What, if anything, could constitute an effective argument for libertarianism? ‘Libertarianism’ in the modern right-wing sense (a philosophy of private ownership and non-aggression) has had more objections levelled against it than one could possibly count. One may conclude, having levelled one such objection, that the legitimacy or at least the necessity of the State, or of collective ownership, is thereby vindicated. Not so, logically.

Suppose, for example, that one were to raise an objection against the libertarian position, and that this objection hits the mark: perhaps there really are problems which would plague a system of private ownership and non-aggression, and that it would be genuinely extremely difficult to deal with the problem from within that system. Suppose, however, that this same problem, or one closely analogous to it, would still exist even in a system of collective or State ownership. Perhaps the problem would be even worse under such a system. Would this be an effective argument against libertarianism? Clearly not. Or, suppose that a system of collective or State ownership does have the exclusive means to deal with the problem at hand. But, such a system is also plagued by its own unique problems, problems which outweigh those which we would face in a ‘libertarian’ world, and which that libertarian world would be better equipped to deal with. Again, the argument would fail.

The point here is this: simply to point out a problem or potential problem in a system is not in itself an effective critique of it. If one’s own alternative system also does not have the means to deal with the problem, or if the alternative creates far greater problems even as it deals effectively with the first, the critique is unsuccessful. Recognising this fact allows us to determine, in advance, what an effective argument for libertarianism could look like.

Libertarianism is a non-utopian philosophy. It is perhaps misleading to think of it as a ‘system’, since it does not propose any kind of structural model for society. It seeks simply to lift away, as far as is possible, the constraints which prevent individuals from pursuing their own interests, on the understanding that a world of peaceful voluntarism is a good and just world in which to live. Whether the recognition of private ownership and the right not to be aggressed against would produce such a situation is, of course, open to dispute. But this, notionally, is the goal. Now, libertarianism faces problems. People are imperfect. We (far be it from me to exclude myself from this) are ignorant, greedy, liable to corruption. Would problems result from this, in a libertarian world? No doubt they would. And, no doubt they would abound in any alternative system, too.

Suppose that it would be possible to argue the following: it is conceded that a system of private ownership and non-aggression would face difficulties, perhaps many, and perhaps great; however, for any alternative system one might wish to propose, that alternative will either (a) face the very same problems, or (b) face different problems, which are greater, or more numerous, or both. This argument, if in fact it could be made, would, as far as I can tell, constitute a persuasive defence of the libertarian position. Can such an argument be made effectively? I believe that it very probably can.

In 2018, economist David D. Friedman came to Oxford university to give a talk on market failure. Having reviewed and digested the substance of his argument, I believe him to have hit upon a vindication of libertarianism which is elegant in its simplicity. For this reason, I would like to reconstruct what I take to be the high points of his presentation, and make some application. Friedman’s thesis, in brief, is as follows.

The basic argument for liberty is that, in a system of private ownership, individual persons are generally best acquainted with their own situations, and are generally the immediate bearers of both the costs and the benefits of their own actions. It stands to reason, then, that people should be left alone, as far as possible, to pursue their own separate interests without interference. So far, so good. But there is a problem. The problem is ‘market failure’. Market failure is defined by Friedman as a situation wherein each individual acts correctly in his/her own interests, taking the course of action which maximises the benefit and minimises the cost to him/herself, and yet the net result is that everybody is worse off. Moreover, such can most certainly occur in a free-market situation. Non-excludable ‘public goods’ not being produced because they are insufficiently profitable is one prominent example.

One may argue, then, that either an agency of coercion (i.e. a State) or an alternative system of ownership (collective ownership, with a democratic decision-making process), is justified, on the grounds that it corrects these problems of market failure: either a State may coerce individuals, via a confiscationary levy (taxation), to fund a ‘public good’, or else the collective may decide as a unit to fund a cause from which everybody benefits. On the face of it, the anti-libertarian argument looks compelling. A system of private ownership and non-aggression generates market failure, especially in its failure to produce public goods, and the alternatives correct the problem by being able to produce public goods more easily. Is this decisive?

