Consequentialist Libertarianism
While Nozickian libertarianism finds its inspiration in Locke and Kant, there is another species of libertarianism that draws its influence from David Hume, Adam Smith, and John Stuart Mill. This variety of libertarianism holds its political principles to be grounded not in self-ownership or the natural rights of humanity, but in the beneficial consequences that libertarian rights and institutions produce, relative to possible and realistic alternatives. To the extent that such theorists hold that consequences, and only consequences, are relevant in the justification of libertarianism, they can properly be labeled a form of consequentialism. Some of these consequentialist forms of libertarianism are utilitarian. But consequentialism is not identical to utilitarianism, and this section will explore both traditional quantitative utilitarian defenses of libertarianism, and other forms more difficult to classify.
Quantitative Utilitarianism
Philosophically, the approach that seeks to justify political institutions by demonstrating their tendency to maximize utility has its clearest origins in the thought of Jeremy Bentham, himself a legal reformer as well as moral theorist. But, while Bentham was no advocate of unfettered laissez-faire, his approach has been enormously influential among economists, especially the Austrian and Chicago Schools of Economics, many of whom have utilized utilitarian analysis in support of libertarian political conclusions.
Some influential economists have been self-consciously libertarian—the most notable of which being Ludwig von Mises, Friedrich Hayek, James Buchanan, and Milton Friedman (the latter three are Nobel laureates). Richard Epstein, more legal theorist than economist, nevertheless utilizes utilitarian argument with an economic analysis of law to defend his version of classical liberalism. His work in Principles for a Free Society (1998) and Skepticism and Freedom (2003) is probably the most philosophical of contemporary utilitarian defenses of libertarianism. Buchanan's work is generally described as contractarian, though it certainly draws heavily on utilitarian analysis. It too is highly philosophical.
Utilitarian defenses of libertarianism generally consist of two prongs: utilitarian arguments in support of private property and free exchange and utilitarian arguments against government policies that exceed the bounds of the minimal state. Utilitarian defenses of private property and free exchange are too diverse to thoroughly canvass in a single article. For the purposes of this article, however, the focus will be on two main arguments that have been especially influential: the so-called "Tragedy of the Commons" argument for private property and the "Invisible Hand" argument for free exchange.
The Tragedy of the Commons and Private Property
The Tragedy of the Commons argument notes that under certain conditions when property is commonly owned or, equivalently, owned by no one, it will be inefficiently used and quickly depleted. In his original description of the problem of the commons, Garrett Hardin asks us to imagine a pasture open to all, on which various herders graze their cattle (Hardin 1968). Each additional animal that the herder is able to graze means greater profit for the herder, who captures that entire benefit for his or her self.
Of course, additional cattle on the pasture has a cost as well in terms of crowding and diminished carrying capacity of the land, but importantly this cost of additional grazing, unlike the benefit, is dispersed among all herders. Since each herder thus receives the full benefit of each additional animal but bears only a fraction of the dispersed cost, it benefits him or her to graze more and more animals on the land. But since this same logic applies equally well to all herders, we can expect them all to act this way, with the result that the carrying capacity of the field will quickly be exceeded.
The tragedy of the Tragedy of the Commons is especially apparent if we model it as a Prisoner's Dilemma, wherein each party has the option to graze additional animals or not to graze. (See figure 1, below, where A and B represent two herders, "graze" and "don't graze" their possible options, and the four possible outcomes of their joint action.
Within the boxes, the numbers represent the utility each herder receives from the outcome, with A's outcome listed on the left and B's on the right). As the discussion above suggests, the best outcome for each individual herder is to graze an additional animal, but for the other herder not to—here the herder reaps all the benefit and only a fraction of the cost. The worst outcome for each individual herder, conversely, is to refrain from grazing an additional animal while the other herder indulges—in this situation, the herder bears costs but receives no benefit. The relationship between the other two possible outcomes is important. Both herders would be better off if neither grazed an additional animal, compared to the outcome in which both do graze an additional animal.
The long-term benefits of operating within the carrying capacity of the land, we can assume, outweigh the short-term gains to be had from mutual overgrazing. By the logic of the Prisoner's Dilemma, however, rational self-interested herders will not choose mutual restraint over mutual exploitation of the resource. This is because, so long as the costs of over-grazing are partially externalized on to other users of the resource, it is in each herder's interest to overgraze regardless of what the other party does. In the language of game theory, overgrazing dominates restraint.
As a result, not only is the resource consumed, but both parties are made worse off individually than they could have been. Mutual overgrazing creates a situation that not only yields a lower total utility than mutual restraint (2 vs. 6), but that is Pareto-inferior to mutual restraint—at least one party (indeed, both!) would have been made better off by mutual restraint without anyone having been made worse off.
The classic solution to the Tragedy of the Commons is private property. Recall that the tragedy arises because individual herders do not have to bear the full costs of their actions. Because the land is common to all, the costs of overgrazing are partially externalized on to other users of the resource. But private property changes this. If, instead of being commonly owned by all, the field was instead divided into smaller pieces of private property, then herders would have the power to exclude others from using their own property.
