So, an interesting question is whether there's a relationship between what's
efficient and what's right. So, let me suggest, let me close this
part of the course by suggesting yet another thought experiment.
This one being another economist, the Austrian economist Friedrich Hayek and
his thought experiment goes like this. Assume that at the beginning of human
history, there are 100 scattered, isolated societies around the world.
Each of the societies is very small and each of them lives at a sufficient
distance from all of the other societies, that the societies come in absolutely no
contact with one another. Each of the 100 scattered societies will
assume it's self-contained and has no contact with any other society.
Then, let's assume that completely randomly, 50 of these societies live by
the norm that stealing is wrong. We won't inquire why they believe
stealing is wrong, how they came to that belief, we'll just assume that in those
50 societies, people don't steal because they believe that stealing is wrong.
Completely randomly, the other 50 societies, we'll assume, live by the
opposite norm. Not so much that stealing is right and
everybody should do it, but that stealing is not wrong.
And therefore, if it's convenient for you and you think you have a good reason to
do it, then you can go ahead and steal and it won't be a problem with anybody
else in the society. So, we have these hundred societies.
50 of them live in one way with one moral code, and the other 50 live in a
different way with the opposite moral code, and the two societies don't come
into contact with one another. So, let's see what will happen as life
proceeds in these two societies. In the former society, the one that
believes that stealing is wrong, let's suppose that the farmers go out in the
spring, and plant a crop of corn for food for the entire society over the next
year. The farmers invest something in the land.
They invest something in the seed. And they invest substantial labor over
the course of the summer to produce the corn.
And sure enough, at the end of the summer, the fields are rich with corn and
the farmers are ready to harvest. And they're able to harvest the corn
because all of the people in the society obey the norm that stealing is wrong.
It may well be that somebody will walk by the cornfield in September or October and
say, gee, that corn looks great, I'd like to have some of it for myself, maybe I
should just take it. But in this society, that individual will
not take the corn, because the corn would be stolen, and stealing is wrong.
As a result of this norm, the corn is left on the stalk for the farmer himself
to harvest. He harvests the corn, he sells the crop,
he earns the money that the crop has, has been sold for, the people in the society
have the corn to eat. And the farmer has his payment, his
compensation, for all the labor and investment that he's made.
And so, when the next spring rolls around, that same farmer will confidently
plant another crop of corn. Confident that he can again plant the
corn, invest his money and effort in the production of the corn, and be confident
that when the corn is ready to be harvested, it will be left on the stalk
for him. Because there is no stealing, his
incentive to invest is high, and because his incentive to invest is high, the
people in this society eat corn. Now, consider the 50 societies that live
by the norm, stealing is not wrong. Here, too, the farmers in the spring
begin to invest a great deal of money and a great deal of labor in the production
of corn to feed their fellows in the society.
They, too, are blessed with the good crop, and as the fall approaches, it's
time for this good crop to be harvested. But in the second group of societies,
people now walk passed the corn and they say, just as did in the first societies,
boy, that corn looks good, I'd like to have some of it for myself.
And since the norm is that stealing is not wrong, they cheerfully walk up to the
stalks of corn, pick the stalks and take the stalks of corn away.
Pretty soon, all of the corn is gone. And when the farmer comes to harvest his
crop, he discovers that there is no crop to harvest.
Therefore, he can not sell the crop that he has harvested because it doesn't
exist. And therefore, the people won't get to
eat that corn, at least from the farmer. The people who have stolen the corn will
get to eat it, at least for that winter. But people who haven't stolen it, won't
get to eat it unless they purchase it from the others.
The real problem comes next spring. Now, in these societies the farmer
remembers what happened to him the following fall.
After investing all that cost and all of that labor in producing a crop of corn,
the farmer has found the value of that crop to him completely destroyed.
Because his fellow citizens are comfortable in simply stealing the corn
from him before he gets a chance to harvest it.
So, all of his investment of cost and labor at the end has been a waste.
And so, the next spring, he says to himself, am I going to plant corn again?
Am I going to invest in the labor, invest in the seed, invest in the land to
produce a crop that's simply going to be stolen from me in the fall so I can
realize no compensation for the costs that I've incurred in growing the corn?
Not on your life, he says. I'll just sit back and not grow corn at
all. And, of course, the result of that is
that nobody has any corn to steal, nobody has any corn to eat, and the members of
the society starve. After enough time, after several years of
this, only the societies who don't steal are left surviving, because all the
people in the other societies have died of starvation.
And so, the only people who are left are people who think that stealing is wrong.
Everyone thinks that stealing is wrong, it's a universal norm.
But whether it's right or wrong, it's obviously inefficient.
And so the question then arises, one indeed, which no one really knows the
answer to. And the question is are important,
widely-observed norms, norms like don't lie, don't cheat, don't steal.
Norms that are obeyed by and large everywhere on the planet Earth, all
societies, all modern societies certainly have a norm against stealing, have a norm
against obvious forms of cheating, have a norm against lying.
It doesn't mean that people never do these things, it's that when people do
these things, they get a pang of conscience and they know that it's wrong.
Again, the question is are these important, widely-observed social norms,
what they are because they express universal moral truths or because more
simply, they allow the societies that observe them to prosper.
Whereas, societies that don't observe them fail.
We finished our discussion of externality and the steel plant.
And in the lectures that follow, I'll be talking about crime as distinct from
tort, and speak about the criminal justice system as a liability system.
See you next time.