Tonight, I want to . . . lay out a blueprint for an economy that’s built to last. . . .

Considering that an economy (a free one, that is) is just people engaging in exchanges for mutual benefit, it defies blueprinting, which sounds ominously like central planning. The last thing an economy needs is an architect, especially one with the legal power to use aggressive force.

The usual dichotomy is between the “unregulated” or “deregulated” market and the “regulated” market, which includes significant government intervention.  Advocates of free markets have long made the case for the advantages of unregulated markets and exposed the problems associated with regulation, often using spontaneous-order arguments.  The fundamental insight of economics from Adam Smith forward has been that free markets are capable of producing order without design.  We do not need “regulation” in the sense of State intervention for markets to generate socially beneficial outcomes.  And when we do attempt to “regulate” them through the State, the result is a variety of undesirable unintended consequences.

Order without Design

This is all correct, of course, but it misses an opportunity to emphasize even more strongly the idea that markets produce order without design.  The language of “unregulated” or “deregulated” markets makes it difficult to talk about order without design because those very words seem to suggest that there is no order to the marketplace. A “regulated market” in contrast sounds orderly.  I think we can get around this problem by arguing that free markets are in fact highly regulated and that government-“regulated” markets often lack any meaningful regulation.

Merriam-Webster offers this definition of “regulate” first:  “to govern or direct according to rule.”  It also includes a second definition: “to bring order, method, or uniformity to.”  One understanding of “regulated” is that some process operates according to a rule or rules and thereby is orderly.  This is the sense we use when we talk about a regulated physical process being predictable and orderly, or to describe something that repeats in predictable ways, for example, “our regular waiter” at the local restaurant.

In this sense, free markets are indeed highly regulated.  Economic theory demonstrates that free markets operate according to rules that we can recognize and understand.  These rules enable us to make what F. A. Hayek called “pattern predictions” about the behavior of markets.  We know, for example, that when price rises, all else constant, quantity demanded will fall, or that above-normal profits in an industry will bring new sellers into that market — even if we cannot predict either outcome precisely.  Market participants will not act haphazardly, nor will outcomes be chaotic.  People’s behavior is regulated by the laws of economics, which in turn produce orderly patterns.

Government attempts to improve on markets are often described as “regulation.”  In some sense this is accurate: Government does try to impose its own set of rules that are intended to produce something more orderly in the eyes of the regulators.  In addition, economists can make similar pattern predictions about the unintended and undesirable results of that regulation, for example that a price ceiling set below the market-clearing price will produce a shortage.

State Reduces Order

However, we could also argue that such intervention reduces the level of regulation in the market because intervention invariably puts a great deal of discretion in the hands of both the “regulators” and those being regulated.  Are “regulated” markets more predictable than “unregulated” ones?  Is it easier for entrepreneurs to anticipate the actions of bureaucrats with discretionary powers or of competitors seeking profits according to the rules of the marketplace?  Is behavior more “regular” when firms are genuinely profit-seeking or when they attempt to manipulate the “regulators” through rent-seeking?  Bob Higgs’s concept of “regime uncertainty” captures how government intervention makes markets less regulated by undermining rules that generate predictability for participants.

In the free market truly competitive firms can’t simply do whatever they wish, at least not if they want to make profits and continue as viable enterprises.  Their desire to make profits regulates their behavior in ways that drive them to serve consumers by expanding and diversifying output and reducing prices.  In contrast to the implicit picture of “unregulated” markets in which firms can do whatever they wish, economics depicts the free market as governed by clear rules.

Years ago, Hayek pointed out that the question facing societies is not “to plan or not to plan” but “who should plan – individuals and firms or the state?” Similarly, the question is not to regulate or not to regulate, but which type of regulation – market rules or State discretion – works better.

In other words, free markets are regulated.

Although the phrase “nation-building” sounds much more constructive and well-intentioned than the destruction and death that have normally accompanied the use of American power, the reality is that attempts to build nations are likely to fail. What the nation-builders overlook is a distinction made by Ludwig von Mises almost 100 years ago: A nation is not necessarily the same as a “state.” In his underappreciated little book Nation, State, and Economy, Mises argued that “nations” are defined not by geography or by political institutions, but most fundamentally by language and other similar cultural institutions that provide a basis for “mutual understanding.”

Therefore the nation, Mises argued, cannot be understood as a static object that we can manipulate as we wish: “Nations and languages are not unchangeable categories but, rather, provisional results of a process in constant flux; they change from day to day, and so we see before us a wealth of intermediate forms whose classification requires some pondering.”

