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Classical Liberalism and the Problem of Technological Change

Justin “Gus” Hurwitz & Geoffrey A. Manne

ICLE Innovation & the New Economy Research Program White Paper 2018-1

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Classical Liberalism and the Problem of Technological Change

Justin(Gus)HurwitzandGeoffreyA.Manne

Introduction

Therelationshipbetweenclassicalliberalismandtechnologyissurprisingly

fraught.Thecommonunderstandingisthattechnologicaladvanceis

complementarytotheprinciplesofclassicalliberalism–especiallyinthecaseof

contemporary,information-agetechnology.1Thisismostclearlyondisplayin

SiliconValley,withitsoft-professedlibertarian(classicalliberalism’skissing

cousin)affinities.Theanalyticalpredicateforthiscomplementarityisthat

classicalliberalismvaluesliberty-enhancingprivateordering,andtechnological

advancebothisgenerallyfaciallyliberty-enhancingandfacilitatesprivate

ordering.

1Thischapterfocuseson“contemporarytechnology.”Thatis,generally,

thosetechnologiesassociatedwiththeinformationrevolutionofthepastgeneration:computers,theInternet,andrelatedinformationcommunicationsandprocessingtechnologies.Atreatmentoftherelationshipbetweenclassicalliberalismandamoregeneralizedconceptoftechnologyisbeyondthescopeofthischapter.Itis,however,theauthors’viewthatthediscussionofferedhereisrelevanttosuchabroaderconceptualization.

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Thisanalysis,however,isincomplete.Classicalliberalismrecognizesthat

certainrulesarenecessaryinawell-functioningpolity.2Theclassicalliberal,for

instance,recognizesthecentralityofenforceablepropertyrights,andthe

concomitantabilitytoseekrecoursefromathirdparty(thestate)whenthose

rightsarecompromised.Thus,contemporarytechnologicaladvancesmay

facilitateprivatetransactions–butsuchtransactionsmaynotsupportprivate

orderingiftheyalsoweakeneitherthepropertyrightsnecessarytothat

orderingortheenforceabilityofthoserights.

Thischapterarguesthattechnologicaladvancecanattimescreate(or,

perhapsmoreaccurately,highlight)atensionwithinprinciplesofclassical

liberalism:Itcansimultaneouslyenhanceliberty,whilealsounderminingthe

legalrulesandinstitutionsnecessaryfortheefficientandjustprivateorderingof

interactionsinaliberalsociety.Thisisanimportanttensionforclassicalliberals

tounderstand–andonethatneedstobe,buttoorarelyis,acknowledgedor

struggledwith.Related,thechapteralsoidentifiesandevaluatesimportant

fracturelinesbetweenprevalentbranchesofmodernlibertarianism:thosethat

tendtoembracetechnologicalanarchismasmaximallyliberty-enhancing,onthe

onehand,andthosethatmorecautiouslyprotectthelegalinstitutions(for

example,propertyrights)uponwhichindividualautonomyandprivateordering

arebased,ontheother.

2See,forexample,JOHNLOCKE,TWOTREATISESONGOVERNMENTat§57(“[T]heendofthelawis,nottoabolishorrestrain,buttopreserveandenlargefreedom.For…wherethereisnolawthereisnofreedom.”);FRIEDRICHA.HAYEK,LAW,LEGISLATIONANDLIBERTY,VOLUME1:RULESANDORDER(1978)at33(“Liberalism…restrictsdeliberatecontroloftheoverallorderofsocietytotheenforcementofsuchgeneralrulesasarenecessaryfortheformationofaspontaneousorder,thedetailsofwhichwecannotforesee.”).

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Thischapterproceedsinfourparts.PartIintroducesourunderstanding

ofclassicalliberalism’scoreprinciples:anemphasisonindividualliberty;the

recognitionofalimittotheexerciseoflibertywhenitconflictswiththe

autonomyofothers;andsupportforaminimalsetofrulesnecessaryto

coordinateindividuals’exerciseoftheirlibertyinautonomy-respectingways

throughasystemofprivateordering.PartIIthenoffersaninitialdiscussionof

therelationshipbetweentechnologyandlegalinstitutionsandarguesthat

technologyisimportanttoclassicalliberalisminsofarasitaffectsthelegal

institutionsuponwhichprivateorderingisbased.PartIIIexploreshow

libertarianphilosophieshaveembracedcontemporarytechnology,focusingon

“extreme”and“moderate”views–viewsthatcorrespondroughlytoliberty

maximalismandautonomyprotectionism.ThisdiscussionsetsthestageforPart

IV,whichconsidersthetensionsthattechnologicalchange–especiallytherapid

changethatcharacterizesmuchofrecenthistory–createswithintheclassical

liberalphilosophy.Thecentralinsightisthatclassicalliberalismpositsasetof

relativelystablelegalinstitutionsasthebasisforliberty-enhancingprivate

ordering–institutionsthataregenerallydevelopedthroughpublic,notprivate

ordering–butthattechnology,includingotherwiseliberty-enhancing

technology,candisrupttheseinstitutionsinwaysthatthreatenbothindividual

autonomyandtheprivateorderingbuiltuponextantinstitutions.

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I What Is Classical Liberalism? A Technology-Relevant Account

Itmayseemunnecessarytoprovideabackgroundunderstandingofclassical

liberalisminasinglechapterinanentirebookonthesubject.But,althoughthe

generalcontoursareconsistent,thereisnouniversallyacknowledgedstatement

oftheprinciplesthatdefineclassicalliberalismandtheyvaryenoughfrom

understandingtounderstandingthatitisusefultodefinehowthetermisused

here.Moreover,thediscussionthatfollowsaddresseshowtechnologyaffects

whatwethinkofascertainofthedefiningcharacteristicsofclassicalliberalism.

Assuch,itisparticularlyusefulforustoplacethesecharacteristicsonthetable

andexplaintheirimportancebeforeconsideringhowtechnologymayaffect

them.

Attheoutset,itisworthclearlystating,asamatterofdiscursive

convenience,thatweclassifyclassicalliberalismandlibertarianismasclosely

relatedbutdistinctphilosophies,wherelibertarianismencompassesamore

restrictiveviewonwhatisproperlythepurviewofthestate.Thisisnotintended

tobeanalyticallyrigorousnoracompletecharacterizationofeither.Rather,itis

basedintherecognitionthatmanytechnologists,bothinacademiaandin

industry,stylethemselvesaslibertarian(or“cyberlibertarian”),andthatthereis

acertaincomplementaritybetweensomeoftheseviewsandourunderstanding

ofclassicalliberalism.Theviewsofself-styledlibertariantechnologiststherefore

presentausefulframethroughwhichtoconsiderthebroaderfeaturesofthe

classicalliberalunderstandingoftechnology.

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Othercontributionstothisvolumediscusstheoriginsandprinciplesof

classicalliberalisminmoredetailandwithmoresophisticationthanisrequired

here.Forourpurposes,itisenoughtoexplainclassicalliberalismasapolitical

philosophythatvaluesrelianceonaminimalsetofautonomy-respectingrulesto

facilitatevoluntary,welfare-enhancingtransactionsbetweenindividuals.3Byand

large,these“autonomy-respectingrules”arepropertyrights.4

Importantly,thissetsupaninherenttensioninclassicalliberalism.

Propertyisnotthesamethingaslibertyand,infact,itisaconstraintonliberty.

ThenineteenthcenturyFrenchanarchist,Pierre-JosephProudhon,famously

declaredthat“[p]ropertyistheft!”5and,inasense,itis:Byrecognizingorby

definingandassigningpropertyrights(andbyenforcingthem),thegovernment

3Amongmanyothersourcesforthisgeneralconceptionofclassical

liberalism,see,forexample,RichardA.Epstein,Let“TheFundamentalThingsApply”:NecessaryandContingentTruthsinLegalScholarship,115HarvardLAWREVIEW1300,1302(2002)(“[A]strong(butnotabsolute)institutionalpreferenceforconsensualoverforcedexchanges;thelegalsystemshouldfindtheformerpresumptivelyacceptableandthelatterpresumptivelyunacceptable.Fromthisframework,wecanmountadefenseofprivatepropertyandfreedomofcontract,subjecttotheusualprovisosregardingtheroleofgovernmentinprotectingindividualsagainsttheuseofforceandfraud,regulatingmonopoly,andprovidingpublicinfrastructure.”).

4Intheeconomicsense,asmuchasthelegalsense,insofarastheyestablishnotonlyastablelegalorderforachievingdistributivejusticeinNozick’ssense,see,forexample,ROBERTNOZICK,ANARCHY,STATEANDUTOPIA149–52(1974),butalsoenableanefficienteconomicorderbyreducingtransactioncosts,see,forexample,ArmenA.AlchianandHaroldDemsetz,ThePropertyRightParadigm,33JOURNALOFECONOMICHISTORY16(1973).

5PIERRE-JOSEPHPROUDHON,WHATISPROPERTY?ANINQUIRYINTOTHEPRINCIPLEOFRIGHTANDOFGOVERNMENT(1840;BenjaminR.Tucker,trans.,1890),availableathttp://bit.ly/2t0xPDC.

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removessomethingofvaluefromthecommonsthatwasformerlyaccessibleby

anyoneandtransfersittoaparticularperson.

Butjustasimportantly,thebenefitsofpropertyareenjoyedbyeveryone.