One would only be able to graze cattle on one's own field, or on others' fields on terms specified by their owners, and this means that the costs of that overgrazing (in terms of diminished usability of the land or diminished resale value because of that diminished usability) would be borne by the overgrazer alone. Private property forces individuals to internalize the cost of their actions, and this in turn provides individuals with an incentive to use the resource wisely.
The lesson is that by creating and respecting private property rights in external resources, governments can provide individuals with an incentive to use those resources in an efficient way, without the need for complicated government regulation and oversight of those resources. Libertarians have used this basic insight to argue for everything from privatization of roads (Klein and Fielding 1992) to private property as a solution to various environmental problems (Anderson and Leal 1991).
The Invisible Hand and Free Exchange
Libertarians believe that individuals and groups should be free to trade just about anything they wish with whomever they wish, with little to no governmental restriction. They therefore oppose laws that prohibit certain types of exchanges (such as prohibitions on prostitution and sale of illegal drugs, minimum wage laws that effectively prohibit low-wage labor agreements, and so on) as well as laws that burden exchanges by imposing high transaction costs (such as import tariffs).
The reason utilitarian libertarians support free exchange is that, they argue, it tends to allocate resources into the hands of those who value them most, and in so doing to increase the total amount of utility in society. The first step in seeing this is to understand that even if trade is a zero-sum game in terms of the objects that are traded (nothing is created or destroyed, just moved about), it is a positive-sum game in terms of utility. This is because individuals differ in terms of the subjective utility they assign to goods.
A person planning to move from Chicago to San Diego might assign a relatively low utility value to her large, heavy furniture. It's difficult and costly to move, and might not match the style of the new home anyway. But to someone else who has just moved into an empty apartment in Chicago, that furniture might have a very high utility value indeed. If the first person values the furniture at $200 (or its equivalent in terms of utility) and the second person values it at $500, both will gain if they exchange for a price anywhere between those two values. Each will have given up something they value less in exchange for something they value more, and net utility will have increased as a result.
As Friedrich Hayek has noted, much of the information about the relative utility values assigned to different goods is transmitted to different actors in the market via the price system (Hayek 1980). An increase in a resource's price signals that demand for that resource has increased relative to supply. Consumers can respond to this price increase by continuing to use the resource at the now-higher price, switching to a substitute good, or discontinuing use of that sort of resource altogether.
Each individual's decision is both affected by the price of the relevant resources, and affects the price insofar as it adds to or subtracts from aggregate supply and demand. Thus, though they generally do not know it, each person's decision is a response to the decisions of millions of other consumers and producers of the resource, each of whom bases her decision on her own specialized, local knowledge about that resource. And although all they are trying to do is maximize their own utility, each individual will be led to act in a way that leads the resource toward its highest-valued use. Those who derive the most utility from the good will outbid others for its use, and others will be led to look for cheaper substitutes.
On this account, one deeply influenced by the Austrian School of Economics, the market is a constantly churning process of competition, discovery, and innovation. Market prices represent aggregates of information and so generally represent an advance over what any one individual could hope to know on his own, but the individual decisions out of which market prices arise are themselves based on imperfect information. There are always opportunities that nobody has discovered, and the passage of time, the changing of people's preferences, and the development of new technological possibilities ensures that this ignorance will never be fully overcome. The market is thus never in a state of competitive equilibrium, and it will always "fail" by the test of perfect efficiency.
But it is precisely today's market failures that provide the opportunities for tomorrow's entrepreneurs to profit by new innovation (Kirzner 1996). Competition is a process, not a goal to be reached, and it is a process driven by the particular decisions of individuals who are mostly unaware of the overall and long-term tendencies of their decisions taken as a whole. Even if no market actor cares about increasing the aggregate level of utility in society, he will be, as Adam Smith wrote, "led by an invisible hand to promote an end which was no part of his intention" (Smith 1981). The dispersed knowledge of millions of market actors will be taken into account in producing a distribution that comes as close as practically possible to that which would be selected by a benign, omniscient, and omnipotent despot. In reality, however, all that government is required to do in order to achieve this effect is to define and enforce clear property rights and to allow the price system to freely adjust in response to changing conditions.
Arguments Against Government Intervention
The above two arguments, if successful, demonstrate that free markets and private property generate good utilitarian outcomes. But even if this is true, it remains possible that selective government intervention in the economy could produce outcomes that are even better. Governments might use taxation and coercion for the provision of public goods, or to prevent other sorts of market failures like monopolies.
Or governments might engage in redistributive taxation on the grounds that given the diminishing marginal utility of wealth, doing so will provide higher levels of overall utility. In order to maintain their opposition to government intervention, then, libertarians must produce arguments to show that such policies will not produce greater utility than a policy of laissez-faire. Producing such arguments is something of a cottage industry among libertarian economists, and so we cannot hope to provide a complete summary here. Two main categories of argument, however, have been especially influential. We can call them incentive-based arguments and public choice arguments.
