Excerpt from Hans-Hermann Hoppe’s lecture: Law and Economics
From 40:40 through 47:54:
Now I come to, as I said, to the Chicago view. Which is, as you will see, is a very different approach, and a very dangerous approach at that. And I want to explain that, in using an example, when I talk about Chicago Law and Economics tradition, I have in particular in mind Ronald Coase and Richard Posner, two of the most, Coase by far the most prominent man in this field and Posner his aut latos.
And I want to use an example that Coase gives of a conflict. I want to explain how this is solved, so to speak, in the traditional way and how he will solve it instead.
The problem is, that did he describes, is something like; goes something like this:
There is a railroad that emits sparks and the sparks burn down the wheat of an adjacent farm, and the question is now: who is liable for the damage? Should the railroad be punished or should the farmer be forced to accept the sort of thing and so forth?
Now how does the Austrian, the traditional approach solve this problem?
For them the question is who was there first and who came later.
If the farmer was there first and had, so to speak, spark-free wheat and then the railroad was built afterwards and then the sparks burn down the wheat, then of course the railroad would be held liable would have to stop it or would have to pay compensation to the farmer.
Otherwise if the railroad was there first and emitted sparks, and then the farmer built his wheat field right next to this railroad track, then the decision would be after all the farmer acquired property that was “sparked” instead of spark-free and he has no claim against the railroad owner. If he wants to have his environment spark-free, would now have to pay the railroad to stop it.
So depending on whom was there first, the case would be decided either in favor of the farmer or in in favor of in favor of the railroad. It depends, so to speak, who was there first and who has acquired what type of easement.
Now this is not the way Coase would solve this problem. And I read you what Coase says how to deal with this problem he says:
It is wrong to think of the farmer and the railroad as either right or wrong, as aggressor or victim. The question is commonly thought of as one in which A inflicts harm on B, and what has to be decided is how should we restrain A? But this is wrong.
We are dealing with a problem of reciprocal nature.
To avoid the harm to B, would be to inflict harm on A; the real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A? The problem is to avoid the more serious harm.
Now I want to translate that into some sort of slightly absurd example to show to you, in a very drastic way, what an outrageous position this is. I slightly rephrase Coase’s words here, just to use a slightly different example. So let’s say we have the case where person A is raping person B , and according to Coase we would not simply have to restrain A, the rapist, rather and now I quote him from the previous quote:
Rather, we are dealing with a problem with reciprocal nature.
In preventing A from raping B, harm is inflicted on A because he can no longer rape freely. The real question is: should A be allowed to rape B or should B be allowed to prohibit A from raping him? The problem is to avoid the more serious harm.
Now you might think isn’t that easy to determine what the more serious harm is, but again this is not that easy either. Imagine the following scenario:
So A the rapist has been incarcerated for a long time. For 20 years, he hasn’t seen a woman in 20 years. Then B, on the other hand, is a professional prostitute. She is in the business of the sort of stuff. Now A rapes the professional prostitute. Now the question is is more harm done to A by preventing him from raping the prostitute, or is more harm done to the prostitute by letting A rape her?
Now the question is obviously a difficult one, right? You see the perversity of this of this type of thinking. We might well come to the conclusion that the rape was perfectly alright, because after all, more harm would be done to A if he would be prevented from going on with his activity.