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Public Goods and the Public Good

Public Goods and the Public Good

Posted by Daniel Larimer on .

Public Goods and the Public Good

Posted by Daniel Larimer on .

It isn’t easy taking a hard line against violence while searching for viable solutions to secure the life, liberty, and property from all. I don’t just preach non violence and then hope for the best, I actively look for creative solutions that can be implemented today. Every now and then someone like Vitalik Buterin will post a challenge to my views. Today I would like to address this most recent challenge.

Vitalik posted a link to an article titled “The Non-Libertarian FAQ (aka Why I Hate Your Freedom)” that has been circulating around the crypto currency community since 2011. This article is an attempt to undermine the very foundation of libertarianism.

What I want to do in most cases is not prove that the government works better than the free market, or vice versa, but to disprove theories that say we can be absolutely certain free market always works better than government before we even investigate the issue. After that, we may still find that this is indeed one of the cases where the free market works better than the government, but we will have to prove it instead of viewing it as self-evident from first principles.

In other words, this article is an attempt to undermine my very mission in life which is ultimately to discover free market solutions so effective that government becomes irrelevant. I take on this mission because I believe it to be self-evident from first principles.

I could attempt to debunk each of his 16 sections, but I have long since learned that if a libertarian finds a solution for a single problem, the statist, lacking creativity of his own, will come up with another hypothetical problem for which he cannot imagine any other solution than to pull out a gun and threaten people for the public good.


The first argument he makes is a very common argument: free trade can hurt parties not involved in that trade. I have addressed this issue before, but will refine my points again here.

All property belongs to someone at all times. A trade merely changes the title of property and involves nothing more than pure information. You might say, “sticks and stones can break my bones, but information can never hurt me”.

Granted, title to property also conveys control over the property. The transfer of title to a gun from someone you like to someone you think may want to hurt you can certainly cause your adrenaline to start pumping. It may even compel you to buy your own gun for self defense, an expense you would not have incurred had that voluntary trade between two other people never occurred. The irony is that you still incur the cost of a gun if you try to prevent the trade and chances are your adrenaline will start pumping when you confront the parties attempting the trade.

From Austrian economics we know that all value is perceived value and all perception is in the eye of the beholder. There is exactly one person responsible for any loss of value as a result of two other people making a voluntary trade: you. You can choose to view the trade as a personal attack, but in many ways that would be like viewing a hurricane as a personal attack. When something outside your control happens, your response is entirely within your control. You can curse at the weather and play victim or you can get to work securing your house.

What this means from a practical point of view is that those who are afraid of other people’s freedom need to read the book “The Power of Now” and realize who they really are. It is only through meditation and looking inward that you can find the peace that passes all understanding. When you are present in the moment and at peace inside, then the actions of other people are irrelevant to your happiness and therefore you no longer have reason to fear the outcome of a voluntary trade.

This perspective shifts the blame from “other people” to “yourself” and therefore eliminates the need for government to solve the problem. It also single handily undermines a large number of arguments against freedom and in favor of government.

If you read Marshall B. Rosenberg’s book “Nonviolent Communication: A Language of Life” then you will be given an in depth understanding of the need to take personal responsibility for your feelings and the need to reject other people’s attempts to blame you for their feelings. After reading his book you will never allow other people to manipulate you with guilt over how you make them feel. If you think about it, those arguing for government to prevent free trade are attempting to guilt others into violent action against innocent parties so that they can feel better.

Now that I have covered externalities in general, I would like to end by pointing out that Scott Siskind’s examples of externalities (the wasp farmer) is easily resolved in the same manner as a misbehaving pet, or out of control robot. The owner is liable for damages caused by his property. It wasn’t the trade that was the problem, it was the actions of the resulting property owner. For someone attempting to undermine the very foundation that markets are presumed to be superior to government his example was a complete red herring.

Solutions to Externalities

Scott did produce some of the ways libertarians often suggest for dealing with externalities by presenting the straw man argument that you could get everyone in a town to sign a contract to ban something. The basic problem can be boiled down to the fact that unanimous consent is practically impossible for any issue that involves more than a relatively small number of people.

He also suggests forming your own town and ruling over it on the basis of private property. We know that this is not viable based upon all of the failed attempts. He then concludes the following:

As far as I know there is no loophole-free way to protect a community against externalities besides government and things that are functionally identical to it.

There are three critical phrases here: ‘loophole-free’ , ‘government’, and ’functionally identical’. Depending upon how you define these terms can entirely change whether the statement supports his goal of casting doubt on whether or not free markets are always better than government.

So to be less ambiguous I will rephrase his statement as follows:

As far as I know there is no way to protect a community against externalities besides the initiation of force and things that are functionally identical to it.

This statement is clearly wrong has has been proven by Gandhi, Dr. King, and others who have used entirely non-violent means to resolve the negative externalities of governments. Their approach didn’t depend upon unanimous consent and yet was able to apply enough social pressure to cause the government to retreat.

The challenge with Gandhi’s approach is that it only works in extreme situations because of what Harry Browne in his book “How I Found Freedom in an Unfree World” calls the group trap. The costs are born by individuals while the benefits are known as a public good. The incentives in his approach are misaligned such that it not profitable for individuals to join the group until they have nothing left to lose.

In many ways a government is a much worse offender than the hypothetical factory that is polluting. The government is clearly imposing measurable costs (taxes) extracted at gunpoint from every citizen, while the factory is often imposing hard to measure costs on a much smaller subset of the population. Since we know that non-violent means are often the most effective means of dealing with extremely large and oppressive organizations such as the British Empire then clearly they can be used against much smaller local polluters.

