Fair Trade or Free Trade: An Economic Analysis

1. Introduction

Ending poverty worldwide is a noble goal. This work discusses the means by which we can achieve this goal. I show that buying Fairtrade certified products is not an efficient way of achieving this goal and that buying Fairtrade products may be doing more harm than good. I argue that directly donating to aid organizations is a more effective means of getting charity into the hands of those who need it most: the world’s very poorest people.  I will further show that the most effective way to achieve the goal of ending or alleviating poverty is through simple free trade, with consumers buying what they want without regard to the spurious notion of “fair trade”.

2. Free Trade vs. Coerced Trade

There is a clear distinction between a trade (i.e. an interpersonal exchange) that is made by two consenting parties, and a trade that involves the coercion by one party of another. The former is a voluntary trade; both individuals freely choose to make the trade, because they expect to benefit from it. The latter is a coerced trade; one party does not consent, because they do not expect to benefit from it, but they are coerced into making the trade anyway by the use or threats of violence.

The vast majority of trades are voluntary. Coerced trades include theft, fraud, robbery, assault, slavery, rape and murder. Taxation, regulation, prohibition, conscription and war are examples of coerced trades conducted by governments. A free market is a market where all trades are voluntary, i.e. there are no coerced trades.


3. Fair Trade vs. Unfair Trade

The Fair Trade Movement makes a distinction between two types of free trade, which they call “fair” trade and “unfair” trade. A typical example of an “unfair” trade is a poor third-world worker being paid a very low wage and working long hours in an unsafe factory environment. It is clear that, unlike the distinction between voluntary and coercive, the distinction between fair and unfair is completely arbitrary and subjective. It is a third-party opinion about a trade that is nothing to do with them. What is considered “fair”, a “decent” or “living” wage, “reasonable” working hours and safety conditions, differs from person to person, place to place, and time to time.

The poor third-world worker is voluntarily employed; this is a free trade. Therefore he must prefer being employed over his other options. If the worker had a more preferred option available to him, he would simply choose that option instead. If he was prevented from choosing his preferred option of being employed at a factory producing shoes, say, he would obviously be made worse off. The most extreme example would be a worker in the most severe situation of poverty, where he has “has no other option”: either he works in the shoe factory, or he starves to death. Here it is clear that preventing him from working in the factory would be tantamount to condemning him to starvation.

A trade may be considered “unfair” by well-meaning Westerners, but that the trade is free (i.e. uncoerced) is proof that both parties to the trade expect to benefit from it, and consider it their preferred option. The parties to any given free trade, who are the only individuals of importance, by definition do not consider it to be “unfair”.


4. Means of Preventing “Unfair Trade”: 1. Coercion

The Fair Trade Movement is part of the more general “Trade Justice” philosophy, which has overt political ambitions. The goals of the movement are to hamper the free market economy using various kinds of government legislation, including:

• Isolationist policies; tariffs and other trade barriers.
• Global regulation and management of trade and production, including standards on working conditions and wage rates.
• Trading agreements (cartels, such as the defunct International Coffee Agreement) that will set national export quotas for global commodities.

Harriet Lamb, Director of the Fairtrade Foundation, stated in 2008 that “Fairtrade also plays a more practical role in building a broad-based movement for change… Fairtrade is an easy way in… It helps give our governments a mandate to take the big, bold steps needed to change world trade rules.”[1]

The economists of the Austrian School have shown how the effects of government intervention on the market economy can only cause impoverishment.[2]

5. Means of Preventing “Unfair Trade”: 2. Persuasion

Not all Fair Trade advocates support the use of government to end what they consider to be “unfair” trades. They wish to appeal to individual consumers to change their spending habits, from buying cheaper brands of products to buying more expensive products that have been certified as being produced only through “fair” trades.

The largest certification agency within the Fair Trade Movement is the Fairtrade Foundation, formed in 1992 by a coalition of charities, including Christian Aid and Oxfam. The Fairtrade certification mark is licensed to appear on products that are judged to have met certain standards in the treatment of producers, derived from the Fair Trade philosophy, including requiring them to form cooperatives and also offering a fixed lowest price for their goods.

