Liberty Matters

On Market Exchange and the Law in Leoni’s Thought: Remarks on Peter Leeson’s Comments

The discussion on Leoni's legal theory centers on the questions of whether his view of law as an exchange of legal claims makes sense and whether his loose metaphorical use of the term exchange confuses rather than clarifies the debate.
Let me first make a rather exegetic remark about Leoni's theory. In his chapter on law as an individual claim[36] he does not consider exchange processes as the major driver of legal evolution, but rather the interaction between the individual claiming something (for example, restitution, compensation, payment of a debt, etc) and the common opinion of the political community in which he operates. This is not what we usually understand as an exchange, but rather an interaction between two concerned actors, i.e., the individual with his claim and the community with its common opinion. Leoni did not elaborate further on the specific features of this interaction. I conjecture, however, that, departing from his appraisal of the evolutionary process in Roman law,[37] he saw this interaction channeled through public institutions such as lawyers, the courts, and political authorities (for example, the praetor in Roman law). These public institutions acted as intermediaries between the claims they were receiving and the common opinion within their political community. With the extension of the Roman Empire and the ensuing "multiculturalization," some parts of the law (the ius gentium) became common to the whole Empire and were considered by legal philosophers like Cicero as the natural law, common to humankind. Consequently, I have my doubts about whether it is useful to spend so much attention on the analogy between the evolution of law and exchange in Leoni's thought. We should rather focus on his theory about the interaction between individual claims and common opinion in society.
Next, I agree with Peter Leeson's' skepticism about the loose metaphorical use of the notion exchange. By surreptitiously amending the classical meaning of terms like exchange and consent, some people fool themselves into believIng that social outcomes which they value must have been the result of consensual processes. Such ex-post consensualist constructions were, for instance, common to 16th- and 17th-century social-contract theorists who were looking for a secular explanation/legitimation of the power of state authorities. As these princes bring order and peace in society, we cannot imagine that they acquired their authority by any other process than common consent. Notions such as consent and exchange, dear to libertarians, were in this way used as intellectual tools for justifying quite nonlibertarian political systems. Leeson is right to point to linguistic processes in which words with specific technical meanings are perverted by their metaphorical use in common language. Wittgenstein would fully agree with the remark. Disconnecting terms from their "natural" context creates confusion in debates and undermines their critical capacity.[38]
Another interesting point in Leeson's comment concerns his analysis of the notion of exchange. He rightly perceives two key features in it: the consensual character and mutual expectation of benefit. It is, according to Leeson, possible to imagine situations in which a mutually beneficial outcome is realized through a nonconsensual process. A can steal something from B and give it to C and steal something from C and give it to B. It is possible that B and C value the item they received more than the item taken from them. In fact, advocates of the social welfare state often legitimate that institution in such a way. The state takes contributions from employers to finance welfare entitlements such as medical care for their employees. By this means, the employees remain in good health and will produce more. They are better off, for they value their welfare entitlements more than their higher labor obligations. The employers are better off, for they value the higher productivity of their workers more than the contributions they have to pay to the social-security fund.
This discussion much resembles Jeremy Bentham's discussion of efficient theft. According to Bentham, it is thinkable that a specific case of theft is efficient, for the value of the stolen good can be higher for the thief than for the victim.[39] As a policy conclusion, one could argue that courts could check all thefts case by case on their efficiency and acquit the efficient thieves. Bentham, however, did not favor this solution. A case-by-case approach to the efficiency of theft would create among owners a general feeling of uncertainty. The utility loss caused by this feeling would overwhelmingly surpass the efficiency loss caused by the restitution of efficiently stolen goods. This Benthamite utilitarian argument applies also to nonconsensual exchanges. Of course, we can imagine cases of such exchanges producing a mutual benefit.
This thought exercise leads us nowhere when discussing the rules and institutions of society. Allowing a "super-thief-exchanger" to confiscate assets of some citizens and to switch them with assets of other citizens would create huge uncertainty in society. To operate as contended, the super-thief would have to be endowed with supernatural "panoptical" gifts by which he could perceive individuals' valuations and order a switch when he records a possible mutual benefit. The unbreakable link between consent and mutual benefit, as it is posited in the libertarian theory of markets and exchange, guarantees that the stock of knowledge, spread over the many individuals, will be used to maximize mutual benefits in exchange processes. By way of conclusion, tinkering with the key elements of exchange is not an innocent game of terminological conventions. It strikes at the heart of the libertarian argument for free markets and a free society in general.
[36.] B. Leoni, Freedom and the Law (Indianapolis, IN: Liberty Fund, 1991), pp. 189-203. The Law and Politics, "The Law as Individual Claim" </titles/920#lf0124_label_121>.
[37.] B. Leoni, Freedom and the Law, pp. 208-18. "Law and Economy in the Making" </titles/920#lf0124_label_124>.
[38.] Ludwig Wittgenstein, Philosophical Investigations, trans. G.E.M. Anscombe (New York: Wiley-Blackwell, 1958),  p. 70
[39.] Jeremy Bentham's Economic Writings, vol. III, ed. W. Stark (London: George Allen & Unwin, 1952-54), pp. 324, 342. We have another version of Bentham's Institue of Political Economy (1801-4) online, A Manual of Political Economy (no date), which has the following interesting sections on this topics:
"Whoever takes upon him to add to national wealth by coercive, and thence vexatious measures, stands engaged to make out two propositions:—1. That more wealth will be produced by the coercion than would have been produced without it; 2. That the comfort flowing from the extra wealth thus produced, is more than equivalent to whatever [41] vexation may be found attached to the measure by which it was produced." Jeremy Bentham, The Works of Jeremy Bentham, published under the Superintendence of his Executor, John Bowring (Edinburgh: William Tait, 1838-1843). 11 vols. Vol. 3. </titles/1922#Bentham_0872-03_287>."Coercion, the inseparable accompaniment, precedent, concomitant, or subsequent of every act of government, is in itself an evil: to be anything better than a pure evil, it requires to be followed by some more than equivalent good. Spontaneous action excludes it: action on the part of government, and by impulse from government, supposes it." … </titles/1922#Bentham_0872-03_301>."By raising money as other money is raised, by taxes (the amount of which is taken by individuals out of their expenditure on the score of maintenance,) government has it in its power to accelerate to an unexampled degree the augmentation of the mass of real wealth. By a proportionable sacrifice of present comfort, it may make any addition that it pleases to the mass of future wealth; that is, to the increase of comfort and security. But though it has it in its power to do this, it follows not that it ought to exercise this power—to compel the community to make this sacrifice." </titles/1922#Bentham_0872-03_322>.