Laissez-Faire Capitalism Solves “The Tragedy of the Commons” and Deals With Negative Externalities: A Dialogue

Enjoy CapitalismAs the reddit user, /u/sobersymphony, I participated in a discussion on reddit on the subject of capitalism vs. socialism. Another user asked me in a private message (PM) about one of my statements in that discussion. The ensuing PM discussion is reprinted here with his permission:

Him: In that conversation, you said, “Circumstances that arise due to people’s voluntary choices are not examples of force. They are simply the law of cause and effect in action. That people have to work and be able to dispose of the product of their labor to live in the long term is a fact of reality that no one can wipe out. It is not coercive.”
The usual response to this is that we value freedom, but we value other things too, so we make tradeoffs. We obviously don’t want to be coerced, but we do want to live in what might be called a “fair” or “humane” society. Everyone (tautologically) wants to act in their self-interest, but sometimes it is in their self-interest to have some governing authority solve coordination problems in ways that leave everyone better off. The same author I linked to uses a hypothetical tragedy of the commons situation to illustrate this point. He explains how even a system of voluntary contracts would not solve this problem.
Analogously, in the “work or starve” situation: behind a veil of ignorance, everyone would prefer some form of coercion to prevent work conditions becoming too terrible.
How would you respond to this argument? Apologies if this is too basic, but I haven’t yet heard a satisfying answer to this.


Apologies if this is too basic, but I haven’t yet heard a satisfying answer to this.

No, that’s fine. They’re understandable questions that are worth analyzing.

The usual response to this is that we value freedom, but we value other things too, so we make tradeoffs.

The first question I would ask is: Who is this “we”? Do all individual human beings in a society share a collective mind and collective values, like the Borg in Star Trek? No, I might disagree with you and value different things than you do. My judgment is my own, and yours is your own. So on what basis can you say that “we” value some coercive governmental programs more highly than freedom?

If you say that it is the majority that is the “we,” then I would ask you: What allows the majority to speak for minorities? Again, there is no collective mind that is common between those with the majority belief and those with minority beliefs.

Coercion against me is coercion against me, whether it is by one person or by many people.

The very fact that some people “need” to initiate force against others toward some allegedly valuable goal, means that those others do not actually value that goal. If the person being coerced valued the goal, then he would have used his freedom to pursue that goal; i.e. he would have acted voluntarily to pursue it.

So the initiation of force means that some individuals are imposing their values on other individuals, bypassing the judgment of the victims. To the extent that other people “need” to use force against you, you cannot really value things, in practice.

Now, the full argument for why this is immoral is too long to go into here. I have a blog post that shows how taxation is a form of robbery and briefly discusses the destructive consequences that follow from such robbery. But I acknowledge in that post that it is not a proof of the evil of initiatory force, in principle. I plan to post an essay on that topic at some point in the future.

For the moment, I’ll just summarize as follows: The fundamental basis of the concept of “good” for humans is an individual basis, not a collective one. The moral good rests on the fact that human individuals are alive, and that they can exercise individual judgment about what to believe and what to value. Thus, any “collective good” is simply a sum of the individual goods of individuals. The “common good” cannot be separated from and considered as opposed to the good of any individual.

Now if you think that the hypothetical “tragedy of the commons” situation you cite poses a problem for the above statements–such as, “The very fact that some people ‘need’ to initiate force against others toward some allegedly valuable goal, means that those others do not actually value that goal”–I can show you how it does not.

To start with, I am not an anarchist, (and neither was Ayn Rand): I hold that a part of one’s own good is the support of a government that works to prevent–and retaliates for–the initiation of force of any kind, by any human actor. This includes the establishment of courts that allow victims of any sort of force to seek compensation from perpetrators and injunctions against them.

So when the cited author describes the situation in which some fish farmers implement filters and others pollute the lake because they do not, my view is that this is the proper basis for a tort lawsuit by the filterers against the non-filterers. The non-filterers are provably damaging the property of the filterers, while the filterers are not doing the same to the non-filterers. This is effectively an initiation of force by the non-filterers against the filterers. Courts and property rights can solve this problem, where consideration of the lake as “commons” would not have.

But now, let’s take the hypothetical further and suppose that no one could come up with a filtration solution. What happens in a rationally self-interested free market? Well, there is no basis for any lawsuits. So the different fish farmers compete with each other, while reducing each other’s ability to produce fish. At some point, the least productively efficient farmer finds it no longer profitable to farm in that lake. He leaves the lake for another or goes into another line of business, selling his plot to someone else, who can either fish-farm more efficiently or do something else with the property. This process repeats itself until only a sustainably profitable set of farmers is active on the lake.