The idea is to persuade people to value the Fairtrade mark sufficiently so that they choose to spend a little extra for a product identical to a cheaper product which lacks the Fairtrade mark. The extra money is supposedly worth it for the satisfaction of knowing that no worker in the production line of that product has been treated “unfairly”. The consumer buys the Fairtrade product believing that their extra money paid is going to the poor workers who produced that product: a little bit of charity on top of the normal wage rate for the worker. For example, suppose a particular coffee costs £4, and an otherwise identical product that has been certified by Fairtrade is £5. The £1 difference is the charitable donation the consumer is making.

6. Fairtrade as Charity

For any charitable donation, two important considerations are:

1. Who is the desired recipient? And
2. How much of the donation gets to the desired recipient?

To begin with the second question, out of a £1 Fairtrade charitable donation, only 10p reaches the intended recipients – the producers – with 90% going to retailers.[3] This contrasts with most direct charities such as Oxfam and the Red Cross, where between 70% and 95% of their donation income reaches the intended recipients.[4] So Fairtrade is a very inefficient method for delivering charity.

The Fairtrade Foundation competes with all other charities for donations, so increased demand for Fairtrade products will tend to lower the overall amount of charity that is delivered, all other things (i.e. the total amount of charity) being equal.

With regard to the first question, while Fairtrade benefits producers who sell Fairtrade certified products, it does so at a high cost to producers who are not Fairtrade certified. As an example, 25% of Fairtrade coffee comes from Mexico, which has 51 Fairtrade certified producers. Ethiopia has only 4 Fairtrade certified producers, despite 80% of the population working in agriculture, earning an average of $700/yr, compared to 18% of the Mexican population working in agriculture on an average wage of $9,000/yr.[5] The desperately poor Ethiopians suffer due to Fairtrade, with the benefits going to relatively wealthier Mexicans. Fairtrade charity does not reach the poorest producers. It benefits the few relatively wealthy producers who meet Fairtrade standards, at the expense of the many less-wealthy producers who do not.

In short, Fairtrade is charity that is delivered inefficiently and does not reach the poorest members of society. This can be contrasted with direct forms of charity, which deliver a higher proportion of the donation, and specifically deliver it to the desired recipients: the poorest members of society.

One final argument made in favour of Fairtrade is that if people did not buy Fairtrade products, they would not give the money saved to a direct charity, but would spend it on themselves instead. With Fairtrade, giving to charity is easy. So even though Fairtrade charity is inefficient and misdirected, it still increases the total amount of charity, and this can only be a good thing.

However, this is a generalization beyond merely an argument for Fairtrade products. Clearly if the consumer decreases their direct charitable donations in order to switch to Fairtrade products, the total amount of charity delivered decreases due to the inefficiency of Fairtrade, and this is contrary to the goal of the Fairtrade advocate. For this argument to apply, the Fairtrade advocate must convince consumers to increase their total charitable donations, in which case one wonders why they would not just advocate for a direct charity, which is more efficient.

With regard to Fairtrade being “easy” charity, such that it might induce higher total donations, it is equally easy for direct charities to make deals with consumer brands such that part of the price of the product is delivered to charity. This already happens extensively: charitable donations by businesses and corporations take this form – corporate donations may be the easiest form of charity of all from the consumers’ point of view – and it is common to see products advertised by companies promising to deliver a small part of the price paid, or a portion of their profits, to charity.

7. Free Trade as a Poverty Alleviator

Free trade is the most effective poverty reduction strategy the world has ever seen. The free market process is a wealth-generating engine: no government intervention into the market can add to prosperity, wealth, growth or development. This free market process was recognized by early economist Adam Smith as almost miraculous: he called it the “invisible hand” which guides free individuals towards maximising the prosperity of other individuals, purely by pursuing their own self-interest.[7]

