Carl
Menger wrote a famous essay about the origins of money and a less known
one about the origins of law. He showed that in both cases the
process must have been driven by individuals seeking their own
purposes and adapting to each other's actions. That is what we call
spontaneous order today. Menger also mentioned the case of cities,
most of which must have started spontaneously by a small number of
artisans, like blacksmiths and carpenters, settling on a place where
they could provide their services to peasants living in the
surrounding area. Then small merchants joined them, and so on.
Certainly some cities may have been created by royal command, by it
is unrealistic to assume that every village and city started with a
decree. For all we know, spontaneous order must have been the origin
of cities, of money, and of law.
What I
want to point out here is that Menger's ideas are relevant not only
concerning the origins of money and law, but also about the way they
work today. After all, we cannot assume that the motives that led men
to use indirect means of exchange (money) to achieve their individual
purposes have ceased to work. The same applies to law, as we cannot
conceive that men no longer see the advantages of keeping one's word
or that they have become blind about the dangers of letting criminals
roam free.
Unfortunately
Menger's pioneering work on spontaneous order has been overshadowed
by Friedrich Hayek's better known contributions on the subject.
Nevertheless, they complement each other. Menger dealt with the
origins of money, cities, and law in appendixes to his book
“Investigations into the Methods of the Social Sciences and
Economics”. He limited his remarks to origins because he was
interested in dispelling the notion, popular among German economists,
according to which a national spirit was responsible for the creation
and development of law and the economy. Menger argued that such
explanation was both insufficient and wrong.
It was
insufficient because it failed to say where that mythical collective
spirit peculiar to each nation came from. Was it part of the race and
transmitted along with the color of the skin and of the eyes? Was it
part of a cultural tradition? If so, how did that tradition started?
But besides being no explanation at all, said Menger, a collective
national spirit was not the working force that created money and law.
To counter that widespread opinion, he provided his own explanation.
And in doing so, he showed to us the importance of spontaneous order.
That he limited his analysis to origins and to primitive times must
be understood in the context of his arguments against the German
school of economics. But if the motives that created money, law, and
many other institutions have not dissapeared, then we should examine
what their influence today is.
Nowadays
we have fiat money, that is, money that unlike a bar of gold has a
value that does not come from people's want for such metal but from a
government's decision. Certainly, governments cannot fix money's
value at will. With the possible exception of politicians, most
people know that the powers of governments in that respect are
limited. When governments carelessly print money, they cause
inflation, which in turn discourages saving, makes markets less
efficient, etc. In short, by ignoring the limits of their powers
governments harm the function that money should serve, they impair
the advantages for which money was originally created by spontaneous
process.
Fiat
law
Much
has been written about fiat money. But I think that we should make
similar observations concerning law. Today we have what we might call
“fiat law” which is no longer the result of a spontaneous process
but results from decisions taken by governments. As with money,
politicians often ignore the reasons that create spontaneous order
and thus proceed to undermine law's value. Sometimes they cause it
simply by inflating the number of laws in a process that makes each
of them less significant, more difficult to understand, and to
enforce. When subjects learn that there are always some statute or
regulation they are violating, even when they try to be punctilious
about their duties, they cease to reprobate legal transgressions.
And it
is not only the sheer number of rules issued by governments,
including supreme courts and, increasingly, international courts.
Certainly, numbers alone create havoc, but there is also the fact
that some of these rules multiply the number of rights and
entitlements. Then they start to undermine each other's worth. A rule
that acknowledges your right to find an occupation or to hire people
would be undermined by another rule that makes it a a duty to give
preference to individuals of a certain race. Or as in Argentina's
Buenos Aires province, a rule that establishes the right the vote for
the candidate of one's preference will be modified by the requirement
that at least half of a party's candidates must be women. Again in
Argentina, a law that recognized people's rights to their own bank
accounts in hard currency was later “complemented” by a another
law that allowed the government to take those savings and in exchange
give bonds in depreciated currency to the savers. Which in turn
becomes necessary if government is to be able to satisfy the millions
of people who have received generous entitlements by -again- other
rules issued by the government.
Spontaneous
order creates a framework for action, one in which good and bad must
be clearly separated. The straight line isn't always fair but when
efforts to improve it make the line too crooked and muddy, law ceases
to work. It makes sense to keep one's word while the impulses that
give rise to spontaneous order are not thwarted. Nevertheless, in
their pursuit of what they call social justice legislators and judges
have multiplied the opportunities for going back on one's word. For
many decades in Argentina, people who default their debts get the
opportunity to argue that the interest rate they promised to pay is
too high -a claim that most often than not is seen as fair by judges,
who then proceed to fix the interest of loans below that of deposits.
