I’ve long been a fan of and admired the brilliant libertarian legal theorist Richard Epstein. I devoured his book Takings: Private Property and the Power of Eminent Domain in 1991, at the tail end of my minarchist phase and as I was becoming even more an adherent of the Austrian school of economics. The book is Epstein’s own theory of the state, a response of sorts to John Rawls and Robert Nozick. He argues that because of free rider and holdout problems, a state is necessary. But that it and its laws and policies are justified only insofar as they do overcome these holdout problems and make everyone better off. Then, there is enough social surplus generated so that some of it can be used to compensate those who are disproportionately impacted by particular state polices.
For example if the state needs to take someone’s property for some public use and in a way that makes the overall “pie bigger,” then some of that extra wealth generated by this state measure can be used to compensate the victim of expropriation. So he has no complaint, since he receives compensation for the taking; and the rest of society benefits overall because of the bigger pie that they all partake in. Now I disagree with this argument for a number of reasons. For example, this utilitarian view falsely equates value with money; but as the Austrians have shown, value is subjective, ordinal, not cardinal, and not interpersonally comparable. Second, it is unethical to redistribute property from A to B even if B gains more than A loses. Third, there is no reason whatsoever to think the state could ever engage in this utilitarian redistributionism efficiently, competently, honestly, or without corruption. That is, the state would be making the pie smaller. (For more discussion, see my The Case Against IP: A Concise Guide; also the “Utlitarianism” section in In Defense of Napster and Against the Second Homesteading Rule.) In fact, in a review essay in the Texas Law Review in 1987–one of the best book reviews I have ever read, by the way; another favorite is Justin Raimondo’s great, withering review of Horowitz’s memoir Radical Son, David Horowitz and the Ex-Communist Confessional–Jeffrey Rogers Hummel observes: “The same public-goods problem that is such a vital prop to Epstein’s legal framework also fatally undermines that framework” (p. 1239). (Hummel’s amazing review is here, reprinted with his permission.)
Professor Epstein’s entire case relies on the fallacious notion of public goods, and flies in the face of Austrian insights into the nature of value and utility. (See Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics“; Hans-Hermann Hoppe, “Fallacies of the Public Goods Theory & the Production of Security,” in The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy.)
In any case, in Takings, Epstein argues that a given state law or policy is justified only if we have good reason to think that it does make the pie bigger, i.e. that it increases social welfare. If it does not, there is no surplus left over to compensate the expropriated victim, and society is made worse overall. In other words, there is a presumption against state laws unless it is shown that it generates social surplus. The burden of proof is on someone who supports a given law or policy to demonstrate this. In the book Epstein then analyzes a number of laws and shows that a small number of them appear to increase the size of the pie, and should be permitted (e.g. national defense), but that most modern policies of the federal government clearly do not make the pie bigger, and so have to be rejected as illegitimate. So even though his utilitarian and positivist argument is flawed from the point of view of Austrians and anarchists, at least he applies a very strict filter to scrutinize state law, and most of it fails Epstein’s razor.
What I find interesting is that in his arguments for intellectual property, namely patent and copyright, Professor Epstein appears not to abide by his own normative theory in Takings. So far as I can tell, when he argues in favor of IP, he argues that IP is justified because it creates social surplus (say, by inducing valuable net innovation or artistic creation that would not exist without such laws). (See Richard Epstein on “The Structural Unity of Real and Intellectual Property”.) But he presents (so far as I can tell) no evidence for this assumption. In fact, the vast bulk of empirical studies seem to conclude that we simply cannot determine this, or that it appears that innovation is harmed by IP (see the references in The Economist on the American Patent System). In other words, the available evidence and studies indicate that IP makes the pie smaller. Epstein, it seems to me, should use an “if” instead of a “because”: IP is justified, according to his Takings theory, if it makes the pie bigger; but since we have no good reason to think that it does, and in fact good reason to think it makes the pie bigger, IP law is in fact not justified, by Epstein’s Takings test.
(Professor Epstein also argues that IP “can” be treated by the law like a form of property, as I note in Classifying Patent and Copyright Law as “Property”: So What?, but I don’t see how this means it’s justified, or that it does grow the pie higher.)