The Case for Anarcho-Capitalism. David Friedman and Keith Knight.

The direct use of physical force is so poor a solution to the problem of limited resources that it is commonly employed, only by small children and great Nations. Probably my favorite quote from this excellent book. The Machinery of Freedom by David Friedman, you can find mr. Friedman's work at David D Friedman.com where you can also find PDFs of his books, both nonfiction and his novels and That's where you can find his blog. Mr. Friedman. Thanks so much for taking the

time happy to be here. I don't think I actually have the text of either of my novels there. Although I do have a link to recordings of my first novel but I do have the text of a number of my other books in one one form or another HTML or page images or depending which book it is. Okay, that's that that must have been the link. I was looking at.

How would you define capitalism and why is it morally Superior to socialism? Huh? That's hard to answer because the word socialism means a lot of different things to different people. I think of capitalism. Let me go back a step all societies face. When he condom is called a coordination problem that in order for anyone to do anything. You have to somehow coordinate the activities of a very large number of people, that famous example, was that to make a

pencil. You need wood to get wood. You need chainsaws to get chainsaws. You need steel and Fuel, and a bunch of other things. So if you push back, that supply chain making a pencil involves a million people more than a million, probably somehow coordinating what they're doing. So there's enough steel to make enough chain saws to cut down enough trees.

He's to make the number of pencils, you want to make that's a grossly oversimplified version and they're basically two solutions to the coordination problem. And the obvious one doesn't work. The obvious one is to have somebody at the top, telling everybody what to do and that works for very small groups. If you think about sort of a football team or a small firm with a few employees, you're going to have one person more or less, making the decisions, but it's scales very badly.

And when you have a large Society, It turns out that the problems with trying to run it that way, make it pretty much unworkable which is part of why the Soviet Union didn't work and why China stayed poor until now died, the alternative method and the non-obvious method is some decentralized system where each individual has a tiny bit of the problem that he's solving how much he wants to make how much he wants to consume and so

forth. And you have some mechanism to coordinate signals among those People. So the fact that I need steel shows up from the standpoint of the Spiel manufacturer as the price of steel being higher which makes it in his interest to make more steel. That's again a vast oversimplification of a semester or two above price, Theory and economics course, but the basic argument is that the solution that works. So there are a number of different variants of it.

Is some decentralized one in which each person is controlling a tiny bit of the problem that being With problems, which he has the best information so that I know more about what I can do. And what I want than you do and decisions of what I consume and produce in part. Depends on what I want.

And what I can do the other part that depending on other people want is handle demanded to me. Mostly through the price system that I observe that people are willing to pay for certain things that makes it in my interest to produce them. I observe the people charged me for certain things, that makes it me in my interest to consume them. Only if they're worth more to me than the cost of making. And again, that's a very, very sketchy description of a much

more complicated argument. But basic point point I'm making, is that capitalism is one label for the system in which we use private property and trade to get a decentralized solution to the coordination problem, to get a way in which we can somehow coordinate, so that there's enough of everything done without having anybody in charge. And I was told that an An economist spoke to a Chinese visitor. This was quite a long time ago.

And the Chinese visitor was part of the department in China that was responsible, for making sure that all the firms had the inputs they needed, and he wanted to know he wanted to meet his opposite number. He wanted to find out who in America did the same job. And the answer was either nobody or everybody that is, there is no one in charge of that and understands everybody is in charge of that when you I'd that you would like to have ice cream with your dinner.

That sends a very weak signal via, you are buying some ice cream or the grocery store, and the grocery store, order ordering some ice cream foreign suppliers, and its suppliers ordering input for ice cream from the people who produce the inputs, but you are in a sense, doing a tiny bit of the signaling, which is controlling the allocation of impulse, is that it's a long answer, but I'm afraid there isn't a short answer that that's useful. Sure, juice, begin your book

with a defense of property, basically saying that it's understood operationally pretty much by everyone but intellectually by no one. Why is it important to have a proper intellectual understanding of property? Because private property is the Machinery that lets us do the trick that I was describing that. That one of the problems that Libertarians have to face is

that we would love what we want. Is the world where everybody controls his own life, which sounds like a wonderful idea Until you realize that everything you do is depend on. Lots of other people. So, we have a highly interdependent society and property gives you the solution to that problem in the sense of giving away in which you can Define my controlling my life, which is consistent with interdependence and Actually was actually works and that's that I

control what I own. Which includes most importantly me, you control? What you own? If I want to get something from you. I've got to make you an offer. You're willing to accept. Unless what I want is for you, not to take my property and then I'm allowed to use Force to stop you from taking my property, but it's a way of breaking the world up into tiny bits with each person controlling one bit and it's hard to see. See any other way that you could.

I mean I don't I don't think we've imagined all possible human institutions, but it's hard to see any solution that doesn't come down to some variant of that. And of course there are lots of different variants of one of the things you Economist realize when they study law is the property is a much more complicated idea than than when it first thinks. So that you say well I own this house and land. What rights does that give me?

It doesn't give me the right to prevent somebody else from standing outside my Operating in talking to his friend, even though that affect my property because I can hear him from there. It doesn't give me the right to prevent my neighbor from turning on the light in his living room, even though the fact that I can see that light means of there are photons that he's creating that are trespassing on that property. So it's actually quite a

complicated concept. I believe it is the case that I own along with my house half the width of the street in front of my house because the house I believe is Other than the street, but I am confident since I observe cars. Going along that straight that long ago, some previous owner of the house in effect, sold the city of San Jose, the use of that bit of his property. That's what we call an easement

and property law. So you can think of my ownership of land as sort of a bundle of Rights, and one can sometimes take one piece of the bundle and transfer it to somebody else because that strip of land was worth much more in the city of San Jose. A to have a street on that. It was to me to have a little more grass on or the previous owner of my house, 80 years ago, whenever the transaction was made. So property is not a simple

idea. If there are any lawyers listening, they already know that but most other people don't but it is the basis to the problem of deciding who gets to use. What when, how our proper how what gets produced what gets consumed and so forth. I once asked a woman who was saying capitalism's terrible. It's exploitative. It hurts the poor, it creates poverty. She even said, and I said, how would you define capitalism and her face turns white?