This evolutionary perspective on what constitutes a nation suggests that it may be very difficult for an external observer to even know whether a given mass of people constitutes a “nation,” much less be able to know what it would take to build a nation out of their current “intermediate form.” As we know from F. A. Hayek, people learn how to coordinate their behavior with one another via such evolutionary processes. In other words nations are spontaneous orders that emerge from the daily choices of people about the language they use and the other ways in which they participate in, or withdraw from, a variety of cultural forms. The people themselves constitute a “nation” by their individual choices.

States imposed on nations by princes, Mises contended, are doomed to fail because they normally attempt to eliminate all forms of community that lie between the prince and the people. Anything that doesn’t come from the State is to be dissolved. In other words imposed States dislike and destroy the delicate, complex, and evolved connections that comprise a true nation. This is why totalitarian regimes try to control language, religion, family, and all of the other intermediary institutions between individual and State: because those institutions help to define what it means to be a nation as distinct from a State. They provide a buffer between the evolving choices of individuals and the attempt to control those choices from the top down.

Like other attempts to control spontaneous orders, nation-building faces significant knowledge problems. It is no different in principle from attempting to plan an economy domestically. As Mises and Hayek pointed out decades ago, when planners attempt to allocate resources from the top down, they have no market signals to guide their behavior or to indicate what value people place on various outputs and inputs—that is, no prices with which to engage in economic calculation.

Nation-building is even harder than central planning at home. Once we understand that true nations are the unintended consequence of decentralized cultural processes involving millions of choices by millions of people, the absurdity of trying to build a nation as if it were a child’s toy or even a skyscraper becomes clear. Mucking around in processes that are too complex to understand in all of their relevant causal connections is almost certain to produce unintended and undesirable consequences. All the intermediary institutions that define a nation (such as language, customs, religion, and family) themselves have strong elements of spontaneous order to them because they grow out of the day-to-day practice of individuals with no overarching plan. These are ways in which individuals try to coordinate their behavior, slowly evolving institutions to assist them. Such processes of coordination work best when individuals and small groups are free to use their own particular knowledge to determine what will improve their lives. To build a nation, in Mises’s terms, would require one to be able to do a better job than the decentralized social processes described above.

Economist Chris Coyne, in his wonderful book After War, confirms that postwar reconstruction (the form recent nation-building has taken) suffers from the same sort of knowledge problem that faces those who would “build” an economy domestically. If Mises and Hayek were right about the impossibility of socialist planning because economies are simply too complex to be surveyed by one mind without the help of signals such as prices, then nation-building is equally impossible. Just as the intervention of economic planners inevitably produces results that run counter to their stated goals, leading them to intervene again to solve those problems, so will nation-building create pushback and new forms of culture and community that frustrate the designs of the builders. The quagmires of Iraq and Afghanistan are clear evidence for this argument.

Coyne articulates a number of propositions that explain the failure of attempts at “exporting democracy.” Three of those are of particular relevance to the argument here.

Why Democracy Can’t Be Exported

First, he argues that while economists and other social scientists have a pretty good idea of what constitutes a functional nation, they have much less knowledge about how to bring a “failed nation” to that point. How nations emerge is a process that is both complex and unique to each particular country. All that we can do is get out of the way and let people figure it out for themselves.

Coyne also distinguishes between the factors that nation-builders can control and those they cannot.

He argues that the uncontrollable factors are what we generally call “culture” or the “informal rules and institutions” that constitute societies. These factors constrain those that we can control. In other words there are things nation-builders can attempt to do, such as initiate democratic elections as the U.S. government did in Iraq, but the success of those formal changes depends greatly on whether they are consistent with the underlying culture. Just putting formal changes in place because you can control them does not mean they will produce the desired result.

Nirvana-Building

Finally, Coyne points out that many attempts at nation-building suffer from what economists have long called the “Nirvana fallacy.” That fallacy lies in comparing the imperfection of existing reality to the perfect world they can imagine in their theories or on their chalkboards, then condemning reality for failing to measure up. In the chalkboard descriptions of how nation-building should take place, planners are presumed to be guided by the public interest with all the information they need to generate the desired outcomes. I have already discussed the problem with the latter. The former, though, also omits the imperfections of politics. The knowledge problem is compounded by perverse incentives.

There is a pitfall in assuming that those charged with using the political process to build, or rebuild, a nation will ignore their self-interest and be motivated solely by the public interest. Nation-builders need to correctly identify the public interest. Although they may know what the endpoint is, knowing what path will generate that socially desirable outcome is the fundamental challenge. It is not possible for them to know if any given nation-building action is actually in the public interest. With that constraint we should not be surprised to see the self-interest of the nation-builders predominating. Coyne documents how political self-interest has ruled U.S. nation-building efforts in Iraq and Afghanistan, manifested in the cozy relationships American politicians and policymakers have with private-sector firms with whom they had preexisting associations. Nation-building is a fertile ground for the sorts of corporate-State partnerships that undermine genuinely free markets.

