In Institutions, Institutional Change, and Economic Performance, he wrote (p. 58),
players may devise an institutional framework to improve measurement and enforcement and therefore make possible exchange, but the resultant transaction costs raise the costs of exchange. . .The more resources that must be devoted to transacting to assure cooperative outcomes, the more diluted are the gains from trade. . .The more complex the exchange in time and space, the more complex and costly are the institutions necessary to realize cooperative outcomes. Quite complex exchange can be realized by creating third-party enforcement via voluntary institutions. . .ultimately, however, viable impersonal exchange that would realize the gains from trade inherent in the technologies of modern independent economies requires institutions that can enforce agreements by the threat of coercion. The transaction costs of a purely voluntary system of third-party enforcement in such an environment would be prohibitive. . .there are immense scale economies in policing and enforcing agreements by a polity that acts as a third party and uses coercion to enforce agreements. But. . .If we cannot do without the state, we cannot do with it either. How does one get the state to behave like an impartial third party?
Think of two ways to organize a pee-wee baseball league, with players aged 8 to 10. The anarcho-capitalist approach would be to have the players on the teams meet before each game and agree on rules and enforcement mechanisms. The state-based approach would be to have a league commissioner articulate the rules and arrange for their enforcement. If you’ve ever observed 8- to 10-year-olds involved in a discussion over rules, you know that the an-cap league would never play any baseball. The negotiations would occupy all of the time scheduled for the games. What North is saying is that the equivalent would happen to an an-cap economy–it would be buried in the transaction costs involved in trying to enable the sort of market exchanges that we take for granted.
As you know, I am re-reading North because of the overlaps between his work and that of Peter Turchin and other theorists of cultural evolution. I have suggested that North in 1980 anticipated their major insights. The quotation above is from 1990. By that time, some of the seminal papers in cultural evolution had appeared, and North cites them. But no one in the field cites North. If his work were more widely known, I believe that: (a) North would be considered a founder, perhaps even the founder, of the study of cultural evolution; and (b) scholars of cultural evolution would still be mining North’s books for insights.
But yet I’ve played countless pickup games of countless sports and made up my own games on the fly.
Which is a way of saying while I’m not an An-cap proponent (though a libertarian), I don’t buy this line of reasoning.
In particular there are *cultural* institutions and practices that have evolved to address such issues. And more generally, not all (or even most?) things that require /benefit from coordination require (or even benefit?) from centralized coordination.
I am with Jody. The vast majority of my games and sports as a child were informal affairs where we spontaneously agreed on the rules. Yes, we frequently borrowed organized rules, but we agreed to them and in some cases deviated from them based upon a system of informal agreement (smaller kids get extra pitches, balls over the Leachman’s fence is an automatic out, etc).
That said, I am not an anarchist. I just strongly value the benefit of decentralized order in some — but my no means all — cases. When the Mongols are at the gates, decentralized order may not be the best solution.
I will chime in that North was one of the most important authors I have read at understanding both cultural evolution and the Modern Breakthrough or Great Enrichment. His model of competing/cooperating (primarily European) states arriving at the rule of law, predictable taxes, and property and contract “rights” was inspirational to all my later thinking on the topic. He changed and enlightened my world view and for this I will always be indebted.
I read somewhere that boys will argue a lot over rules. But maybe arguing over the rules is more impottant than the game adults would pose on them.
I don’t remember much arguing about the rules, but about the same kinds of things that cause endless official reviews in pro football games now (in or out, did the ball hit the ground? ) Lacking video review, the most common resolution was the ‘do over’. But rule modifications (pitchers hand out instead of throwing to first, all of right field is foul, etc) were quickly agreed on as i recall.
And a more important point… Not only did the vast majority of my games and sports emerge spontaneously from children agreeing, ALL the fun emerged this way.
Organized sports in general sucked. It was never fun in the slightest. Organized sports sucked the enjoyment out of games.
By the way, I rarely ever see kids form spontaneous games anymore in my neighborhood. Sad. Something has been lost.
A better analogy, one that involves the complex arrangements in today’s economies.
How many multi-player internet games would exist if anonymous players sought to organize their own games?
