Real Harms, Contingent Harms, and Restrictions to Free Exchange

Now, in many libertarian circles, the litmus test to see if someone is a real libertarian is whether or not he believes that individuals should be allowed to buy and sell nuclear weapons. The person who gasps and says, “Of course not!” is quickly confronted by people who tell him that he is not a real libertarian because he should not support state restrictions on free exchange, even when the things being exchanged are something as dangerous as nuclear weapons.

This position—that there should be no restrictions of any kind on free exchange—is ridiculous. But when and why certain types of exchange, or the exchange of certain types of goods, should be restricted is a question that is worth serious consideration.

When people argue for limits to free exchange, there appear to be two types of arguments presented: moral and practical. The moral argument says something along the lines of, “Some things shouldn’t be bought or sold, either because those things should not be possessed period (e.g., nuclear weapons), or because the buying and selling of certain things somehow corrupts the thing that is being bought or sold (e.g., sex, especially if it is bought and sold inside of a marriage). This argument strikes me as defective.

For my money, Brennan and Jaworski present the best takedown of the moral argument against free exchange. In brief, they argue that there is nothing about the process of exchange itself that is necessarily corrupting, and the only reason we see it as corrupting reflects our own cultural biases. If something can be exchanged freely without encountering moral problems (sex, bodily organs, etc.), then there is nothing peculiar about the injection of money into that exchange that somehow adds a corrupting element.

(As an aside, their recent book on this topic—Markets without Limits—is worth the read. But if you don’t have time to read the book, read their article in Ethics on this same subject. For would-​be libertarian academics, this article presents one of the best examples of how it is possible to get an unpopular thesis published by academic gatekeepers by using their personal biases against them. It’s really a brilliant piece of writing and should be read by every graduate student with libertarian leanings in philosophy or political science.)

While the moral argument for limiting free exchange is not compelling, the practical argument does not suffer from these same defects. This argument relates to externalities and how externalities fail to get captured in the price of an exchange. If you are unfamiliar with the economic concept of externalities, listen to Mike Munger’s excellent video where he discusses and explains this concept.

The challenge is in differentiating between legitimate and illegitimate externalities from the standpoint of regulation. Consider the following: Assume I have a certain set of personal preferences that lead me to “feel yucky” every time I see a same-​sex couple. That couple’s exchange of love or sex creates a yucky feeling within me. That yucky feeling is an externality. But no reasonable person believes that legislation should aim at restricting exchanges just because they produce yucky feelings. Rather, if exchange is going to be restricted, the only reasonable justification involved trying to protect third parties from real harms, or, expressed positively, helping to promote their well-​being.

But how do we separate out real harms from illegitimate things like the yucky feeling experienced by the person in our example? Here, we have a few options. The first is to appeal to the principle of democracy and conclude that we should simply vote on what counts as a legitimate or illegitimate externality when it comes to restricting free exchange. This view is unsatisfying even for someone who doesn’t buy into the damning critiques of democracy presented by Plato or Tocqueville. We have more than enough historical examples of severe injustice coming about through, and being perpetuated by, the will of the people to allow us to conclude that separating legitimate from illegitimate harms democratically is not the way to go.

The second is to appeal to political conservatism, and here I mean conservative in the classical political sense and not in its contemporary understanding. The conservative view identifies the values of stability and order as the most important to maintaining the health of any community. If we were to take a conservative approach to separating our legitimate from illegitimate externalities, we would identify as harmful those things, among others, that are likely to cause significant disruptions to the stability of the community. So under this conservative view, a community that believed it was immoral to consume mind-​altering substances might rightly restrict the free exchange of marijuana or alcohol because the mere knowledge that people in the community were participating in its consumption might undermine the stability of that community. (For one of the best defenses of the conservative position generally, see Robert George’s Making Men Moral.)

I find the conservative position defective in similar ways as the democratic position: When looking at real, historical examples, political conservatism fails to promote individual well-​being with the consistency and to the extent of the third option—political liberalism. Here, I refer to liberalism in the classical sense of maximizing the freedom of all individuals. For this liberal view, we could turn to someone like JS Mill when looking to separate out the legitimate from the illegitimate harms when looking to see when free exchange needed to be restricted.

Although Mill’s does not clearly identify what counts as a harm, the majority of his comments suggest he held a fairly narrow view with harms associated with “definite damage” to the body, wellbeing, rights, or interests of another person. Here, he separates these harms from harms that are “merely contingent.” While Mill’s discussion of contingent harms focuses on behavior that may appear detrimental to society (e.g., drunkenness), it is also possible to understand this discussion of contingent harms as being connected to peculiar aspects of individuals that could change, to their cultural background or personal preferences. So, to return to our example of the person who “feels yucky” when he sees a same-​sex couple in public, any harm caused to this individual by the behavior of the same-​sex couple would be a harm that is merely contingent and so not an appropriate target of state action.

What’s the takeaway for free-​exchange and under what circumstances (if any) it should be limited? From the combination of empirical observations that promoting individual liberty is the best way at maximizing human well-​being, and Mill’s theoretical discussion of the harm principle and what counts as a harm, it seems reasonable to believe that is necessary to impose limits on free exchange when it leads to non-​contingent harms to third parties. Those limits may be restrictions on certain types of trade, ensuring that appropriate compensation is provided to the affected third parties, or taking other appropriate steps.

But if it is reasonable to restrict free exchange under these circumstances, who has the authority to restrict it? While one immediate answer might be to look to the state, it is not immediately obvious that this solution is better than private remedies. In my next post, I’ll examine this question of who should address these harms to third parties, why and under what conditions private governance may provide a better alternative, and why it may not be possible to avoid a public solution to a limited range of issues related to preventing or remedying harms to third parties.