Liberalism and Anti-Imperialism

Coyne’s book and the broader arguments I have offered above are part of the long-standing classical-liberal tradition of anti-imperialism. Perhaps because of the accidental alliances created by the Cold War, many have forgotten that tradition. In fact, classical liberals have always believed that the best way to encourage national development is through trade in goods and services and ideas—not through political or military intervention, even in the name of helping others.

The arguments against nation-building are much the same as those against domestic intervention (which can be recast as “economy-building” or “morality-building”). Both spring from the mistaken belief that outsiders can do better than the arrangements that emerge spontaneously and evolve continuously as individuals engage with each other. Both suffer from insurmountable knowledge problems and the perverse incentives of the political process. A better choice is to encourage unhampered exchange—within and between nations. Failure to grasp the impossibility—and often brutal consequences—of nation-building can remove yet another bulwark against further domestic intervention. If we can build a nation to our liking overseas, after all, why can’t we do it at home?

You’d probably say, “We need regulation—skating stoplights, speed limits, turn signals—and a rink director to police the skaters. You can’t expect skaters to navigate the rink on their own.”

And yet they do. They spontaneously create their own order.

At last January’s State of the Union, President Obama said America needs more passenger trains. How does he know? For years, politicians have promised that more of us will want to commute by train, but it doesn’t happen. People like their cars. Some subsidized trains cost so much per commuter that it would be cheaper to buy them taxi rides.

The grand schemes of the politicians fail and fail again.

By contrast, the private sector, despite harassment from government, gives us better stuff for less money—without central planning. It’s called a spontaneous order.

Lawrence Reed, president of FEE, explains it this way:

“Spontaneous order is what happens when you leave people alone—when entrepreneurs . . . see the desires of people . . . and then provide for them.

“They respond to market signals, to prices. Prices tell them what’s needed and how urgently and where. And it’s infinitely better and more productive than relying on a handful of elites in some distant bureaucracy.”

This idea is not intuitive. Good things will happen if we leave people alone? Some of us are stupid—Obama and his advisers are smart. It’s intuitive to think they should make decisions for the wider group.

“No,” Reed responded. “In a market society, the bits of information that are needed to make things work—to result in the production of things that people want—are interspersed throughout the economy. What brings them together are forces of supply and demand, of changing prices.”

The personal-computer revolution is a great example of spontaneous order.

“No politician, no bureaucrat, no central planner, no academic sat behind a desk before that happened, before Silicon Valley emerged and planned it,” Reed added. “It happened because of private entrepreneurs responding to market opportunities. And one of the great virtues of that is if they don’t get it right, they lose their shirts. The market sends a signal to do something else. When politicians get it wrong, you and I pay the price.

“We have this ingrained habit of thinking that if somebody plans it, if somebody lays down the law and writes the rules, order will follow,” he continued.

“And the absence of those things will somehow lead to chaos. But what you often get when you try to enforce mandates and restrictions from a distant bureaucracy is planned chaos, as the great economist Ludwig on Mises once said. We have to rely more upon what emerges spontaneously because it represents individuals’ personal tastes and choices, not those of distant politicians.”

Buchanan’s work was discussed in a public session by two other Nobel winners: Amartya Sen and Elinor Ostrom (video of that session is here). In his brief remarks after receiving the award, Buchanan offered some thoughts about the fundamental task of economics and particularly the role of economists as educators. I want to share and expand on them here.

He first noted that the most basic insight of economics is fairly simple: the spontaneous order of the market. At the core of the economic way of thinking is the idea that economic coordination requires no coordinator and that an order which serves the interests of all can emerge from the interaction of self-interested choices. Although simple, it is also highly counterintuitive when first encountered.

Buchanan is aware of that counterintuitiveness, which is why he also has argued that economists must repeat this central insight over and over not just in the classroom, but also when we write and speak in public, whether in professional journals or in lay media like this column. Through an aphorism Buchanan took from his own teachers and passes on to his students, he reminds us that “it takes varied reiterations to force alien concepts on unwilling minds.” That is, we must take every opportunity to impart the simple lesson of spontaneous order, since only through multiple exposures in a variety of contexts will the resistance to the insight break down.

In his talk Buchanan made two additional points about the simple insight of spontaneous order. One was that despite the simplicity, it can take years to really build the insight into your intellectual DNA, that is, to fully understanding all the ways that markets guide our behavior and lead to adjustments that produce orderly and wealth-enhancing outcomes. It is often a complex process, he said. In turn, that simple insight offers the key to understanding a number of complex phenomena of the social world. The wisdom that spontaneous-order thinking produces sits atop a set of theoretical insights about the nature of the market, enabling us to make sense of its empirical complexities.

