Saturday, July 04, 2009

Competition as a Discovery Procedure for Ethics

Friedrich Hayek wrote essays concerned with competition in a theoretical sense, e.g. "Competition as a Discovery Procedure," and in a pragmatic sense, e.g. "Denationalisation of Money." The first essay argues (among other things) that competition leads to discoveries of new knowledge that could not have been aimed at. The latter essay was written as a challenge to the monopolization of the monetary system and the resulting failure to create sound money by proposing the introduction of competitive currencies. It is time to challenge another monopoly of the state – that of the ethical or legal system – and suggest that competing ethical systems are the method by which we may approach an ever more sound system.

Ethical systems are generally presented as being handed down from God or derived in some way from human nature. Ayn Rand and Murray Rothbard developed systems explicitly in the latter class. Andrew
J. Galambos claimed to derive an ethical system from science, a claim that may also be lumped in with theirs, being derived from the nature of volitional beings. These claims are not intended by the claimants to be subject to test, but are presented as systems to which people must adhere, even though the systems may be based upon free market, stateless societies (Rothbard's and Galambos's systems are members of this class while Ayn Rand retains the existence of the state).

Ethical systems, where they intersect with the state, produce legal systems that are imposed upon the inhabitants within the borders of a political entity. In the time of monarchy the legal system reflected the religion of the monarch and whatever concepts of justice the monarch held. In modern democracies the legal system is a reflection of the struggle between various groups and may reflect most fundamentally the views of the religious majority. The one system that attempts to reflect evolutionary market forces is English Common Law, but even in that case the discovery process is hampered by the fact that competition between courts is limited and petitioners may not choose the legal system by which a case will be tried. A free market in judicial services would harness the engine of competition in the quest for ethical systems that are more sound and responsive to the consumers' needs.

If individuals may enter into contracts with different companies providing judicial services reflecting different ethical systems (e.g. Christian, Rothbardian, Galambosian, Islamic, etc.) to resolve their disputes, defend or recover their property, etc., one can imagine that there would be a number of problems. But would these problems be greater than the problems that exist between countries
or, in the United States, between local state jurisdictions? Certainly the execution of a judgment or transfer of an alleged criminal between jurisdictions involves some process that would evolve between justice companies. If companies do not have reciprocal agreements, due to remoteness, neglect or aversion, it is possible that disputes that cross their boundaries will not be resolved, and a loss that might be covered by insurance will be incurred.

Each company may codify its ethical system and reference it in its advertising, along with endorsements from its satisfied customers. If a company has an attractive ethical system it can be expected to attract repeat customers and grow. Superior systems will be reproduced and inferior ones will die out. Better ways of handling cases will be sought, successes added and failures dropped, advancing the system using the same method as science.

In Karl Popper's parlance, each ethical system is a theory and is subject to falsification. The falsification method is its profitability. However, it must be remembered that a falsification of an ethical system, as it is a volitional creation, is subject to its circumstances. Certainly, an ethical system that many might find reasonable today would have found few customers in the depths of the Dark Ages. People's beliefs are essential in the discussion of human action, and change over time. So, it is clear that an ethical system introduced into the market "before its time" may fail, only to be rediscovered and retried successfully later.

If the state were to end its monopolization of the justice market, various ethical systems could flourish, some succeeding (generating profits) and some failing (generating losses). Through this system of competition, inferior systems could be weeded out and superior systems discovered.


F.A. Hayek, Competition as a Discovery Procedure in The Essence of Hayek (Stanford, California: Hoover Institution Press, 1984) 254-265.

F.A. Hayek, Denationalisation of Money: The Argument Refined (London: The Institute of Economic Affairs, 1978).

Bryan Magee, Philosophy and the Real World: An Introduction to Karl Popper (La Salle, Illinois: Open Court, 1985).

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Dave S said...

I don't think the state needs to end its monopolization. That would certainly help, just as a good business grows more rapidly when criminals cease to steal from it. But they won't, and yet the business can grow despite their interference. I see no difference in these two cases except A) the size of the interfering party and B) the behaviors of others outside of the business and state.

I advocate that people change their attitude from "It's the law, so it's morally wrong to break it," to "The law is immoral, so it's morally wrong to enforce it." Everyone will have their own idea of morality. Yours holds (clearly) that state interference is morally wrong, and so enforcement of any law requiring it, your attitude would be, is morally wrong. If you don't like the word moral, you can back up into practicality and say "But things would work better if you stopped enforcing that law. You're screwing things up."

Brian J. Gladish said...

The state currently allows us to have rent-a-cops and private arbitration, but disputes in either case can generally be brought to the attention of the state by the parties involved, even if they have agreed not to do so.

I specifically do not believe that state interference is a moral issue - as von Mises said, the state is simply a means to an end. The question is truly whether or not the ends are ever accomplished (assuming they are other than murder and mayhem). The state prevents us from experimenting with other than the means it implements or approves, and that is the real issue - the state limits the real progress that free markets can provide.