And she goes capitalism, is when the rich get richer, and the poor get poorer. You have a great chapter in your

book titled, the rich get richer, and the poor get richer. If I'm a poor person. Why should I want or The Kate capitalism. Well empirically, of course if we look at more or less capitalist societies, we observe that in the more capitalist societies, the poor have gotten richer. Sometimes they've gotten richer faster than the rich have gotten richer. Sometimes slower that varies in a sense, one of the most interesting experiences from this standpoint.

I've had was visiting in India because India is a country that has been nominally socialist since it came into existence. It is always considered itself. Socialist. India is also feels to me as a visitor like what Russians?

Imagine capitalist societies must be like, because this is society with a mass of very poor people and a small number of relatively well-off people much much more strikingly so than the us or Western Europe, or Hong Kong or Singapore Taiwan or any of the more nominally capitalist capitalist country. So I gave a talk. A cat a sort of the equivalent of a business school in a city. And in India, it had been initially subsidized by the government.

Although I think they claim they were now paying their own way, and it was very lovely. It was about a half-mile. Rectangle, square, roughly rectangle of forest, and grass and buildings. Lovely Place, surrounded by a high wall topped with barbed wire and that's the image that the critics of capitalism have and is in a society, which at least claims. May be an exaggeration to be socialist, and always always since that government existed since it became independent of England has been.

But if you ask, what's in the sense? The more relevant question in our context, which is why should you want the kind of what the society more capitalist, then you have to ask, what are the ways in which the governmental Parts? The non-capitalist parts are making poor people better off or worse off. And both of those exist that you have welfare transfers, which

certainly helps. Poor people, you also have rules for professional licensing, which says that if you want to employ yourself as a barber depending on the particular City or in you first have to take several hundred hours of classes and how to cut hair, despite the fact that lots of people, lots of parents manage got their own kids here, no particular

difficulty. That, if you want to be a flower arranger, you've got to pass the test of the people who already flower arrangers, are typically in control that test and use it to keep down the competition. So, there are a bunch of ways in which the Pam up is blocked. One of the ways Which is less obvious. And most people disagree about is the existence of a minimum wage law that a minimum wage law sounds as though, it ought to help the poor by giving the

higher wages. But the problem is that when you raise a price above the market price, that means you're raising it above the price at which the amount people want to buy equals the ovule want to sell. Which in this case means, you're raising it above the price at which the number of unskilled workers employers want to employ is equal the number Who want to work? So, the typically the result is that, when you push up the minimum wage, you are pricing at

least some low wage laborers. Off, labor is off the market. So, the result is that instead of getting a low wage, they get no wage. And that's a particularly serious problem because typically the low-wage job is the first step in a ladder. Not necessarily laddered being rich for the latter two being less poor. That part of the way you get a decent job is demonstrating that you come to work on time and hard work. ER, and don't steal stuff and things like that.

And you can't demonstrate that if you never get the first job, now, people will disagree on this and it's an open question that if you raise the minimum wage, some people will get higher wages. Some people will lose their jobs. You don't know on Theory, how big those two effects are, but one of the effects at least is to make it harder for people who work for stopping for one thing that I found striking a long time ago, was looking at the pattern of the poverty rate in the US.

And roughly speaking using a constant definition of poverty. The pattern is that from the after World War 2, which is about when our data go to, from then until the point, when the war on poverty was declared the percentage of the population that was poor was falling pretty rapidly from the time. When the war on poverty, got fully funded, got fully into operation. The percentage of the population that's poor at least by the statistics. I Look to a few years ago has been roughly constant.

Isn't going up and down with General economic conditions. Now, that certainly isn't a proof. You know, you correlation is not causation is people correctly say, but at least suggest that the war on poverty. Who's declared purpose was to make people no longer poor. The declared purpose wasn't to make it a little less unpleasant to be poor, which is what it ended up doing. It was to provide retraining and other things.

Such that people would end up with good jobs and be self-sufficient that never happened. There's an interesting book, Charles Murray is first book. I think called losing ground, which is a description of that process of how you started out with policies. Who's declared purpose was to make people no longer poor. They failed. And as it became clear, they failed. They sort of retrofitted it into a policy into a program for making poverty, somewhat less

unpleasant. So, you know, it's hard to prove anything to anybody at least any reasonable person who's as skeptical, as you ought to be of people trying to prove things. This to you, but I think if you compare the situation that even the poor in a country, like the US with the situation of the average, people say, in the Soviet Union, when it was Communist during China, and it was Communist, which are

relatively extreme cases. The poor in America are quite a lot better off and that's true in other countries. Now, of course, none of these countries are fully capitalist. We don't have the experiment of saying suppose we have what I would want to have what I argue for in the Cure referring to those data aren't available. Unfortunately, but we can say that on the whole if you compare more capitalist and less

capitalist societies. We've had a number of pretty about as close to controlled experiments as you get in this field because we had East Germany and West Germany which were culturally the same society. And one of them was under a communist government, one of them under a more or less capitalist government and after that. Separation existed for like 50 years or so, it was clear, that East Germany was a great deal poorer than West, Germany enough.

So people some people were willing to risk their life to get across to get out. We have had the example of North Korea and South Korea, where again, you are starting out with more or less the same society and you have ended up you've probably seen these satellite photos people show of the Korean Peninsula at night and it's quite striking because the South half is light. The north half is black because there isn't enough power there. So that ordinary people have

their lights on at night. And, of course, there's lots of other evidence that things are much worse off there and we had in a sense and even bigger and more interesting experiment with China because to begin with, we had china, Taiwan and Hong Kong.