Thesystemisdecentralizedsuchthatanyonemay,inprinciple,claimaproperty

rightoverwhatevershechoosesprovidedsheisthefirstto,say,possessesa

pieceofland,orotherwiseassertherrightastheresultofvoluntaryexchangeor

byoperationoflaw.Moreover,theincentivestoinvest,hireworkers,produce

thingsofvalue,andtradeenabledbyasystemofpropertyrightsresultin

widespreadsocialbenefit.Forclassicalliberals,thejustificationforthe

constraintonlibertyentailedbypropertyrightsarisesnotfromanappealto

naturalorder,butfromtheperceivedsocialadvantageitconfers.AsRichard

Epsteinhaswritten:

[T]heserightsaredefensiblebecausetheyhelpadvance

humanhappinessinawiderangeofcircumstances,sothattheir

creationunderasetofgeneralprospectiverulessatisfiesthemost

exactingofsocialcriterion.Theytendtoleavenooneworseoff

thaninastateofnature,andindeedtendtospreadtheirnet

benefitsbroadlyovertheentirepopulation—includingboththose

whogainpropertyrightsunderthestandardrulesofacquisition

byfirstpossession,andthosewhoparticipateinthesystemonly

throughtheownershipoftheirownlaborandtheirabilitytoenter

intovoluntarytransactionswithallindividualsfortheexchangeof

labor,propertyorboth.6

6RichardA.Epstein,WhyLibertariansShouldn’tBe(Too)SkepticalAbout

IntellectualProperty,Progress&FreedomFoundationProgressonPointPaper

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Suchasystemhasatleasttwoimportantcharacteristics.

First,becauseitispremisedonrespectforindividualautonomy,including

rulesthatprovidefortheprotectionanddispositionofallindividuals’property,

classicalliberalismisbuiltuponwhatiscommonlyacceptedtobeasoundmoral

foundation.7Second,becausesuchruleschannelinteractionsbetween

individualsintovoluntarytransactions,thesetransactionstendtobewelfare

enhancing.Atthesametime,becauserespectforautonomynecessitatesthatan

individualcannotuseordisposeofherpropertyinawaythatinterfereswiththe

rightsofothers,thesetransactionstendtoenhance(or,atminimum,notdetract

from)socialwelfare,aswell.

Themechanismbywhichtheseprinciplesoperate–andalsotheir

ultimategoal–isprivateordering:“Whatreallymattersisthatwedevelopa

systemofsecurepropertyrightsthatallowspeopletotransactatlowcostand

highreliability.”8Ratherthanrelyonanexternal,third-party,decisionmakerto

attempttheefficientorderingofindividuals’affairs,classicalliberalismadvances

asystemthatrecognizesthelimitsofknowledgeandtheriskofabuseofpower

inherentinthatmodel.Instead,classicalliberalismadvancesasystemthat

dependsuponindividuals’localizedknowledgeandtheirownself-interestto

No.13.4,at2(Feb.2006),availableathttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=981779.

7Weobservethat,atleastinitsbasicdesign,aclassicalliberalordercansatisfythemoralityofabroadarrayofthinkers.Forinstance,onRawls’account–someonenottypicallyconsideredaclassicalliberal–“justiceasfairness”requiressomethinglikePareto-optimalityinthedistributionswithinasociety.JOHNRAWLS,ATHEORYOFJUSTICE58(1999).

8RichardA.Epstein,ThePropertyRightsMovementandIntellectualProperty,REGULATION58,63(Winter2008).

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ordertheirconduct.Thekeyvirtueofsuchasystemisthatitdoesnot

presupposetheexistenceofanexternaldecisionmakerwithsufficient

knowledge,ability,andincentivetoordertheaffairsofothers.And,again,sucha

systemhasthevirtueofbeingmorallysound:Whereasasystemthatreliesupon

anexternaldecisionmakermustempowerthatdecisionmakertouse

(potentiallyarbitrary)forcetoimplementitssocialorderinginthefaceof

intransigentparties,classicalliberalismadvancesasysteminwhichtransactions

arevoluntarilyachievedbyvirtueofmutuallybeneficialexchange.

Inpartbecauseofitspreferenceforprivateordering,classicalliberalism

isoftencharacterizedasbeingopposedtogovernmentregulationandespousing

extremeviewsofregulatoryminimalism.Butsuchcharacterizationsareoverly

simplisticandfundamentallywrong.Classicalliberalismproperlyunderstood

bothrequiresandrespectsstronglegalinstitutions–particularlywell-defined

propertyrights–inordertofacilitateandenforcetheprivateorderingthatisits

sinequanon.Moreover,manyclassicalliberalsrecognizethatthesystemof

privateorderingespousedbyclassicalliberalismnecessarilyadvancesonly

allocativelyefficienttransactions;itdoesnotnecessarilypromotedistributive

efficiency,andsuchdistributionaladjustmentsofwealthbygovernmentmaybe

necessaryonthebackendofthesystem.9Andclassicalliberalismmayeven

admitofthepossibilityofregulatoryinterventionthroughpubliclawinstitutions

whereprivatelegalinstitutionsareinsufficientorrelativelyinefficient.10

9See,forexample,Hayek’sdiscussionofthepotentialneedforsomeform

ofwelfareprogramsinsufficientlywealthysocieties.F.A.HAYEK,THEROADTOSERFDOM133–35(1994).

10See,forexample,RICHARDEPSTEIN,SIMPLERULESFORACOMPLEXWORLD280–81(1995)(describingtheshiftfromacivillegalregimetowardapublic

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Incontemporarydiscussions,thecoreprinciplesofclassicalliberalism

arenotinfrequentlyframedintermsofCoaseanandwelfareeconomics.These

perspectivesfocusattentiononallocativeefficiency.11Thepredicatesfor

classicalliberalism,however,wereestablishedwellbeforeMarshallandCoase,

andallofthefoundationalideasarecontainedincontemporariesoftheScottish

Enlightenment,mostnotablyintheworksofDavidHumeandAdamSmith.12

Thatsaid,bothwelfareeconomicsandCoasean,transaction-cost

economicsareparticularlyusefulforunderstandingtheclassicalliberal

perspectiveontechnology.

Welfareeconomicsoffersausefullensforunderstandingclassical

liberalism’sconcernwithindividualautonomy.Animportantconceptinwelfare

economicsisthedistinctionbetweenPareto-efficienttransactionsandKaldor-

Hicks–efficienttransactions.APareto-improvingtransactionisonethatmakesat

leastonepartybetteroffwithoutmakinganypartiesworseoff.Forinstance,

Orlandohasanapplebutprefersoranges;Alicehasanorangebutprefersapples.

IfOrlandoandAliceexchangefruits,eachisbetteroff(andneitherisworseoff).

InatransactionthatisKaldor-Hicks–efficient,however,partiesmaybemade

worseoffprovidedthat,onnet,societyismadebetteroff.Thus,Orlandohasno

regulatoryregimeforthemanagementofdamagesfromsmallamountsofpollutionaffectingalargenumberofparties).

11See,forexample,ArmenA.AlchianandHaroldDemsetz,ThePropertyRightParadigm,33JOURNALOFECONOMICHISTORY16,21–22(1973).

12See,forexample,ADAMSMITH,ANINQUIRYINTOTHENATUREANDCAUSESOFTHEWEALTHOFNATIONS(1776)(EdwinCannan,ed.,1904),availableathttp://oll.libertyfund.org/titles/smith-an-inquiry-into-the-nature-and-causes-of-the-wealth-of-nations-cannan-ed-in-2-vols;DavidHume,OnGovernment,5(1777)(LibertyFund,ed.,2013),availableathttp://lf-oll.s3.amazonaws.com/titles/2472/Hume_OnGovernment1777.pdf.

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fruitandAlicehasanorange.OrlandolikesorangesmorethanAlicedoes.Ifhe

simplystealsAlice’sorangehehasgainedmorethanAlicehaslost.Undera

Kaldor-Hicksstandard(assumingnoexpenditurestopreventthetheft),thisisan

efficient,socially-beneficialtransaction.

ThejustificationforKaldor-Hicks–efficienttransactionsisthat,in

principle,AlicecouldbecompensatedforOrlando’stheft.Forinstance,the

governmentcouldtaxOrlandoinordertocompensateAlice;orAlicecouldsue

Orlandoandrecovercompensatorydamages.And,thetheorygoes,itisbetterto

allowOrlandotoputAlice’sorangetosocially-valuableusesthantorisklosing

outonthebenefitofthoseusesbecauseofAlice’sintransigenceordifficulties

thatOrlandomayface(i.e.,transactioncosts)inbringingsuchatransactionto

fruition.

Fromtheclassicalliberalperspective,however,onlyPareto-efficient

transactionsarepresumptivelylegitimate.Suchtransactionsareinherently

beneficialtoallparties(or,atleast,beneficialtosomepartiesandnotharmfulto

any),andthesebenefitscreateincentivesforpartiestoengageinthesewelfare-

enhancingtransactions.Iftheyaretrulywelfare-enhancing,nocoercionshould

benecessaryforthemtooccur.Ifthereareobstaclestothesetransactions

occurring,classicalliberalismholdsthatweshouldaddressthoseobstacles

ratherthanadopt(Kaldor-Hicks-efficient)rulesthatwouldallowOrlandoto

violateAlice’sautonomy.Doingsofacilitatesprivateorderingandprotects

individualssuchasAlicefromundueencroachmentbyeitherOrlandoorthe

state.(Aswewillsee,however,extremecyberlibertarianismwouldreadily

countenanceKaldor-Hicksimprovements).

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Thebackgroundconcernfortransactioncostsimplicitlyrunsthrough

many,ifnotall,legalconstructsthatdevelopedatcommonlaw.AsTomMerrill

andHenrySmithhaveobserved,13thegoalofcreatingandusinglegalconstructs

istomanagethetransactioncosts(“informationcosts”intheiraccount)inherent

inaworldofscarceresources.Forinstance,theydescribethedifferencebetween

applyinganinremregimeandaninpersonamregimeformanagingproperty.