Incentive arguments proceed by claiming that government policies designed to promote utility actually produce incentives for individuals to act in ways that run contrary to promotion of utility. Examples of incentive arguments include arguments that (a) government-provided (welfare) benefits dissuade individuals from taking responsibility for their own economic well-being (Murray 1984), (b) mandatory minimum wage laws generate unemployment among low-skilled workers (Friedman 1962, 180–181), (c) legal prohibition of drugs create a black market with inflated prices, low quality control, and violence (Thornton 1991), and (d) higher taxes lead people to work and/or invest less, and hence lead to lower economic growth.
Public choice arguments, on the other hand, are often employed by libertarians to undermine the assumption that government will use its powers to promote the public interest in the way its proponents claim it will. Public choice as a field is based on the assumption that the model of rational self-interest typically employed by economists to predict the behavior of market agents can also be used to predict the behavior of government agents. Rather than trying to maximize profit, however, government agents are thought to be aiming at re-election (in the case of elected officials) or maintenance or expansion of budget and influence (in the case of bureaucrats).
From this basic analytical model, public choice theorists have argued that (a) the fact that the costs of many policies are widely dispersed among taxpayers, while their benefits are often concentrated in the hands of a few beneficiaries, means that even grossly inefficient policies will be enacted and, once enacted, very difficult to remove, (b) politicians and bureaucrats will engage in "rent-seeking" behavior by exploiting the powers of their office for personal gain rather than public good, and (c) certain public goods will be over-supplied by political processes, while others will be under-supplied, since government agents lack both knowledge and incentives necessary to provide such goods at efficient levels (Mitchell and Simmons 1994).
These problems are held to be endemic to political processes, and not easily subject to legislative or constitutional correction. Hence, many conclude that the only way to minimize the problems of political power is to minimize the scope of political power itself by subjecting as few areas of life as possible to political regulation.
Traditionalist Consequentialism
The quantitative utilitarians are often both rationalist and radical in their approach to social reform. For them, the maximization of utility serves as an axiomatic first principle, from which policy conclusions can be straightforwardly deduced once empirical (or quasi-empirical) assessments of causal relationships in the world have been made. From Jeremy Bentham to Peter Singer, quantitative utilitarians have advocated dramatic changes in social institutions, all justified in the name of reason and the morality it gives rise to.
There is, however, another strain of consequentialism that is less confident in the ability of human reason to radically reform social institutions for the better. For these consequentialists, social institutions are the product of an evolutionary process that itself is the product of the decisions of millions of discrete individuals. Each of these individuals in turn possess knowledge that, though by itself is insignificant, in the aggregate represents more than any single social reformer could ever hope to match. Humility, not radicalism, is counseled by this variety of consequentialism.
Though it has its affinities with conservative doctrines such as those of Edmund Burke, Michael Oakeshott, and Russell Kirk, this strain of consequentialism had its greatest influence on libertarianism through the work of Friedrich Hayek. Hayek, however, takes pains to distance himself from conservative ideology, noting that his respect for tradition is not grounded in a fetish for the status quo or an opposition to change as such, but in deeper, distinctively liberal principles (Hayek 1960).
For Hayek, tradition is valuable because, and only to the extent that, it evolves in a peaceful, decentralized way. Social norms that are chosen by free individuals and survive competition from competing norms without being maintained by coercion are, for that reason, worthy of respect even if we are not consciously aware of all the reasons that the institution has survived. Somewhat paradoxically then, Hayek believes that we can rationally support institutions even when we lack substantive justifying reasons for supporting them. The reason this can be rational is that even when we lack substantive justifying reasons, we nevertheless have justifying reasons in a procedural sense—the fact that the institution is the result of an evolutionary procedure of a certain sort gives us reason to believe that there are substantive justifying reasons for it, even if we do not know what they are (Gaus 2006).
For Hayek, the procedures that lend justifying force to institutions are, essentially, ones that leave individuals free to act as they wish so long as they do not act aggressively toward others. For Hayek, however, this principle is not a moral axiom but rather follows from his beliefs regarding the limits and uses of knowledge in society. A crucial piece of Hayek's arguments regarding the price system, (see above) is his claim that each individual possesses a unique set of knowledge about his or her local circumstances, special interests, desires, abilities, and so forth. The price system, if allowed to function freely without artificial floors or ceilings, will reflect this knowledge and transmit it to other interested individuals, thus allowing society to make effective use of dispersed knowledge. But Hayek's defense of the price system is only one application of a more general point.
The fact that knowledge of all sorts exists in dispersed form among many individuals is a fundamental fact about human existence. And since this knowledge is constantly changing in response to changing circumstances and cannot therefore be collected and acted upon by any central authority, the only way to make use of this knowledge effectively is to allow individuals the freedom to act on it themselves. This means that government must disallow individuals from coercing one another, and also must refrain from coercing them themselves.
The social order that such voluntary actions produce is one that, given the complexity of social and economic systems and radical limitations on our ability to acquire knowledge about its particular details (Gaus 2007), cannot be imposed by fiat, but must evolve spontaneously in a bottom-up manner. Hayek, like Mill before him (Mill 1989), thus celebrates the fact that a free society allows individuals to engage in "experiments in living" and therefore, as Nozick argued in the neglected third part of his Anarchy, State, and Utopia, can serve as a "utopia of utopias" where individuals are at liberty to organize their own conception of the good life with others who voluntarily choose to share their vision (Hayek 1960).
