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The Mises Review

Edited and written by David Gordon, senior fellow of the Mises Institute and author of four books and thousands of essays.

Simple Rules for a Complex World

Richard Epstein

3 1995
Volume 1, Number 3

A Libertarian's Plea

Fall 1995

Richard A. Epstein
Harvard University Press, 1995. xiv + 361 pgs.

Richard Epstein's excellent book is packed full of arguments which continually engage the reader, even if they do not always compel assent. He constructs a powerful case for a free-market social order, with a strictly limited state.

At times, Epstein compromises with the state more than he should. Nevertheless, this book ranks among the firmest defenses of private property ever written by an American academic.

Epstein starts in an unusual place for a work of legal theory, the widespread public perception, shown for instance by lawyer jokes, that there "is too much law and too many lawyers" (p. ix).

Lawyers, most people believe, burden the economy with costly and often frivolous suits; but no remedy seems in sight, given the complexity and detail of legal regulations. Given that there is too much law, there are not too many lawyers: we cannot cut down on the number of lawyers without a drastic simplification of the law. It is this far from simple task that Epstein here undertakes.

In doing so, Epstein shows himself well aware of two objections that threaten to derail his project. First, it would be easy to devise very simple rules that would be utterly deplorable. "If simplicity is the only goal of a legal system, I can think of just two rules for determining the outcome of a lawsuit that would satisfy a criterion of ultimate simplicity. The first of these rules says that the plaintiff always wins . . . if you don t like that rule, there's always its mirror image, which says that the defendant always wins" (p. 32). Simplicity, then, does not alone suffice.

If so, is it not then open to a defender of complex rules to enter a demurrer? Though complexity may count against a rule, may this not be outweighed by other factors? How can one tell whether a legal system is too complex, absent an overall judgment on the goodness of the system?

Epstein has his reply ready to hand. He is not after absolute simplicity: rather, what he seeks is governmental rules that generate more incentives than they impose costs. "The central trade-off that must be examined at all times is this: does the creation of some administrative structure . . . also create some desirable incentives for individual behavior such that the gain from this particular administrative expenditure is justified in terms of the overall improvement in incentive structures" (pp. 33 34)?

Epstein's real goal, then, is a set of efficient rules, and simplicity is no more than a means to this end. Nevertheless, it is a vital means, since complex rules are liable to be inefficient. Epstein constructs an excellent case for simplicity in the law; but I wish he had at least mentioned the once-famous essay of Rudolf von Jhering, The Struggle for Law. Jhering maintained that the assertion of rights was essential to the development of law; thus, legal battles were to be desired rather than shunned. Epstein would I think have found in this essay a valuable counterpoint to his own line of thought.

If, then, what Epstein principally seeks is efficiency, we must know what he means by that. Here there is little mystery: he understands it in a way analogous to neoclassical economists characterization of the market in equilibrium. In particular, the market in equilibrium is Pareto optimal: no change can be made which will make at least one person better off while making no one else worse off. This notion of efficiency underlies the variant of utilitarianism which Epstein defends, leading to difficulties in his argument. But of these more later.

The first of Epstein's rules is for those familiar with the Lockean tradition a familiar landmark: "individual self- ownership" (p. 54). He defends this principle against the competing view of John Rawls. According to Rawls, people do not deserve their natural abilities, which are from the moral point of view arbitrary. Epstein rightly rejects Rawls's opinion that abilities and talents are "collective assets."

Epstein proceeds to defend a "first possession" rule for the acquisition of property and follows with strong support for freedom of contract. He notes a fact familiar to all students of Austrian economics: the parties to an exchange are, from their own point of view, better off than they would otherwise have been. If not, no voluntary trade would take place. Thus, assuming no effects on third parties, a voluntary exchange always increases utility. Quite the contrary, of course, with a coerced exchange.

But Epstein goes too far when he says this: "Theft arises when one person takes something without the consent of the other . . . it is at best a constant-sum game, for what one party gains the other necessarily loses" (p. 76). Of course Epstein is right that the stolen item does not multiply. But what is at issue is utility, and it does not at all follow that no act of theft can increase utility. What if the thief derives more utility from the good than its rightful owner? This objection presupposes that interpersonal comparisons of utility can be made, which is eminently questionable but Epstein does allow them, at least if made in a non-rigorous fashion (p. 142).