The Rules Matter

Buchanan’s final point, however, was one that is perhaps the most important in our own time and place. He reminded the audience that not all spontaneous orders are equally good. The quality of the outcomes depends crucially on the rules that frame the economic processes and behavior which produce that order. For self-interested action to produce socially beneficial consequences, the rules under which people choose must be ones which reward actions that benefit others and penalize actions which destroy wealth or value.

For example, in a world where firms believe that they will keep the profits of their productive activities but will be bailed out if they make losses, the connection between self-interest and the general welfare will be broken. Under that set of rules we would not expect the spontaneously produced order to be necessarily desirable, or as desirable as one in which losing firms pay the price themselves and face signals and incentives to correct their behavior. Thus what often looks like “market failure” is really a failure to frame markets with the appropriate rules, most likely because of political meddling.

The rules that frame markets determine the quality of the learning that takes place within them. It is that learning process which leads to the decentralized mutual adjustment and adaptation that is at the core of self-correcting processes. If the rules are not right, the actors will not get the right signals, incentives will be misaligned, and less orderly outcomes will be produced. Just saying “let the market work” isn’t enough in Buchanan’s world because what “the market” is also must include the rules that frame it. The real task for the political economist, according to Buchanan, is to figure out which sorts of rules will best frame markets such that they produce the best outcomes they can.

The interesting question, and one that was debated in the private two-day academic conference that followed the public presentation, is whether we are better off when such rules are consciously chosen through political processes or when they themselves emerge through other, complementary spontaneous ordering processes. The question whether markets can produce their own rules may well be the next frontier in research inspired by Buchanan’s lifelong work, for which this past weekend rightly honored him.

The textbook summary is absurd, of course. Far from being a proponent of “might makes right,” Spencer wrote that the “desire to command is essentially a barbarous desire” because it “implies an appeal to force,” which is “inconsistent with the first law of morality” and “radically wrong.”¹ While Spencer opposed tax-funded welfare programs, he strongly supported voluntary charity, and indeed devoted ten chapters of his Principles of Ethics to a discussion of the duty of “positive beneficence.”²

Spencer’s evolutionary theories predated Darwin’s by several years. For Spencer, neither physical nor social order requires deliberate design for its emergence; language, for example, was not the “cunningly-devised scheme of a ruler or body of legislators,”³ nor is the economic organization of society, without which “a great proportion of us would be dead before another week ended,” to be attributed to “the devising of any one.”⁴ Rather, order arises spontaneously, through the operation of natural laws; industrial civilization emerged “not simply without legislative guidance” but “in spite of legislative hindrances,” through the “individual efforts of citizens to satisfy their own wants.”⁵

The two chief modes of social organization are the militant—operating through compulsory cooperation and oriented toward violent conflict—and the industrial—haracterized by voluntary cooperation and peaceful exchange.⁶ The militant mode, Spencer maintained, was necessary at a certain stage in human history, before human beings had fully adapted to social existence; but its day is passing. Since “a society in which life, liberty, and property, are secure, and all interests justly regarded, must prosper more than one in which they do not,” the selective pressures of social evolution can be expected to bring about a gradual shift toward the industrial mode.⁷

Spencer’s long-run optimism was tempered, however, by short-run pessimism; although militant society was destined to give way to industrial society eventually, there would inevitably be temporary reverses and detours along the way. And Spencer believed that the modern world, after a long period of liberalization, was headed into just such a retrograde phase. Observing an increase in “imperialism, re-barbarization, and regimentation,”⁸ he foresaw this trend’s eventual culmination in a “lapse of self-ownership into ownership by the community.”⁹ Like many classical-liberal thinkers at the end of the nineteenth century, Spencer prophetically predicted for the century to come a grim relapse into collectivism and war.

An Ethics of Liberty

In ethics Spencer dismissed the debate between egoism and altruism, maintaining that human interests, properly understood, are so interdependent that one cannot effectively pursue one’s own welfare without giving others’ needs their due, and vice versa.¹⁰ Life and happiness are a human being’s proper goals, but he can achieve these goals “only by the exercise of his faculties,” and so “must be free to do those things in which the exercise of them consists.” But since all human beings by this argument have a moral license to exercise their faculties, “then must the freedom of each be bounded by the similar freedom of all.”¹¹

Hence Spencer derived a Law of Equal Freedom: “Every man has freedom to do all that he wills, provided he infringes not the equal freedom of any other man.”¹² Concluding that “whatsoever involves command or whatsoever implies obedience is wrong,”¹³ Spencer proceeded to deduce, from the Law of Equal Freedom, the existence of rights to freedom of speech, press, and religion; bodily integrity; private property; and commercial exchange—virtually the entire policy menu of today’s libertarians. His moral theory thus demands the complete displacement of the militant mode of social organization by the industrial.