Ludwig von Mises and other economists of the Austrian School have carefully elaborated how the market process works.[8] The “invisible hand” is nothing more than free market prices, which guide the actions of entrepreneurs seeking profits.[9] Entrepreneurs respond to the information in prices by rearranging the structure of production (the uses of land, labor and capital) in such a way that resources are used in a way that maximises the desires of consumers. Profits and losses serve as vital signals to entrepreneurs, informing them of where more resources are required, and where resources are being wasted, and also providing as an incentive for them to make the required adjustments to the structure of production.[10]

The market process works as follows:

1. Prices are determined by supply and demand; the market price is the price that allocates the available supply to where it is most demanded.
2. If there is an increase in demand (or a decrease in supply) for a product, the market price will increase; businesses raise prices, otherwise they will have a shortage of the product.
3. The increase in price results in increased profits to the business.
4. In response to the increased profits, existing producers shift more resources toward production of that product, and newcomers are attracted into that line of production.
5. In this way, supply increases in response to a greater need for the product.

Conversely, if demand for a product falls (or supply increases), entrepreneurs are impelled by competition to lower their prices. The decreased profits or losses result in entrepreneurs shifting resources away from their current use and towards producing something in greater demand.

Prices constantly adjust to changing supply and demand conditions, and ever-alert entrepreneurs stand ready to shift resources so that they are being used in the most productive way possible. The entrepreneurs do this purely out of self-interest, and are highly motivated to do so. Competition impels excellence, as entrepreneurs failing to use resources efficiently for satisfying consumer demand lose out to their competitors and become bankrupt; the market process ensures that resources get into the hands of the most capable entrepreneurs: those satisfying consumers the best.

Any use of coercion is sure to hamper the market process, because prices are disrupted and the profit and loss signals no longer reflect what consumers really want.[11] Entrepreneurs are misled into making malinvestments of resources from the point of view of consumers; resources are wasted.[12]

Wealth comes from productivity; the efficient use of resources. The average American is richer than the average African, because the American is more productive. The average 21st century American is richer than the average 19th century American because the modern American is more productive. This is not because modern Americans work harder than Africans or their ancestors, but because they have more capital goods available – more machines and better technology – which enables them to be more productive, to engage in greater diversification and specialization, and therefore to reap greater benefits from the division of labor and knowledge.[13]

A lack of wealth – poverty – therefore, is caused by a lack of productivity, so the only means of alleviating poverty is to increase productivity through capital investment. Free trade is the most effective means conceivable of increasing productivity, and hence alleviating poverty.

8. The Effect of Fairtrade on the Market Process

Having outlined how the market process works, we are now in a position to examine the effects of buying Fairtrade products. How does this affect prices, the signals that coordinate efficient production? Do the poorest members of society benefit from the way entrepreneurs will arrange the structure of production as a result of high sales of Fairtrade products?

Let us suppose that a firm or entrepreneur is looking to build a new shoe factory, say, and he is considering where to build it: country A or country B. Country A is very poor, and the entrepreneur estimates that he will be able to find people in country A that will accept employment in his factory for a wage of just $1 per day. Country B is less poor, and because of this, the people have better alternative employment options available to them, so the entrepreneur estimates that he will have to pay a wage of $4 per day to entice people in country B to work in his factory. So, all other things being equal, an entrepreneur keen to maximise his profits by keeping his costs down will choose to build his shoe factory in country A.

Now let us suppose that consumers are convinced of the benefits of buying Fairtrade goods. The shoe producer recognizes that he will not be able to sell shoes profitably unless he gets a Fairtrade certificate. And suppose that in order to get that certificate he will have to pay “fair” wages of $5 per day to his employees.[14] Now, which country will he build his factory in? All other things being equal, there is no particular reason for him to invest in the poorer country; his wage costs will be the same wherever. Furthermore, the poorer country may have inferior security or infrastructure or less educated workers compared to the less-poor country. So with wage-costs being equal, the entrepreneur will build his shoe factory in the less-poor country.

With consumers unconcerned by whether workers have been paid a “fair” wage, investment is directed towards the very poorest areas, rather than areas that are less poor. When well-intentioned consumers buy Fairtrade products thinking they are helping to alleviate poverty, they are unwittingly doing the opposite: they are inhibiting the process that alleviates poverty.