Here I think Epstein would have profited from attention to Murray Rothbard's fundamental "Toward a Reconstruction of Utility and Welfare Economics." Rothbard disallows interpersonal comparisons: he makes the more limited, and more defensible, claim that in any coerced transfer, we cannot determine that overall utility has increased.

So far, though, our objections to Epstein have been mere matters of detail. Things change, unfortunately, with his fifth rule, particularly as applied to the government. Our author does not forbid all coerced exchanges. Sometimes necessity demands that one seize the goods of another. If such a case arises, compensation is owed the person whose property is taken, so that he is restored to a position as well off as he was before the taking.

Applied to governmental action, Epstein's rule works in this way: "Often the government needs to obtain material resources from individuals in order to supply services to the public at large. . . . [H]oldout and coordination problems preclude that consensual solution for certain key assets, such as specific parcels of land needed for the construction of a fort or a public road. This problem is best met by government taking with payment of just compensation. Ideally, the individual citizen is left indifferent to the loss" (p. 128).

All of this seems to me radically unsatisfactory. Suppose that someone owns a parcel of land that the government needs in order to build a road. (Why, incidentally, must roads be provided by the government?) If the land had to be purchased, the owner could secure a large sum of money by threatening a holdout. If the land is taken, and its owner compensated, in what sense is he rendered indifferent to the loss? He has been deprived of his profit-making opportunity. The "take-and-pay" rule that Epstein favors does not fulfill the principle, basic to his position, that governmental actions be Pareto superior. Only on an etiolated notion of compensation is the owner left equally well off.

What Epstein here in effect says is that the state may take your property, so long as you are not left too much worse off. Is it not a sad commentary on our times that, to the likes of Senator Biden, this counts as a "right-wing extremist" position on the takings issue?

Obviously, this is neither the time nor place to offer a treatment of cases of necessity. I shall confine myself to two observations. In those cases of necessity that strike one intuitively as calling for remedial action (e.g., the person who demands from a victim of thirst in the desert a million dollar fee for a drink of water), something is going on of a morally dubious character other than so-called "strategic-bargaining." Second, if one does hold that it is wrong for someone, by taking advantage of a threat position to seize virtually all the gains from trade, it does not follow that he may be deprived of any gain at all.

After he presents his rules, Epstein applies them to a number of legal issues, including employment discrimination, product liability, and environmental protection. In all of the areas he treats, Epstein displays a formidable mastery of case law. He exposes to devastating effect the fallacies of governmental programs that often make almost everyone, including their intended beneficiaries, worse off.

In one instance, though, Epstein's discussion seems incomplete. In his excellent discussion of employment discrimination, he notes that sometimes what appears to be discrimination against certain groups is from the employer s point of view economically rational. Sometimes, e.g., an employer may find it profitable to hire a racially homogeneous workforce.

Epstein's point is well taken, but his discussion fails to speak to a key issue in the debate on discrimination. What about those who contend that discrimination is morally wrong, even in cases where it is economically rational? To answer them, a more robust moral theory is required than the "Pareto-optima"l brand of utilitarianism that Epstein professes.

As his last chapter, "The Challenges to Simple Rules," makes clear, Epstein disagrees; and it is here that I find myself most fundamentally at odds with him.

He contrasts the utilitarian system he favors with moral intuitions that lack a systematic basis. Since his theory usually arrives at the same conclusions as do the intuitions about justice, why not jettison separate resort to them? "Make way for Occam's Razor. If a smaller class of assumptions can be used to account for all the relevant results, why treat the intuitive sense of justice as the irreducible primitive of the system or even as an important side constraint" (pp. 319-20)?

Here Epstein erects an unreal antithesis. Why are unsupported intuitions the sole alternative to his theory? What about other moral theories (including intuitionism) of a non-utilitarian sort? Here once more attention to Rothbard and Robert Nozick would have helped.

And Epstein's theory is vulnerable to pressure from another direction. What about utilitarian theories that do not operate under the Pareto constraint that Epstein favors? Why should a change that greatly benefits a large number of people be ruled out simply because a few are made somewhat worse off? (Suppose circumstances make compensation impossible.) Why, on utilitarian grounds, should measures of this kind always be disallowed? Epstein's view must thus confront both non-utilitarian theories and more robust utilitarian accounts. Faced with a war on two fronts, can it survive?

If Simple Rules For a Complex World frequently rouses me to dissent, it is nevertheless a distinguished work that merits the attention of anyone interested in ethics and legal philosophy.

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