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A particularly thorny philosophical problem for limited government classical liberal types is that while they want to see voluntary exchanges and private property governing as many human interactions as is “reasonable”, they typically leave it to the state to defend property rights and handle contracting disputes and third party spillovers. You can see the problem here – voluntary exchange is great and all, but for the most very important part of a philosophy of protecting private property, the theory seems to “require” not only strong government, but also impartial and reliable government. I have not yet seen a great response to this problem from the small government types – in this case I think the more philosophically consistent positions are held by those with more extreme views – either toward full socialism or full anarchy.

With that in mind, I think some critics of property rights protections and small government find themselves in a similar bind when making specific claims against markets. For example, I was reading an old article today that had at its core the very Smithian idea that corporations will find it in their interests to conspire against the public. I don’t disagree. The argument obviously continues in the usual way, with proposals for how government actions can make it harder for firms to do this. Think about simple cases of price fixing by firms (by the way I wonder if elite Universities ever worry about a collusion case being brought against them?) … the idea is that firms must get together and provide incentives for both colluders and non-colluders to behave. Among the obvious challenges to doing this is parties to the collusion must find a way to enforce their agreements.

But here’s the rub. Since these parties are breaking the “law” they cannot turn to the government to protect and enforce these “contracts.” You obviously see the philosophical tension here with the argument we started with. If markets and exchange can’t be said to be free, or cannot actually be free, because they require strong government protections of property rights, then one would probably have to believe that collusive behavior by firms to operate against the interests of consumers is not possible. On the other hand, if one wishes to argue that corporations are going to be successful in enforcing contracts among themselves to enforce shady behavior, while likely to be the case, this sort of undermines the philosophical necessity to argue that government is an important piece of markets and that they cannot operate in its absence.

My own view is, of course, that these arguments are fun to have and serve to discipline our thinking, but that thinking about markets absent broader institutional and cultural considerations is like, well, it’s not the right thing to do.

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