Monday, 30 August 2010

Hans-Hermann Hoppe interview

Hoppe is interviewed by Emrah Akkurt, Turkey-Association for Liberal Thinking. To be published in a forthcoming special issue of the economic journal Piyasa on socialism.

A couple of interesting answers given by Hoppe.
Akkurt: In its modern version, Austrian economics, with its emphasis on property rights, entrepreneurship and freedom have natural allies among different schools of economics. For example, the property rights approach of Alchian and Coase come mostly to similar policy positions with Austrians. Do you think, Mises’s writings were somehow influential on the emphasis on property rights and market based approach besides Austrians. Was there a visible link between Mises and some of these people?

Hoppe: I am not aware of any intellectual link between Mises and the modern Chicago law and economics school, in particular Coase, and in his footsteps, Richard Posner. On the other hand, Hayek was one of Coase’s professors at the London School of Economics.

In any case: I believe the similarity between the Austrian and the Chicago view of law and economics to be merely superficial. In reality, both intellectual traditions are fundamentally opposed to each other. It is a common but serious error to think of the Chicago school as a defender of property rights. In fact, Coase and his followers are the most dangerous enemies of property rights. I know, this may sound unbelievable to some people. Thus let me explain, using one of Coase’s examples from his famous article on “Social Cost.”

A railroad runs beside a farm. The engine emits sparks, damaging the farmer’s crop. What is to be done? From the Austrian (and the classic as well as the commonsensical) viewpoint, what needs to be answered is who established property first, the farmer or the railroad? If the farmer was there first, he could force the railroad to stop emitting sparks or demand compensation. On the other hand, if the railroad was there first, then it may continue emitting sparks and the farmer would have to pay the railroad to be spark-free.

Coase’s and Posner’s answer is entirely different. According to them, it is a mistake to think of the farmer and the railroad as either ‘right’ or ‘wrong’ (liable), as ‘aggressor’ or ‘victim.’ Let me quote Coase from the very beginning of his famous article. There he says “the question is commonly thought of as one in which A inflicts harm on B and what has to be decided is, How should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would be to inflict harm on A. The real question that has to be decided is, Should A be allowed to harm B or should B be allowed to harm A? The problem is to avoid the more serious harm.” Or put differently, the problem is to maximize the value of production or ‘wealth.’ According to Posner, whatever increases social wealth is just and whatever doesn’t is unjust. The task of the law-courts, then, is to assign property rights (and liability) to contesting parties in such a way that ‘wealth’ is maximized.

Applied to our case this means: if the cost of preventing sparks is less than the crop loss, then the court should side with the farmer and hold the railroad liable. Otherwise, if the cost of preventing sparks is higher than the loss in crops, then the court should side with the railroad and hold the farmer liable. But more importantly, this means also that property rights (and liability) are no longer something stable, constant and fixed but instead become ‘variables.’ Courts assign property rights depending on market data. And if these data change, courts may re-assign such rights. That is, different circumstances may lead to a re-distribution of property titles. No one can ever be sure of his property. Legal uncertainty is made permanent.

This seems neither just nor economical. In particular, this ‘variable’ way of assigning property rights will certainly not lead to long-run wealth maximization.
Akkurt: What are your views on the public choice school. If I am not wrong you criticize James Buchanan for defending the state. Would you briefly describe your view on this issue. Why is there a tension between your thinking and public choice?

Hoppe: The Public Choice school—most notably Buchanan and Tullock—is typically credited for the insight that people within government are just as much self-interested as people outside of government, i.e., in private business. People do not change their nature and become less self-interested upon becoming a government official.

Now this is of course a fundamentally correct insight. But this insight is not new. You can find it all over in the literature. Certainly ‘realist’ political sociologists such as Gaetano Mosca and Robert Michels knew this much, and ‘Austrians’ knew it too, of course.

What is new about the Buchanan-Tullock school is its theory of the State and political (as contrasted to economic) action. However, this innovation is patently false.

Buchanan and Tullock think the State is essentially a voluntary institution, on a par with private business firms. They claim that ‘the market and the State are both devices through which cooperation is organized and made possible.’ (Calculus of Consent, p. 19) And since the State is like a firm, Buchanan then concludes in his Limits of Liberty, whatever happens in politics, every status quo, ‘must be evaluated as if it were legitimate contractually.’

Now, I regard all of this as dangerous nonsense. Until Buchanan & Tullock, there existed almost universal agreement, regardless of whether one was a State-apologist or an anarchist critic of the State, as to the nature of the State, i.e., what a State actually was. States were recognized as categorically different forms of organization than firms: unlike firms, every State fundamentally rested on coercion. Buchanan’s claim to the contrary would have been regarded as a childish intellectual error.

The great Austrian economist Joseph Schumpeter (himself a member of the Lausanne rather than the Vienna or Austrian School) once remarked on views such as Buchanan’s: a “theory which construes taxes on the analogy of club dues or the purchase of the service of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of minds.” I wholeheartedly agree with this verdict.

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