When one shoe company starts making strong profits by paying people in country A just $1 per day, other companies will be attracted to the area to compete with them. Another shoe company might open a factory nearby and offer $2 per day, enticing workers to his factory instead. In this way, the wage rates of the workers are bid up through competition. The poverty of the workers is reduced. Compare this to the case when consumers demand Fairtrade products. The profit-seeking entrepreneurs have no incentive to invest in the very poorest countries, because they must pay workers there as much as workers anywhere else. So there is no incentive for investment in the area and the very poor people must stick with their current occupations, which are worth less than $1 per day to them. The poverty of the workers endures.

The alleviation of poverty requires capital investment in poverty-stricken areas, to increase the productivity of the workers. As a result of the trend for Fairtrade products, poverty is greater than it would otherwise have been, because capital investment has been directed away from the most poverty-stricken areas, while without the fetish for Fairtrade products, capital investment would have been directed toward them.

9. Conclusion

Free trade is the greatest possible means of alleviating and eliminating poverty. The free market process does this best when consumers seek the best price they can get for the goods they buy, without any concern about the wage rates of workers that produced those goods. Buying Fairtrade goods inhibits the process which alleviates poverty.

To buy Fairtrade goods is to donate to charity, but charity delivered in this way is highly inefficient and does not actually reach the very poorest workers, who are presumably the intended recipients.

Some members of the Fair Trade Movement seek to use coercion by governments as a means to prevent their highly subjective and arbitrary notion of what constitutes “unfair trade” from taking place. They seek to prevent poor people from working jobs they have chosen voluntarily, failing to realise that this will leave them worse off and condemn them to their tragic situation of poverty.


Notes

[1] Harriet Lamb, Director of Fairtrade Foundation (2008), quoted in Marc Sidwell Unfair Trade (2008).
[2] See Henry Hazlitt Economics in One Lesson (1946) or Murray Rothbard’s Power and Market (1970).
[3] 'Voting with your Trolley', The Economist, 7th Dec 2006.
[4] According to charitynavigator.org, which monitors American charities, Oxfam (80.1%), Unicef (91.8%), American Cancer Society (72.8%), Save The Children (91.7%), American Red Cross (91.8%), World Vision (86.7%), etc, all spend the majority of their donation income on charitable programs.
[5] Marc Sidwell Unfair Trade (2008).
[6] Most economists agree that minimum price controls cause surpluses, so minimum wage legislation cause surplus labour, i.e. permanent unemployment, which harms the poorest members of society. For a clear explanation of how government manipulation of prices inhibits prosperity, see Henry Hazlitt’s Economics in One Lesson (1946).
[7] Adam Smith The Wealth of Nations (1776).
[8] Ludwig von Mises Human Action (1949) and Murray Rothbard Man, Economy and State (1962).
[9] For an illustration of the importance of coordination of economic activity, see Leonard Read I, Pencil (1958).
[10] For a brief examination of how profits and losses serve as signals for coordination, see Ludwig von Mises Profit and Loss (1952). For a critique of an economy lacking profit and loss signals, see Ludwig von Mises Socialism (1922).
[11] See Murray Rothbard Power and Market (1970).
[12] For example, a minimum price control causes a perpetual surplus of the product, regulations and prohibitions causes increase costs of production, a sales tax causes artificially high prices of all affected goods, bailouts prevent misallocated resources from being freed up to be put to better uses or by more capable hands, monetary inflation causes the interest rate to be distorted resulting in boom-bust cycles, wars and military spending cause resources to be used to produce tanks, bombers, mortars and missiles rather than goods more demanded by consumers, and so on.
[13] For example, in modern America advanced agricultural machinery makes each farmer more productive and this frees up workers for producing other goods. In modern America, only a very small proportion of the population are is employed in agriculture, relative to Africa or 19th century America.
[14] These values are purely illustrative. I have also simplified in that there are many other stipulations required to get a Fairtrade certificate; these will add to the effects described.

Three Modes of Analysis: Structure, Design and Purpose

The mind has evolved to analyse objects from three distinct perspectives: 1) purpose, 2) design and 3) structure.  The perspective we take when analysing any given object is largely determined by how useful that perspective is for us to gain knowledge and understanding of the object.