Spencerian ethics is not exhausted by the Law of Equal Freedom; non-interference is the essence of justice, but ethics comprises beneficence (so long as it is voluntary) in addition to justice. Spencer insisted, however, that since production is logically prior to distribution, charitable assistance should aim at helping the needy to become productive rather than habituating them to a condition of dependence.

Liberalism and Democracy

Spencer lived in an age when the word “liberal” was beginning to change from its classical to its modern meaning. Where the earlier liberals had sought to promote the common welfare “as an end to be indirectly gained by the relaxing of restraints,” the new liberals treat the common welfare “as the end to be directly gained,” and by “methods intrinsically opposed to those originally used” — that is, by increasing governmental restraints instead of relaxing them.¹⁴ While the new liberals, like the old, do not “presume to coerce men for their spiritual good,” they nonetheless think themselves “called upon to coerce them for their material good.”¹⁵ “Most of those who now pass as Liberals,” Spencer concluded, “are Tories of a new type.”¹⁶

To the reply that the liberal state, unlike its predecessors, is justified in employing compulsory methods because its edicts express the will of the majority, Spencer answered that a majority imposing its will on a minority stands as much in violation of the Law of Equal Freedom as does the reverse; the “divine right of parliaments” is no less a “political superstition” than the divine right of kings.¹⁷ Spencer granted the need for majority rule, but only on those matters that fall within the majority’s jurisdiction.¹⁸ The purpose of joining together to form a political community is the protection of individual rights; hence decisions about the means to this end fall within the competence of the majority, but decisions contrary to this end do not.¹⁹ Modern democracy renders the individual citizen’s refusal of consent invisible; whatever the citizen says or does is viewed through consent-colored spectacles, obliterating the possibility of a no that means no.²⁰

Spencer saw the decline of liberalism—its deterioration from a doctrine of individual freedom to a doctrine of majoritarian despotism—as part of a general retrogression of modern civilization from industrialism to militarism. For Spencer there was an intimate connection between aggressive warfare abroad and political oppression at home; a society’s “internal and external policies are . . . bound together.”²¹ He denounced European imperialism as a succession of “deeds of blood and rapine” inflicted on “subjugated races” by “so-called Christian nations.”²² But imperialist policies are harmful to the colonizers as well as to the colonized; war diverts capital from productive to destructive uses, thus squandering “the accumulated labor of generations”—and because it gives the domestic economy an illusory “appearance of increased strength,” a state of war encourages politicians to impose higher taxes which the economy cannot in reality sustain.²³

Militarism vs. Trade

Military action to promote international trade is a fraud: “Trade is a simple enough thing that will grow up wherever there is room for it. But, according to statesmen, it must be created by a gigantic and costly machinery.”²⁴ In fact, such wars are waged not to promote the economic welfare of the common people, Spencer maintained, but instead to benefit powerful special interests, “rich owners” — the beneficiaries of government-granted privileges and monopolies — at the expense of “the poor, starved, overburdened people.”²⁵

While allowing that warfare is permissible as self-defense, Spencer added that few wars described as “defensive” really are such, and denounced any nation that “gives to its soldiers the euphemistic title ‘defenders of their country,’ and then exclusively uses them as invaders of other countries.”²⁶ Spencer thus opposed his own nation’s military adventures in Afghanistan, India, South Africa (the Boer War), and elsewhere.

Foreign expansionism, Spencer taught, brings domestic tyranny in its wake. Given that “the nations of Europe are partitioning among themselves parts of the earth inhabited by inferior peoples, with cynical indifference to the claims of these peoples,” the governments of these nations can hardly be expected to “have so tender a regard” for the rights of their own citizens.²⁷ Indeed, “the exercise of mastery inevitably entails on the master himself some form of slavery,” since unless he means to let his captive escape, he must continue to be fastened by keeping hold of the cord.”²⁸ Hence the need to maintain the subjugation of foreign peoples inevitably requires an ever greater imposition of constraints on the conquering state’s domestic citizens as well, until “the army is simply the mobilized society and the society is the quiescent army.”²⁹

While the long-run tendency of social evolution, he believed, is toward industrial society, and thus toward peace, Spencer viewed the immediate future with despair—in his later years increasingly so. The inexorable short-run trend of modern civilization, he came to believe, is toward greater political centralization, hyper-regulation, and militarism; as governments grow more powerful, popular culture grows more vulgar and brutal, each trend serving to reinforce the other. The few remaining lovers of peace and liberty are doomed to political irrelevance as militant society regains dominance for the foreseeable future.