Hayek's ideas about the relationship between knowledge, freedom, and a constitutional order were first developed at length in The Constitution of Liberty, later developed in his series Law, Legislation and Liberty, and given their last, and most accessible (though not necessarily most reliable (Caldwell 2005)) statement in The Fatal Conceit: The Errors of Socialism (1988).
Since then, the most extensive integration of these ideas into a libertarian framework is in Randy Barnett's The Structure of Liberty, wherein Barnett argues that a "polycentric constitutional order" (see below regarding anarcho-capitalism) is best suited to solve not only the Hayekian problem of the use of knowledge in society, but also what he calls the problems of "interest" and "power" (Barnett 1998). More recently, Hayekian insights have been put to use by contemporary philosophers Chandran Kukathas (1989; 2006) and Gerald Gaus (2006; 2007).
Criticisms of Consequentialist Libertarianism
Consequentialist defenses of libertarianism are, of course, varieties of consequentialist moral argument, and are susceptible therefore to the same kinds of criticisms leveled against consequentialist moral arguments in general. Beyond these standard criticisms, moreover, consequentialist defenses of libertarianism are subject to four special difficulties.
First, consequentialist arguments seem unlikely to lead one to full-fledged libertarianism, as opposed to more moderate forms of classical liberalism. Intuitively, it seems implausible that simple protection of individual negative liberties would do a better job than any alternative institutional arrangement at maximizing utility or peace and prosperity or whatever. And this intuitive doubt is buttressed by economic analyses showing that unregulated capitalist markets suffer from production of negative externalities, from monopoly power, and from undersupply of certain public goods, all of which cry out for some form of government protection (Buchanan 1985).
Even granting libertarian claims that (a) these problems are vastly overstated, (b) often caused by previous failures of government to adequately respect or enforce private property rights, and (c) government ability to correct these is not as great as one might think, it's nevertheless implausible to suppose, a priori, that it will never be the case that government can do a better job than the market by interfering with strict libertarian rights.
Second, consequentialist defenses of libertarianism are subject to objections when a great deal of benefit can be had at a very low cost. So-called cases of "easy rescue," for instance, challenge the wisdom of adhering to absolute prohibitions on coercive conduct. After all, if the majority of the world's population lives in dire poverty and suffer from easily preventable diseases and deaths, couldn't utility be increased by increasing taxes slightly on wealthy Americans and using that surplus to provide basic medical aid to those in desperate need? The prevalence of such cases is an empirical question, but their possibility points (at least) to a "fragility" in the consequentialist case for libertarian prohibitions on redistributive taxation.
Third, the consequentialist theories at the root of these libertarian arguments are often seriously under-theorized. For instance, Randy Barnett bases his defense of libertarian natural rights on the claim that they promote the end of "happiness, peace and prosperity" (Barnett 1998). But this leaves a host of difficult questions unaddressed. The meaning of each of these terms, for instance, has been subject to intense philosophical debate. Which sense of happiness, then, does libertarianism promote? What happens when these ends conflict—when we have to choose, say, between peace and prosperity? And in what sense do libertarian rights "promote" these ends?
Are they supposed to maximize happiness in the aggregate? Or to maximize each person's happiness? Or to maximize the weighted sum of happiness, peace, and prosperity? Richard Epstein is on more familiar and hence, perhaps, firmer ground when he says that his version of classical liberalism is meant to maximize utility, but even here the claim that utility maximization is the proper end of political action is asserted without argument. The lesson is that while consequentialist political arguments might seem less abstract and philosophical (in the pejorative sense) than deontological arguments, consequentialism is still, nevertheless, a moral theory, and needs to be clearly articulated and defended as any other moral theory. Possibly because consequentialist defenses of libertarianism have been put forward mainly by non-philosophers, this challenge has yet to be met.
A fourth and related point has to do with issues surrounding the distribution of wealth, happiness, opportunities, and other goods allegedly promoted by libertarian rights. In part, this is a worry common to all maximizing versions of consequentialism, but it is of special relevance in this context given the close relation between economic systems and distributional issues. The worry is that morality, or justice, requires more than simply producing an abundance of wealth, happiness, or whatever. It requires that each person gets a fair share—whether that is defined as an equal share, a share sufficient for living a good life, or something else. Intuitively fair distributions are simply not something that libertarian institutions can guarantee, devoid as they are of any means for redistributing these goods from the well-off to the less well-off.
Furthermore, once it is granted that libertarianism is likely to produce unequal distributions of wealth, the Hayekian argument for relying on the free price system to allocate goods no longer holds as strongly as it appeared to. For we cannot simply assume that a free price system will lead to goods being allocated to their most valued use if some people have an abundance of wealth and others very little at all. A free market of self-interested persons will not distribute bread to the starving man, no matter how much utility he would derive from it, if he cannot pay for it. And a wealthy person, such as Bill Gates, will still always be able to outbid a poor person for season tickets to the Mariners, even if the poor person values the tickets much more highly than he, since the marginal value of the dollars he spends on the tickets is much lower to him than the marginal value of the poor person's dollars. Both by an external standard of fairness and by an internal standard of utility-maximization, then, unregulated free markets seem to fall short.