1. We can analyse objects as having a purpose. This works very well for humans, and it also works for animals. When a saber tooth tiger is running towards you, a quick analysis is required. The analysis is: 'that tiger intends to eat me'. We think of the tiger as having intent. There is no time to analyse the design or structure of the tiger. In theory, there is no reason that we can't view plants or rocks as having a purpose, except that it is not useful for us to do so.

2. We can analyse objects as having a design. This can be useful, for example, when trying to understand a leaf. We analyse it as the part of a plant designed to capture light. We think of the leaf as having a function. We can understand a leaf better by taking the design perspective than any other. It is not useful to think of a leaf as "wanting" or "intending" to capture light. We also analyse human-produced objects from the design perspective, thinking of them in terms of their function.

3. We can analyse the structure, the physical properties of all objects. In some cases, where the above two perspectives are not useful at all, it is our only way of getting an understanding of the object. To understand a rock means to understand its structure; there is no additional usefulness from thinking of the rock from either the design perspective or the purpose perspective.

Praxeology is the study of what can be learned by contemplating, and drawing logical deductions from, the concept of action.  Action is purposeful behaviour.  Praxeology is therefore an example of taking the purpose perspective towards analysing objects.

Praxeological laws apply wherever there is action, that is, wherever we perceive an object as behaving with intent and purpose.  The observation that most human behaviours are actions, that is, that humans are an example of beings that are usefully considered as purposeful beings, implies that praxeology is a very useful way of thinking about human behaviour.  However, there is no particular reason why praxeology should be limited to humans.  Non-human objects can also be usefully analysed as actors, such as the example of the saber tooth tiger above.

We may ask: is a saber tooth tiger really an acting being?  That is, is the tiger really making choices about his behavior, or are its behaviors entirely instinctive?  This question is really meaningless, however, when we consider purposefulness not as an attribute inherent to objects, but rather as an attribute that minds imbue onto objects, when it is useful to do so.

A purposeful behaviour (i.e. an action) is a behaviour that has been deliberated about and chosen over other behaviours.  I have a clear conception that my own behaviours can be categorized into those undertaken with a purpose (e.g. typing on my keyboard), and those that are reflexes (e.g. sneezing).  I then extrapolate this personal insight about me onto other human beings.  I assume that the behaviours of other humans are not all reflexes. I assume that other human beings behave with a purpose, i.e. with intent, i.e. that other humans, like me, act.

I do this purely because it is more useful for me to think of other humans as acting beings, rather than purely reflexive beings.  I do not know for certain whether other human beings are really acting; it is possible that everyone else, except for me, is purely reflexive and not really making choices at all.

In short, purposefulness/consiousness is not something inherent to objects. It is a word that denotes those objects that we can usefully analyse using a certain mode of analysis: the perspective of intent, desire, action.  Praxeology is an example of this mode of analysis, and it may apply to any being that we find it useful to consider as purposeful - human or otherwise.


Note: This was originally posted as part of a conversation here at the Mises forum.

How To Rescue A Child (without the State)

How might child abuse be handled in a stateless society?

The Scenario

Single-father Bob physically abuses his 3-year old daughter, Jane. (Jane’s mother died while giving birth to her, and there is no extended family.) A nursery nurse becomes suspicious that Bob may be mistreating Jane. She informs the charity Friends-of-Babies, which investigates cases of child abuse, and re-homes abused children. Friends-of-Babies investigate the allegations made by the nurse. They make an assessment, and conclude that Bob is indeed abusing Jane, and that she would be better off if she were removed from that situation, and re-homed with loving foster parents.

A Free Market in Law

Law is the resolution of disputes. What is being disputed here is the ownership right to raise Jane. Bob currently owns this right, and the Friends-of-Babies organization is challenging him for it; they are claiming it for themselves. Assuming Bob objects to the charity’s claim, there is a dispute and the case will go to court. The court will award the right to raise Jane to one disputant or the other.