Note here that there actually is no “commons,” but private property. So the idea that this hypothetical is a “tragedy of the commons” is incorrect. The plots of lake volume can affect each other by the flow of water between them, just as plots of land can affect each other by the flow of air, etc. But it is still a system of private property, not a commons, (where no one has recognized property rights.)

If, instead of allowing the judgment of individuals in a free market to operate, the government preemptively regulates that only a certain number of fish farmers can operate in a lake of a certain size, then it will not be the best, most productively efficient fish farmers that get the lake, but only the first to make claims, (or those with the most political pull) while potentially better ones will be denied entry. This governmental initiation of force will be damaging to those who consume the fish, insofar as they have to pay higher prices for the quality they get.

This is just one application of the principle that the initiation of force is destructive to human life/well-being. I think, with enough experience and understanding, you should be able to follow the full consequences of any such initiation of force and find that they are, on the whole, destructive to human life and well-being.


Everyone (tautologically) wants to act in their self-interest…

I don’t agree that everyone wants to act in his self-interest, and stating that they do is not a tautology.

Here’s a previous comment that I made on this:

Rand didn’t believe that everyone necessarily acts in his own self-interest. There is a difference between having a psychological motive to act in a certain way and a self-interested reason to act in a certain way.

Having a psychological motive can mean having simply a subjective whim, and an action taken on this basis can be very damaging to oneself (and so, not self-interested.) There is also self-sacrifice out of a desire to “be good,” i.e. to follow the duties of an irrational morality.

(Imagine a young woman who has the passion and ability to become a great artist. She wants to become an artist, has ideas for great paintings, and being an artist would be her means to a happy, flourishing life. But, she accepts the morality of altruism, and she is convinced that, rather than going to a top art school, it is her duty as a “privileged American” to devote her life to saving Third-World children. This is not self-interested, just because she wants to save Third-World children out of a sense of moral duty. Nor is it self-interested just because she may get some pleasure out of “being moral,” at first.)

Given one’s basic nature, situation, experiences, abilities and psychological makeup, one’s own self-interest is objective, not a matter of one’s momentary whims. Any pleasures one pursues must be consistent with one’s overall, long-term well-being–both physical and mental–to be moral.

The villains of Atlas are not selfish at all, because they refuse to think and continually subvert their own minds. They need their minds–their ability to reason–to achieve any positive thing they value. What can they achieve without reason? In principle, only their own destruction.

Him: Thank you so much for the in-depth response. You’ve given me a lot to think about. However, I still have a lingering question about the fishing scenario. I agree that in a rationally self-interested free market, everyone would recognize that what they truly value is the long-term health of the lake, rather than the short-term profits afforded by shutting off their filter. So is there some mechanism by which only rationally self-interested people end up in charge of fisheries? It seems that in the real world, people can gain competitive advantages precisely by taking the short-term route, even if it’s not in their interest.


So is there some mechanism by which only rationally self-interested people end up in charge of fisheries?

No, nothing guarantees that people will be rationally self-interested in the market.

But irrationality is always destructive, because what creates valuable things for people is the antithesis of irrationality: rationality. (For this principle applied to material wealth, I recommend: Wealth is Created by Action Based on Rational Thought.) And since a human life is a continuing process that must be continually maintained through rational action, irrationality leads to deterioration of that life, to the extent one indulges in it.

What a free market does is ensure that the maximum possible proportion of the destructive effects of an individual’s irrationality fall on the individual, himself, rather than being borne by other people.

Say, as an example, that I invest a bunch of my money in an incompetent businessman on a whim. I could have researched him and determined that he was a bad risk, but I didn’t, just because I didn’t feel like doing the work. He ends up wasting all that money on a factory that wasn’t properly planned, and won’t be able to produce anything to turn a profit.

The wealth that that money represented is gone; that’s an unalterable fact. So someone in the economy has to absorb that loss. The only choice anyone now has is: Who will absorb the loss? If no one else donates their money to me, and no one is robbed, to compensate me for my loss, then I bear the loss. If someone does voluntarily decide to subsidize my irrationality, or a government program forcibly takes someone else’s money and gives it to me, then the other person will absorb that loss.