So those are three places with culturally the same the same population, Singapore. You could argue as a fourth and while China was He's under a explicitly socialist, and communist system, but formaldehyde Taiwan Hong Kong and Singapore, were all getting by their standards. Rich. And China was standing still that Hong Kong is the Striking case because in terms of material, resources, Hong Kong was probably the poorest Society

on Earth back a long time ago. When people were, when people believe that, the reason poor countries were poor was overpopulation. I did a very simple calculation of population density just people per square mile for every country in the world and it turned down to the 5. Most densely populated countries where to Rich European countries Belgium and the Netherlands, and three poor countries in the process of getting rich, Taiwan, South, Korea, and Singapore.

Singapore. Have the highest population density of any country in the world Hong Kong, which was not an independent country had 10 times the population, density of Singapore. So you had a basically a place with no real natural resources other than a good Harbor. A place that had the import drinking water from China because they didn't produce enough for their population, which had masses of poor refugees coming in and some decades, back the per capita income of home.

On past that of England. So, that's a sort of an extreme case. So, again, it's not a perfectly capitalist Society, but it's a great deal, more capitalist than the alternative. But then you've got the, in a sense, the most dramatic example, and that's what happened to China, after mom died, because I expect that both now and the rest of the top people in the Czech ominous party. We're mostly well-intentioned people who wanted their country to prosper when Mal, they all

believe in socialism. When Mao died, I'd the others were now free to go abroad. And what did they observe? They observed that their country with what they believed to be. The best economic system in the world was dirt, poor compared to the rest of the world. They could look at a place like Japan which isn't very far away and see the Japanese were ordinary. Japanese workers were enormously better off than ordinary Chinese workers.

So what was their conclusion? They were still socialist, but they said we must be doing socialism, wrongly making some kind of mistake. So let's experiment. Let people do things and not stomp on them and they tried in a number of ways to change their system and some of them made it a little bit better in some of them didn't. But meanwhile, things were happening on the margin.

Things were happening that the Communist Party had not decided to have happened, but when it discovered didn't stop of which the most important, one was the shift to something close to private property for agricultural land. Where what happened was that there were a number of very poor Villages, which covertly assign plots of land to families to households and let them be responsible for cultivating them and getting the crop from the - whatever.

They had to contribute for their share of the of the common in one Village. It was done covertly by the local communist official and in once in one Village, it was done covertly by The Peasants, not telling the Communist official in both cases. The result was that what had been very poor Villages. Did much better eventually they went public. And the response of the Communist party was this is illegal. You're not allowed to do it, but we are going to punish you.

And they watched for a while and then they said well in those Villages where the present system is working very badly, you're allowed to try this experiment and they walked for a while and maybe everybody should do it. So that was a case in which it wasn't that they figured out what to do. It was a they had the good sense to realize it didn't know what to do. Unless not to stop. What was happening is a very

interesting book. By Ronald coase who was a very important Economist who died a few years ago. His last work was a book on how China went capitalist. Bunch more stuff. I'm summarizing a lot of stuff from the book. But the basic bottom line is that between Mao's death and 2010. The per capita, real income of China, went up, twenty fold. It's probably the largest increase in you and Welfare.

There's ever happened in that short period of time in history, and that was the difference between a socialist system and they more or less capitalist system. And again, it's certainly not a pure capitalist system. I would say that Shanghai where I visited on paper, in theory, is a little bit less Capital than America and in practices a little bit more capitalist America that as far as I can tell, there are various regulations, but if you know who to pay off, they don't get enforced.

Other parts of China, are probably less capitalism that I think Shanghai is one of the better areas, but check China. In terms of the economy is not strikingly less capitalist than the u.s. Western Europe Canada. And it is Norma seem more successful than it was when it was a real communist Society. They still call themselves Communists. They kept changing the label. It was socialism with Chinese characteristics was that they were doing because they couldn't say it was capitalism.

But nonetheless, it's essentially a largely private property market exchange society in which the government owns a bunch of firms and metals and a bunch of other firms. And as a lot of other stupid things just like our government does. But it's still a whole lot better than what they had before. So I think that would be those are some fairly striking pieces of evidence that capitalism on the whole is good for the poor

as well. As well as for the for the rich Ben Shapiro had a discussion with Sammy and rest. And Sam Harris said, there is one argument that I basically

cannot get on the capital aside for the reason we can't really have a market Society is because of the existence of Market. You've actually given a presentation on market failure. Yeah, you address the market failure concern. Just let me first, give what I think is the best definition of market failure because it isn't really about markets. What market failure is is the situation where individual rationality does not produce group rationality, that is where

you have a group of people. Each of them is making the correct decision for himself and yet all of them be better off for they. Something else and my favorite example, story. I like to use when I give a talk

on, this is to imagine. It's a thousand years ago and you're somewhere in Europe and you're one of the line of 10,000 men with Spears. And the reason you are standing in that line with your spirit pointing in One Direction pointing North is that North of you there, another 10,000 men with Spears on Horseback and they're coming at you and you do a very quick cost-benefit calculation to decide what to do. And you say, well, if all of us

stand, and if we keep our Spears planted and pointed at them with luck, we can stop there charge and some of us will be killed but most of us will survive. If we run horses run faster than we do, I should stay. And then you think amazing. Wait a minute. I'm making a mistake. I said we I don't control him and him.

The guy on either side of me. I only control me if everybody else stands and I run one man, out of 10,000 won't have much effect on the chance of stopping the charge and I will be one of the ones who gets killed if everybody else runs and I stand. I'm dead. In fact, whatever everybody else is doing. I am Her off running than standing. We all run in most of us die.