By modifying the rate, they make the loan cheaper, indeed cheaper
than any loan available in the market. The trouble is that this is an
advantage that is given only to people who don't pay their debts.
Whereas the reasons that create spontaneous order make
trustworthiness a definite asset, laws often make it a heavy burden.
When legalized tricks become too many and are allowed to work against
spontaneous impulses for too long, one sees -as in Argentina- that
people get used to arguing about the terms of their contracts after
signing them and not before.
The
same forces operate today
Let's
think. Is it possible to assume that the impulses that created law
are not longer at work today? Menger wrote that men created order,
not by collective decision, but in their efforts to better pursue
their individual goals. All that is present today and still at work.
Lets
take e-commerce. Successful operators in that new field know that
being true to their clients is vital, so in order to pursue their
entrepreneurial goals they build trust. Enforcement through lawyers
and courts -sometimes across national borders- would be cumbersome
and expensive for a man who bought a couple of books on Amazon.
However, it doesn't matter because wise players know that trust is
essential for their business. Hotel managers strive to keep their
rooms clean and comfortable for their guests because they know that a
bad name would damage their prospects. A lawsuit is not so bad
because of the possibility of a sentence to pay damages, but for the
effect on the reputation of a company.
Commerce
would not survive a single week if it had to rest entirely on the
work of lawyers and courts. There are individual impulses that keep
order without following any collective purpose; these are the same
impulses that Menger described in his article about the origins of
law.
Police
and courts could not keep crime at bay if the majority of the
population would engage in robbery and murder. The delicate
mechanisms of constitutions would fail very soon if people were
convinced that the rules stamped in them are mere words. South
American history bears witness to that.
Weakening
spontaneous order
Spontaneous
order begins and is kept working because people adapt to each others
expectations and actions. Statutes and codes may reinforce that
order, but they can also injure it. When government bans competition
in an area, the company thus protected can follow its goals without
taking into account their customers expectations. If workers know
that promotion in their job depends only on seniority, then it is
likely that skill and dedication would not flourish in their field.
Employers adapt to bad incentives too. If they realize that laws and
courts make it very costly to dismiss a worker, then they would hire
only the bare minimum of workers.
It is
an unfortunate fact that many statutes and court decisions that
undermine spontaneous adherence to law don't always show their effect
the day after they are enacted. Although confidence in government
bonds may be damaged very swiftly by arbitrary rulings, the effects
on the levels of crime, on the labor market, on investment have a
delay. In family law, the effects may take decades. Confidence and
decency may endure for a while, and that makes it more difficult for
people to see why they deteriorate.
Why
is Menger still relevant today?
In
this and two previous articles I have tried to follow the paths
Menger opened. Now I want to tell you how I came to the idea of
writing them.
When I
wrote my criticism of Murphy and Nagel's book “The Myth of
Ownership” I found that they repeated once and again the following
argument against ownership: “since there are no property rights
independent from the tax system, taxes cannot violate those rights”
(p. 4).
By
that they mean that an individual's creation of wealth cannot be
isolated from the services that governments provide, like judges,
police, roads, which are paid by taxes. Therefore, they argue, it is
absurd to complain against high taxes as if they infringed property
rights. Tax law and regulations are part of that legal framework
within which wealth is created. Therefore legislators can shape and
reshape the meaning of ownership, can tax away most of it, and that
shouldn't reasonably give grounds for complaints. Or should it?
The
argument has been repeated by other philosophers (Ronald Dworkin,
Cass Sunstain) and even by politicians (Elizabeth Warren). As I
pointed out in my articles there are many defects in that argument.
If consistently applied it would reject as absurd complaints against
restrictions on any right, not only property. Censorship? Well, one
disseminates ideas within the same legal framework that protects
property, so apparently you shouldn't complain if your opinion is
suppressed. Or should you?
There
are other objections to the argument apart from inconsistency -I
pointed them out in my articles on Murphy and Nagel's book. But apart
from them, I said to myself: these people should have read Carl
Menger. He wrote that law started as spontaneous order, that is,
unintentionally created by people who pursued their own goals and
adapted to each other's actions. People must have exchanged property
on things well before law codes where ever written. It isn't true
that there was a tabula rasa, no right to property before legislators
and their advisers started to enact statutes and codes. Even today,
life as we know and enjoy won't last a single week if it had to rest
only on the work of legislators, judges, and law professors
Wherever
people are able to enjoy the fruit of their efforts and the peace of
their families, wherever law still survives without the constant
presence of fear, of policemen, and jails, the same spontaneous order
is at work.
That
is what decided me to write these articles, trying to follow the lead
of the -unfortunately- very short insights provided by the great Carl
Menger.