If we can add a profit motive to join a non-violent solution to compel a misbehaving entity to change their behavior then it will change everything. I believe I have found profitable solutions and am working to realize them with BitShares.

Coordination Problems

At the end of the day everything boils down to a coordination problem. The vast majority of people prefer non violence, are against pollution, are against war, want solid education, and want a healthy economy. Often we can agree on who the “bad guys” are: the polluters, the gangs, the child abusers, the murderers.

In fact, most people would never individually choose to take full responsibility for using violence against their neighbor to fund their own child’s education or any other government program. Instead what happens is that some “bad guys” convince a lot of good people to “stand by” while they do the dirty work of robbing Peter to pay Paul. No one wants to stand up to the “bad guys” least they become Peter and instead they prefer to convince the “bad guy” that their name is Paul and not Peter.

David Friedman gave an excellent talk on Public Goods as it relates to game theory and coordination problems. In his talk he is specifically arguing that while there exist problems like pollution, vaccination, (and a half dozen others he describes) where the market appears to fail in the absence of government that the cure is worse than the disease.

This is a very good talk because it highlights something that is almost always overlooked by those attempting to argue that the government can do a better job than the market in some cases. It is commonly assumed that if people cannot coordinate to deal with a polluter with non-violent (aka market) means. Then it is assumed almost everyone agrees that the pollution is a problem that needs solved. To solve it they propose a law to be enforced by government.

Hidden in their proposal of a law is the assumption that people will coordinate to vote for the law. Unfortunately, voting for a law is a public good that also suffers from the group trap. To vote responsibly each individual of society would need to be educated and actually read the law and understand the consequences. The cost of gathering this information exceeds the value of their individual vote which is just 1 of millions. The result is what is known as rational ignorance.

The only people with enough financial interest in producing a law are special interests. These people can profitably coordinate small groups of people to promote a bill named “The Affordable Care Act” that ultimately increases costs for the vast majority of people to the benefit of a small minority. At the end of the day the law ends up being polluted and regulations intended to fight pollution instead turn into regulations to “license” pollution and restrict competition. The big companies end up paying a tax that doesn’t compensate the victims of the pollution but instead the special interests who control the public purse.

You see, a free market solution that is powerful enough to defend against a corrupt government powered by a democracy will easily be able to handle every other lessor evil. How do I know a free-market solution exists: because there is a market demand for freedom that isn’t being met by governments and thus a huge profit to be made by delivering the goods.

Philosophy Matters

For me it doesn’t matter what other people do. All that matters is what I choose to do. When I seek non-violent solutions it is because of a personal choice to avoid violence and because I am aware of my connection to all of life. I will not attempt to make choices for other people or restrict their choices. When I communicate a philosophy and draw conclusions it is so others can understand my choices and why I think they are best for me.

I know that my principles if universally adopted would result in world peace. I also know that if the principle of using violence to compel others to do what you want were universally adopted we would be living in chaos.

There is no objective view of what is best for all of society. There are only opinions on what we think will create the best possible society. If my opinions are wrong, no one gets hurt. If those who argue for government solutions are wrong then hundreds of millions can die attempting to implement the vision. Namely, government supporters will never be a victim of violence at my hands, but I may well be the victim of violence at theirs. In many ways those that hope to reshape society should adopt something like the Hippocratic Oath, “First do no harm” which is closely related to the Silver Rule.

Todays mainstream economists and political scientists are like Witch Doctors. Do we really want them to cure our economy with the use of violence? It is like attempting to cure one type of poison with more of the same poison.

It all comes down to whether or not the end justifies the means, or more specifically whether or not a theoretical end justifies the very real means. After all, based upon reasonable economic theories the theoretical end is likely a complete illusion and the real end is often worse than doing nothing at all.


The existence of public goods does not mean the public good is best served by government. Government itself is a public good which in theory would require a government to manage. It is a never ending cycle that always puts us back where we started. Who watches the watchmen?

I believe that blockchain technology, such as BitShares, can enable us to have a non-violent means of managing property rights and resolving disputes. Before Bitcoin the only way to quickly reach a consensus was to have a government be “the decider”. Now we have an irreversible public record and software rules that give us unambiguous means interpreting the record. There is no longer a need to rely on a government to be the decider. See my article on “How to Create a Free Society”.

The market has now provided us with the tools of reaching non-violent consensus which is the foundation of solving all coordination problems without the need for government.

Those that argue that libertarianism and the free market are not automatically better than government have nothing left to stand on. The blockchain and free market forces will gradually make governments irrelevant and prove our point. One day our great grandkids will wake up and laugh at those who thought governments were necessary for resolving pollution, education, healthcare, transportation, justice, and security. It is the inevitable result of free individuals pursuing profit by providing the highest value commodities on the market: life, liberty, and property rights.

So the question you must ask yourself is, will you be part of a non-violent solution and participate in the profit that will be earned by those providing life, liberty, and property or will you sit on the sidelines and let others jump in first and reap the largest rewards. It doesn’t take much to make a difference and make a profit. Help me change the world and join BitShares today.

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My name is Daniel Larimer and I am the founder of BitShares. My mission in life is to find free market solutions to secure life, liberty, and property for all.

The purpose of this blog is to help create a free society by encouraging people to join our community which is centered around Bitshares, a next generation fully decentralized crypto-currency exchange. I use Austrian Economics to engineer the economic incentives which make freedom and non-violence profitable.

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