Thewisdomofapplyingoneortheotherinanygivencontextcomesdownto

theirrelativeabilitiestomanagetheinformationcostsassociatedwithsettling

disputesrelatingtoownershipanduse.14

Coasesimilarlyoffersausefullensforunderstandingclassicalliberalism’s

focusontherelationshipbetweenlegalinstitutionsandprivateordering.For

Coase,theconceptoftransactioncostsiskeytounderstandingtherelationship

13See,forexample,ThomasMerrillandHenrySmith,The

Property/ContractInterface,101COLUMBIALAWREVIEW773,792–797(2001).14OnMerrillandSmith’saccount,inremrightsprovideawayof

minimizingtheoverallinformationcostsassociatedwiththesedisputesbecausethelocusofownershipisfixedonthepropertyitself.Intheend,whatmattersinaparticulardisputeiswhichpartygetstherighttouseapieceofproperty;butthewayyouarriveatthatconclusionmattersagooddeal.Ifrightstousewerealwaysattachedtoindividuals,thedisputeswouldnotjustbebetweenA(theputativeownerofapieceofproperty)andB,butbetweenAandallpossibleB’s,asituationthatwouldexponentiallygrowthesocialcostsassociatedwithsettlingpropertydisputes.Bylocatingtheattributesofownershipwithinthepropertyitself,however,thecostsarelinear,aseachBwhowouldchallengeauseexaminesherclaimsagainstasinglerecordofentitlementsattachedtothepropertyitself.ThegoalofestablishingthisorderistocreateanefficientsystemofprivateorderingthatismorelikelythannottopromotePareto-optimaltransfers(intheory,ifnotinpractice).

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betweenindividualactors’actions,legalinstitutions,andefficientoutcomes.15

Startingwithacounterfactualworldinwhichtherearenotransactioncosts,he

explainsthatlegalinstitutionsinsuchaworlddonotmatterbecauseindividual

actorswillalwaysengageinaseriesoftransactionsthatresultinallresources

beingputtotheirhighest-valueuse.But,hegoeson,becauseintherealworld

therearealwaystransactioncosts,well-designedlegalinstitutionsplayacrucial

roleinensuringoptimaloutcomesbyreducingthetransaction-costimpediments

toefficienttransfers.ThisperspectiveisverymuchinlinewiththatofScottish

Enlightenmentphilosophers,whosimilarlyascribedgreatimportancetolegal

institutions.

Moretothepoint,Coase’sfocusontransactioncostspreciselycaptures

whytherelationshipbetweenclassicalliberalismandtechnologyisso

fascinatingandimportant.AswediscussinPartII,newtechnologyisoften

developedandadoptedpreciselybecauseofitseffectsontransactioncosts.But

anychangeintheincidenceorleveloftransactioncostscansignificantlyalter

theoptimalinitialassignmentofrightstomaximizethelikelihoodofvoluntary

exchange.Thismeansthattechnologymaydisruptthestructureofthelegal

institutionsnecessarytofacilitateefficient,welfare-enhancingoutcomes.Atthe

sametime,thedistributionoftheseeffectsisoftenuneven,acrossboththe

specifictransactionsthatwillbeenteredinto,aswellastheindividualswhowill

benefit.Thismayfurtherexacerbatetheeffectsoftechnologicaldisruptionsupon

existinglegalinstitutions,creatingthepossibilitythatatechnologicaladvance

couldbothdramaticallybenefitsomepartiesbutdramaticallydisadvantage

15Seegenerally,RonaldH.Coase,TheProblemofSocialCost,3JOURNALOF

LAWANDECONOMICS1(1960).

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othersinindirectandunpredictableways.Wherethisisthecase,technologyhas

thepotentialtoundermineboththemoralfoundationsandthewelfare

justificationsforclassicalliberalism.

II Why Technology Matters to Classical Liberalism

Technologyinitsbroadestsenseismerelythemeansbywhichwedothings;

technologicaladvanceisachangeinthewaywedothingsthatincreasesbenefit

and/orlowerscost.Thewaterwheelallowedustouseaconstantlinearforce

(theflowofwater)todrivearotationalshaftthat,inturn,couldbeusedtodrive

arangeoftools.Itwasavastimprovementoverhuman-oranimal-powered

machines.Theadventofthesteamengineofferedevenmorebenefitbyallowing

ustodrivethesamerotationalshaftalmostanywhere,withouttheneedfora

sourceofrunningwater.Theadventoftheinternalcombustionengine,inturn,

providedyetanotherimprovement,allowingustodrivearotationalshaftona

morereliableandefficientscale.Inthesameway,theInternetisatechnological

evolutionofthetelephone,whichisanevolutionofthetelegraph,whichisan

evolutionofpostalcarriers,whichisanevolutionofprivatecouriers–all

technologiesthatallowindividualstocommunicatewithoneanotherata

distance.

Technology,andespeciallytechnologicaladvance,isimportanttothe

maintenanceandadvanceofclassicalliberalism.Technologyisakeyinputinto

liberty,effectivelydefiningwhatindividualscando:thatis,definingthepractical

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boundariesofanindividual’sliberty.And,astechnologicaladvancecanexpand

thescopeoftheseboundaries,itisoftenliberty-enhancing.

Suchgainsarerealizedinmultipleways.Forinstance,sometechnology

enablesnewtypesofconduct.Thetransitionfromthewaterwheeltothesteam

enginetotheinternalcombustionenginedramaticallyexpandedwhere

individualscouldliveandincreasedtheirqualityoflife.Othertechnologyaffects

howpeopleareabletoengageinconductthattheyalreadyenjoy,largelyby

reducingthecostsassociatedwiththatconduct.Improvementsintechnologyfor

writingandcommunications,forinstance,reducethecostsofinteracting(and

transacting)withothers:Thecostsoftransactionsinaworldwhere

communicationsarerecordedonpapyrusandtransmittedbycourierare

dramaticallydifferentthanthoseinaworldwheretheyarerecordedasbitsona

computerthataretransmittedviawires.

Asaresult,asaninitialmatter,theclassicalliberalpositionentailsa

distinctskepticismofthedevelopmentofnewrules,oreventheapplicationof

existingrules,toimpedetechnologicaladvance:

[T]hereisarobustbodyofliteratureestablishingthe

contributionsoftechnologicalinnovationtoeconomicgrowthand

socialwelfare…[E]venapparentlysmallinnovationscangenerate

largeconsumerbenefits.Itisbecauseofthesedynamicandoften

largelyunanticipatedconsequencesofnoveltechnological

innovationthatboththelikelihoodandsocialcostoferroneous

interventionsagainstinnovationareincreased.16

16GeoffreyA.ManneandJoshuaD.Wright,InnovationandtheLimitsof

Antitrust,6JOURNALOFCOMPETITIONLAWANDECONOMICS153,168(2010).

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Thestoryoftechnologyisnotnecessarilyallpositive,however.Assessingthenet

effectoftechnologicaladvanceisparticularlycomplicatedbythepossibility(or

likelihood,even)thatitseffectonliberty,autonomy,andtheinstitutional

environmentmaysimultaneouslypushinopposingdirections.

Foronething,thebenefitsoftechnologicaladvanceortheproblemsthat

newtechnologycan(orcannot)improveuponwillinevitablyfallunequally

acrossmembersofsociety,thusaltering,andoftenimpeding,social,legal,

commercial,orotherrelationshipsinunexpectedways.Theadventofthe

waterwheel,forinstance,endowedthosenearrunningwaterwithbenefits

unavailabletoothers,anddivertedeconomicresourcesawayfromactivitiesthat

couldnotbenefitfromtheoperationofthewaterwheel,allwithoutrespectto

thoseactivities’relativesocialvalue.

Foranotherthing,technologiesthatbenefitprivatepartiesandexpand

theirlibertiescanalsobenefitgovernmentandexpanditspower(andconstrict

thepopulace’sliberties).Whiletheadventofthetelephone,forexample,

certainlyconferredenormousbenefitandsubstantiallibertyuponthepopulace,

italsoextendedthereachofgovernmentandjustascertainlyfacilitatedtothe

riseofamorecentralizedandinvasivestate.17

17SeeHenryG.Manne,ReconcilingDifferentViewsaboutConstitutional

InterpretationinTHECONSTITUTION,THECOURTS,ANDTHEQUESTFORJUSTICE55,60(RobertA.Goldwin&WilliamA.Schambra,eds.1989)(“Asapracticalmatter…[e]ffectiveapplicationoffederallaw[atthetimeoftheConstitution’sdrafting]wasseverelyconstrainedbytheprimitivetechnologiesoftransportationandcommunications…Buttherapiddevelopmentofcommunicationandtransportationtechnologythroughthenineteenthandtwentiethcenturiesmadephysicallypossibleadegreeoffederallawenforceabilityinconceivablein1787.”).

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Moreover,newtechnologiesthatincreasetheeaseoforbenefitsfrom

transactionsbetweenprivateparties(andthusexpandopportunitiesforprivate

ordering)mayimposegreaterexternalcostsuponthirdparties,eitherbecause

thenatureofthetransactionsmayentailnewexternalitiesorsimplybecauseof

theincreaseinthenumberoftransactionsthatimposeexternalities.

Theseconcernsarenotuniqueto“technology,”althoughtheymayappear

particularlyacuteinthecontextoftechnologicaladvance.Andthiscritique

shouldnotbereadasanti-technologyLuddism.Tothecontrary,“problematic”

technologicaladvance,whereitoccurs,oftenaccompaniesgreatsocialwelfare

gainsfromincreasedproductivityandwidespreaddispersionofwealth.

Moreover,suchproblematictechnologicaladvancefrequentlyspursbeneficial

advancesinresponse.TheclassicexampleisSchumpeteriancompetition,in

whichfirmsleapfrogoneanotherinaseriesofshort-livedmonopolies,each

achievedthroughtechnologicaladvanceandmaintainedonlysolongasthethen-

monopolistcanmaintainitsadvantage.Whilethismaybearthesuperficial

hallmarksofmonopoly,suchdynamiccompetitionintechnologymarketsis

actuallyperfectlyconsistentwithstrongcompetitionandprocompetitive

outcomes.18Eachsuccessive“winning”firmmustbecommittedtoinvestingits

profitsindevelopingnewandbettertechnologiesinordertotrytopreemptor

co-optthenexttechnologicalwaveandmaintainitsposition.Thebenefitsofthis

18See,forexample,ThomasM.JordeandDavidJ.Teece,AntitrustPolicy

andInnovation:TakingAccountofPerformanceCompetitionandCompetitorCooperation,147JOURNALOFINSTITUTIONALANDTHEORETICALECONOMICS118(1991).Notealsothat“competitionforthemarket”canbeasconstrainingaswithin-marketcompetition.SeeHaroldDemsetz,IndustryStructure,MarketRivalryandPublicPolicy,16JOURNALOFLAWANDECONOMICS1(1973).

