Sweet liberty

by John Quiggin on March 22, 2004

I’ve been reading the Aubrey-Maturin books by Patrick O’Brian and was struck by an episode in Post Captain . The hero, Jack Aubrey has been given command of a ship but is being pursued by his creditors and faces indefinite imprisonment for debt if they catch him. Reaching Portsmouth and his crew, he turns on the bailiffs who have been pursuing him and routs them. Several are knocked down and, in a marvellous twist, Aubrey presses them into service on his ship.

It struck me on reading O’Brian that this kind of thing would happen routinely in a libertarian utopia. On the one hand, bankruptcy and limited liability, the first great pieces of government interference with freedom of contract would be abolished, and imprisonment for debt presumably reintroduced. On the other hand, since most libertarians envisage a minimal state with no real taxing powers but a continuing responsibility for defence, reliance on conscription would be almost inevitable. From the libertarian viewpoint, any form of taxation constitutes slavery, and fairness is not a proper concern of policy, so there can be no particular objection to the press gang as opposed to, say, voluntary recruitment financed by involuntary income taxes.

{ 25 comments }

1

EKR 03.23.04 at 12:01 am

It seems to me that there’s a fairly obvious objection: it’s inefficient. Impressing Bill Gates, who would no doubt pay many millions not to be in the military, is Pareto dominated by taxing Bill Gates and then using that money to pay someeone else to be in the military. Now, impressing people but allowing them to buy there way out of it, on the other hand (aka kidnapping and ransom), on the other hand…

2

John Quiggin 03.23.04 at 12:15 am

You’re quite right. The right to pay a substitute to serve in your place was a standard feature of conscription before C20, though it didn’t normally arise in the case of the press gang.

3

Kip Manley 03.23.04 at 12:59 am

Heh. I’m bus-reading O’Brian at the moment; I’ll probably finish Post Captain on tonight’s commute home.

–Imprisonment for debt never made much sense to me. How can a debt be recouped if the debtor is languishing in prison? (Is it supposed to act as some sort of deterrent? Are we assuming rational actors, here? In the matter of one’s debts, or [as was Aubrey] being at the mercy of formerly impeccable brokers who up and abscond with the kitty one dark night? –Better not put that on the credit card–I might end up in jail.) I suppose the idea was the debtor was being held for ransom: presumably, a more responsible relative would pay off the debt to secure the loved one’s release. Still, imprisoning debtors seems dreadfully inefficient and counter-intuitive. (Of course, I’m expecting the folks making these sorts of decisions to be rational actors. Oh, well.)

4

jam 03.23.04 at 1:15 am

Sorry. It won’t do.

I don’t think it was true that “[t]he right to pay a substitute to serve in your place was a standard feature of conscription before C20.” First, 17th and 18th C European states found it easier to tax and pay mercenaries than conscript. “Feudal” European states practiced “delegated conscription:” your chief vassals had to show up with so many men, how they got ’em was up to them. There were only a few examples in late feudalism of a “money fief” where the vassal paid instead of serving. The sort of conscription we think of as standard was mostly a 19th and 20th C phenomenon, because it requires a fairly intrusive state to identify and compel service from young men as they hit the appropriate age.

To go back earlier, in classical Athens, the rich couldn’t buy their way out of conscription. Instead they were loaded with greater burdens. If you could afford to keep a horse. you got drafted into the cavalry. If you couldn’t afford that, but could afford armour. you got drafted into the infantry. If you couldn’t afford either you got drafted as a sailor, to pull an oar.

Ekr, Bill Gates isn’t a good example. Conscription happens, when it happens, to young men. Had Bill Gates been conscripted, it would have been while Micro-Soft, as it was then, was still a struggling small company. He wouldn’t have been able to buy his way out, since, to adapt a line from _Travesties_, he wasn’t Bill Gates then. It remains true that wealth correlates to age. It’s also true, historically, that conscription with buy-out correlates to riots.

