a sudden a lot of the classicalliberal distinctions come up as being

(55:02):
completely legitimate,
coming out of what I think are fairlyspare spartan set of initial premises.
And so you ask what myconstitutional regime has been for
low these last 40 or 45 years isto take these kinds of missions,
go to area after area that I canfind in public and private law, and
show to the extent that it's possible thatyou could actually make the system stand.

(55:27):
Now that means that you have to reallylearn stuff about all these fields.
And so that's why I've always made ita promise to teach things at least once or
to consult on the problem.
Because what happens is you as an outsidermay have a better theory about everything,
but the guy on the insidehas done this for 40 years.

(55:47):
And so the secret of being an outsideanalyst is you don't tell them what to do.
You listen to people talk, tell them abouttheir field, and you sit back and you
do something which I find very difficultin principle, which is to be a passive.
To speak person, right?
Tell me more about your business.
And once you learn about the business,then I'm saying, well,
this is why you did this.

(56:08):
And so what the great question is, isa practical matter for the antitrust laws,
for example, and so forth,was this an efficiency justification or
was this a restrictive practice?
And lots of times when people tellyou something, they actually think
it's a restrictive practice, but it turnsout to have an efficiency justification.
They just didn't quite understand it.

(56:29):
So your job is to explain their businessesto them after they explain their
businesses to you.

Just to stop you there.
I'm curious what you thinkabout the Coase theorem.
So Ron Coast.

Yeah, I will tell you- >> Jon Hartley
And he kind of said that, you know,if you assign property rights people,
even if it's not fair,it'll lead to an efficient outcome.
And so, you know, even if you, forexample, had some sort of cap and
trade system where you gave allthe rights to one company, for example,
they could still trade them away, youknow, and even though that may seem very

(57:03):
unfair or maybe inexpropriative atsome level, that they'll still be able
to trade these rights away to others,leading to an efficient outcome.
And so there's.
Okay, a lot of people pointto the Clean Air Act and
asset RA program during the 90s asbeing sort of successful example
of this limiting sulfur dioxide emissions.

(57:25):
And maybe spectrum options are sortof similar in that regard, I'm sure.
What you think about the Coase term?
Well, first of all,
Ronald and I were very closefriends to the end of his life.
And it's because he actually, hedisliked intensely blackboard economics,
as he called it, which meant that hebecame a kind of institutionalist.

(57:46):
But Ronald did not understand hisown theory and how powerful it was.
So it was kind of one of the ironies.
The last time I had a meal with Ronald,he was about a hundred,
and he sat down and he announcedthat my life has been a failure.
I said, ronald first answers,
anybody whose name becomesan adjective is not a failure.

(58:09):
So it's you, it's Marx, it's Freud.
No, Einstein.
Okay, Ronald, stop.
But I said,now let me tell you why you're wrong.
And he didn't quite get it.
Ronald basically looked at a series ofvery sophisticated late 19th century
English nuisance cases in which youhad variations from the simple problem

(58:30):
of one person, many huge amounts ofpollution, to the land of another.
So one of his cases was, you emitsome pollution, it hits a wall, and
it bounced back andgets you into your own attic.
The question is the guy who building thelaw responsible for the nuisance or not?
And things like that.
I told Ronald, I said, no,that's not what this is about.

(58:51):
That is one illustration ofa larger problem where you
have large numbers of peoplewith different inputs and so
forth and they're voluntary transactionbarriers to voluntary transaction or
cost and trying to figure out howto organize voluntary transaction.
So what you have said is first you mayhave an ideal theory of what you want to
do, but then measurement problems andsimilar issues arrive and

(59:14):
your first best solution cannot be done.
So give you best a verysimple kind of situation.
You want to charge somebody foryour services and
the ideal way is to try to figure outwhat the marginal contribution that you
have made by when you supply him, right?
And then you start looking about this interms of landlord tenant relationships and

(59:35):
how many people run leases wherethat's what the landlord gets
marginal contribution, nobody.
So what do you do?
You take a percentage of sale.
Why do you do that?
Because that number you cancompute by looking at the books.
You figure out what a good guess is,whether it should be 2% or 5%.
The other stuff is gonnacompletely break down.
So what you do is you give up on idealtheory in order to get something that's

(59:58):
a bit more workable.
And it requires people a lot of skill toknow these industries and the norms and
the ratios to get them right.
Ronald did not think ofthe world that way, so
he could never acceptthe generalization of his theory.
And what I told him, I said,Ronald, you may not know it, but
I'm going to ask you one question.
Why is there no second Coase theory now?

(01:00:20):
60, well, at this point, it was 50 yearsafter he'd done the first thing, I said,
the reason there is no second theory,Ronald, is you don't need one.
If you actually understandwhat you're talking about.
You have this zero transactions costworld in your mind where everything
instantaneously goes everywhere else.
Then what you do is in this world,you sit down and
figure out what's goingto happen to people.

(01:00:42):
And slowly you develop a seriesof rules and practices,
all which are designed todo the following thing.
Minimize the total level of transactionscost in order to maximize the total
amount of gain.
And I said, if you do that, what you aredoing, you can make this operational and
you don't have to know everybody'svalue functions, right?