Free markets produce according to consumer demand. Free market firms strive for excellence in satisfying consumers, and firms that fail to use resources efficiently for this purpose do not survive the competition. This is as true for a free market in the law industry as it is for any other industry. The laws that are produced are those that consumers demand. If free market courts produce laws that are seen as unfair or unjust, they will lose customers. For a free market court, a reputation for honesty, fairness, wisdom and good judgment is essential for continued business.

Friends-of-Babies present their evidence to the court. The court becomes convinced that Bob is an abusive parent. Now they must make their decision. Child abuse, of the kind Bob committed, is widely considered by individuals in society as sufficient justification for intervention; this child needs rescuing. Therefore the court will likely decide in favor of Friends-of-Babies. They would not want to be known as an organization that lets child abuse continue. Following the court decision, Bob must give up Jane to the charity. If he resists, the charity can physically take Jane from him, and Bob has no grounds to complain. Thus Jane is rescued from her abusive father, and is soon found a loving new home.

Some Objections

Now a few objections to this scenario…

1. What if Friends-of-Babies doesn’t exist? 
Lots of people feel strongly about protecting children from abuse, and would be willing to donate to such an organization, so we may be confident that such charities will exist.

2. What if Bob doesn’t agree to go to court?
As with any dispute, the alternative to arbitration is a martial contest, which neither disputant wants. If Bob is innocent, he has incentive to go to court to defend himself against the spurious claim. If Bob is guilty, he still has an incentive to go to court, if only because the consequences of not going to court would be worse. With a court decision, the harm that Friends-of-Babies inflicts on Bob is strictly limited, but if Bob refuses to go to court (makes himself an outlaw), the actions taken against him could be much more severe.

3. How do you define ‘abuse’?
That is to be decided by the consumers of laws. There will always be different opinions about what actions justify intervening in the parent-child relationship. The variation will be reflected in the choice of laws offered to consumers, and could vary significantly between cultures. With no monopoly on law, there is no need to search for an ‘objective’ definition, and no need for universal agreement on the definition.

4. Isn’t this just kidnapping, and aggression against Bob?
See note…

5. Doesn’t this imply parental obligations, and “positive rights”?
See note…

Conclusion

I have outlined how child abuse might be handled in a stateless society, with free markets in law and child protection. For all the usual reasons that free markets are better than monopolies, we would expect the laws produced and the protection given to children to be superior with the free market system. Therefore, all other things being equal, children will be safer and child abuse will be far less common without the State.

Note

The last two objections involve libertarian legal theory. My answer is that this court decision may well be consistent with libertarianism. To understand how this could be the case, see Walter Block’s Libertarianism, positive obligations and property abandonment: children's rights, and Stephan Kinsella’s How We Come to Own Ourselves.

Ten Books That Influenced Me

These are the books that had the greatest impact on my worldview. All of them are from the last few years, which emcompass my intellectual journey from political apathy and economic naiveté, to being a radical libertarian anarchist and Austrian economist.

I list the books in the order that I (first) read them, with the year in which I first read them in brackets. This post is not to be taken as a blanket endorsement of these books. They are the ones that influenced me most, not those I consider the greatest works, nor those that I would recommend to others necessarily.

1. The Road To Serfdom, F.A. Hayek (2007) – This book introduced me to a new way of thinking about politics. It introduced me to basing political views on principles rather than on whims. I identified myself as an individualist, and became opposed to all forms of collectivism. I understood that governments, even if they start off extremely limited, will always tend to grow, especially if the public has a collectivist mindset.

2. The Revolution: A Manifesto, Ron Paul (2008) – Ron Paul cured my apathy about politics. I found him online in November 2007, and became a massive fan very quickly. He took principled positions, he obviously knew what he was talking about economically, and had held those stances his whole career without wavering or compromising. I began questioning my own views about the role of government. I stopped believing in the left-right paradigm, and started to understand a far better paradigm: libertarianism versus statism.

3. Economics in One Lesson, Henry Hazlitt (2008) – The title is so appealing that I made this the first book on economics I read. I found it through the Ludwig von Mises Institute, which Ron Paul had directed me towards. Immediately, the fallacies of mainstream economics, and the wealth-destroying nature of socialism and all kinds of interventionism, became apparent to me. Hazlitt’s lesson is so remarkably powerful, that I immediately felt confident enough to reveal my political preferences publicly and argue for free markets in practically every area of society. The economic arguments in favor of a state are untenable, and quite obviously so.