The press gang is an interesting variant, though. Its intent, though often abused (as, apparently, by Aubrey), was to conscript appropriately skilled men. The wooden, sail-driven Navy, as opposed to armies at any time, required considerable skills from its crews. Press gangs were supposed to grab sailors from commercial vessels: people who already knew what to do aboard ship. The US selective service is ramping up to create a modern day equivalent, to be able to draft linguists and computer guys. It negates the point if the skilled can provide a (likely less skilled) substitute.

5

John Quiggin 03.23.04 at 1:37 am

jam, you’re right about the press gang, which is one of the reasons there was no right to substitute.

But, contrary to your claim, conscription, with the right to send substitutes, was common in C18 and C19, notably in the US Revolutionary War and Civil War. As you say in relation to feudalism, this was mostly delegated rather than practised on a national scale. Reliance on mercenaries is the historical exception rather than the rule, feasible only when the military technology gives a big advantage to skill and good equipment, as opposed to willingness to fight.

6

bill carone 03.23.04 at 1:44 am

“On the one hand, bankruptcy and limited liability, the ffirst great pieces of government interference with freedom of contract would be abolished, and imprisonment for debt presumably reintroduced.”

There are standard libertarian solutions to these problems, even in extreme libertarian societies.

1. Limited liability: buy liability insurance.

2. Bankruptcy: secure all loans with rights to strips of your income.

More on 2:

Say I take out a $50,000 loan from you. I secure the loan by promising you the right to a strip of my income. For example, if I don’t make payments, we might agree that you have the right to the strip of my income between $40,000 and $50,000 per year until the loan is paid off.

That means that, for any year,

1. if I make below $40,000, you get nothing.
2. if I make, say, $45,000, you get $5,000, and
3. if I make more than $50,000, you get $10,000

until the loan is paid off.

It would be fraud to promise the same strip of income to different people. The strip from $0 to $10,000 might be deemed inalienable, so you can’t be enslaved (contracts are about property rights, no specific performance, etc.)

Note that the strip of income from $40,000 to $50,000 is much more valuable than the strip from $400,000 to $410,000 (at least for me :-) So creditors would have some warning about how much they are risking. (“Why are you only offering the strip from $100,000 to $130,000?” “All the rest is already securing other loans.” “Aha. Maybe we’ll take a pass this time.”)

Many benefits to this system of “bankruptcy.” For example, early creditors get more of their money back than late creditors, instead of everyone being in the same boat.

Problems: only works with contracts, not torts (must use insurance, and might not buy enough) or crimes (but you probably less concerned with criminal prison than debtor prison).

7

tom t. 03.23.04 at 1:48 am

I’m not sure that it’s correct to characterize limited liability as an interference with freedom of contract.

Shareholders and/or limited partners contract freely with one another to create the limited liability entity. Creditors of the entity enter into contracts with it freely, with full knowledge that the liability of the entity’s shareholders or limited partners is limited. Creditors not wishing to contract on this basis have the option of demanding a personal guarantee from some principal of the entity (or of limiting their lending to natural persons).

Bankruptcy seems like a better example. It allows one party to a contract to abrogate the agreement unilaterally, and it’s difficult to contract around it. In the US at least, I don’t think a creditor can enforce a contractual provision that purports to forbid the debtor from entering bankruptcy.

8

bill carone 03.23.04 at 2:00 am

“since most libertarians envisage a minimal state with no real taxing powers but a continuing responsibility for defence, reliance on conscription would be almost inevitable.”

Do you have sources on this?

Minimalists I’ve read allow taxes for defence (and police and courts). Anarchists I’ve read don’t require the government to do anything. I can’t think of any libertarian who thinks what you ascribe to “most libertarians.”

“there can be no particular objection to the press gang as opposed to, say, voluntary recruitment financed by involuntary income taxes.”

The second is likely more efficient than the first? Once you start “enslaving” people, you’d rather get the same effect for less “enslavement”, no?

9

Ian WHitchurch 03.23.04 at 2:28 am

John Quiggin wrote :

“Reliance on mercenaries is the historical exception rather than the rule, feasible only when the military technology gives a big advantage to skill and good equipment, as opposed to willingness to fight.”

John, ummm, I’m trying to think here when skill and good equipment didnt trump mere willingness to fight. I’d argue the exception – citizen armies are the exception, not the rule.