Welcome to the dark side of rationality and that's a particularly dramatic example, but it's a problem that exists in lots and lots of other contexts and you can find, if you go on my webpage. I've got a link to recordings of talks I've given and you could find it there. If you read my book Machinery or Freedom. I've got a chapter on it, but this the logic of such a situation happens in lots of context of which the market has

only one. And what's basically happening is that I make Decision or I get the benefit of other people get the cost. And in that case, even if the cost is larger than the benefit, it pays me to make it. So when I run away, the cost is the whole line is a little bit less likely to hold that's cost. Spread of Mi all 10,000 people. The benefit is I'm a little farther ahead and might get

away. So it's in my interest to do it, even though we're all worse off as a result, the standard example of the textbook is something like air pollution. Where when I when my factory put sulfur dioxide in the back side, in the air that imposes costs on the people downwind but I ignore those costs. It makes it cheaper for me to make steel. So I do it that way.

Even if the cost of filtering the smokestack and preventing the sulfur from going into the air is less than the damage done because the damage is done to other people in the cost of the filters, will be to be. So these are situations where individually rational. Activity on the market May produce the wrong result and it could also in the other

direction. If you have a case where I bear the cost that you get the benefit, again, even if benefit is larger than cost of doesn't pay me to do it. Those are the economist often refer to that kind of cases an externality, but it's really a pretty General pattern and it describes market failure. And it sometimes happens on the market and the result is that a market was, no government intervention. Sometimes does the wrong thing.

That's actually correct. The Problem is that we have no better alternative because if you think about the alternative to the market, it's having those decisions made by the political mechanism. Why do you expect the political mechanism to do the right thing for the group? And if you think about that for a little, you realize that the mac and the machinery for getting the government to do, the right thing is run through with market failure.

So if you think about the sort of simple model of democracy, which is, why does the government have to do the right things for us? Because we'll vote them out if they do. For that to work, the individual voter has to know what the government is doing and what it should be doing. Answering both those questions is hard that when a politician introduced a bill into Congress. He never says this is the bill to make Farmers richer and city folks poorer. Every year we have such a bill

is called the farm program. He will naturally present it in a way, which is designed to make it look good for everybody. And then you have to pay some attention as an effort to figure out it is, as far as I know. No politician ever runs on the slogan. I'm the bad guy.

So again, in order to figure out in order for that mechanism for controlling government to work, each individual voter has to put quite a lot of time and effort into figuring out what the government is doing, what it should be doing, what the particular politician is voting for, or against has been doing what he should be doing. So this is not a trivial

problem. There is essentially no benefit to doing that because if I do that in a presidential election, my voting for the right guy, instead of the wrong guy increases by about One five, millionth the chance of getting elected, right? We've got large populations here. Exact numbers ready? Come here. That's the right approximate number. So if the right guy gets elected, that benefit is spread among 300 million fellow Americans. I get a tiny fraction of it.

I Bear all of the costs of my decision to make it a little more likely, that's an extreme externality in the extreme case where I Vera cost. Everybody else gets the benefit so I don't do it. And the result is that in practice. There are many people People believe that they are rational voters, but if you actually ask them, I've done the experiment when I was teaching an undergraduate class in University and Silicon Valley of

asking. My students most of whom almost all of them were old enough to vote. If they knew the name of their congressman and about half of them did really hard to keep track of what a politician is doing. If you don't know his name and in general if you went people, do polls the population. Vastly overestimates the size or something.

Actually government budget. Such as foreign aid underestimates others, and that's perfectly rational because the information in order to be a, well, informed voter is quite expensive and it's irrational, not to buy information if it costs more than it's worth to you. But the result is that the fundamental mechanism that supposed to make our political system. Work is one where market failure is not the exception, but the

norm and that's true. If you run through the political mechanism, the governmental mechanism. It's Ooh, right through it. So you might say, well, the reason the system works is not really Democratic voting. That's sort of the cover story. It's really Market corruption. It's really the fact that if some positive, some Bill benefits your group, you're willing to offer, Congressman donations. If they'll vote for it, if it hurts your group, you're willing to vote offer donations.

If they vote against it, so, you have a sort of a market for legislation in which people might say, if it's worth more than it costs. The Winners will outbid the losers. So, to speak the trouble with that, is you again have a market failure problem, because if my group of people, let us say, the contest is between the producers of automobiles in the consumers of automobiles. And the question is, shall we have an auto Terror, shall we?

Make it expensive to import for and the American Auto companies would like to do that because it means they can charge higher prices for their automobiles. The American consumers would like not to do that because it means they pay a higher price. Has the American Auto companies are a handful of large organizations. Must one big Union.

They can pretty easily get together and say look we all contribute 50 million if you contribute 40 million and at the United Auto Workers tells all its people to vote for the guy. We told them to vote for and weaken us push for the tires. The victims are 100 million people who are going to buy automobiles. There's no way they can get together from the standpoint of each. One of them. It isn't even worth.

Cost of finding out whether the terror for its mmm, let alone doing anything about it. And, you know, I go into more detail on this elsewhere, but the basic argument is, if you think about the sort of silikal version of why it works, it still works very badly because you heavily overweight, the interest of organized interest groups of relatively small numbers of large players like the Auto industry and you underestimate how will be underweight the interests of

large numbers of dispersed disorganized group. Such as all consumers. So, again, sort of tariffs are a case with your sort of striking for an economist because the realm of Economics were worked out by David Ricardo a little bit over 200 years ago. We understood them quite well, ever since the implication of those arguments is that with certain rare exceptions, a country that imposes.

A tariff makes itself worse off that quite aside from anybody else, does in response to the Tariff in effect means that we are producing. Goods at home, get them, more cheaply by producing something else and trading it for for those goods. And yet for those 200 years, almost no countries, follow the logic of that argument and had no tariffs. The England of the 19th century was a famous exception and it did very well Hong Kong in the 20th century was another exception and it even better.

But those were very much the exceptions. Almost every country has had tariffs. And the reason is that a tariff is away. Of benefiting a constant rate of interest group. Namely, The Producers have the cost of a dispersed interest group, namely, the consumers and the result is that it's politically profitable to have it, even though it makes the country worse off. So those are the example. But the basic point I'm making is that the choice of the

alternative is not. Do we have a less a fair free market, which works perfectly. Sorry, is less a fair free market where, which works imperfectly or have the government correct, this mistake? X, the alternatives are between a free market system, which mostly works and occasionally doesn't, and a governmental alternative, which occasionally works, but mostly, but mostly does not work due to the fact that the same problem of market failure, is the exception on the private Market.