4. For A New Liberty, Murray Rothbard (2008) – It took me about 9 months to go from a Ron Paul-inspired limited constitutional government position, to a full libertarian anarchist position. More than any other author, Murray Rothbard deserves most of the credit for that. This book was so clear, and made the case so powerfully, that I instantly saw the superiority of the anarchist position. It was also the first time I had encountered an explanation of how security and law can be provided without a government.

5. Anarchy and the Law, Edward Stringham et al (2008) – This compilation of essays and book excerpts sealed my anarchism. I read alternative justifications for and visions of anarchy: from David Friedman, Linda and Morris Tannehill, Randy Barnett, Roderick Long, Roy Childs, Hans Hermann Hoppe, John Hasnas. These all helped shape my worldview and especially sharpened up my thinking about how security and law can be provided without a state.

6. The Enterprise of Law, Bruce Benson (2009) – This book gave me my first encounter of public-choice economics. Benson took a whole different approach to Rothbard and Friedman, with a great deal of historical, empirical research into customary law, as well as a detailed analysis of the state law-making process and how it compares to law produced by private courts.

7. Democracy: The God That Failed, Hans-Hermann Hoppe (2009) – Just when I thought my political views were fully-formed, Hoppe hit me with his idea that monarchy is superior to democracy (though anarchy is still best of all, of course). I had taken it as given that if we must have a state, let it at least be democratic, and I had always seen the recent historical transition from monarchies to democracies as a positive thing. This book changed my view completely, and gave me a whole lot more reasons to oppose modern states. If we must have a state, let it at least be a monarchy, I now say.

8. Boundaries of Order, Butler Shaffer (2010) – This book played a vital role in my forming my position, contra Rothbard, as a subjectivist ethicist. In particular, it provided me with the terminology that reveals the flaws in his natural rights justification for libertarianism. It allowed me to move past Rothbard and develop a sophisticated subjectivist justification for libertarianism, free from terminological baggage and smuggled norms.

9. The Selfish Gene, Richard Dawkins (2010) – I thought I understood evolution pretty well, until I read this book. I had not realised the importance of asking at what level evolution takes place. It is at the level of the gene, and this has enormous implications for how we view evolution. I was struck by the beauty and structure to be found in nature and evolution, as Dawkins masterfully described. I was fascinated by the idea that morality can be explained in evolutionary terms; this idea fit perfectly with my subjective ethics worldview.

10. How The Mind Works, Steven Pinker (2010) – This book is full of remarkable ideas, about how our minds evolved to deal with reality. It brings to life the story of how and why we developed language, self-awareness and morality. I have not yet fully absorbed all that this book has to offer, and will probably need to read it a few more times before I feel I have a good grasp on it. But I already feel that it has had a profound affect on my thinking.

Looking over my list, the thing that jumps out at me is that there is no Ludwig von Mises. He will have to be contented that his views influenced me through others: particularly Rothbard, Hoppe, Hazlitt and Paul. Human Action, Theory and History and Socialism come closest to being on this list. His shorter works, The Anti-Capitalistic Mentality, Profit and Loss, and Economic Calculation in the Socialist Commonwealth all deserve a mention as well.

Murray Rothbard is probably my single greatest influence, and if I had the space, would have had more than one entry in this top ten. I learned economics from Man, Economy and State, and The Ethics of Liberty was highly influential as well. Rothbard’s crowning glory, however, has to be his epic A History of Economic Thought, which shows off his masterly scholarly skills, and wonderful writing style, to the maximum.

Some more short works that influenced me include The Politics of Disobedience (Etienne de la Boetie), The Production of Security (Gustave de Molinari), No Treason (Lysander Spooner), Against Intellectual Property (Stephan Kinsella) and The Depoliticization of Law (John Hasnas).