I’m mostly a 16thC guy, and mercenaries of various flavours certainly dominated warfare then (eg Swiss in French service, lansquenets); from the reading I’ve done they also were a very significant part of medieval warfare (eg condittore, although I personally would call 1300s Italy as Early Modern, not Medieval), and in the later early modern, you were part of the Army, and who you were fighting for and why was simply not important (*).

Ian Whitchurch

(*) From the point of the troops, whats the difference between a contingent contracted by the Duke of Savoy to Venice fighting in the Romagna, and a regiment of British redcoats fighting in Germany on behalf of some Elector ? In both cases, your government has ordered your officers to tell you to go somewhere and fight some guys with whom, personally, you have no quarrel.

10

Will Wilkinson 03.23.04 at 6:37 am

John, You’re confusing the distinction between anarchocapitalists and minimal state libertarians. Most libertarians are of the latter sort. And it is not definitive of libertarians to equate taxation with slavery. Many libertarians do not base their defense of a limited state on natural rights grounds, or on categorical opposition to the initiation of coercion. There are utilitarian, contractarian, and pragmatic libertarians who allow for taxation. Further, you seem confused in your last point. If the objection to taxation is that it is slavery, surely the objection to conscription is that it is slavery. Indeed, that is an extremely common libertarian objection to conscription.

If you have an intelligible argument lurking about, it would seem to be this: if you happen to be a libertarian, and you think the state is needed for defense, and you also think that that state has no legitimate power to conscript or tax, then you leave the state with no legitimate way to perform the one function it is needed to perform. Or, in short, you think that there both should and should not be a state, which is contradiction. But I don’t know of anybody dumb enough to have supported the conjunction in the antecedent.

11

John 03.23.04 at 7:00 am

Ian, the American and French revolutionary wars and the English civil war are obvious examples where citizen armies (in the pure sense) have prevailed over both mercenaries and professional national armies. Even in recent African conflicts, mercenaries have done pretty badly, with lots of would-be Wild Geese ending up in prison or in front of firing squads.

12

dsquared 03.23.04 at 7:32 am

Bill: The kind of generalised liability insurance you seem to be talking about looks like a paradigm example of an uninsurable risk to me. Even medical liability risk (which is a much more accidental and less morally hazardous risk than the liability of a business enterprise) is not exactly unproblematic in the current world. I just don’t believe that the kind of liability insurance you would need to get anything like the protection of current bankruptcy law could be provided on an insurance model. Quite apart from anything else, who provides liability insurance to the insurers?

13

John 03.23.04 at 8:54 am

On the question of military recruitment, the basic system through the 18th century, as I understand it, was a kind of indirect contract farming system. Essentially, a captain was an independent contractor, who had the right to raise troops in a certain area, both by means of volunteers and by press gang. So it was kind of a mercenary situation, but on a small scale, not like hiring entire mercenary armies (which was rarer).

As to the rich, they would not have been press-ganged – only the lowest elements would be impressed into service. Of course, the best sorts would be officers in the elite regiments, or generals, but the solid burghers generally avoided any kind of military service. It was the highest and lowest who were involved in fightin’.

14

John 03.23.04 at 8:54 am

On the question of military recruitment, the basic system through the 18th century, as I understand it, was a kind of indirect contract farming system. Essentially, a captain was an independent contractor, who had the right to raise troops in a certain area, both by means of volunteers and by press gang. So it was kind of a mercenary situation, but on a small scale, not like hiring entire mercenary armies (which was rarer).

As to the rich, they would not have been press-ganged – only the lowest elements would be impressed into service. Of course, the best sorts would be officers in the elite regiments, or generals, but the solid burghers generally avoided any kind of military service. It was the highest and lowest who were involved in fightin’.

15

Conrad Barwa 03.23.04 at 10:54 am

Reliance on mercenaries is the historical exception rather than the rule, feasible only when the military technology gives a big advantage to skill and good equipment, as opposed to willingness to fight.