Most of the time, if I want an input, I have to pay for most of the time. If I produce an output, I can sell it to someone so I get paid for it and only in some special cases like a radio. Broadcaster, I can't control who hears it, or air pollution where, I don't have to pay for the people who are injured by it. Only in those special cases, does the free market give the wrong answer? Where's the political system is one in which the normal situation is.

It gives the wrong answer. Because almost without exception, the actors of the political Market, neither bear the costs nor receive the benefits, all of the benefits of their action. It's true of the politicians. It's true of a lobbyist. It's true of the administrators people who are enforcing the rules. It's true of Judges. If a judge sets, a precedent, which is the wrong legal rule, if that legal rule makes the country 100% poor, a hundredth of a percent of the national

income of the u.s. Is something in the tens of billions of dollars a year. It's an enormous amount of damage for a human being to do and you'll never know. He's not paying for it. So it's not like a A system where it is in the rational interest of judges to make the right decision or of Administrators or if politicians. So, what you want to do is to think of the government, not as a sort of a god reaching down

from behind to fix things. But is itself a market, a system, which the individual actors are acting in their own interest. The only difference is that is under a set of rules in which the conflict between their interest, in our interest is normal. Whereas on the market its exceptional but that sometimes happen, perfectly true. So, that would be my long answer, but I don't think I have had the opportunity to argue with Harris. So I don't know if I could

persuade him with that or not. All right.

So the other day in the Wall Street Journal, this was on the cover, the iPhone now. So basically this article says, if you take each part of the iPhone and add them up, it costs $390. However, the evil greedy capitalists are charging 1099 dollars. The average person might look at this and say, okay, I could see 400. 500 or 600. But how can you charge so much more? This is ridiculous. How would you approach this subject? Suppose we think about all the stuff that goes to make up you?

And it only comes down to a bunch of carbon and bunch of hydrogen. A bunch of water and certain amount of nitrogen and oxygen. If you other chemicals, and I think, if you value it up all of those chemicals at market prices, I doubt your worth as much as 20 bucks. Probably less than that. Me too. So the problem is that you're taking the individual pieces and you're ignoring all of the costs that go into assembling them, designing them, marketing them. You've got to get that phone to

somebody. So, there are a whole bunch of costs other than the literal costs of the pieces, that that go into it. And I think the real answer is that Apple, after all, has to compete with Samson, they have to compete With who away they have to compete with a bunch of other firms. Even after compete with tiny firms. Let me show you a toy that I

acquired not long ago. There used to be a personal digital assistant called the Scion made in Britain, which I love dearly and it was basically a miniature laptop. This was before cell phones. And what was amazing about it. Was that a keyboard you could actually use that.

They had some kind of a magic spell or something on their Board. So that in this in the size, or the form factor of what I'm holding, which looks very much like a Scion. But isn't you actually had a real keyboard with movable keys that you could type on and some people in England, I think a couple of years ago who like me remember, dearly their old Saiyans because it went off the

market. Many years ago, decided to create a cell phone based on the sign on this line and they put it up on Indiegogo, which is one of these websites where you get funding for new projects. Was one of the people who offered money to go into the early buyers of it and I ended up getting it. That's a tiny firm. I doubt that there were as many as 20 people involved in the original group from what I can tell. I don't know it cook, but I think a couple of years, it

costs. I think less than half, what that iPhone does. On the other hand. It's got some disadvantages compared to the iPhone that I haven't actually switched to making it my main cell phone yet because I'm still figuring out how to use it as a little bit less smooth. And the Samsung I've got, which cost twice as much, but if it was really true that one could produce a phone as good as the iPhone for $400. I got a feeling somebody would be doing it.

It's not as if there is a block, which keeps those people from starting your cell phone company. I'm giving the example of Planet computers that For the make my little machine, which I say it's a very pretty machine called The Gemini. And I expect some point. I'll switch my SIM card to it and make it my main phone because it would be really nice to have a phone. I could really type one. I would no longer have to Lug around my laptop all the time in order to type on it.

Maybe younger people have got me good on these virtual keyboards, but I've never gotten to be able to use one decently. So in fact, there's a world out there where if you really believe that for four hundred or even five, A hundred dollars. You can make a phone as good as that iPhone. You ought to be out there making it and selling it for 550 and

becoming a billionaire. But somehow we observe that the companies that are making phones at the level of the iPhone, which is basically Samsung and Apple, and a few others also. End up charging roughly similar prices. Occasionally. Somebody comes in and disrupt that there is a which company would there's one of the smaller companies now which has a phone, which is noticeably last, it's not as big as five. Dollar even is noticeably less with some reviewers think is as good.

But it, that's all in sort of the margin of how well you can do it and what features it hasn't and, and all the rest of it. So, so the basic answer is that just looking at the pieces that make it up, doesn't really tell you the cost of bringing it to Market and distributing it and selling it and telling people about it and all the other costs associated with Bernie Sanders was debating Ted Cruz and he

said You can't be free. If you don't have health care, you can't be free. If the government doesn't regulate such and such the leftist will look at the economy and say, well first, you need the state to control a great deal and then you can be free. Why is why is that an incorrect way to look at Freedom? Yeah, they're really two

different dishes. And one of them is definitional and one of them is sort of real-world Economic, and the definitional issue is The distinction, which I would make the distinction between freedom and power. That I would have said that, if I'm dying of an incurable disease, I am still free. I am just very unfortunate. I don't have very much power. And of course, we all are dying things. Horrible disease. It's called Aging farther along than you are unfortunately.

But but that freedom, I think it's usefully. At least one useful way of thinking about it is to, what degree, what you can do is constrained. By other people, by other people, forcing you to do something, not allowing you to do something, and so forth. And in that sense, the person who is dying of cancer is still free, even though he's very unfortunate now, we value both, of course, I don't want to be dying of an incurable disease.