In a free market, no one else is forced to pay for my irrationality. So long as no one else decides to be irrational, himself, by subsidizing my irrationality, I bear all of the direct, destructive consequences of my irrationality.

Furthermore, you cannot actually force people to be rational. You can demand that they do certain things on the threat of punishment, but their action on your directive is not an example of rationality in the pursuit of valuable things. They are simply responding out of fear of your gun, and a gun is not an argument. The gun only makes their own judgment irrelevant and discourages them from thinking for themselves about how best to produce valuable things, in light of the facts of reality.

So if you want to discourage irrationality as much as possible, what you want is a free market. The free market–or rather, cause and effect in reality, in the absence of coercion–punishes irrationality and rewards rationality. The governmental initiation of force can only dole out punishments for rationality and rewards for irrationality, thus discouraging the former and encouraging the latter.

It seems that in the real world, people can gain competitive advantages precisely by taking the short-term route, even if it’s not in their interest.

Well, because a laissez-faire capitalist government punishes the initiation of force, (including its unintentional equivalents and indirect force, in the form of fraud) the only way for a business to compete in a free market is for it to offer economic value in voluntary trade. That production of economic value is what constitutes the “economic self-interest of the business.” So to say that, in a free market, a business could gain a competitive advantage by doing something against its interests is a self-contradiction.

(Note that there is a complication that modifies the above, when one considers the self-interests of the individuals involved in the business: not all economic value is objective value. The business may create economic value–things that people are willing to trade for–that is not objectively valuable in a philosophical sense. Being involved in a business that primarily does this is not in the self-interest of an individual. And because the individuals involved in the business are engaged in a slow process of self destruction, the business is also doomed, in the very long term. For more on this technical point, see this comment on my blog. It will be easier to understand if you’ve read The Fountainhead and a significant amount of Objectivist philosophical material.

But this complication does not mean that government force can solve any economic problems or lead people to objective values. Such force actually makes it more difficult for people to identify and pursue objective values.)

If, in your above comment, you are specifically thinking about something like so-called “predatory pricing,” then I would say that it just doesn’t provide a competitive advantage–it doesn’t work toward the economic self-interest of the business. For a brief indication of why, I recommend the “Criticisms” section on the Wikipedia page for “predatory pricing,” here:

Him: Thanks, I appreciate your thoughtful responses. I’ve already read “The Fountainhead,” and am almost through “Atlas Shrugged,” but that’s the extent of my reading of Objectivist or free-market thought more generally.

I was thinking about predatory pricing, but I was also thinking about environmental destruction, which might gain a business some short-term profits by cutting corners, but ultimately destroy them and others years or decades on. But I suppose if the only solution to this would be government intervention, the government has even less incentive to be rational. I’ll be checking out your blog/YouTube channel. Obviously there’s a lot to learn.


Thanks, I appreciate your thoughtful responses.

You’re welcome. I like answering challenging questions from earnest and honest people, because it encourages me to clarify my own ideas in order to explain them, provides an intellectual challenge for me that I enjoy, and helps make the world a more rational place, so to speak. It can also be a way of finding personal friends and allies in the intellectual battle for the future of Western culture.

I’ll be checking out your blog/YouTube channel.

Thanks. I haven’t posted on my blog a lot, recently, but I’m still working on future posts and will continue to update, when I can.

Obviously there’s a lot to learn.

That there is. In fact, despite having studied Objectivist philosophy for more than a decade, I’m still learning. : ) There are tons of new insights to be had, after one learns the basics.

For new readers of this blog, I recommend two short articles that relate to the subject of force, obligation and individual responsibility: “What Squeegee Bandits Can Teach Us About the Welfare State” and “America Before The Entitlement State”.


Related Posts:

19th-Century Capitalism Didn’t Create Poverty, But Reduced It

Why Healthcare in the US is So Expensive, and What Can Be Done About It

How to Show That Taxation is Robbery

On Fairness and Justice: Their Meanings, Scopes, and How They Are Not the Same

Values Are Relational, But Not Subjective

1 thought on “Laissez-Faire Capitalism Solves “The Tragedy of the Commons” and Deals With Negative Externalities: A Dialogue

  1. Suppose a corporation was faced with a choice of changing their production methods so as not to polute the local aquafers, or to face constant lawsuits from people damaged by poluted water, and determined that it would be cheaper to pay damages (even in the long term). Why is it not in their best interest to do just that?

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