Subject:Risk and Regulation in Informal and Illegal Markets" Date: Tue, 29 Jul 2003 11:18:29 -0400 To: From: Bob Armstrong Libertarian orthodoxy on the evils of prohibitions : -- Forward : From: Marc Brands Liberty Subject: [LPNY DISCUSS] Liberty: -- Analysis -- Property rights,= crime, and the role of government Date: Sat, 26 Jul 2003 10:42:00 -0400 -- Property rights, crime, and the role of government by Ralph Shnelvar Ronald Coase won the Nobel Prize in 1991 for what is now known= as Coase's Theorem. Coase's Theorem states that if property rights are well-defined,= then, in the absence of transaction costs, the efficiency of resource allocations is not affected by the initial distribution of= property. In simple English, what this means is that it doesn't matter who= ends up "originally" owning things, the benefit to society is the= same. Of course, it may not be fair to the people originally competing for= the things, but once it is settled, society as a whole benefits from= the productive uses of the things. There is, though, a big question: how do we get the well-defined property rights that are a condition of Coase's Theorem? If governments do not exist, we are likely to end up with people constantly fighting to secure their control over property rather= than using the property to fulfill their own ends; a kind of= Hobbesian natural state in which lives are nasty, brutish, short, and= constantly fighting for and defending resources. Thus, Coase's theorem demands that some sort of arbitrating body= must exist because property rights would otherwise not be= well-defined. That is, the "well-defined property rights" means that something= has to decide what belongs to whom. In today's society that body is called government. For the= purposes of this lecture, let's assume the current state of affairs:= governments exist, assign, and defend some property rights but make owning= other property "illegal." So when government makes it illegal to own, say, peanuts or pot,= then -- as is beautifully explained in a gem of a paper, "Risk and Regulation in Informal and Illegal Markets" by Cross and Pena -- informal and possibly violent illegal enforcement mechanisms= will arise. You are not going to go to the police or the courts to ask them= to get your six pounds of marijuana back from the dealer who didn't= deliver. In order to do so you must depend on either your own violent tendencies or employ the efforts of some goon squad. Thus, government trying to stop people from owning marijuana or alcohol or guns or gold or books (each of these was illegal to= own privately at one time or another in history) will create the individual violence and/or the Mafia that it and the general= public so justly despise. The problem, of course, is that the government= has created the Mafia by making the product illegal in the first= place. When you go into a store to buy a box of cereal, your= transaction costs are low. You know that the product is likely to be pure.= You now how much you will pay. You trust the manufacturer and the= merchant. You know that you will not go to jail for being in possession of= a bag of Wheaties. When a pot smoker buys from a dealer, the transaction costs are= high. You have no recourse to anyone if the product injures you. You= don't know if the person that you are buying the bag of pot from is a policeman or an informant. Worse, you don't know if you will be= robbed before or after the transaction is complete. The price of the product goes up and profits -- often enormous= profits -- are created precisely because the product is illegal. Those enormous profits are captured by those who are, by definition, criminals. But perhaps the saddest consequence of making certain products= illegal is that an entire range of productive capacity is denied us. Specifically, there are many things that we don't yet know about= hemp precisely because societal resources are not going to be applied= to illegal products. George Washington Carver invented more than 300 uses of peanuts,= for which he received at least two patents. Would he have worked most= of his life on producing these wonderful uses for peanuts if peanuts= were illegal? We already know that hemp is extraordinarily useful. What we= don't know is how much more useful it can as yet be. We don't know= because government prevents us from finding out. When you in this class reach the point in your life cycle where= the reins of power pass into your hands, I sincerely doubt that hemp and/or marijuana will still be illegal. I will likely be dead,= but I feel confident that the law will have changed by then. My= informal and unscientific poll of those on this campus tells me that the= electorate will demand that marijuana be legalized. Whether it be in a year,= five years, or 50 years is, in some measure, up to you. Some of you will be the policy wonks of the 2030's. Some of you= will be in a position to influence government. Learn the lessons that= this dead man taught you here: government prohibition of anything= creates the very ills that it seeks to correct. It robs our society of= the benefits of invention. It reallocates resources from those things= that make people happy to those that do not. Government can be good. Where it defends property rights fairly,= it is good. Where it prohibits activities that its citizens want that= do not injure third parties, it is bad and must be corrected. It is unconscionable that someone wastes his life and taxpayer money= by sitting in a jail for the possession or consumption of that= which harms no one else. Come join me in my fight to free us from the evils that this government has heaped upon us. Come help me correct these= terrible wrongs. Archive: http://www.liberty-news.com/newsletter.html =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D Quote: - Although I am a strong political conservative, I now believe= that the costs of our fruitless struggle against illegal drugs are= not worth the modest benefits likely to be achieved. Prof. Ernest van= den Haag, contributing editor, National Review =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D --=A0 =A0Bob Armstrong -- http://CoSy.com -- 212-285-1864 Liberty : http://cosy.com/Liberty.htm =A0=A0=A0=A0=A0=A0=A0=A0=A0=A0=A0=A0=A0=A0=A0=A02003/07/26 11:26:42 AM