So one point is that, that I think Sanders is confusing and confusing is unfair. Use words. He wants to use them, but he's not making an important distinction between having your choices constrained by the fact. That other people are stopping you from doing things and having your choices constrained by the fact that either you can't do things or other people and help you to do them.

So I guess I would ask Sanders whether if he is in love with a woman and wants to marry her, her refusing him as a violation of his freedom. Because in his terms it is that something he desperately wants, he can't have it and he can't have it because she refuses to marry him.

All right, and yet, I am not sure he would be comfortable with saying, therefore we should have the government intervene and make sure if you're enough in love with a woman, they make him make her marry you which would in a sense be the launch. But the second question. The first question is, is this really what you want to call Freedom. And the other question is is he right that people would have more power. Would have more control over their own. Lives.

If we did it his way into dead and I think in a sense, I've already answered that question twice. That is, we've had a whole bunch of examples where you had two Societies in one of which resources were allocated, primarily through the market and one of which they were allocated primarily by government decision, and we can observe that we ended up with North Korea among individuals. Much worse off than South Korea East Germany, individuals, much worse off than West, Germany. Malice.

Is China individuals much worse off than in Taiwan or Singapore or Hong Kong or modern China? No law, which has shifted large a they're not entirely they having things allocated on the market that after all the fat, if the fact that the government makes a decision doesn't mean it'll make the right decision

that you mentioned earlier. The fact that I've written a couple of novels, the second one was called salamander and it was a fantasy and it Didn't out the original idea, was the fantasy version of what I think of as the central planning fallacy and the central planning fallacy is, the idea that there's all this stuff out there, people labor materials, and so forth. Only some sensible person at control of it. What wonderful things he could do.

And that seems very plausible and there are three things wrong with it. One of them is forgetting that all those things are already being used by the people who owned them for their own purposes. So in order to be able to give you something, we've got to take it away from somebody else. And then the question is, is it really true that whoever decides what gets taken and let's gets given as got everybody's best interests at heart. Why would you expect him to any more than you expect?

Anyone else that everyone's best interests at heart? Second thing wrong with it is not realizing how complicated a problem it. Is that goes back to my pencil at the beginning to figure out what everybody should do. And the third thing wrong with it, which I've touched on is assuming that whoever controls will be a good guy that he will.

In fact, be acting. And so in in salamander I had a world where magic was very weak where a fire Maj was more like a match than a blowtorch in terms of the power. He has and a brilliant naive. Young magical theorist thinks up a way in which one Maj could pull in the power of everybody around him. Funnel it through him. And finally do real things. And that's like the central planning fallacy is. The idea all these little bits of dispersed, magical power, only controlled.

By one person. He could do wonderful things and he's making the same mistakes. So in the story, he is the, uh, he's one of my protagonist. So the other protagonist is Annie, Lee Drew brilliant, female student. And he tries to persuade her to help him with his project to develop this spell. And her answer is my mother is a Healer. I have seen men with gaping wounds that she has closed when you have taken her power to end. The flutter of plague on Whose hand is the blood of those.

She can, I feel that is she is making the point which he has been forgetting that he's got to take away from all these people in order to use it in the way he wants to use it. And they already are using their power for what they think are

important. And in the same sense, if Sanders sets up a system where the government decides who gets Medical Care and who produces Medical Care, and how that's gotta mean controlling people and making them do what he wants them to do. Not what they wanted to. Now the novel, what you also end up with a bad guy, sort of take trying to take it over which is one of the problems and the third problem. With Central planning.

I never get to in the novel because I like to, Say that no clot survives contact with the characters. So the story went the way it wanted to go and set the way I planned it to go, which was fun. But, but the basic point I'm making is that it isn't a choice between having things done. The way, the market doesn't having them done. Right? It's the choice between having things. Done the way the private Market wants them done and having them done the way the political

Market wants them done. And the way the political Market wants them done does not consistently lead to the kind of um's that Sanders would like that.

If you look at how what government apps was of actually subsidized, they subsidize Opera which is consumption of the rich, not of the poor, they subsidize heavily subsidized college education, which is a consumption not if the rich, but of the top third or top 40 percent or so of the population with General taxes, some things governments do help the poor, that's certainly true. But a lot of things that

governments do help. Our people, the expense of the poor and a lot of things cover to just make it all of us poor and that's often not visible. That when the when Trump puts up a tariff that's really imposing a cost on ordinary, poor people who have to pay more for their shirts, but you don't know. They do the shirt doesn't have a note on it saying, 15% of the prices is due to the Tariff. So that's invisible, but it's nonetheless a very real cost. I have about 10 more questions

for you. Could you do a lightning round as in, give me a one minute or less answer? I can try. Alrighty. Capitalism creates inequality therefore. It's immoral. How do you respond? The fact that human beings differ creates inequality, as far as I can tell, all political systems, end up with inequality, capitalism creates wealth, and makes people better off some people. It makes a lot better off. Some people, not so much better off. Very few people worse off. That's a net benefit.

How would you define government? That I spend about a chapter doing that in the Third Edition, Machinery of Freedom. My short answer, is that all of us have lines. We Believe other people can't cross that. All of us have this sort of built-in system of commitment strategies. Such as you try to push me around in ways that I strongly approval. Fight back very hard government. Is that institution against which we drop those strategy? Those commitment strategies.

So I when I in the first edition, I Described it. As an agency of legitimised, coercion that government is that agency, which can do the sorts of things that we would see is outrageous of anybody else did them, but we don't respond to them the way we respond outrageous things.

So if an employer says, we've decided to hire you today, we're going to pay you $15 and if you don't come to work, we're gonna put you in jail, we would object-- very violent that when you get a notice saying that you've got jury duty, however, you don't eject violently over. That's essentially the terms of the jury duty so much longer term when we had military conscription, but we still have at least conscription for being

on a jury. If if a seller said, here's what I've produced, you're going to get it, you're going to pay for me. You don't have a choice of saying, no, we would again, regard that as a violation of my rights, except the government. Does that all the time, when it collects taxes for things that's producing. So that's the defining characteristic. Government. I think is that we accept don't respond. To it's doing the sorts of things, which we would strongly object to have anybody else.