No, says Friedman, and the reason is simple. Contrary to what its name might suggest, ‘market failure’ does not only plague what we would ordinarily call ‘the free market’. It is any situation in which individual rationality is not conducive to group rationality in the final analysis, and the State is itself subject to this very phenomenon. Friedman’s defence is to concede that a system of private ownership may well be subject to certain problems of market failure. But so is the State. Indeed, Friedman asserts that, whereas market failure is a rarity in the private market, it is commonplace in the political market, and with far worse results. Moreover, I believe Friedman’s argument can be strengthened further. Though his main target is the State itself, I believe that most of his argument is equally applicable to even a directly democratic decision-making process. In a nutshell: whatever objection might be levelled against the free market, the very same objection, or else some other objection of even greater force, may be levelled against the alternative. If he is right, then this would satisfy our criterion for an effective libertarian defence.

What is the cause of market failure? According to Friedman, it is caused by my taking an action such that the benefits go to me and the costs go to other people, or my not taking an action because the costs would go to me and the benefits would go to other people. Immediately, the whole of the political process faces a problem: virtually everyone in the entire political process takes actions, most of the costs and benefits of which go to people other than themselves. It stands to reason, then, that market failure is commonplace in the political sphere. Getting the majority of people to act in favour of the common good is going to be virtually impossible. Certainly, it cannot be expected to happen reliably.

To quote Friedman directly:

‘The voter who makes himself well-informed in order to know who to vote for provides benefits mostly to other members of his polity. The legislator who passes a bill is producing both costs and benefits for other people. The lobbyist who gets a bill passed is producing benefits for his customers, and will sensibly ignore any costs imposed on people who are not his customers. And the judges who make decisions, who in the Anglo-American system make a good deal of the law by setting precedents, are setting precedents whose costs and benefits are almost entirely borne by other people. It follows that there is no reason to expect political actors to take the actions that maximise net-benefit for all.’

The common-sense or ‘naïve’ model of democracy is that our elected representatives will reliably do the right thing because, if they don’t, we vote them out. But in order for this to work, voters have to be well-informed. Unfortunately, it is simply not rational for any individual voter to take it upon him/herself to become well-informed. Suppose you live in a society, virtually all the voters in which are well-informed already. Probably, then, everybody else apart from you can already be relied upon to elect the right person. Your vote will have a negligible chance of making a difference. Or suppose you live in a society in which virtually no voter is well-informed. Here, again, your vote is hardly going to make a difference, no matter how well-informed you choose to become. So it looks like, regardless of what everybody else does, taking it upon yourself to become a well-informed voter costs you more than it benefits you. This is the case in any kind of collective decision-making process, whether ‘representative’ or ‘direct’. From the perspective of any given individual, it just makes more sense to be an ignorant voter than an informed voter, because becoming an informed voter produces more costs (to you) than benefit (to you).

Now, the natural response is to say, ‘But if everybody does that, we are all worse off. And if everybody becomes well-informed, we are all better off.’ Just so. The problem, of course, is that I don’t control what ‘everybody’ does. I only control what I do. This is why this particular ‘market’ has failed: everybody acts correctly in their own individual interests, and everybody is worse off. What is more, such a failure is implicit in the democratic process itself. It is ‘baked into the cake’.

Friedman enumerates several more examples, the details of which I will not dwell on here. He argues, persuasively I think, that a collective decision-making process (in distinction from a private ownership system) will tend to consider short time-horizons at the expense of longer time-horizons, and will tend to benefit concentrated special-interest groups at the expense of society as a whole.

But what of private ownership, and its own market failure problems? I would simply say that these should be dealt with on a case-by-case basis, and that the market in its endless ingenuity tends to find ways around the problem. Many so-called ‘public goods’ problems have been effectively solved by tying the good together with an advertisement and giving away the bundle, the source of profit to the service-provider coming from advertising revenue (this is how private radio broadcasts can exist). My undergraduate dissertation was an investigation into the viability of ‘assurance contracts’ which, I believe, have enormous potential (when properly implemented) to deal with most public-goods problems, and go a long way towards effectively eliminating market failure in a system of private ownership.

My conclusion? No doubt unpalatable to many. The basic argument for liberty is still a good one: leave people alone, let them engage with one another by way of peaceful voluntarism, and generally this makes the world a better place than if there is an agency of coercion invading their lives, or a vast collective into which each individual is effectively swallowed up. Is a system of private ownership and non-aggression flawed? Yes, but not uniquely so. Whatever problems a libertarian world might face will also plague the non-libertarian alternative, but with far greater frequency, and with graver results.