A Critique of Murray Rothbard's Idea of a "Basic Legal Code"

Here is a passage from The Ethics of Liberty:

[L]aw and the State are both conceptually and historically separable, and law would develop in an anarchistic market society without any form of State. Specifically, the concrete form of anarchist legal institutions—judges, arbitrators, procedural methods for resolving disputes, etc.—would indeed grow by a market invisible-hand process, while the basic Law Code (requiring that no one invade any one else’s person and property) would have to be agreed upon by all the judicial agencies, just as all the competing judges once agreed to apply and extend the basic principles of the customary or common law. But the latter, again, would imply no unified legal system or dominant protective agency. Any agencies that transgressed the basic libertarian code would be open outlaws and aggressors, and Nozick himself concedes that, lacking legitimacy, such outlaw agencies would probably not do very well in an anarchist society.

Here is the problem as I see it, with this idea of a "basic law code"...

Firstly: how detailed it this basic law code? Consider the two extremes:

• Broadly defined. "No one may invade anyone else's person and property". No more detail than that. ("Invade" and "property" are not given definitions... that is for the courts to interpret)
• Narrowly defined. The basic law code is identical to the libertarian law code, as developed by Rothbard, Kinsella, Block, etc... down to the details... like the basic law code is specific about IP, abortion, capital punishment, etc. (There is very little scope for interpretation of the basic legal code... the courts task is limited to applying the law code)

I've never been able to get a clear answer from Rothbardians about how detailed the basic law code is supposed to be. In the following analysis, I will show how the whole concept of the "basic law code" vanishes when you really think about it.

Rothbard says that the basic law code will be agreed upon by all reasonable courts. I take him to mean everybody except serial killers, rapists etc, i.e. 99% of the population. With such widespread agreement required, it seems hopelessly unrealistic to suppose that the basic law code is narrowly defined, down to the last detail. Even among libertarians, there is a disagreement over IP, abortion, punishments, etc. There is no way the entire population of reasonable people is going to agree on every little detail of libertarian theory.  The entire field of economic analysis of law - how laws get produced and what kinds of laws get produced - is skipped over by making this supposition.

To Rothbard, there were two types of court: reasonable courts, which have signed up to the basic law code, and outlaw courts, which have not. Rothbard does not provide any analysis - any mechanism - of how reasonable courts and outlaw courts will resolve disputes between them. This may not be much of an issue if we assume 99% of courts are reasonable, but see above.

So maybe the basic law code is broadly defined, leaving a lot of scope for interpretation, so that widespread agreement is possible. But then how will disputes about things which might fall into the area of interpretation - say IP disputes - get resolved? There needs to be a mechanism to explain this... how disputes between courts which have both agreed to the basic (broadly defined) law code will be resolved, when their interpretation of that law code differs. Rothbard has not provided us with a mechanism for this.

David Friedman, in chapter 29 of The Machinery of Freedom, has described a mechanism for how courts which provide different laws (perhaps very different laws) will resolve their disputes: the bargaining process.

One can imagine an idealized bargaining process, for this or any other dispute, as follows: Two agencies are negotiating whether to recognize a pro- or anti-capital-punishment court. The pro agency calculates that getting a pro-capital-punishment court will be worth $20,000 a year to its customers; that is the additional amount it can get for its services if they include a guarantee of capital punishment in case of disputes with the other agency. The anti-capital-punishment agency calculates a corresponding figure of $40,000. It offers the pro agency $30,000 a year in exchange for accepting an anti-capital-punishment court. The pro agency accepts. Now the anti-capital-punishment agency can raise its rates enough to bring in an extra $35,000. Its customers are happy, since the guarantee of no capital punishment is worth more than that. The agency is happy; it is getting an extra $5,000 a year profit. The pro agency cuts its rates by an amount that costs it $25,000 a year. This lets it keep its customers and even get more, since the savings is more than enough to make up to them for not getting the court of their choice. It, too, is making a $5,000 a year profit on the transaction. As in any good trade, everyone gains.

The same mechanism applies to all courts, so there is no need to call some courts "outlaw courts." Hence the idea of a basic law code dissolves. Each court is just producing laws, which may or may not be close to plumbline libertarian laws.