I tend to agree with Jody. Most adults have more foresight than 8- to 10-year-old children, and will see the value in de facto standard (or at least base) agreements — they might want to deviate from the standard for particularly valuable trades, but not often. I think the general line of argument also “proves” that firms will never be able to complete heavily customized contracts, because they would get bogged down in the detailed terms.
“If you’ve ever observed 8- to 10-year-olds involved in a discussion over rules, you know that the an-cap league would never play any baseball. ”
I say false, but I get the point. You have never been at a soccer practice and seen a spontaneous game of duck duck goose break out like I have. So, then again, maybe it is true, but it might be in exactly the wrong way. Maybe duck duck goose is what should happen over soccer.
The flip side I also see is that government is extremely poor ay doing its only legit jobs and largely relies on extreme loss aversion to cause most people to govern themselves.
I am glad to see a number of commenters matching my initial reaction.
If your goal is to play an organized baseball league, under specific rules, then 8-10 year olds without supervision will not do so. On the other hand if you want to invent a new game, or settle a dispute that arises out of unforeseen circumstances, 8-10 year olds are probably a million times better at both than Congress.
Otoh, we shouldn’t get hung up on the choice of analogy.
Quite a narrow view of Anarcho-capitalism. Rothbard would probably retort to the inference here by stating that the threat of being ostracized by privately organized institutions would play the role of govt.
Competitive, cooperative, and for that matter combative, arrangements among humans are not uniform, not simple, not constant over time.
(Just as the economy is not a 2 input 2 output GDP factory…)
For many very important transactions, a person has no or little opportunity to practice or otherwise gain skill, and post event enforcement is of very little use. Your spouse severely misleads and entraps you in a painful and costly marriage? Even if there were some state agency that arrested such people and imprisoned them, that part of your life has been ruined/wasted. You buy an unsafe car, and suffer costs and injuries in it. The state, the courts, and public opinion rushing to condemn and severely punish the maker and seller of this unsuitable car will in general not heal your wounds, and certainly not raise you from the dead.
Enforcement, be it by legal force or market force, can only work by dissuading. Individuals or entities that are for whatever reason not dissuadable will create grief. (Witness the damage caused by drug dealing, in spite of very large enforcement efforts against it.)
Hence we see *patterns* in cooperation. Patterns such as preferring to buy from a large org, NOT because they are “more honest or just” but because they are big enough to suffer great pain in litigation or public scorn (and even that is not enough…)
Patterns in which people want to “meet and know” counterparties – and some part of what is going on is a kind of “sanity and conformance to certain norms” interview.
I don’t mean to excessively self-promote, but you may be interested in my piece on difficulties in anarcho-capitalism for issues like abortion due to repugnancy costs, similar but not identical to what North talks about above. http://libertarianpapers.org/article/3-murphy-heterogeneous-moral-views/
Garett Jones and others say more intelligent people cooperate better (not sure what “better” entails exactly) so I’d guess that some groups can do very well negotiating their own rules in a lot of arenas. However when the monetary gains to be had go up I’d guess likelihood of cheating goes up even by the most intelligent/cooperative.
> Garett Jones and others say more intelligent people cooperate better (not sure what “better” entails exactly)
If I may speculate, I think that intelligent people are better at cooperating insofar as they are better able to a) identify win-win solutions, and b) verbally articulate their interests and concerns.
However, we may want to distinguish between “more effective when cooperating” and “more likely to cooperate”
“The more complex the exchange in time and space, the more complex and costly are the institutions necessary to realize cooperative outcomes”
Sure, but the vast majority of exchanges are really simple. Brand names for stores and reputation based systems for indivuduals do a perfectly fine job for nearly all transactions. It all the legal junk you skip when you hit “I agree” that simply isn’t necessary
> Sure, but the vast majority of exchanges are really simple.
What about those minority of exchanges that are not? I think you will find that they may present a critical hindrance to achieving an an-cap society.
Well, I think I’d need to know the kinds of complex transactions that can’t happen before deciding it is a critical problem. Maybe land transfers fall into that category. Generally though, things like eBay show that enabling cooperation (which does not require the use of force) provides advantages that overwhelm the costs of punishing defectors. In this regard economies of scale favor an-cap