Quantitative Utilitarianism
Philosophically, the approach that seeks to justify political institutions by demonstrating their tendency to maximize utility has its clearest origins in the thought of Jeremy Bentham, himself a legal reformer as well as moral theorist. But, while Bentham was no advocate of unfettered laissez-faire, his approach has been enormously influential among economists, especially the Austrian and Chicago Schools of Economics, many of whom have utilized utilitarian analysis in support of libertarian political conclusions.
Some influential economists have been self-consciously libertarian—the most notable of which being Ludwig von Mises, Friedrich Hayek, James Buchanan, and Milton Friedman (the latter three are Nobel laureates). Richard Epstein, more legal theorist than economist, nevertheless utilizes utilitarian argument with an economic analysis of law to defend his version of classical liberalism. His work in Principles for a Free Society (1998) and Skepticism and Freedom (2003) is probably the most philosophical of contemporary utilitarian defenses of libertarianism. Buchanan's work is generally described as contractarian, though it certainly draws heavily on utilitarian analysis. It too is highly philosophical.
Utilitarian defenses of libertarianism generally consist of two prongs: utilitarian arguments in support of private property and free exchange and utilitarian arguments against government policies that exceed the bounds of the minimal state. Utilitarian defenses of private property and free exchange are too diverse to thoroughly canvass in a single article. For the purposes of this article, however, the focus will be on two main arguments that have been especially influential: the so-called "Tragedy of the Commons" argument for private property and the "Invisible Hand" argument for free exchange.
The Tragedy of the Commons and Private Property
The Tragedy of the Commons argument notes that under certain conditions when property is commonly owned or, equivalently, owned by no one, it will be inefficiently used and quickly depleted. In his original description of the problem of the commons, Garrett Hardin asks us to imagine a pasture open to all, on which various herders graze their cattle (Hardin 1968). Each additional animal that the herder is able to graze means greater profit for the herder, who captures that entire benefit for his or her self.
Of course, additional cattle on the pasture has a cost as well in terms of crowding and diminished carrying capacity of the land, but importantly this cost of additional grazing, unlike the benefit, is dispersed among all herders. Since each herder thus receives the full benefit of each additional animal but bears only a fraction of the dispersed cost, it benefits him or her to graze more and more animals on the land. But since this same logic applies equally well to all herders, we can expect them all to act this way, with the result that the carrying capacity of the field will quickly be exceeded.
The tragedy of the Tragedy of the Commons is especially apparent if we model it as a Prisoner's Dilemma, wherein each party has the option to graze additional animals or not to graze. (See figure 1, below, where A and B represent two herders, "graze" and "don't graze" their possible options, and the four possible outcomes of their joint action.
Within the boxes, the numbers represent the utility each herder receives from the outcome, with A's outcome listed on the left and B's on the right). As the discussion above suggests, the best outcome for each individual herder is to graze an additional animal, but for the other herder not to—here the herder reaps all the benefit and only a fraction of the cost. The worst outcome for each individual herder, conversely, is to refrain from grazing an additional animal while the other herder indulges—in this situation, the herder bears costs but receives no benefit. The relationship between the other two possible outcomes is important. Both herders would be better off if neither grazed an additional animal, compared to the outcome in which both do graze an additional animal.
The long-term benefits of operating within the carrying capacity of the land, we can assume, outweigh the short-term gains to be had from mutual overgrazing. By the logic of the Prisoner's Dilemma, however, rational self-interested herders will not choose mutual restraint over mutual exploitation of the resource. This is because, so long as the costs of over-grazing are partially externalized on to other users of the resource, it is in each herder's interest to overgraze regardless of what the other party does. In the language of game theory, overgrazing dominates restraint.
As a result, not only is the resource consumed, but both parties are made worse off individually than they could have been. Mutual overgrazing creates a situation that not only yields a lower total utility than mutual restraint (2 vs. 6), but that is Pareto-inferior to mutual restraint—at least one party (indeed, both!) would have been made better off by mutual restraint without anyone having been made worse off.
The classic solution to the Tragedy of the Commons is private property. Recall that the tragedy arises because individual herders do not have to bear the full costs of their actions. Because the land is common to all, the costs of overgrazing are partially externalized on to other users of the resource. But private property changes this. If, instead of being commonly owned by all, the field was instead divided into smaller pieces of private property, then herders would have the power to exclude others from using their own property.
One would only be able to graze cattle on one's own field, or on others' fields on terms specified by their owners, and this means that the costs of that overgrazing (in terms of diminished usability of the land or diminished resale value because of that diminished usability) would be borne by the overgrazer alone. Private property forces individuals to internalize the cost of their actions, and this in turn provides individuals with an incentive to use the resource wisely.