At the time of Spencer’s death the number of libertarians was indeed dwindling. Today, a century later, it is growing. The centralized, hierarchical information channels of the political elite have been superseded by the Internet, the supreme embodiment of voluntaristic, “industrial” social interaction. The state still regulates, regiments, and kills, but an antithetical mode of life is sprouting in its interstices.

Spencer saw his own voluminous writings as a bitter cry of protest in the face of irresistible defeat. But for those of us who stand at the beginning of the 21st century, they can serve instead as an inspiration in our struggle to reverse the trend of history from the militant to the industrial mode.

—————-

1. Herbert Spencer, Social Statics: The Conditions Essential to Human Happiness Specified, and the First of Them Developed (New York: Robert Schalkenbach Foundation, 1970), pp. 144-45, available online at oll.libertyfund.org/Texts/ToC/0331 _ToC.html.
2. Herbert Spencer, The Principles of Ethics (2 vols.), ed. Tibor R. Machan (Indianapolis: Liberty Fund, 1978), available online at oll.libertyfund.org/Texts/ToC/0155_ToC.html.
3. Herbert Spencer, The Man Versus the State, with Six Essays on Government, Society, and Freedom (Indianapolis: Liberty Fund, 1992), p. 437; available online at www.econ lib.org/library/LFBooks/Spencer/spnMvSContents.html.
4.Herbert Spencer, Illustrations of Universal Progress: A Series of Discussions (Chestnut Hill Mass.: Elibron Classics, 2000), p. 320.
5. Ibid., p. 320.
6. The Man vs. the State, p. 6.
7. Herbert Spencer, The Principles of Sociology, vol. 2 (New York: D. Appleton, 1884), p. 608.
8. Herbert Spencer, Facts and Comments (New York: D. Appleton, 1902), p. 200.
9. Herbert Spencer, The Principles of Sociology, vol. 3 (New York: D. Appleton, 1910), p. 605.
10. Principles of Ethics, vol. 1, pp. 217-85.
11. Social Statics, p. 69.
12. Ibid., p. 95. (This is the passage to which Justice Oliver Wendell Holmes was referring when, in his famous dissent in Lochner v. New York, he opined: “The Fourteenth Amendment does not enact Mr. Herbert Spencer’s Social Statics.”)
13. Ibid., p. 145.
14. The Man Versus the State, pp. 14-15.
15. Ibid., pp. 267-68.
16. Ibid., p. 5.
17. Ibid., pp. 24, 123.
18. Ibid., p. 130.
19. What about people who do not wish to join any political community, for any purpose? In his first book, Social Statics (1851), Spencer included a chapter on “The Right to Ignore the State”; in later years he deleted the chapter from subsequent editions, apparently embarrassed by its anarchistic implications.
20. Social Statics, p. 190.
21. The Man Versus the State, p. 174.
22. Social Statics, pp. 328-29.
23. The Man Versus the State, p. 211.
24. Social Statics,, p. 323.
25. The Man Versus the State, p. 220.
26. Principles of Ethics, vol. 2, p. 67.
27. Ibid., vol. 2, pp. 239-40.
28. Facts and Comments, p. 158.
29. The Man Versus the State, p. 74.

Today professional sports is an important business and a major social phenomenon. It is a staple of casual conversation, a topic that most people have opinions about (even if only that they hate it), and a large part of both television and print media. The Super Bowl is America’s most-watched television program, and the World Cup and Olympic Games attract a truly worldwide audience. There are many kinds of organized competitive sports, with no fewer than seven widely played kinds of football, for example. Most of these have formal governing bodies and elaborate rules both for playing and for settling disputes. There is even a sporting “world court,” the Court of Arbitration for Sport in Lausanne. Typically sports have a complex technical language, which is often impenetrable to someone not familiar with the game in question–as generations of Englishmen have discovered when trying to explain cricket to baffled Europeans and Americans.

This vast array of practices, institutions, and rules is generally taken for granted: Few ever ask how it came about. The story, however, is fascinating. While there certainly was purposeful action, and many rules and institutions were consciously created, organized sports are not cases of straightforward, “top down” planning.

Take football. In the Middle Ages most parts of Europe had a game that was usually called “football”; it was played on major feast days such as Shrovetide. Typically there were no limits on the number of players on either side or on what could be done with the ball; the aim was to get the ball over an agreed line. The events were often extremely violent and were closer to what we would regard as a melee or riot rather than a sporting event. Sometimes variants had more precise rules, such as Calcio Fiorentino in Florence. Generally speaking each locality or small region had its own variant, and there was no code of rules applied over a wide area.