How would you define anarchism? I would Define it as a society without a government and that could be good or bad. That is after all private people can violate your rights to. But what I argue in Machinery or freedom is the one could plausibly have a set of institutions in which there was no government. The useful things governments do including preventing people from killing you, we're being done by private institutions and the undesirable things weren't being

done. And I spend about what, I don't know, 80 pages are 90 pages of the book, trying to sketch, how such a system would work and people can read the book. They want. I can't do it in a minute.

If we didn't have a government, wouldn't there be chaos? There are large parts of life, which are not controlled by governments that are not chaotic foreign trade. For example, is mostly private and the way in this world governments do control. And yet we've got this enormous lie. Elaborate enter. Interacting interdependent system where goods are made in one country from inputs made in another and sold in the third country and so forth. Most of it by private actors.

The English language is an enormously complicated construction. Being shared by what may be 500 million people. Maybe a bit more. If you count all the Indians speak English. Nobody controls it. There is no one who designs the English language. There is no one who tells you how you use words and yet somehow it's a very orderly system. We get to understand each other. With with no government government control. And it's true of markets in general.

So I would have said that. If anything governments tend to create chaos, although they also sometimes reduce it.

What are the best examples of a society without a government if there are any? Yeah, there are a number of historical examples of much earlier Societies in which you had nothing that we would recognize as a government. I suppose the closest one to where Where we are at the moment? Would be the Comanche. Indians, who were stateless society?

Not a very attractive one. The interesting thing about them is that one would problems for commit for a stateless society is, how do you defend yourself against governments without a government Army and the problem of the command? She proposed was, how is everybody else to defend

themselves against them? Because they had to stateless society, but one that was very good at fighting people and in fact, did quite an impressive job given that they were heavily outnumbered by people with much higher technology. They still blocked expansion across Texas for 20 years. Hey, the one I know most which is not.

I wouldn't call fully stateless, but clothes would be Saga period, Iceland. That was a society in which they had a court system, and they had a legislature, but there was no executive arm of government. So there was no government to enforce the results. So that courts that was entirely private. And that Society lasted for about a third of Millennium bit over 300 years and it eventually He collapsed but of course, our society went into the Civil War less than a century after it was set up.

So that's they did relative. They took them about 250 years to get to their equivalent of the American Civil War. So that was a what I think of as a semi stateless society, the another interesting one which people say nasty things about

clear. Only thing about it would be Northern Somalia Somali land where you had a society which had For settling disputes, which did not involve the government and at the point when England, ceased being nominally in charge of Northern Somalia and Italy ceased being nominally in charge of Southern Somalia. They set up a modern centralized democratic government for a society that a never had such a thing. It lasted for a few years to be replaced by a military dictatorship or rather

unpleasant. One the military dictator eventually got thrown out at which point the US and the UN decided that some all you need are two. Aunt and we've been trying to impose the government on them ever since with very unpleasant results. And the way we try to impose the government on them is to use the troops of Ethiopia, which is the country next to Somalia and its traditional enemy. It's a little bit like trying to set up a government in France, using German troops.

So, Somalia to the extent, it's amasses a mess because we've been trying to impose the government on them and the northern part of it. Somaliland has in fact, set up its own system, mostly long traditional lines. The sort of a very weak government over it and seems to be doing tolerably well, but we aren't willing to recognize them because that would be admitting that there is no such country as Somalia. So that would be another example, but there are a fair number of examples.

I think in the anthropological literature, what we don't have is a modern developed Society with no government and that's what I would like to see, but I can't give you any examples of that. Obviously. There are lots of chunks of it, in the sense of international trade has no government in that sense and really the Internet has no real government, which is what we're attracting on the moment, but you don't have anything. That's the equivalent of a country with no government over.

You could say the sea ocean is, I guess to some extent. We need government to protect us from monopolies.

Government is, of course, a monopoly or tries to be a monopoly, at least over the use of force governments can sometimes reduce Monopoly, but government's quite routinely increase Monopoly, any terrorist tends to increase Monopoly because it means you have a smaller Market. If you had a high tariff on automobiles, that means that for doesn't have to compete with Mercedes. That governments quite often set up monopolies or cartels.

That before deregulation the US airline industry was a cartel run by the government. Meaning that if an airline wanted to cut its fairs and had to get permission from the Civil Aeronautics board and the other airlines can go to the Civil Aeronautics board and says don't let them cut their fares that will hurt us. If they wanted to fly a new route. They had to get permission.

That was also true of the trucking industry under regulation that if you wanted to have a truck line going from Chicago to Detroit, the other trucking companies could go to To the Interstate Commerce Commission and say we've got enough trucks on that route. Don't let them do it. We don't want the competition. So I would have said that all the monopolies occasionally occur in a free market Society government on that does much more to promote Monopoly the

defendant without government. The poor would not be helped in

forms of food stamps or welfare. Therefore, would die. And this is immoral without government. The poor would not be hurt in terms. The sales taxes that they are paying in terms of the restrictions that keep them from doing things. And that is immoral. That if you, in fact, look at times when there was essentially no welfare, the whole society was much poorer than it now, is but you didn't deserve that. The poor were dying on, mass populations, kept going up.

And those were size where the bulk of the population was was, in fact, poor, not very poor by our standards and he would core by, by their standards. That in a very poor Society. Some people will probably die, but they may die with welfare because they guy giving the welfare it sighs. He doesn't like them or they may die without welfare because I don't have a job, but generally in any reasonably Rich Society, like ours people can earn enough money to feed themselves.