The lesson is that by creating and respecting private property rights in external resources, governments can provide individuals with an incentive to use those resources in an efficient way, without the need for complicated government regulation and oversight of those resources. Libertarians have used this basic insight to argue for everything from privatization of roads (Klein and Fielding 1992) to private property as a solution to various environmental problems (Anderson and Leal 1991).
The Invisible Hand and Free Exchange
Libertarians believe that individuals and groups should be free to trade just about anything they wish with whomever they wish, with little to no governmental restriction. They therefore oppose laws that prohibit certain types of exchanges (such as prohibitions on prostitution and sale of illegal drugs, minimum wage laws that effectively prohibit low-wage labor agreements, and so on) as well as laws that burden exchanges by imposing high transaction costs (such as import tariffs).
The reason utilitarian libertarians support free exchange is that, they argue, it tends to allocate resources into the hands of those who value them most, and in so doing to increase the total amount of utility in society. The first step in seeing this is to understand that even if trade is a zero-sum game in terms of the objects that are traded (nothing is created or destroyed, just moved about), it is a positive-sum game in terms of utility. This is because individuals differ in terms of the subjective utility they assign to goods.
A person planning to move from Chicago to San Diego might assign a relatively low utility value to her large, heavy furniture. It's difficult and costly to move, and might not match the style of the new home anyway. But to someone else who has just moved into an empty apartment in Chicago, that furniture might have a very high utility value indeed. If the first person values the furniture at $200 (or its equivalent in terms of utility) and the second person values it at $500, both will gain if they exchange for a price anywhere between those two values. Each will have given up something they value less in exchange for something they value more, and net utility will have increased as a result.
As Friedrich Hayek has noted, much of the information about the relative utility values assigned to different goods is transmitted to different actors in the market via the price system (Hayek 1980). An increase in a resource's price signals that demand for that resource has increased relative to supply. Consumers can respond to this price increase by continuing to use the resource at the now-higher price, switching to a substitute good, or discontinuing use of that sort of resource altogether.
Each individual's decision is both affected by the price of the relevant resources, and affects the price insofar as it adds to or subtracts from aggregate supply and demand. Thus, though they generally do not know it, each person's decision is a response to the decisions of millions of other consumers and producers of the resource, each of whom bases her decision on her own specialized, local knowledge about that resource. And although all they are trying to do is maximize their own utility, each individual will be led to act in a way that leads the resource toward its highest-valued use. Those who derive the most utility from the good will outbid others for its use, and others will be led to look for cheaper substitutes.
On this account, one deeply influenced by the Austrian School of Economics, the market is a constantly churning process of competition, discovery, and innovation. Market prices represent aggregates of information and so generally represent an advance over what any one individual could hope to know on his own, but the individual decisions out of which market prices arise are themselves based on imperfect information. There are always opportunities that nobody has discovered, and the passage of time, the changing of people's preferences, and the development of new technological possibilities ensures that this ignorance will never be fully overcome. The market is thus never in a state of competitive equilibrium, and it will always "fail" by the test of perfect efficiency.
But it is precisely today's market failures that provide the opportunities for tomorrow's entrepreneurs to profit by new innovation (Kirzner 1996). Competition is a process, not a goal to be reached, and it is a process driven by the particular decisions of individuals who are mostly unaware of the overall and long-term tendencies of their decisions taken as a whole. Even if no market actor cares about increasing the aggregate level of utility in society, he will be, as Adam Smith wrote, "led by an invisible hand to promote an end which was no part of his intention" (Smith 1981). The dispersed knowledge of millions of market actors will be taken into account in producing a distribution that comes as close as practically possible to that which would be selected by a benign, omniscient, and omnipotent despot. In reality, however, all that government is required to do in order to achieve this effect is to define and enforce clear property rights and to allow the price system to freely adjust in response to changing conditions.
Arguments Against Government Intervention
The above two arguments, if successful, demonstrate that free markets and private property generate good utilitarian outcomes. But even if this is true, it remains possible that selective government intervention in the economy could produce outcomes that are even better. Governments might use taxation and coercion for the provision of public goods, or to prevent other sorts of market failures like monopolies.
Or governments might engage in redistributive taxation on the grounds that given the diminishing marginal utility of wealth, doing so will provide higher levels of overall utility. In order to maintain their opposition to government intervention, then, libertarians must produce arguments to show that such policies will not produce greater utility than a policy of laissez-faire. Producing such arguments is something of a cottage industry among libertarian economists, and so we cannot hope to provide a complete summary here. Two main categories of argument, however, have been especially influential. We can call them incentive-based arguments and public choice arguments.
Incentive arguments proceed by claiming that government policies designed to promote utility actually produce incentives for individuals to act in ways that run contrary to promotion of utility. Examples of incentive arguments include arguments that (a) government-provided (welfare) benefits dissuade individuals from taking responsibility for their own economic well-being (Murray 1984), (b) mandatory minimum wage laws generate unemployment among low-skilled workers (Friedman 1962, 180–181), (c) legal prohibition of drugs create a black market with inflated prices, low quality control, and violence (Thornton 1991), and (d) higher taxes lead people to work and/or invest less, and hence lead to lower economic growth.
