Saving the House From Destruction A Classical Liberal Response to Andrew Koppelman

Guest Blogger

For the Balkinization Symposium on Andrew Koppelman, Burning Down the House: How Libertarian Philosophy Was Corrupted by Delusion and Greed  (St. Martin’s Press, 2022).

Richard A. Epstein 

            In writing this short commentary on Andrew Koppelman’s provocative book, Burning Down The House: How Libertarian Philosophy Was Corrupted by Delusion and Greed, I will start by addressing Koppelman’s opening story of the house that burned down.  Gene Cranick of Obion, Tennessee succumbed to financial ruin after a fire levelled his house in 2010. He had inadvertently forgotten to pay the $75 premium to renew his fire insurance policy from a private carrier. Cranick’s wife called 911 and offered to pay “whatever the cost,” but, according to Koppelman, that was “not an option.” In response to the incident, conservative commentators like Glenn Beck and Jonah Goldberg represented, it appears, delusion and greed when they insisted that the individual tragedy was in service of a higher purpose, since it ensured that the fire department had the revenues to maintain its services in the long run. Their fear was that once it was known that the service could be secured for free, no one would pay for it, thus effectively creating a nation of freeloaders.

            Koppelman insists that this one incident captures the theoretical bankruptcy of libertarian theory, insofar as that theory rests on two key tenets: first, that people are on their own in the world, responsible for their own fate, and second, that their need does not make a claim on others’ resources. That callous position obviously spells doom for any system of comprehensive health care, workplace injuries, fire, or disease. Koppelman’s broadside, however, does not consider how these systems are put together or justified in a classical liberal as opposed to a libertarian framework.

            So it behooves us to take a closer look at Cranick’s disaster. First, it is immediately obvious that no one in 2010 should be required to renew his fire insurance annually in a separate transaction. The standard practice allows for automatic renewal precisely to avoid the trap that doomed the Cranicks. Markets can supply that solution without any form of government regulation. Second, Koppelman does not explain why payment of whatever it costs was not an “option” for the Cranicks, even though it surely should have been. The standard rules of restitution make it very clear that a company that puts out fires without an invitation can recover the reasonable costs of its services (including a normal profit) from the property owner who is in no position to defend his own property. The same proposition thus applies a fortiori to the case where the services are explicitly requested. The price need not be determined at the time of the disaster, but it can be set afterwards by arbitration or judicial determination. Any professional fire department should know these ropes and thus should be able to proceed in putting out the fire in perfect confidence that it could have a lien on the burning property (whose land surely has value) for the payment of services. The Cranick’s case is a regrettable outlier, but similar cases can be handled properly by recourse to sound and well-established legal principles.

At this point, it should be clear that the harsh condemnations offered by writers like Beck and Goldberg are well off the mark. The Cranick case is not one of unprincipled opportunism by a couple but rather a simple blunder with catastrophic consequences. We do not have to rein with indignation these innocent people in order to vindicate some grand principle of individual responsibility that makes no sense in the first place. Unfortunately, Koppelman does not examine how the law of restitution, under both the Roman and the common law, imposed compensation duties in cases of unjust enrichment, where goods and services were provided to strangers in high transaction cost situations when it was manifest that no gift was intended. Indeed, Ronald Coase is nowhere mentioned in this book, even though he made transaction costs the center piece of his writings. Koppelman adopts a definition of classical liberalism that stresses what is true enough: classical liberals were “opposed to feudalism and nationalism,” while it also “aimed at unimpeded free trade and careers open to talents.” But that definition overlooks the role of forced exchanges in high transaction cost settings, where the law imposes duties on people who in fact receive just compensation, often in kind, when their property is taken for public use without their consent. It is just these numerous high transaction cost interventions to which hardline libertarians like Ayn Rand, Murray Rothbard, and Rand Paul have no effective response.

Thus, the private law developed coercive responses to deal with cases of accession and confusion, involving the accidental fusion of labor and capital into mass, in order to decide both who should keep the new object and how much compensation was owed to the losing party. That same principle is used to protect fisheries and wild games from the tragedy of the commons.  In these situations, people who can no longer capture at-will share in the long-term benefits created by preserving that commons. And precisely this just compensation regime explains why people are forced to vindicate claims against insolvent parties through the bankruptcy system. The asset base will be destroyed if creditors make a run on the company so that it can no longer remain in business when that is possible.  Each creditor thus gets a share of a stable pie that is worth more than the effort to be first to seize some asset.  This same just compensation principle also requires parties to surrender (with compensation) the use of their property to others who otherwise have no refuge from a storm. It then carries over to matters of public necessity, where property is destroyed to prevent a natural disaster or invasion by foreign enemies. Less dramatically, the law of forced exchanges explains systems of rate regulation for common carriers and public utilities. These common law doctrines, first articulated by Sir Matthew Hale in the 1680s, remove the right to refuse customers from companies holding either a legal or natural monopoly and subject them to FRAND (fair and reasonable nondiscriminatory rates) duties.  And it also explains why Rand Paul and Robert Bork were wrong to oppose on libertarian grounds the public accommodations parts of Civil Rights Act, at least to the extent that the Act applied to parties with monopoly power. Conversely, it helps explain why I oppose applying antidiscrimination laws to competitive labor markets.

More may be said. Hardline libertarians have always struggled to explain or tolerate robust systems of taxation and eminent domain. But both of these become far more intelligible when one realizes that the combination of cash and in-kind benefits justifies both regimes, since this rationalizes large areas of law that are outside the comfort zone of traditional libertarian thinkers, even as they are accepted by everyone else. Though painstaking, this area of law tries to allow for the provision of classical public goods (from which no one can be excluded) without permitting their creation to become the source of massive political intrigue that can lead the nonlibertarian to display the same levels of greed and delusion which Koppelman attributes to some self-anointed political libertarians.

Koppelman pays me the compliment of noting I have tried to work out the systematic implications of the differences between libertarian and classical liberal thought, in ways intended to avoid today’s various forms of crony capitalism. He calls me a consistent Hayek disciple, which is however, only partially true. I am a great admirer of Hayek’s basic insight of the importance of decentralized institutions to take advantage of all the information that can be gained through the price system, which surely beats any misguided government attempts at rent control. But although Koppelman cites some of my criticisms of Hayek, he does not understand the intellectual gulf that separates us. Hayek places too much weight on the customary evolution of various legal norms, without understanding that in some cases a written constitution is needed to fashion a new government, or legislation is needed to cope with many of the collective actions mentioned above. Hayek also is too suspicious of how general legal and economic theory can aid in both understanding and fashioning new legal institutions, including the need for central planning to deal with public highways, railroads and parks.

Readers can decide for themselves whether my work of many years—much of which is directed at the progressive theories Koppelman embraces—is sound. In his introduction, Koppelman recounted: “In [researching] my doctoral dissertation . . . I first encountered the generosity and stubbornness of Richard Epstein, whom I couldn’t convince then and won’t convince now.” I thank him for his kind words, and compliment him for the accuracy of his prediction. 

Richard A. Epstein is Inaugural Laurence A Tisch Professor, NYU School of Law; Peter and Kirsten Bedford Senior Fellow, The Hoover Institution; and James Parker Hall Distinguished Professor of Law, Emeritus and Senior Lecturer, the University of Chicago. You can reach him by e-mail at raepstein43@gmail.com.