One of the interesting statistics that I came across, was the calculation by an economic historian. That the, if you look at the average income of the world, through most of History, The current average income of the world is about 10 times as high as that and the current average income of the developed world of countries. Like the US and Western Europe is 20 to 30 times as high as the average income of the world was through most of History.

So I don't think we appreciate just how rich we are by historical standards. What is the most important

message of your non-fiction book laws order? I don't think there is a most important message. The book is an attempt to use economics to understand law and that's part of a project that's been going on. Before I got involved in it. Referred to the economic analysis of Law and laws order tries to do that. And I hope when you finish reading it, you will understand that law is a much harder problem Than People imagine that it really is not trivial to construct a good legal system.

And indeed, one of my Arguments for Anarchy. Is that just as Remnants, do a bad job of building cars are growing crops. They also do a bad job of Designing law that designing laws, a similarly difficult problem. And the you therefore need some system which the legal rules are being designed on the market rather than by the government. And I try to sketch a way in which that could be done. What is your biggest criticism

of the Austrian School of economics? That's tricky because it depends, which Austrian there is an extreme version of the Austrian position which holds that economics is entirely ah, priori that you don't have to look at real world evidence. You just work out the logic, and reach your conclusions. And I think that's clearly wrong. That is far as I can tell. There are no real world conclusions. At all. You can get purely on the

grounds of theory. Because Theory does not tell you any Economist. Jargon either utility functions. Action functions. It doesn't tell you either what people want or what are the ways of getting it, and even real world conclusions. That seemed very unlikely. In terms of economic theory, you can generally think up some logically possible set of utility function, the production funds that we gave you that result.

So for example, I mentioned that we expect a minimum wage law to result in fewer workers fewer jobs for low skilled workers, and I would expect that but you could imagine Imagine a society where the consumers really want to enjoy much more buying goods when they're sure that they were made by workers who were paid well, and the result is that the consumers value those goods more and therefore you put in the minimum wage law.

There's more demand for those goods than before and therefore, they, the low-skilled workers are better off. It's not what I expect that but it's logically possible. So, in my view, the right way of doing economics is the use the

theory to form conjectures. The form plausible guesses, but because the system is too complicated in the real world to be sure of your conclusions you then test those those conjectures against Real World predictions, and that's the way I think, economics want to be done. But I am sure there are people looking through themselves. Austrians would agree with me. So it's not a, a black and white decision division. It's only that some people in the Austrian School believe that.

Now, the other issue is one. I'm not really competent to judge. And that's Various theories of the business cycle of what's referred to as macroeconomics and there. I have been told by people. I trust that the Austrian version of that is not consistent with the data, but that's not something I really know about because it's not my field. But as I say the the methodological issues, really the one that interests that interests me, any more questions. Yep, just four more quick ones.

What is the most important thing you learned from Adam Smith? That's a very interesting question. But I think it would take me a while to answer that Smith was

not a very good theorist. Ricardo was a much better theorist Smith, new an enormous amount and he was a very bright guy and he writes a whole lot about interesting things, but I can't think of a single lesson that I would say that I have learned from Smith. Maybe there are some lessons that I learned from people who learned to be able to learn to learn them from Smith, but that's a very different and much. Or indirectly. What is the most important thing you learned from David Ricardo?

Boy, that is theory of comparative advantage, which is the modern understanding of international trade. I didn't learn directly from him, but he invented it and I learned it therefore, through many hands from him. Similarly the well, he didn't really invent the ricardian theory of rant even though it's named after him, but he did invent marshallian quasi events, which are named after somebody else. And that's again a very important. Of ideas, which I think I get

from get from him. But again, it's you can't really give one minute answers to these things. That that part of the problem with a lot of courses in history of economic thought, is that what they're teaching is cocktail party conversation with their teaching is six sentence descriptions of ideas that take a book to explain. So I'm an admirer of Ricardo. He's I think the first person who did General equilibrium Theory.

And he did it with no mathematics Beyond arithmetic, which any modern economy should tell you is impossible, but he was a very bright guy and he did I thought a very interesting job. So I guess maybe, you know, way what I learned from him is the use of simplifying assumptions to build models because what he did was to make some assumptions

that he knew weren't true. Make, a rough estimate of how one true they were, how much they would destroy these results and then build a model of the economy. Which depended on those assumptions because without them the problem was too complicated self. And that was a very impressive intellectual accomplishment. One that I admire. If you could recommend one book for everyone in the world to read, what would that one book? Be there? Isn't any such book, different

people need different books. Final question. What is the most important thing you learned from your father Milton Friedman? That would be a bunch of lists. One of them, I guess is not to argue about whose fault things are that his, his attitude was that if we have any question, whose fault it is, it was his fault as he would say, my shoulders are broad, but it's a waste of time. I guess. One of the things is, to be

honest. One of the things is to in a certain sense, treat everybody as equals, that is to say that if I was having an argument With my father, the question was not whether he was older and I was younger but only who had better arguments. And I was having a discussion actually, with my older son recently on the question of status and signaling status in various ways. And I said that part of what I admired about my father was that

he didn't signal status that. He as an Englishman would say he had no side if he would argue with anybody as equals as long as they had. Good arguments. So to speak. And I've tried Tried to imitate that as best I can. But that was certainly one of the lessons that I learned but it's hard. I learned an awful lot of lessons from him when I finished my first novel, I concluded that I had modeled the personality of

my protagonist on my father. I didn't realize I was doing that but I think it's pretty clear looking back at it. That's what I was doing. Well, mr. Friedman. Thank you so much for for taking the time to do that. My final comments. For the show notes, people, the Ronald coase books that I would recommend, our, how China became capitalist and his work on lighthouses, and my favorite works of Milton Friedman are

from his book free to choose. Who protects the worker and who protects the consumer to Great chapters in that book. Mr. Friedman, recommend for my father, would be the first one name in capitalism and freedom. Excellent. Perfect. I finally got an answer for for the one book. Mr. Friedman. Thank you so much for your time. I greatly appreciate it. I enjoyed it too, bye-bye.