Public choice arguments, on the other hand, are often employed by libertarians to undermine the assumption that government will use its powers to promote the public interest in the way its proponents claim it will. Public choice as a field is based on the assumption that the model of rational self-interest typically employed by economists to predict the behavior of market agents can also be used to predict the behavior of government agents. Rather than trying to maximize profit, however, government agents are thought to be aiming at re-election (in the case of elected officials) or maintenance or expansion of budget and influence (in the case of bureaucrats).
From this basic analytical model, public choice theorists have argued that (a) the fact that the costs of many policies are widely dispersed among taxpayers, while their benefits are often concentrated in the hands of a few beneficiaries, means that even grossly inefficient policies will be enacted and, once enacted, very difficult to remove, (b) politicians and bureaucrats will engage in "rent-seeking" behavior by exploiting the powers of their office for personal gain rather than public good, and (c) certain public goods will be over-supplied by political processes, while others will be under-supplied, since government agents lack both knowledge and incentives necessary to provide such goods at efficient levels (Mitchell and Simmons 1994).
These problems are held to be endemic to political processes, and not easily subject to legislative or constitutional correction. Hence, many conclude that the only way to minimize the problems of political power is to minimize the scope of political power itself by subjecting as few areas of life as possible to political regulation.
Traditionalist Consequentialism
The quantitative utilitarians are often both rationalist and radical in their approach to social reform. For them, the maximization of utility serves as an axiomatic first principle, from which policy conclusions can be straightforwardly deduced once empirical (or quasi-empirical) assessments of causal relationships in the world have been made. From Jeremy Bentham to Peter Singer, quantitative utilitarians have advocated dramatic changes in social institutions, all justified in the name of reason and the morality it gives rise to.
There is, however, another strain of consequentialism that is less confident in the ability of human reason to radically reform social institutions for the better. For these consequentialists, social institutions are the product of an evolutionary process that itself is the product of the decisions of millions of discrete individuals. Each of these individuals in turn possess knowledge that, though by itself is insignificant, in the aggregate represents more than any single social reformer could ever hope to match. Humility, not radicalism, is counseled by this variety of consequentialism.
Though it has its affinities with conservative doctrines such as those of Edmund Burke, Michael Oakeshott, and Russell Kirk, this strain of consequentialism had its greatest influence on libertarianism through the work of Friedrich Hayek. Hayek, however, takes pains to distance himself from conservative ideology, noting that his respect for tradition is not grounded in a fetish for the status quo or an opposition to change as such, but in deeper, distinctively liberal principles (Hayek 1960).
For Hayek, tradition is valuable because, and only to the extent that, it evolves in a peaceful, decentralized way. Social norms that are chosen by free individuals and survive competition from competing norms without being maintained by coercion are, for that reason, worthy of respect even if we are not consciously aware of all the reasons that the institution has survived. Somewhat paradoxically then, Hayek believes that we can rationally support institutions even when we lack substantive justifying reasons for supporting them. The reason this can be rational is that even when we lack substantive justifying reasons, we nevertheless have justifying reasons in a procedural sense—the fact that the institution is the result of an evolutionary procedure of a certain sort gives us reason to believe that there are substantive justifying reasons for it, even if we do not know what they are (Gaus 2006).
For Hayek, the procedures that lend justifying force to institutions are, essentially, ones that leave individuals free to act as they wish so long as they do not act aggressively toward others. For Hayek, however, this principle is not a moral axiom but rather follows from his beliefs regarding the limits and uses of knowledge in society. A crucial piece of Hayek's arguments regarding the price system, (see above) is his claim that each individual possesses a unique set of knowledge about his or her local circumstances, special interests, desires, abilities, and so forth. The price system, if allowed to function freely without artificial floors or ceilings, will reflect this knowledge and transmit it to other interested individuals, thus allowing society to make effective use of dispersed knowledge. But Hayek's defense of the price system is only one application of a more general point.
The fact that knowledge of all sorts exists in dispersed form among many individuals is a fundamental fact about human existence. And since this knowledge is constantly changing in response to changing circumstances and cannot therefore be collected and acted upon by any central authority, the only way to make use of this knowledge effectively is to allow individuals the freedom to act on it themselves. This means that government must disallow individuals from coercing one another, and also must refrain from coercing them themselves.
The social order that such voluntary actions produce is one that, given the complexity of social and economic systems and radical limitations on our ability to acquire knowledge about its particular details (Gaus 2007), cannot be imposed by fiat, but must evolve spontaneously in a bottom-up manner. Hayek, like Mill before him (Mill 1989), thus celebrates the fact that a free society allows individuals to engage in "experiments in living" and therefore, as Nozick argued in the neglected third part of his Anarchy, State, and Utopia, can serve as a "utopia of utopias" where individuals are at liberty to organize their own conception of the good life with others who voluntarily choose to share their vision (Hayek 1960).