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“free-marketinnovationmachine,”asWilliamBaumoldubbedit,19redoundnot

onlytothefirm,ofcourse,butalsotoitscustomersandtosocietywritlarge.

Thus,furtherconfoundinganyevaluationofthebenefitsoftechnological

advance,suchchangesmustbeconsideredinadynamiccontext.Themerefact

thatanewtechnologyhassomedeleteriouseffectstodaydoesnotnecessarily

justifycorrectiveinterventionthroughlegalinstitutions;rather,today’sapparent

technologicalcostsmayactuallydriveSchumpeteriancompetition,creating

incentivesforfurthertechnologicaladvancetoimproveuponthoseeffects.

Theimportantinsighthereisthat,asnoted,classicalliberalismis

concernedwithprotectingandadvancingboththelibertyoftheindividualas

wellastheautonomyofotherindividualsandtheabilityoftheinstitutional

environmenttofacilitateprivateordering.Technologiesthatareliberty-

enhancingmaynonethelessbeconcerningfromtheclassicalliberalperspective

iftheyriskencroachingupontheautonomyofothersorimpedingwelfare-

enhancingtransactions.

Theeffectoftechnologicalchangeontheinstitutionalenvironmentis

particularlyimportantandunderappreciated.Changesthatexpandlibertyfor

somepeoplemayalsoaltertherelativeincidenceoftransactioncostsbetween

contractingpartiesandthusalterorimpairthe(previously)efficientallocation

ofpropertyrights.Theinstitutionalenvironmentisnot–norshoulditbe–static.

Justaslibertarianismisconcernedwithensuringthatlawsandregulationsnot

needlesslyimpairwelfare-andliberty-enhancingtechnologicalprogress,it

19WILLIAMJ.BAUMOL,THEFREE-MARKETINNOVATIONMACHINE:ANALYZINGTHE

GROWTHMIRACLEOFCAPITALISM(2003).

19

shouldbesensitivetothewaysthattechnologicaladvancemayalterthe

desirabilityofstatusquoinstitutions.

Becauseofthereallocationofrelativerightsandpowersinherentin

technologicalchange,evenanefforttomaintaintheconstancyofinstitutions–

nottochangetheminresponse,inotherwords–resultsinareordering.Perhaps

mosttroublingly(andinafashionseeminglywoefullyunderappreciatedbymost

classicalliberals),thisexogenoustechnologicalchangeeveninherentlyaltersthe

fundamentalpoliticalorderingembodiedintheConstitution:

In1787,[]theideathatthefederalgovernmentcould

effectivelyregulatemattersrelating,forexample,tocoalmine

safetystandardswouldhaveseemedabsurd,notmerelyasalegal

matterbut,muchmoreimportant,asapracticalmatter.Itwasnot

physicallypossibleforthefederalgovernmenttoserveitswrit

widelyenoughtoallowiteffectiveauthorityovereverydetailofall

commercialmatters…

Then…enormoussystemsofroads,telephones,radio,

television,airplanes,andcomputersappeared…Asaresultagross

alterationofthefederalgovernment’sphysicalpowertoregulate

commercehadoccurred.Yetwhenthecourtslookedtothewords

ofthedocumentandtothe“originalintent…,”[t]helegalconcept

ofinterstatecommercegrewparipassuwiththefederal

government’sabilitytoadministerlawslocally.Whilethewords

didnotchange,theSupremeCourtallowedtheconstantexpansion

20

offederalregulatorypowersinkeepingwiththechangesin

marketsandmarketstructureoccasionedbythenewtechnology…

Whathadactuallyhappenedtochangeourconstitutional

realityinthisdrasticfashion?Hadtherebeenanamendmentora

revolution?No,therehadbeenonlytheinventionorintroduction

ofnewtechnologiesbynonelectedscientistsandentrepreneurs…

Inotherwords,theaccidentsoftechnologicaldevelopment

determinethereallimitsontherestraininginfluenceofthe

Constitution.20

Atthesametime,classicalliberalismmustdealwiththeeffectoftechnologyon

theperceiveddistributionofrightsandrentsthroughpoliticalinstitutionsand

theefforttochangethemaccordingly.Atminimum,totheextentthat

technologicalchangealtersthesocialdistributionoflibertyandautonomyunder

existinginstitutions,classicalliberalsmustgrapplewiththerealitythatthe

backlashagainstsuchchangesmayresultindemandfor–andpolitical

acquiescenceto–subsequentinstitutionalchangestorestoretheprevious

distributionofrightsacrosssocietyinwaysthat,evennetofthegainsfrom

technologyitself,aresociallyharmful.

Inotherwords,althoughtechnologicaladvancecan(andusuallydoes)

increaseoverallsocialwelfareinbroadstrokes,thepoliticalresponsetothe

redistributionofrights,power,andrentsitmayentailcanleadtoanetreduction

inwelfare–includingthroughreductionsinprivateordering.

20Manne,ReconcilingDifferentViewsaboutConstitutionalInterpretation,

supranote17,at66–67(emphasisadded).

21

Thisproblemisparticularlyacuteinthecaseofimplementationsof

technologicalinnovationwherethenarrowredistributionofrentsmaybe

immediatelyapparent,butthebroad,socialbenefitsofnewtechnologyornew

businessmodelsadaptedtoitmaynotbeunderstoodforsometime.Importantly

foraconsequentialistapproachlikethatofclassicalliberalism,thiseffectmaybe

abettedbynon-politicalactorsincludingeconomistsandlegalscholarswhotend

tounderappreciatethelimitsoftheirknowledgeaboutnoveltechnologyand

novelbusinessarrangements.21

Consideranimportantandcontentiouscontemporaryexample:privacy.

Priortothemodernerainwhichagreatnumberofsocialinteractionsare

carriedoutonline,itwasrelativelyeasyforindividualstokeepinformation

aboutthemselvesprivateanddifficultforthirdparties(includingthe

government)toobserveandrecordthatinformation.Today,bycontrast,itis

comparativelydifficultforindividualstokeepsuchinformationprivateandeasy

forthirdpartiestoobserveandrecordthatinformation.Despitechangesinthe

valuepeopleattachtoprivacythatinevitablyaccompaniedthatevolution,

changedtechnologymayhaveshiftednotonlytheefficientdelineationofprivacy

rights(fromaregimeinwhichindividualswereassumedtohavewaivedcontrol

ofinformationabsenteffortstoretainittooneinwhichtheyareinstead

assumedtoretaincontrolabsentvoluntarywaiverofthatcontrol),butalsothe

21See,forexample,RonaldCoase,IndustrialOrganization:AProposalforResearch,inPOLICYISSUESANDRESEARCHOPPORTUNITIESININDUSTRIALORGANIZATION59,67(VictorR.Fuchsed.,1972)(“[I]faneconomistfindssomething–abusinesspracticeofonesortoranother–thathedoesnotunderstand,helooksforamonopolyexplanation.Andasinthisfieldweareveryignorant,thenumberofununderstandablepracticestendstobeverylarge,andtherelianceonamonopolyexplanation,frequent.”).

22

perceptionoftheappropriatenessoftheresultingallocationofrights(suchthat

a“correction”wasrequiredtoshiftfromapresumptionofwaivertoa

presumptionofprohibitionabsentaffirmativewaiver).

Indeed,themodernAmericanpoliticaldiscourseonprivacyanditslegal

andregulatorytreatmenthasitsoriginsinSamuelWarrenandLouisBrandeis’s

seminal1890article,TheRighttoPrivacy,22whichwaswritteninsignificantpart

inresponsetotheadventofadisruptivenewtechnology:theportablebox

camera(theKodakcamera),introducedin1888.ItisworthquotingWarrenand

Brandeisatlength,notonlybecausethearticleaddressessodirectlytheproblem

ofadaptingexistinginstitutionstotechnologicalchange,butalsobecauseitisan

importantprogenitorofonebranchofthecontemporarycyberlibertarian

approachtotechnologyandinstitutionsthat,perhapsexcessively,elevates

libertyoverprivateordering:

Thattheindividualshallhavefullprotectioninpersonand

inpropertyisaprincipleasoldasthecommonlaw;butithasbeen

foundnecessaryfromtimetotimetodefineanewtheexactnature

andextentofsuchprotection.Political,social,andeconomic

changesentailtherecognitionofnewrights,andthecommonlaw,

initseternalyouth,growstomeetthenewdemandsofsociety.

***

Recentinventionsandbusinessmethodscallattentionto

thenextstepwhichmustbetakenfortheprotectionofthe

person…Instantaneousphotographsandnewspaperenterprise

22SamuelD.WarrenandLouisD.Brandeis,TheRighttoPrivacy,4

HARVARDLAWREVIEW193(1890).

23

haveinvadedthesacredprecinctsofprivateanddomesticlife;and

numerousmechanicaldevicesthreatentomakegoodthe

predictionthat“whatiswhisperedintheclosetshallbe

proclaimedfromthehouse-tops…”[T]hequestionwhetherour

lawwillrecognizeandprotecttherighttoprivacyinthisandin

otherrespectsmustsooncomebeforeourcourtsfor

consideration.

***

Itshouldbestatedthat,insomeinstanceswhereprotection

hasbeenaffordedagainstwrongfulpublication,thejurisdiction

hasbeenasserted,notonthegroundofproperty,oratleastnot

whollyonthatground,butuponthegroundofanallegedbreachof

animpliedcontractorofatrustorconfidence.