(01:01:03):
If you want to be a Keynesian,you have to do everything under the sun.
And the aggregates, your methodis much more efficient than his,
which is why people always talk about yourwork instead of his work when it comes out
to doing things on a level.
And that is in fact.
Right.So the Coase theorem essentially uses
a mnemonic device,the zero transaction cost world.

(01:01:25):
But what you then do is try to get intothe stuff in the transaction cost world.
And Ronald was well aware enough about allof this that he would start to figure out
what odd anomalous rules seem to be putinto place which had this effect of
essentially reducing transactionscost relative to gain.
Right, andthat's a social welfare theorem,

(01:01:45):
which is operational asopposed to this other stuff.
So I've never been a Keynesianbecause I don't know what you do with
these aggregates,
particularly since the people in theaggregates are always acting individually.
So take a simple thing.
If you were to give people, everybody$100,000, say $1,000 like George Bush did,
you don't have any idea whateach individual is going to do.

(01:02:06):
Someone's gonna pay off past debt,somebody's gonna build the fund for
his child to go to college, right?
Somebody's going to goto a fancy restaurant.
It just all varies out.
So don't try->> Jon Hartley: [INAUDIBLE] people
save it?
They'll save it in different-

>> Jon Hartley (01:02:20):
Like [INAUDIBLE] ideas,
people are supposed to be spending it,right.
And there's this virtual.

>> Richard Epstein (01:02:24):
But that's all crazy, of course.
There's no way you can figureout what people will do.
And in fact you don't want to.
The whole point is if I'm betteroff investing my money and
somebody else is better off at confusingit, we don't want to force the two of us
to take the identical ratios when it'sgoing to benefit us, neither of us.

(01:02:45):
So you just, you want to make sure thatall those decisions are disaggregated and
he insist upon aggregating them.
And this is not a small error,this is a catastrophic blunder.
And you don't have to be a sophisticatedeconomist to start realizing that talking
about aggregates is a very dangeroussituation because what was the phrase you
used at the beginning of this talk?

(01:03:06):
Methodological individualism.
Right.

>> Jon Hartley (01:03:09):
And just to close up there, I'm just curious, you're,
you're a self described libertarian,you're a big believer.
Methodological individualism.
This is no secret.
I'm curious,what kind of libertarian are you?
Are you Richard and, and this, are youa fan of the non aggression principle?

There's nothing wrong with the non aggression principle.

>> Jon Hartley (01:03:30):
I'm just curious.
What are.
What would there in your mind,what would the limits on such a principle.

Let me. Let me just.

>> Jon Hartley (01:03:38):
Theft, and are you an anarcho, the British?

I'm not.
I'm a classical liberal.

>> Jon Hartley (01:03:43):
What is the role of the state in your mind?

Let me sort of put it, the problem about being
an anarcho-libertarian isyou don't have a state.
The bad guys will formone on their own terms.
So it's a kind of a preemptive situation.
And the basic difference betweena classical liberal and an anarcho
libertarian is a classical litus hasthe following general proposition.
You may be very careful about it,impose various kinds of limitations and

(01:04:11):
taxes on individuals, so long as whenyou look at the pie in the aggregate,
the individual who's so burdened is onaverage left better off than before.
And so the argument, for example,about a flat tax with respect to general
revenues and so forth and expenditures andis we can't think of any device which
will fund the need for collective goodsthat has less disruptive effect than that.

(01:04:35):
And so that would mean tariffsare out as a revenue source.
Right, because they're differentialin terms of the way they go.
The base is too small,the rates are too hot.
So crazy.
And so I've always been that.
And so I wrote a book,
you know, several articles aboutnobody could beat a flat tax.
And then you have special taxes forspecial benefits and special harm.

(01:04:56):
And so you're not somebodywho's an anarcho libertarian.
Non aggression is certainlysomething that's in the principle.
But Murray birthwise sort of is the onlything that you were worried about.
So cartelization in hisworld is just fine, right?
And you don't believe that.
So what happens is the way I treat it is,you ask me,
what's the first move you madeout of a state of nature.

(01:05:18):
It would be essentiallythe control of force.
But is that the only move you made?
No.If it turns out we could
then have another set of rules thatallow us to have infrastructure,
another set of rules that controlmonopoly abuse and so forth.
You may continue to make additionaladjustments to the basic system that you
now have at stage one or two, solong as the Pareto gain position holds.

(01:05:39):
Now what happens?
It's a system of diminishingmarginal utility.
The first moves are reallygoing to be huge.
Right?
But by the time you getfurther down the road,
you're not quite sure whichway it's going to go.
And that's where you want lawyers.
Our job is to decide cases thatare inconsequential at the margin,
so long as they don't mess upthe core cases which allow

(01:05:59):
us to organize civilizationin the way we want.
So basically I'm a tinker at the edges,but my most important contributions
are telling people how you organize aworld in which my services are not needed.

>> Jon Hartley (01:06:14):
Richard, I really want to thank you for coming on.
This has been a great->> Richard Epstein: My pleasure.
Conversation.

Okay, great.
Thank you so much, Jon.

>> Jon Hartley (01:06:22):
This is the Capitalism and Freedom the 21st Century podcast,
an official podcast with the Hoovereconomic Policy working group where we
talk about economics,markets and public policy.
I'm Jon Hartley, your host.
Thanks so much for joining us.

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Richard Epstein on Property Rights, Law and Economics | Hoover Institution

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}Richard Epstein on Property Rights, Law and Economics | Hoover Institution