A Conversation with David Friedman, part 1: Chaos, Anarchy, Capitalism, and Anarcho-capitalism

Conversation with Dr. David Friedman about some of the solutions and potential issues of anarcho-capitalism, as well as possible ways of advancing ideas of free society and turning them into reality.  Part 1: Chaos, Anarchy, Capitalism, and Anarcho-capitalism.

Interview by Jadranko Brkic, Managing Director at Freedom and Prosperity TV.  Hong Kong, May 21st, 2014.

(see video at the bottom of transcript)

Transcript:

Freedom and Prosperity TV:

Dr Friedman, Thank you for having us.

David Friedman:

I thank you for inviting me.

Freedom and Prosperity TV:

Most people when they hear the word anarchy they associate it with chaos. Most people in socialist countries, such as former Yugoslavia and former Soviet Union, they also associate chaos with the word capitalism as well...

David Friedman:

Would that apply to people in the former socialist countries who had visited the West? My impression... I was particularly struck reading about the Chinese experience, where apparently after Mao died, various leading Chinese figures finally got to visit the West, and were astonished to discover how much more attractive it was than their system. There's a quote from the person who I think at the time was premier of China; when he visited England and discovered that the salary of a garbage collector in England was four times his salary as premier of China, and his comment was that England would be the perfect Communist society if only it had a Communist Party ruling it. And my impression was at least from China that one of the things that contributed to changes in China was when a lot of people discovered that China's economy was in fact much worse than that of the capitalist West. Just by visiting and seeing that people and the workers in the capitalist west were much better off than people in China. That the stores were full of goods, that you could buy groceries and food and all the rest of it. And I would have thought that people from the Soviet and satellite countries who actually visited the West would have been struck by the same thing, that things were better off. Now, people who had never been outside of those countries, might well believe the official government line, according to which capitalism was chaotic.

And of course there is a certain sense in which it is chaotic. That is to say it's a decentralized rather than a centralized system. One of my father's stories from visiting China back, probably after Mao's death but before things had changed a lot, was speaking with somebody in the Ministry of Materials Supply, whose job was making sure that firms in China got the inputs that they needed. And he wanted to know who, if he visited America, who had the same job in America so that he could talk to him. And of course the answer was nobody does. That in America firms get their inputs, but they get them though the prices in the market system. So the real answer was either everybody or nobody, in that it's a decentralized system. So, it's chaotic in that you can't draw a picture say: A give orders to B and C, who gives orders to D, E, F and G, and things happen. But decentralized, in that sense orderly system works very badly on a large scale. That centralized control works for very small groups, for a football team or a small firm. But the bigger the population gets, the harder it is to run it from the center, because the information needed to know what you should do is dispersed. You know your abilities, someone else knows his abilities, another person knows what goods he wants, and somebody else knows details of the local situation and so forth. And if you try to funnel all that information through a narrow channel to somebody at the top to make decisions, you lose most of it. And then you funnel down the orders and so people are doing things not because they want to do them because somebody has told them to do them, they have an incentive to try to gain the system.

I'm reminded of what was supposedly a joke in the Soviet Union, that it was a perfectly fair system. “They pretend to pay us and we pretend to work.” Whereas if you are making decisions for yourself, if you are growing food you are going to eat, or if you are growing food you are going to sell and then use that money to buy things, you have an incentive to really work, because if you don't you really won't get your crops grown. So in that sense, it seems to me that decentralized system is much more orderly than the centralized system. But it is harder to understand and therefore less organized. You can't draw a simple structural picture of it, sort of speak.

Freedom and Prosperity TV:

You are a proponent of anarcho-capitalism. So how is anarchy and capitalism not chaos together?

David Friedman:

For the same reason that the capitalism isn't. Because a decentralized system in which individuals cooperate, coordinate their activity by voluntary association rather than by authority. Produces generally quite orderly results. We see that in a lot of different contexts. There is nobody in charge of making sure that there are enough water melons in grocery stores in America. But if there aren't, the price of water melons goes up, and when the price of water melons once goes up, it pays for grocery stores to carry more water melons because they make money doing it. It pays farmers next year to grow more water melons, because they are profitable crop. So you have a decentralized signaling system in which prices convey information about what people want and what they could do. And the idea of anarcho-capitalism is to carry that logic all the way to replacing all useful things that governments do by private alternatives. So that you would not only have decentralized and voluntary mechanisms for producing groceries, but also for protecting your rights. Protecting you against criminals, settling your disputes with other people, the various useful things that governments do.

Now, there are quite a lot of things that people take it for granted that governments do, which you could eliminate without having anarchy. That is, if you think about the range of things governments do in the modern society, there are some things which some governments do and some don't. For example, medical care – I'm not sure if there is any society where government is not heavily involved in it. The US is claimed to have a private system but about half of all expenditures are by governments. Higher education in the US, universities and colleges are sometimes run by states and sometimes entirely private. K-12 education in the US is mostly run by state and local governments, but some private schools. There are some countries where all the universities belong to the state, or where all the schools belong to the state. You could perfectly easily have a capitalist country in which education was entirely private. That was the situation in England up to about 1830, for example. It would still have a government, so it wouldn't really be an anarchy. Similarly, there is no particular reason why money ought to be produced by governments. And there are lots of historical examples of private money. When Adam Smith wrote 'The Wealth of Nations,' the Scottish money consisted of private bank notes issued by private banks. So one could go quite far in the direction of replacing government with capitalist institutions, and still have a government.

The point at which it becomes anarchy, I think, is the point at which you try to replace all of government with private institutions. And that we don't have a good example in any modern society. Although there had been a fair number of earlier societies where you didn't have a government and nonetheless often most of the time people didn't get killed or robbed or whatever. So basically, what I would think of as the moderate libertarian proposal, would involve getting government out of everything except police, courts, and national defense, which was traditionally thought as the fundamental functions of government. And then to me the interesting question is can you carry it one step further and replace those things as well. And that's a harder problem, but I don't think it's an insoluble one.