***

Butthecourtcanhardlystopthere.Thenarrowerdoctrine

mayhavesatisfiedthedemandsofsocietyatatimewhenthe

abusetobeguardedagainstcouldrarelyhavearisenwithout

violatingacontractoraspecialconfidence;butnowthatmodern

devicesaffordabundantopportunitiesfortheperpetrationofsuch

wrongswithoutanyparticipationbytheinjuredparty,the

protectiongrantedbythelawmustbeplaceduponabroader

foundation…[S]incethelatestadvancesinphotographicarthave

rendereditpossibletotakepicturessurreptitiously,thedoctrines

24

ofcontractandoftrustareinadequatetosupporttherequired

protection,andthelawoftortmustberesortedto.23

Regularlychangingdelineationsoflegalentitlementsthatmayoccurduring

periodsofrapidtechnologicalchangearepotentiallyproblematicforthevery

conceptofproperty,reducingthedurabilityofpropertyrights,injecting

uncertaintyintothecontoursofownership,andultimatelylimitingtheviability

ofprivateordering.Indeed,evenifthesechangeddelineationsimproveoverall

efficiencyintheallocationofentitlements,themerefactofthechangeimposes

transactioncoststhatcan,inprincipleatleast,besubstantial.Thisisparticularly

thecasewherechangeisfrequent,suchthatsystemsbuiltuponlong-term

expectationsofpropertydelineationsarekeptconstantlyoutofequilibrium.

Scholarshavelongrecognizedthatlegalinstitutionsareshapedby

technologyandthatchangingtechnologymaychangethoseinstitutions.For

instance,Romancitizensenjoyedaverydifferentconceptof“freedomof

contract”thanwedotoday;theywerefreetoenterintoanyofafinitenumberof

pre-definedcontracts,buttheywerenotfreetodraftcontractswiththeirown

bespoketerms.Today,largelyanytermsthatcanberenderedintorecorded

prosecanbemadecontractuallybinding.Thedrivingdifferencesbetweenthese

paradigmsarethecostandavailabilityofunderlyingtechnology:atRomanlaw,

literacywaslimitedanditwascostlyanddifficulttorecordterms;todayliteracy

isassumedandrecordationiswidespread.

Similarly,atearlyEnglishcommonlaw,courtsrecognizedafinitenumber

offormsoflegalclaims(trover,covenant,assumpsit,detinue,trespass,and

23Id.at193–211.

25

replevin).Theseformswererecognizedtostandardizelegalprocess:Thecosts

ofrecordingandtransmittingprecedentwerehigh,socourtschanneled

precedentintostandardizedformstoreducetheburdenuponjuristsand

counsellorstofacilitatethedevelopmentanduniformityofthelaw.

Butthiscameatacost.Courtswouldoftenfindclaimsthatcouldnotbefit

intooneofthestandardformsnonjusticiable.Butastechnologyimprovedand

thecostsofrecordingandtransmittingprecedentdecreased,commonlawcourts

developedageneralizedformofaction,trespassonthecase,whichplaintiffs

couldargueincaseswheretheirclaimsdidnotfitintoastandardform.Over

time,thisgeneralizedformlargelydisplacedhistoricpractice,tothepointthat

thehistoricwritshavebeenabolishedinfavorofgeneralizedrulesofcivil

procedure.

Thesametrendhasalsobeenseeninthecaseofthetransitionfromin

remtoinpersonamrights.Overtimethelawhasincreasedtheclosednumber

(numerusclausus)offormsofinrempropertythatitrecognizes,including

allowingforanincreasedrangeofproperty-liketransactionstoberecorded

throughinpersonamcontractualrelationships.Aswiththeexpansionsinthe

formsofcontractandformsofactionrecognizedbythelaw,theexpansioninthe

formsofpropertyhasbeendrivenbyadvancesintechnologythatreducethe

relevanttransactioncostsandconsequentiallyaltertheefficientstructureof

legalinstitutions.

Theseexamplesdemonstratetheever-evolvingrelationshipbetween

technologyandlegalinstitutions.Buttheyarealsoexamplesthathavenot

provenproblematicforclassicalliberalismbecausetherateoftechnological

26

advancehasbeenslowenoughthatlegalinstitutionshavebeenabletoevolve

apace.

Butthisalignmentbetweentherateoftechnologicalandinstitutional

changeisnotalwayspresent–asinthecurrenttechnologicalsetting(and

perhapsthatofmostfuturetechnologicalchanges,giventheirseemingly

inexorablerateofincrease).TheICTrevolutionhasseenthetransitionfrom

mechanicalprintingpressesandanalogtelephonestopalm-sized

supercomputersandtheInternetoverthecourseofalifetime,andfrom

individualswhogrewupwithouttheInternettoindividualswhogrewupwith

omnipresentInternetaccessoverthecourseofhalfageneration.Evenmore

starkly,theadventofthe(inexpensive)portablecamera,alongwith

photographicpaperandfilmrollsthatenabledeasyandcheapprocessingof

photographicimages,ledtotheextremelyrapidandwidespreaddiffusionofthe

abilitytorecordanddisseminatevisualimagesinthelate1800s.Asevidenced

bythetone(andinfluence)ofTheRighttoPrivacy(publishedascanttwoyears

aftertheinventionoftheKodak)thisledtotherapidanddistinctdisruptionof

thelegalinstitutionssurroundingprivacy–adisruptionthathascontinued

throughthedevelopmentofmoderntechnologyandthatwearestillworkingto

resolvetoday.Insuchasetting,technologicalchangeandlegalinstitutionscan

easilybeintension.ThistensionisexploredinPartIII.

27

III Dueling Views of Contemporary Technology and the Law

Elementsofclassicalliberalphilosophyhavefeaturedprominently,if

accidentally,incontemporarydiscussionsoftheregulationoftechnology.

RoughlymirroringtheadventandgrowthofthecommercialInternet,many

technologists–and,inmanyways,thetechindustrywritlarge–haveembraced

variousformsofliberty-focused,andgenerallyliberty-maximal,philosophies.By

andlarge,theseindividualslabelthemselvesaslibertariansofoneformor

another(whetherlibertarian,cyberlibertarian,cryptolibertarian,

technolibertarian,cryptoanarchist,orsomeothervariant).Althoughtheyrarely

identifyas“classicalliberals”(indeed,itislikelythatfewareevenfamiliarwith

thatterm),theirpriorsarenonethelesscloselyrelatedtothoseofclassical

liberals.Theseviews,therefore,provideausefulsurveyofviewsonthe

contemporaryrelationshipbetweentechnology,liberty,andthelaw.

Thediscussionthatfollowsdividestheseviewsintotwobroadcategories:

“extreme”and“moderate”libertarianviews.Inbothcasesthereferenceisto

little-llibertarian,indicatingthattheseareliberty-focusedphilosophies.The

extremelibertarianviewgenerallyviewstechnologyasliberty-maximizing,so

tendsinturntobestronglypermissiveoftechnologicalchange.Themoderate

viewalsoviewstechnologyasliberty-enhancing,butismorecircumspectabout

technology’sabilitytounderminetheprotectionofimportantautonomyvalues.

28

A The Extreme Libertarian Embrace of Technology

Libertarianismisrelatedto,but(wecontend)morerestrictivethan,classical

liberalphilosophy.Initsmoreextremeform,ittakesthepreferenceforprivate

orderingthatclassicalliberalismrestsuponandextendsittoitsmaximum

extent.Underthisform–oftenreferredtoasavariantofanarchismoranarcho-

capitalism–theonlymorallyacceptableorderisthepurelyprivateorder.The

state,basedasitisonamore-or-lessinvoluntarypremise(i.e.,thatithasa

monopolyontheuseofforce,andanindividualcannotoptoutofit)istobe

avoidedasasourceforrulemakingandenforcement.

Inthecontemporarytechnologicalsetting,thisbranchofthoughtoften

fallsintooneofthreecategories:cyberutopianism,cyberexceptionalism,or

cyberanarchism.Thesearenotmeanttobepreciselydefinedcategories–indeed,

thereissubstantialoverlapbetweeneach.Butthiscategorizationtypifieskey

featuresofcontemporary,extremelibertarianviewsontechnology.

Cyberutopianism,asexemplifiedbyJohnPerryBarlow’sDeclarationof

theIndependenceofCyberspace,isthenotionthatthetraditionallegalrules

developedtohandledisputesinthe“real”worldarewhollyinappositeinonline

environmentsbecausetheinnate,exaltedcharacteristicsoftheonlineworld

renderthemsuperfluous(andevendeleterious):

GovernmentsoftheIndustrialWorld,youwearygiantsof

fleshandsteel,IcomefromCyberspace,thenewhomeofMind.On

behalfofthefuture,Iaskyouofthepasttoleaveusalone.Youare

notwelcomeamongus.Youhavenosovereigntywherewegather.

29

Wehavenoelectedgovernment,norarewelikelytohave

one,soIaddressyouwithnogreaterauthoritythanthatwith

whichlibertyitselfalwaysspeaks.Ideclaretheglobalsocialspace

wearebuildingtobenaturallyindependentofthetyranniesyou

seektoimposeonus.Youhavenomoralrighttoruleusnordo

youpossessanymethodsofenforcementwehavetruereasonto

fear.

***

Youclaimthereareproblemsamongusthatyouneedto

solve.Youusethisclaimasanexcusetoinvadeourprecincts.

Manyoftheseproblemsdon’texist.Wheretherearerealconflicts,

wheretherearewrongs,wewillidentifythemandaddressthem

byourmeans.WeareformingourownSocialContract.This

governancewillariseaccordingtotheconditionsofourworld,not

yours.Ourworldisdifferent.

***

Wearecreatingaworldwhereanyone,anywheremay

expresshisorherbeliefs,nomatterhowsingular,withoutfearof

beingcoercedintosilenceorconformity.

Yourlegalconceptsofproperty,expression,identity,

movement,andcontextdonotapplytous.Theyareallbasedon

matter,andthereisnomatterhere.