Then a crucial innovation occurred in England. From the later sixteenth century on, schools began to play a more organized form of the game with specific numbers of people on each side and more elaborate rules. These initially evolved informally, on a case-by-case basis, but eventually were codified and written down. Thus in 1845 the famous Rugby school had three of its pupils codify the rules of the variety of football played there. Typically in the eighteenth and early nineteenth centuries each school would have its own set of rules. During this time, however, two other things began to happen. First, more and more sporting clubs formed to play varieties of football on a regular basis outside of academic institutions. These were purely free associations. Again, each one would typically have its own agreed set of rules.

Second, when the turnpikes and railroad lowered the cost of transport, games were arranged between different schools and clubs. But each side had its own rules. Games could have been played according to one of the sets of the rules, but this was unsatisfactory for more than occasional games. So quite spontaneously, on a local and ad hoc basis, two solutions appeared. The first was for all teams involved to agree to use the rules of an outside club or school. Thus the rules produced by the Rugby school were widely adopted, leading to the appearance of “Rugby football.”

The second solution was for a number of teams to get together and voluntarily agree to a common set of rules in what we might call a “sporting contract.” This happened in the case of “Association football” (hence “soccer”).

Next came competition among rules (“codes”). The more teams that agreed to adopt a particular set of rules, the more incentive there was for others to do so because it increased the range and number of possible competitors. On the other hand, since the precise content of any set of rules would produce a particular kind of game, some preferred one set over the others. So some school- or club-based rules became widely adopted while others never caught on. At the same time, the variation among different codes led to increased differentiation and eventually the clear emergence of several distinct kinds of football.

The next stage of the evolution was the formation of national or (in the United States) regional leagues in which clubs would agree to play each other in organized competition. This in turn led to the appearance of a permanent organization both to run the competition and to define and enforce the common rules. Subsequently international regulatory bodies were set up, such as FIFA in 1904. All of these were created not by governments but by free association among the sporting clubs or associations that agreed to be governed by the body they had established.

Racket Games, Too

The same kind of story could be told for other sports, including racket games, hockey in both its major forms, and cricket. The development of each shares some noteworthy features: It was spontaneous, unplanned, and bottom-up, with large, complex organizations produced by free association and agreement–and with a secession option. There was competition among different rule systems. In many cases a key role was played by particular entrepreneurial individuals or organizations. Thus the distinctive American form of football came about largely because of the innovations made by the Yale football coach Walter Karp. Innovation in the rules of the games, their organizational structure, and the tactics employed within those rules have remained a constant feature. One of the most striking phenomena is the way that rule changes can have dramatic and unexpected effects. Thus, the introduction of the forward pass in American football in 1906 led to a radical change in the nature of the sport, which was not anticipated or intended when it was introduced.

Sport is a major part of many people’s lives today all over the world and a significant social phenomenon. It is perhaps the biggest simple example of social order based on and produced by free spontaneous processes. Is it any wonder that, generally speaking, modern sport is far better run than the political order?

What DiLorenzo offers is not a biography of Hamilton, but instead a critical examination of his ideas and a historical exploration of how they have shaped American history. DiLorenzo contrasts the statist, mercantilist, and nationalist philosophy of Hamilton with the strict constitutionalism of Jefferson. He portrays Hamilton as a schemer, quoting contemporaries who felt that he was intentionally confusing in his economic proposals as a means of hoodwinking the uninitiated. Above all, DiLorenzo shows how Hamilton’s interventionist ideas have had disastrous consequences for America up to the present.

Hamilton’s vision for the nation included a strong sense of nationalism, zealous protectionism, enthusiasm for central banking, and methods of constitutional interpretation like the doctrine of “implied powers” that essentially stripped away the Constitution’s restraints on the central government. DiLorenzo depicts Hamilton and his intellectual followers as technocrats who view society as a lump of clay for them to fashion with their expert hands. They couldn’t grasp the spontaneous order of the free market.

To borrow a phrase from Adam Smith, Hamilton was the quintessential “man of system.” In his ideal society he and others who were blessed with inside knowledge of “the common good” would arrange things just so, thereby creating the ideal society. DiLorenzo points out explicit parallels between Hamilton’s thinking and Rousseau’s idea of “the general will,” under which government officials would “force people to be free.” Individual liberty holds no importance for such people.

DiLorenzo employs Austrian and Public Choice insights to expose the lasting harm we have suffered owing to Hamilton’s assortment of big-government ideas. Those ideas later metastasized into the “American System” of Henry Clay (the term was Hamilton’s) and the wide-ranging interventionism of Abraham Lincoln. They reached their nadir in the disastrous year 1913, with the adoption of the Seventeenth Amendment (providing for direct election of U.S. senators), passage of the federal income tax, and the establishment of the Federal Reserve. DiLorenzo sees that terrible trio as destroying what was left of Jeffersonianism and shackling the nation, perhaps permanently, with Hamilton’s ruinous vision.