I think on balance this is incorrect; certainly when looking at European history when mercernaries were the rule for large periods of time and not citizen armies. The Greek city-states that were democracies were partial exceptions partly for mobilisational reasons and partly because a willingness to fight and defend the political order was seen an important part of citizenship, partially true also perhaps of Republican Rome, though by the Imperial period the Roman Army could be said to be a professional, if not mercernary force. In the modern period early attempts, such as those by Machiavelli for instance to build a citizen-army to combat mercernaries failed badly, in the Italian wars when mercernaries were the norm. Only with the gradual bureacratisation and centralisation of the state, was the latter able to replace mercernaries with a citizen-based force and with the arrival of nationalism and mass politics I think mercernaries were on the way out. Still, I think if I am not mistaken as late as Waterloo, a force largely raised through past reliance on the levee en masse, could be defeated by a more professional/part mercernary army. Certainly the British, some of the more successful Empire builders, did so by relying largely on their mercernary armies as the EIC army in Asia shows.

16

Doug Muir 03.23.04 at 10:59 am

Bankruptcy seems like a better example. It allows one party to a contract to abrogate the agreement unilaterally

Yes, it sure does — under certain specific clearly defined circumstances — and thank goodness for that.

You /do not/ want to do business in a country without a functioning bankruptcy system. I speak as someone who has spent years doing commercial law in such countries.

Businesses die all the time, even in the healthiest of economies, even when the business owners are intelligent and skillful. There has to be a method of getting those assets back out into the economy. A modern bankruptcy system is the best way yet found to do it.

Note that a good bankruptcy system tends to result in the creditors getting more assets.

and it’s difficult to contract around it.

Depends on what you mean by this. An intelligent creditor has a number of options available. Most obviously, he can take a security interest in some property of the debtor. Secured creditors go to the front of the line — in most systems, they even stand ahead of the tax collector.

To really, really simplify things… a good bankruptcy system is like assigned seats in a stadium. Buy a ticket, get a seat.

No bankruptcy system is like, buy a ticket, sit where you can. Result: fist fights between angry drunks, people getting crushed, collapsing bleachers. Kinda hard to actually watch the game.

It’s been tried. It doesn’t work.

In the US at least, I don’t think a creditor can enforce a contractual provision that purports to forbid the debtor from entering bankruptcy.

Of course not. The Founders wrote a right to bankruptcy into the US Constitution — Article I, Section 8, Clause 4.

Man, libertarians make me tired sometimes.

Doug M.

17

bryan 03.23.04 at 11:59 am

Kip,
in my readings of Dickens it seems to me that the clear reasoning behind imprisonment for debt is:

1. punishment for being a debtor
2. hope to deter said debtor from being a debtor in the future.
3. and the main one, the hope that the debtor has relations or otherwise hidden means to pay their way out of debtor’s prison.

When Pickwick is imprisoned it is clear that he has the means to secure his release but refuses to do so considering it morally wrong. Only when his landlady is imprisoned, due to the her not being able to pay the lawyers for her case against him, does he relent, paying his way out of debt so that she can pay her way out. A nice thought experiment in ethics I believe.

18

alkali 03.23.04 at 2:12 pm

I’m not sure that it’s correct to characterize limited liability as an interference with freedom of contract. … Creditors of the [limited liability] entity enter into contracts with it freely, with full knowledge that the liability of the entity’s shareholders or limited partners is limited.

Not creditors holding judgments on tort claims. (Although that’s not a freedom of contract issue.)

19

bill carone 03.23.04 at 2:40 pm

Dsquared,

“I just don’t believe that the kind of liability insurance you would need to get anything like the protection of current bankruptcy law could be provided on an insurance model.”

I suggested liability insurance to deal with limited liability, not bankruptcy. Securing all loans is the way I suggested to deal with bankruptcy. (I am not an expert on either, so I may be confusing terms).

So, if I buy stock in a company, I also buy a piece of liability insurance that covers me in case of the company being sued and running out of assets.

“Quite apart from anything else, who provides liability insurance to the insurers?”

Re-insurers? (Turtles, turtles, turtles … :-)

20

bill carone 03.23.04 at 2:46 pm

Doug,

“No bankruptcy system is like, buy a ticket, sit where you can.”

And libertarians have ways of dealing with the problem of bankruptcy, as I showed in my post above.

“Man, libertarians make me tired sometimes.”