***

30

Wemustdeclareourvirtualselvesimmunetoyour

sovereignty,evenaswecontinuetoconsenttoyourruleoverour

bodies.WewillspreadourselvesacrossthePlanetsothatnoone

canarrestourthoughts.24

Barlow’sviewscapturedthezeitgeistofthemoment–asincerebeliefthat

“cyberspace”wasanewandbetterplacethanthephysicalworld.Itwasaplace

inwhichindividualscouldexploreandexpresstheirlibertyinthepurestand

mostextremeformspossible,andcoulddosofreeoftheconstraintsofthe

physicalworldorterritorialgovernments–andpossiblyevenwithoutconcern

forencroachingupontheautonomyinterestsofothers.25

Today,theutopianismofBarlow’svisionofthecyberhasfallenfromits

oncedominantintellectualposition,thoughstrandsofitremaininthe

cyberanarchistperspective(discussedbelow).Rather,astheInternetgrewin

social,economic,andpoliticalimportance–and,importantly,astheInternet

cametodistinguishitselfmoreforitstransformativeabilitytofacilitate(and

extend)thesamesortsofsocialinteractionsthatoccurredoffline,ratherthanas

thebirthplaceofanentirelynewkindofsocialorder–thesamesocial,economic,

andpoliticalinstitutionsimportantintheofflineworldnaturallycametoexert

influenceintheonlineworld.Theseeffortsoccurredlargelythroughthe

24JohnPerryBarlow,ADeclarationoftheIndependenceofCyberspace

(1996),availableatwww.eff.org/cyberspace-independence.25Barlowwasnotaloneinhisviews,althoughhispowerfulprose

capturedtheimaginationofmany.Seealso,forexample,EstherDyson,GeorgeGilder,GeorgeKeyworth,andAlvinToffler,CyberspaceandtheAmericanDream:AMagnaCartafortheKnowledgeAge,Progress&FreedomFoundationFutureInsightNo.1.2(Aug.1994),availableatwww.pff.org/issues-pubs/futureinsights/fi1.2magnacarta.html.

31

operationofexistinglegalprinciplesand,wherenecessary,theestablishmentof

newlegalrulesdesignedtoextendthoseprinciplesintotheonlineworld.This

intrusionofofflineinstitutionsintothenewonlinespacegaverisetothenext–

andarguablystilldominant–waveofextremecyberlibertarianism:cyber-

exceptionalism.Thecyberexceptionalistperspectiveistoaccedethatcyberspace

canbebroughttoheelbytraditionalinstitutions,butthatitshouldbeexempted

fromsuchtreatment.

Oneofthemoreinfluentialstrainsofcyberexceptionalismisso-called

permissionlessinnovation.Permissionlessinnovationholdsthatindividuals

shouldbeabletooperateandinnovateonline(and,infact,intherealmof

informationtechnologymoregenerally)withoutimpedimentfromany

authority.Initsmostextremeviewthisincludesnotonlygovernmentactors

directly,butalsoprivatepartieswhoseassertionofpropertyorcontractual

rightsmight“impede”others’abilitytofreelyinnovate.26Initsmostfully

developedform,permissionlessinnovationholdsthatthestateshould,shortof

compellingcircumstances,refrainfrominterferingwithprivateorderinginthe

digitalcontextentirely.AdamThiererhascharacterizedthispositionas:

thenotionthatexperimentationwithnewtechnologiesand

businessmodelsshouldgenerallybepermittedbydefault.Unlessa

compellingcasecanbemadethatanewinventionwillbring

26SeeGeoffreyManne,PermissionlessInnovationDoesNotMean“No

ContractsRequired,”TRUTHONTHEMARKET(Jun.26,2014),http://bit.ly/2t0k6fV.Thisversionofpermissionlessinnovationthusimplicitlyhearkensbacktocyberutopianism,shunningevenprivateorderingifitisfacilitatedbytraditionalinstitutions,denying,ineffect,thatthe“harm”ofcontractorpropertylawviolationsexistincyberspace.

32

seriousharmtosociety,innovationshouldbeallowedtocontinue

unabatedandproblems,ifanydevelop,canbeaddressedlater.27

Thisviewisfocusedalmostentirelyonthepositivevalueofinnovation,holding

thatthegainsfrominnovationwilltendtooverwhelmanypotentially

complicatingrealities,orthatpotentialcomplicationswillthemselvesbe

addressedbysubsequentinnovation.Thus,Internetplatformsshouldbe

permittedtoexperimentwithnewserviceswithoutexanteconstraint,even

thoughweunderstand,forexample,thatthird-partiesoftenusetheseplatforms

forillicitpurposes.Theexceptionalistperspectiveisthatconcernaboutthose

illicitusesdoesnotjustifyplacinganylimitsonthedevelopmentofnew

technologicalplatforms.

Theadventoftheautomobile,forinstance,wasoverwhelminglypositive

forsociety,eventhoughitupendedmuchoftortlaw.Likewise,theadventof

driverlesscarswillcertainlyleadtonewwaysforpeopletobeinjuredandhard

questionsforthelawinassessingandapportioningliabilityforthoseinjuries–

butitwilllikelymakeautomobilessubstantiallysaferthantheyaretodayand

increasetheefficiency(anddecreasethecosts)ofdrivingsosubstantiallythat

weshouldpushaheadinthedevelopmentofthenewtechnologyandaddress

suchconcernsoncethetechnologyhasarrived.

Similarly,theInternethasunquestionablybeenoneofthemostbeneficial

andimportantdevelopmentsinthehistoryofhumankind–butithasalso

facilitatedchildpornographyandotherformsofexploitationonascalenever

beforeknown.Theexceptionalistperspectiveisthatthenewtechnologyshould

27ADAMTHIERER,PERMISSIONLESSINNOVATION:THECONTINUINGCASEFOR

COMPREHENSIVETECHNOLOGICALFREEDOM1(revisedandexpanded,2016).

33

beforgiventheseillsinfavorofitsoverwhelmingbenefits.28Particular

implementersorusersofnewtechnologywhouseittoharmothersshouldbe

penalizedaccordingly,butthetechnologyitselfshouldnotbeconstrainedin

ordertodetersuchharm–evenifthemost(oronly)practicalwaytodosoisby

limitingthetechnology(andevenifusers’abilitytoevadethelawis,infact,a

functionofthenewtechnology).Theexceptionalistperspectiveholdsthisview

evendespitethefactthat,innumerousofflinesituations,justsuch“intermediary

liability”iscommon.29

Therationaleforthisexceptionalismisthatnewtechnologiesareless

likelytodevelopiftheirdevelopersareheldaccountablefortheharmsthatsome

willinevitablyusethemtocause.Suchliabilitywouldincreasethecostsofnew

28Accordingtomanyproponentsofcyberexceptionalism,infact,thisimmunity

hasbeenwrittenintoUSlaw.See47USC§230(c)(1)(“Noprovideroruserofan

interactivecomputerserviceshallbetreatedasthepublisherorspeakerofany

informationprovidedbyanother[provideroruser].”).Courtshavelargelybeen

willingtogoalongwiththeexceptionalistinterpretationofthislanguage.See,for

example,DavidS.Ardia,FreeSpeechSaviororShieldforScoundrels:An

EmpiricalStudyofIntermediaryImmunityUnderSection230ofthe

CommunicationsDecencyAct,43LOYOLALAWREVIEW373,435(2010)(finding

thatSection230providedimmunitytodefendantsinoversixtypercentof

relevantcases).29Courtshavelongdealtwithout-of-reachoffendersbyenjoiningthe

conductofintermediaries:forexample,byprohibitinglocalstoresfromsellingforeign-manufacturedcounterfeitgoods,orrequiringthattavernspreventpatronsfromdrivingdrunk.

34

technologies–especially“generative”technologies(i.e.,technologies(like

platformsopentouser-generatedcontentandpeer-to-peerinteractions)that

cangiverisetonew,unpredictable,uses).Atthesametime,oncethetechnology

isestablished,suitableinstitutionscanbeputinplacetoprotectagainstspecific,

harmfulusesofthetechnology.

Thisviewofpermissionlessinnovationisliberty-maximalist,bothinthe

shortrunandthelongrun.Itfreesinnovatorstodevelopnewtechnologiesas

theyseefit,furtheringtheirlibertyinterests.Andsuccessfultechnologieswill

tendtobethosethatbenefitothers,enhancingtheirlibertyinterestsasnew

technologiesaredevelopedandpermeatethemarket.

Butthisviewisalsoautonomy-agnostic.Itpaysnoheedtoconcernsthata

giventechnologymaytendtobeusedtocauseharmtoitsusersortothird

parties,andexpresslyarguesthatharmedpartiesbedeniedrecourseagainstthe

implementersofthetechnologyforsuchharms.Importantly,thisisthecaseeven

wherefutureharmsarepredictable,andevenwherethetechnologyisdeveloped

insuchawaythatitmakesitparticularlyeasyforpartiestobeharmedor

difficultforthemtoseekredress.Inotherwords,underdominant

cyberexceptionalistviews,platformsandintermediariesareundernoobligation

todesigntheirtechnologiesinwaysthatpreventharm,allowforrecoverywhen

harmoccurs,orevenfacilitateactionbeingtakenagainstthepartycausing

harm.30

30Again,thisapproachlargelyharkensbacktothecyberutopianviewthat

inaveryrealsensetraditionalconceptionsof“harm”donotapplyonline,becausecyberspaceisnotboundbythephysicalorsocialconstraintsoftherealworldthatpreventaharmedpartyfromremovingthemselvesfromaharmfulsituationorengaginginself-help.

35

Thethirdcategoryofextremelibertarianviewsontechnologyisdifferent

inkind,althoughitdrawsonideasfrombothcyberutopianismand

cyberexceptionalism.Cyberanarchismviewstechnologyasaremedyagainstthe

sinsofthestate.Thisviewisparticularlyprevalentincontemporarydiscussions

aboutprivacy,surveillance,encryption,andcryptocurrencies.Cyberanarchism

viewsgovernmentsurveillanceinparticular–whetherthroughwiretapsand

warrants,theintelligencecommunity,collectionofpublicinformation,or

issuanceofsubpoenastocollectinformationfromprivateplatforms–asan

undueencroachmentonindividualautonomyandanimpermissiblelimiton

liberty.Technologycanandshouldbeusedtofrustratethesegovernmental

functions,therebyenhancingliberty.