The book makes a persuasive case about the harm we endure because of “the curse,” but DiLorenzo left me wondering about the relative fragility and robustness of different institutional arrangements. He discusses how constitutional words and phrases like “necessary” and “general welfare” were either grossly misinterpreted or used to usher in all sorts of state interventions, and he refers to the Confederate States of America’s attempts to remedy some of these problems in their own Constitution. But the kind of restraint that would have satisfied Jeffersonian strict construction begs to be explored in greater detail.

Only a few years elapsed between the ratification of the Constitution and the violent suppression of Pennsylvania tax rebels (which Hamilton himself led), and not too many years later the United States were (yes, the plural was once used) experimenting with central banking. How did we get so far from Jefferson’s vision so quickly?

DiLorenzo blames “Hamilton’s Disciple,” Chief Justice John Marshall, for misreading the Constitution, but I have to wonder if his famous decisions were so obviously a misreading and misapplication. Some libertarians like to believe the Jeffersonian minimalist interpretation is the “real” Constitution while the expansive Hamiltonian view is indefensible, and DiLorenzo seems to accept that view without questioning it.

The exact, intended meaning of the Constitution—if that can even be discerned—is not the focus of DiLorenzo’s book, however. Hamilton’s Curse explores the intellectual history of some of the ideas that helped transform the United States from a country where the government mostly left people alone into one where the government interferes in their affairs constantly. DiLorenzo reminds us of Richard Weaver’s famous quotation that “ideas have consequences” and proceeds to show the terrible consequences of Hamilton’s ideas.

Each of the ten essays is an estimable work, but some are likely to be of particular interest to Freeman readers. I’ll focus on four.

At the top of that list, I would place Peter Leeson’s essay, “Do Markets Need Government?” Most free-market advocates assume that “the rules of the game” must come from and be enforced by the government. Leeson, however, argues that market participants may do a better job than the State, writing, “The long-standing existence of vibrant markets under conditions of real or quasi-statelessness suggests that private ‘rules of the game’ must be possible without  government.” In commercial transactions, he points out, the participants have a lot at stake in the performance of contractual obligations.

That led them to develop commercial law completely independent of government, as well as tribunals to adjudicate disputes. Those tribunals did not have enforcement powers, but the need to maintain a good business reputation minimized flouting of their decisions. Violators were apt to face ruinous ostracism. Adam Smith’s “invisible hand” worked remarkably well.

Leeson goes on to show that the spontaneous order of the market also devised mechanisms to deal with criminal conduct. After reading his essay, it’s evident that the Hobbesian notion that society would be chaotic violence without a powerful state is untenable.

Another particularly valuable contribution is the late Norman Barry’s essay, “Economic Rights,” in which he laments that “for most of the time, in all countries, economic rights have been at the mercy of legislatures . . .with little or no protection from the courts or written constitutions.” He attributes this unfortunate state of affairs to the abandonment of the Enlightenment concept of the unity of liberty. In this concept, economic liberty is integral to an overall concept of liberty; most modern thinkers, by contrast, conclude that some aspects of liberty are important and others are not. They say they can tell wheat from chaff, with property rights and economic liberty being chaff. “There is scarcely any recognition of the connection between economic rights and other, more fashionable notions,” Barry writes.

He concludes that nations would reap huge productivity gains if they would steer away from “welfare rights” and regulatory intervention, and instead allowed people to produce and trade as they choose.

Julian Morris also merits special mention for his essay, “Private Versus Public Regulation of the Environment.” He takes issue with the presumption that the State alone is capable of solving environmental problems: “The reader may be surprised to learn that many environmental problems have in fact been caused by governments, sometimes in spite of attempts by private industry or businesses to stop them.”

I’ll mention one more essay, Cento Veljanovski’s “The Common Law and Wealth.” In it Veljanovski looks at this intriguing question: What kind of legal system is apt to contribute more toward a nation’s ability to produce wealth—common law or civil law? He notes that Gordon Tullock, among others, has observed that common law tends to be “untidy,” with duplicative costs, inefficient methods of ascertaining facts, and great latitude for wealth-destroying judicial activism. Other scholars, however, such as Richard Posner, maintain that since common law is premised on the legality of the status quo, it places a restraint on the use of law to redistribute wealth. This is an interesting debate with no resolution in sight.

Scholars who are interested in the field of law and economics will want to have this book on their shelves, and professors teaching a variety of law, economics, and political science courses will find in it a good many supplemental readings to get sharp students thinking about questions that mainline textbooks almost always overlook.