Some libertarians have thought of the exact solution you suggest: secure all loans explicitly. They even have ways to do this that dealing with issues like “If I already have $10,000 to secure the loan, why am I asking for a $10,000 loan?”

Why doesn’t a system such as the one I described work, Doug?

21

Kip Manley 03.23.04 at 5:45 pm

Debtor’s prison, though: yes, deterrence, and recouping the loss through ransom. Okay. But the deterrence angle seems foolish; I don’t think people were any more rational about their own personal chances of beating the odds then than they are now, and anyway what you’d deter isn’t so much defaulting on debt as taking on risk in the first place: you’d be curtailing commercial activity and entrepreneuialism. Dumb, dumb, dumb.

–Of course, I’m looking at another world, and through jaundiced spectacles at that. Entrepreneurialism was the purview of a very specific class; the ability to “make” money was limited to very few. And anyone who gets into debt did so because they were lazy and immoral, and so it did no good to work with them to make good on their debt–might as well stick them in prison and if some better, more solvent relative could repay the sum, hey. Everyone wins. –And, I suppose, when it was so much easier than now to flee your debts by skipping across the country and taking up a new name, there is a certain brutal, ad hoc logic to clapping the debtor in irons to prevent them from running out.

It just seems like such a monumentally stupid process to have sprung up. “We take people who have failed to meet their financial obligations and remove them from any productive role in society whatsoever!” Ah, yes. Okay. –But there’s so much monumental stupidity in the world around us that I really shouldn’t start yelling at history books, too.

Sigh. Oh, our wacky predecessors…

22

Jim Henley 03.23.04 at 7:48 pm

So a government official uses his official powers to welch on a commercial obligation and this is supposed to show something dire about libertarian societies? That would seem to be what your lit-crit types call a “strong reading” of the text. Or maybe “ingenious.”

23

dsquared 03.25.04 at 12:45 pm

So, if I buy stock in a company, I also buy a piece of liability insurance that covers me in case of the company being sued and running out of assets.

Yeh, but who would write this sort of insurance? It looks much more inclusive and dangerous than directors’ negligence insurance or professional liability insurance, both of which are graveyards of the insurance industry.

24

dsquared 03.25.04 at 12:47 pm

Kip: As I understand it (not ness. very well) majority of people in debtors’ prisons were (in principle) earning money by picking oakum (me neither, but the British Navy seemed to need a hell of a lot of it), sewing, breaking rocks, etc.

25

bill carone 03.25.04 at 5:21 pm

Dsquared,

“Yeh, but who would write this sort of insurance? It looks much more inclusive and dangerous than directors’ negligence insurance or professional liability insurance, both of which are graveyards of the insurance industry.”

So, we are off bankruptcy and onto limited liability now? Just checking. Perhaps there are connections that I don’t see; I thought that one was about contracts and the other was about torts.

I am not an expert in insurance or limited liability. Perhaps you could teach me something about it.

What do you mean by graveyard? I find lots of insurance companies who carry e.g. professional liability insurance. Is it just not profitable? Is it the standard adverse selection and moral hazard problems (people who are good risks can’t afford insurance and bad risks are too bad to insure)? Who writes liability insurance for partnerships that (i believe) don’t have limited liability?

Could it be that, if there were no limited liability for corporations, it would stop being a graveyard?

What kinds of issues and risks are you thinking of? Any good sources I could go read for myself?

I think of accidents mostly when I think of limited liability; a corporation damages or kills third parties unintentionally (and not recklessly), and gets sued for more than the corporation can pay.

Under limited liability, only the corporation’s assets would be forfeit. Without it, all the owners of the company could be sued as well, and would have to manage this risk.

If an action by a people in a company intentionally or recklessly kills or hurts someone, then it is more of a criminal matter, and prison for the specific people involved wouldn’t be such a problem (not the owners, in most cases). Compare a car accident to vehicular manslaughter or drunk driving.

Another standard libertarian argument has to do with risks; sometimes you can be required to have insurance if you are engaging in particular level of risky activity (risks to third parties on their own property; other situations can be dealt with through contract). With such a requirement, would this help or hurt that part of the insurance industry?

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