Thereis,ofcourse,anobvioustrade-offwithsuchanapproach.

Cryptocurrencies,forinstance,weredevelopedatleastinparttoprovidean

anonymousandlargelyuntraceablealternativetofiatcurrencyandtraditional

onlinepaymentsystems.Inmanycontextsanonymityinfinancialtransactionsis

valuable,ofcourse,butcryptocurrenciescanbeandareusedtofacilitateharmful

orcriminalconduct.Likewise,TORandotherencryptiontechnologieshave

enabledindividualstotradeillicitgoodsandservicesaswellasnonillicitgoods

andservicesunderanonymousconditions.Privacy-enhancingencryption

technologiesarealsobroadlyseenastoolstocircumventstaterestrictionson

speech(particularlyinhostileregimes),andtoavoidstatesurveillance.

Althoughitistruetosomeextentforallofthedifferentstrainsofthe

extremelibertarianview,forprivacyandcryptocurrencyadvocates,in

particular,technologyisviewedasameansforresistinganygovernment

36

regulation–andevenprivateorderingabettedbygovernmentinstitutions–

completely.

Cyberanarchismhearkensbacktothecentralcyberutopianviewofthe

fundamentalillegitimacyofgovernment,especiallyinthetechnologicalage–

thatthose“GovernmentsoftheIndustrialWorld,[]wearygiantsoffleshand

steel…,arenotwelcomeamongus[and]havenosovereigntywherewe

gather.”31Ofcourse,thisassumptionofillegitimacyisrejectedbytheclassical

libertarianperspective.Itissurelythecasethatsomeofthegovernment

functionsthatanimatethesecausesareillegitimateexcesses.Butothersarenot,

andthesetechnologiesdonotdiscriminatebetweeninterferingwithillegitimate

andlegitimategovernmentfunctions.32

B The Moderate Libertarian Embrace of Technology

Itisalmostamisnomertocharacterizethemoderatetechno-libertarianposition

asan“embrace.”Themoderatelibertarianorclassicalliberalperspectiveon

31Barlow,ADeclarationoftheIndependenceofCyberspace,supranote

24.32AprimeexampleofthistensionwasthecourtorderrequiringAppleto

renderassistancetolawenforcementbydefeatingencryptionononeofitsiPhones.SeeIntheMatterofSearchofanAppleiPhoneSeizedDuringExecutionofaSearchWarrantonaBlackLexusIS300,CaliforniaLicensePlate35KGD203,No.ED15–0451M,2016WL618401(C.D.Cal.2016).Althougharguablyrestingonfairlywell-establishedlegalfooting,thecourt’sorder,basedontheAllWritsAct,28U.S.C.§1651,wasmetwithcriesofoutragefromcertaintechno-libertarianquarters.Thisoutrage,again,waspremisedontheideathatthereissomethingunusualaboutdataanddigitaldevicesthatwarrantsacompletelydifferentlegaltreatment.But,aswithotherinstancesofsuchextremecyberexceptionalism,theexplanationaboutjustwhyitisthattechnologyshouldbeinalegalclassofitsownwasneveradequatelyexplained.

37

technologyis,atroot,nothingspecial,insofarasclassicalliberalsdonotpresume

thatanysocialconstructshouldreceiveapersedifferenttreatmentunderthe

law.

Themoderatelibertarianviewadmitsroomforthestatetoestablisha

frameworkofneutrallyadministeredandenforcedrulesagainstwhich

individualsarrangetheirprivateordering.Technologyisevaluatedbyitseffects

upontherule-basedexpectationsofindividuals,andisnotregardedas

inherentlyoutsideof(butactingupon)thelegalorder.Fundamentaltothis

approachistheviewthattechnologyisnotregardedasexceptionalinanya

priorisense;itmattersonlyhowitisusedorhowitaffectstheoptimal

institutionalordering.Technologicalinnovationsdooftenoffersignificant

benefits(notonlyintermsoflibertyandautonomy,butgeneralconsumer

welfare),ofcourse,andanybenefitsarisingfromtheadaptationandapplication

ofexistinglegalrulesshouldbeweighedagainstthepossiblecostsofdeterring

thecreationorwelfare-enhancingdeploymenttechnology.Butinprincipleany

technology,nomatterhowrevolutionary,canbebroughtwithintheambitof

predictable,neutrallyadministeredlegalrules.

Onekeycomponentofthemoderatelibertarianviewisthatimmunity

fromestablishedlegalprinciplesshouldnotbeassumedevenifextensionof

thoseprinciplestonewtechnologyrequiresnovelapplicationsofcommonlaw

precedents,oreventheadoptionofnewregulationsorlegislation.Internet

platforms,forexample,mayentailadifferentliabilitystructure,butthereisno

reasontobelievethattheyshouldengendernoliabilityasaresult.

38

Unlikethemoreextremeapproaches,themoderatelibertarianapproach

totechnologywouldnotinherentlyobjecttoextraterritorialapplicationofa

country’slaws,forexample,asisoftennecessitatedontheInternet.Whilecloud-

basedactivityandcross-borderdataflowscanbeparticularlycomplicatedto

untangle,thisdoesnotmeanthatterritorialcourtsshouldbepresumedunable

toadjudicatedisputesarisingoutofmulti-nationdigitaltrade.Courtsareskilled

atparsingconflictsoflaws,aswellasparsingfactsincomplexordifficultcases.

DeterminingjurisdictionalcompetenciesforInternet-baseddisputesisonlya

differenceofdegree,notofkind.

Similarly,underthemoderatelibertarianview,technologiesthatareused

tosecureprivacyonlineorinthecloudwillhavetoyieldinsomecasestothe

needsofthestate,justasintheofflinecontext.Forinstance,althoughtheanswer

maynotbetobuildinpurposefulsecurityholessuchasbackdoors,incases

whereafirmcouldtheoreticallyhelpoverrideencryption,asintheApple-San

Bernardinodispute,33theycanlawfullyberequiredtodoso.

Intellectualproperty(“IP”)drawsintostarkreliefthedistinctionbetween

thehard-coreandmore-moderatelibertarianapproaches.IPpresentsarather

uniquecircumstance.Bydefiningapropertyrightaroundanoveltechnological

idea(patent)ororiginalexpression,includingoftechnologicallysophisticated

softwarecode(copyright),IPcomesclosetotreatingtechnologicaladvanceitself

(asopposedtotheuseorimplementationoftechnology)asexceptional.34Inthis

33SeegenerallyJustin(Gus)Hurwitz,EncryptionCongressmod(Apple+

CALEA),30HARVARDJOURNALOFLAWANDTECHNOLOGY355(2017).34Itisimportanttonote,however,that(underUSlaw,atleast)both

patentandcopyrightlawencompasscoreelementsthatmitigatethisexceptionalismtosomeextent.Foranidea(invention)tobegrantedapatent,for

39

sense,itcouldbeargued,themeredefinitionofIPrightsrepresentsa

problematicextensionofthelegalorderbeyondasystemnecessaryfor

mitigatingtransactioncoststoonethatinherentlycurtailslibertyregardlessof

countervailingsocialgain:BecauseIPrightsaregrantedbeforeanywelfare-

improvingtransactionisundertaken,evenessentiallyvaluelesstechnologycan

receiveIPprotection,subjectonlytothe(largelyarbitrary)costtoanapplicant

ofobtainingit.35Formoderatelibertarians,however,asystemofIPrightsreadily

overcomesthisapparentdefect.

Notsurprisingly,however,thehard-corelibertarianargumentagainstIP

extendsfrompreciselythisapparentquirk.Hard-corelibertariansgenerally

advancetwoargumentsagainstIP.First,IPisacreationofgovernment:As

suggestedabove,notonlytheexpostregulationoftechnology,butitsvery

example,itneedstobeuseful:Itcannotexistmerelyasanabstractidea,butmustbeafunctional“process,machine,manufacture,orcompositionofmatter.”35U.S.C.§101.Andfororiginalworkstoreceiveacopyrighttheymustbe“fixedinanytangiblemediumofexpression…fromwhichtheycanbeperceived,reproduced,orotherwisecommunicated.”17U.S.C.§102(a).Again,itisclearfromthisstatutorylimitationthatabstractionspersewillnotreceiveprotectionunlesstheyareactuallyimplementedinausefulform.Nevertheless,theseeligibilityrequirementsdonotentirelyunderminetheideathat“technology,”ratherthan“theuseoftechnology”isprotectedbyIPrightsbecause,oncetheconditionsofeligibilityaremet,IPprotectionsextendbeyondthoselimitationstorestrictothers’implementationofthenewtechnology.

35Becausecopyrightattachesautomaticallytoanyoriginalexpressiononceitisfixedinatangiblemedium,eventhislimitationdoesn’texist.Ofcourse,theinvestmentrequired(includingopportunitycosts)tocreateapatentableinventionorcopyrightableworkactsasalimitation,aswell,andonethatisdecidedlymorecloselyrelatedtoexpectedsocialvalue.Butevenideasdiscoveredaccidentallyand(nearly)trivialworksofauthorshiparestilleligibleforprotection,sothereremainsasignificantscopeforlegalconstraintstoattachevenwithoutanyindicationoftheirsocialvalue.

40

definitionthroughpatentorcopyrightisan“artificial”functionofstatute.