Hayek's ideas about the relationship between knowledge, freedom, and a constitutional order were first developed at length in The Constitution of Liberty, later developed in his series Law, Legislation and Liberty, and given their last, and most accessible (though not necessarily most reliable (Caldwell 2005)) statement in The Fatal Conceit: The Errors of Socialism (1988).
Since then, the most extensive integration of these ideas into a libertarian framework is in Randy Barnett's The Structure of Liberty, wherein Barnett argues that a "polycentric constitutional order" (see below regarding anarcho-capitalism) is best suited to solve not only the Hayekian problem of the use of knowledge in society, but also what he calls the problems of "interest" and "power" (Barnett 1998). More recently, Hayekian insights have been put to use by contemporary philosophers Chandran Kukathas (1989; 2006) and Gerald Gaus (2006; 2007).
Criticisms of Consequentialist Libertarianism
Consequentialist defenses of libertarianism are, of course, varieties of consequentialist moral argument, and are susceptible therefore to the same kinds of criticisms leveled against consequentialist moral arguments in general. Beyond these standard criticisms, moreover, consequentialist defenses of libertarianism are subject to four special difficulties.
First, consequentialist arguments seem unlikely to lead one to full-fledged libertarianism, as opposed to more moderate forms of classical liberalism. Intuitively, it seems implausible that simple protection of individual negative liberties would do a better job than any alternative institutional arrangement at maximizing utility or peace and prosperity or whatever. And this intuitive doubt is buttressed by economic analyses showing that unregulated capitalist markets suffer from production of negative externalities, from monopoly power, and from undersupply of certain public goods, all of which cry out for some form of government protection (Buchanan 1985).
Even granting libertarian claims that (a) these problems are vastly overstated, (b) often caused by previous failures of government to adequately respect or enforce private property rights, and (c) government ability to correct these is not as great as one might think, it's nevertheless implausible to suppose, a priori, that it will never be the case that government can do a better job than the market by interfering with strict libertarian rights.
Second, consequentialist defenses of libertarianism are subject to objections when a great deal of benefit can be had at a very low cost. So-called cases of "easy rescue," for instance, challenge the wisdom of adhering to absolute prohibitions on coercive conduct. After all, if the majority of the world's population lives in dire poverty and suffer from easily preventable diseases and deaths, couldn't utility be increased by increasing taxes slightly on wealthy Americans and using that surplus to provide basic medical aid to those in desperate need? The prevalence of such cases is an empirical question, but their possibility points (at least) to a "fragility" in the consequentialist case for libertarian prohibitions on redistributive taxation.
Third, the consequentialist theories at the root of these libertarian arguments are often seriously under-theorized. For instance, Randy Barnett bases his defense of libertarian natural rights on the claim that they promote the end of "happiness, peace and prosperity" (Barnett 1998). But this leaves a host of difficult questions unaddressed. The meaning of each of these terms, for instance, has been subject to intense philosophical debate. Which sense of happiness, then, does libertarianism promote? What happens when these ends conflict—when we have to choose, say, between peace and prosperity? And in what sense do libertarian rights "promote" these ends?
Are they supposed to maximize happiness in the aggregate? Or to maximize each person's happiness? Or to maximize the weighted sum of happiness, peace, and prosperity? Richard Epstein is on more familiar and hence, perhaps, firmer ground when he says that his version of classical liberalism is meant to maximize utility, but even here the claim that utility maximization is the proper end of political action is asserted without argument. The lesson is that while consequentialist political arguments might seem less abstract and philosophical (in the pejorative sense) than deontological arguments, consequentialism is still, nevertheless, a moral theory, and needs to be clearly articulated and defended as any other moral theory. Possibly because consequentialist defenses of libertarianism have been put forward mainly by non-philosophers, this challenge has yet to be met.
A fourth and related point has to do with issues surrounding the distribution of wealth, happiness, opportunities, and other goods allegedly promoted by libertarian rights. In part, this is a worry common to all maximizing versions of consequentialism, but it is of special relevance in this context given the close relation between economic systems and distributional issues. The worry is that morality, or justice, requires more than simply producing an abundance of wealth, happiness, or whatever. It requires that each person gets a fair share—whether that is defined as an equal share, a share sufficient for living a good life, or something else. Intuitively fair distributions are simply not something that libertarian institutions can guarantee, devoid as they are of any means for redistributing these goods from the well-off to the less well-off.
Furthermore, once it is granted that libertarianism is likely to produce unequal distributions of wealth, the Hayekian argument for relying on the free price system to allocate goods no longer holds as strongly as it appeared to. For we cannot simply assume that a free price system will lead to goods being allocated to their most valued use if some people have an abundance of wealth and others very little at all. A free market of self-interested persons will not distribute bread to the starving man, no matter how much utility he would derive from it, if he cannot pay for it. And a wealthy person, such as Bill Gates, will still always be able to outbid a poor person for season tickets to the Mariners, even if the poor person values the tickets much more highly than he, since the marginal value of the dollars he spends on the tickets is much lower to him than the marginal value of the poor person's dollars. Both by an external standard of fairness and by an internal standard of utility-maximization, then, unregulated free markets seem to fall short.