Moreover,becausethisgovernment-createdpropertyrightentailsarightto

preventunauthorizeduseofprotectedtechnologyandtheconcomitantrightto

extractmonopolyrentsinexchangeforauthorization(license),itamountstoan

unjustifiable(andpossiblyinefficient)governmenttransferofrents.Second,

unlikerealandpersonalproperty,another’suseofanidea(orcopyingofan

expression)isnotinherentlyrivalrous:itcanbeaccomplishedwithoutdepleting

theideaorexpressionandwithoutlimitinganyoneelse’sabilitytoimplementor

copyit.Similarly,absentenforcementoftheartificial,government-granted

monopoly(orconcealment),itisverydifficult(ifnotimpossible)toexclude

othersfromtheuseanideaorofcopyright-protectedcontent,particularlydigital

content.Ontopofallofwhich,thesystemforgrantingandenforcingIPrightsis

costlyand,inevitably,complex.Asaresult,sotheargumentgoes,IPrightserect

artificialandcostlyimpedimentstothelibertyofpeopletodo(andsay)what

theywillandshouldnotbeenforced.36

Butthisis,yetagain,acaseofcyberexceptionalism.Propertyrights,if

theyhaveanymeaningorutility,arealwayscreaturesofthegovernment.Infact,

aswehavenoted,acentralfeatureoflibertarianismistherecognitionthatthe

definitionandenforcementofpropertyrightsisinarguablyavaluablefunctionof

government.Withouttheimplicitimprimaturofthestateonone’sclaimtoa

particular“thing”(whethertangibleorintangible),thevalueofthatclaim(and

thusthethingitself)isapproximatelyzero.

36See,forexample,TomW.Bell,IndelicateImbalancinginCopyrightand

PatentLaw,inCOPYFIGHTS:THEFUTUREOFINTELLECTUALPROPERTYINTHEINFORMATIONAGE4(AdamThierer&ClydeWayneCrewsJr.eds.,2002).

41

Noonecandefendanysystemofpropertyrights,whether

fortangibleorintangibleobjects,onthenaïveviewthatit

producesallgainandnopain.Everysystemofpropertyrights

necessarilycreatessomewinnersandsomelosers.Recognize

propertyrightsinland,andthelawmakestrespassersoutof

peoplewhowereoncefreetoroam.Wechoosetobearthesecosts

…becausewemakethestrongempiricaljudgmentthatanylossof

libertyismorethanoffsetbythegainsfrommanufacturing,

agricultureandcommercethatexclusivepropertyrightsfoster.

Thesegains,moreover,arenotconfinedtosomeluckyfewwho

firstgettooccupyland.No,theprivateholdingsinvariousassets

createthemarketsthatusevoluntaryexchangetospreadthese

gainsacrosstheentirepopulation…[T]heinconveniences[IP]

generatesarefullyjustifiedbythegreaterprosperityandwell-

beingforthepopulationatlarge.37

Itisalsoimportanttonotethatthepresumed“monopoly”grantedbyIPrightsis

notactuallyamonopolyinanymeaningfulsense.Becausepatentrightsand

copyrightsarelimitedinbothtimeandscope,theydonotforeclosethe

developmentandimplementationofcompetingideasorcompetingexpressions

anymorethantheownerofasinglehousecanavoidcompetitionfromher

neighbors.

37RICHARDA.EPSTEIN,INTELLECTUALPROPERTYFORTHETECHNOLOGICALAGE8

(ManufacturingInstitute,2006).

42

IVA Classical Liberal View of Technology and the Law?

Onfirstblush,itseemsthatthemoderatepositionontechnology(more

accurately,technologicaladvance)enjoysthebetterclaimtothemantleof

classicalliberalism–andinmanywaysitdoes.Whiletheextremeposition

appearstobemoreacutelyprotectiveoflibertyfromgovernmentinterference,

itsmyopicfocusonfreedomfromallconstraintsleadsittorejecteven

transaction-cost-reducingrulesthatfurtherautonomyandvoluntaryexchange

andthusoverallsocialwelfare.

Considertheconceptofpermissionlessinnovationagainwhich,asnoted,

isimportanttoboththemoderateandextremeliberalpositionsregarding

technology.Ontheonehand,theextremeversionofpermissionlessinnovation

doesnotstandforneutralapplicationofgenerallyapplicablelegalrulesand

principlestonewtechnology,butfortheavoidanceofalllegalrulesthatmight

constraintheabilitytodevelopanyparticular,newtechnologicaladvance.This

viewofpermissionlessinnovation–theextremelibertarianview–treatseven

privateconstraintsarisingoutofenforceablepropertyrightsasinherently

outdated.Itis,underthisapproach,aproblemnotonlythatinnovatorsmight

havetoseek“permission”fromthegovernmenttodeploynewtechnology,but

thattheymighthavetoseekitfromprivatepropertyholdersthroughcontractor

license–bytransactingwiththem,inotherwords.Onthisview,thetransaction

itselfbecomesanunjustifiedcost,andrulesthatenablerightsholderstolimitan

innovator’sliberty–evenifefficiently–areproblematic.Thisseemstoo

43

solicitousoflibertyandtoodismissiveofautonomyandthebroader,systemic

benefitsofwell-definedpropertyrights.

Ontheotherhand,themoderateviewrunstheriskofnaïvedeontology,

embracingandpreservingrulesfortheirownsake.Themoderatepositionisthat

permissionlessinnovationdenotestheabilitytoexperiment,enterinto

transactions,anddevelopanddeploynewtechnologywithoutrequiringthe

adoptionofnewrulesthatapplywithspecialforcetonewtechnology,that

overlyconstrainitoutofexcessivefearofitspotentiallyharmfuleffects,orthat

protectincumbentsfromnewcompetition.Itwould,attheextreme,seemwilling

tosacrificeevenwelfare-enhancinginnovationforthesakeoflegalconstancy:

thecontinued,neutralapplicationofexistingrulesandtheavoidanceofnew

rules,regardlessofwhethereitherwouldclearlyfurthertechnologicaladvance.

Theproblemwiththisview,ofcourse,isthatthereisnoinherentreason

tothinkthatthespecific,statusquostructureofrightsisoptimalinthefaceof

anygiventechnologicalchange,particularly,aswehavenoted,whenitis

relativelyrapid,disruptivechange.Theclassicalliberalembraceofrulesand

legalinstitutionsisconsequentialistandutilitarian,notdeontological:public

rulesareneededsolelybecausewegainmorefromtheirabilitytofacilitate

privateorderingandpreserveautonomyintereststhanwelosefromthe

constraintsonlibertytheyentail.Butthat(emphatically)doesnotmeanthatany

specificrulesperseareworththecost.Thechallengeisunderstandinghowrules

shouldevolvealongsidechangingtechnologies.

Wefrequentlyseethisonvividdisplayinregulatedindustriesthat

undergotechnologicaldisruption:asthecostandreliabilityofairtravel

44

improvedleadingtocommoditization;aselectricitygenerationwasseparated

fromtransmissionandbecameincreasinglycompetitive;asnewnetwork

technologiesenabledthetransitionfromamonopolytelephonenetworktoone

ofwidespreadintermodalcompetition;asride-sharingplatformslikeUberand

Lyfthavedisruptedheavilyregulatedtaximonopolies.Mostclassicalliberals

wouldcheerthedisruptionoftheselegalregimesandcelebratethetechnological

innovationthathastenedthetransitionawayfromindustry-specificregulatory

regimes.

Infact,thisisthecaseevenaswecanrecognizethelossesfacedbythe

energycompanywithstrandedinvestments,thetelecommunicationscarrier

whoserateofreturnwasdependentonregulatedprices,andthedriverwhopaid

$1millionforataximedallionthatisnowworthaquarterofthat.RecallRichard

Epstein’simportantpointthat“[e]verysystemofpropertyrightsnecessarily

createssomewinnersandsomelosers…,[but]theinconveniences…arefully

justifiedbythegreaterprosperityandwell-beingforthepopulationatlarge.”38

The“losses”herearelargelyonlydistributional;theyarisebecausethe

rejiggeringofpropertyrightsenablestechnologytoexpandthesizeofthepie,

evenasitalsoredistributesthepieces.Butitisthetransitionfromonestateof

affairstoanother,frequentlybroughtonbytechnologicaladvance,thatcreates

theappearanceofloss.Behindthemetaphoricalveilofignorance,everyone

wouldprefertechnologicaldynamismtostasis,evenwiththedisruptionit

entails.Forthesamereason,classicalliberalismshouldcountenancesome

reorderingofrightsinordertofacilitateorrespondtonewtechnology.

38Id.

45

Thus,animportantandunderappreciatedroleoftechnologicalchangeis

tohighlightthesefaultlinesbetweenappropriate,transaction-cost-reducing

backgroundrulesandthoselawsandregulations(orspecificenforcement

decisionsofotherwise-desirablebackgroundrules)thatmayappeartofacilitate

trade,butreallyimpedethecreationofwealthandtheexerciseofliberty.

NotthatitrequiresanUbertoseethattaximedallionsarealmost

certainlyexamplesofthelatter,andnottheformer.Theyconstrainnon-

medallionholders’libertywithoutevenfacilitatingvalue-maximizing

transactionsforthosewhoholdthem.ButitdoesoftentakeanUbertobringinto

reliefthebut-forworldthatsuchlawsdeter.Absentthisinformation,the

classicalliberalapproachisfarlesslikelytosucceedininfluencinglawand

policy–inovercomingthepoliticsandrent-seekingthatpropupwelfare-

limitingor-reducinglawsorallowthemtocomeintoexistenceinthefirstplace.

Thereisthusasecond-order–andironic–benefittothemoreextreme

libertarianposition,whichwould,atthemargin,enabledeploymentofmore

disruptivetechnologies,somenumberofwhichwillconferthispoliticaleconomy

benefit–improvingthereliabilityofthelaw–independentofthedirectbenefits

theymayalsoentail.

Iftheextremepositioncanbetoo…extreme,themoderatepositioncan

betoocautious,overweightingpresentautonomyinterests(theprotectionof

existingpropertyrightsandtheabilityfortheirholderstodemandlicense)and

underweightingfuturelibertyinterests(theabilitytoundermineexisting

propertyrightsforthesakeofdynamicefficiencygains).Butunlessweareable

toreducetransactioncostsfarbeyondwhatislikely,theoptimalclassicalliberal

46

positionwillstillrequirebackgroundrules:Solongastransactioncostsexist,

ruleswillberequiredandthechallengewillbetoimplementtherulesthatyield

themostefficientofoutcomes.

Whiletherecanbelittledoubtabouttheinefficacyofmaintainingstatus

quoregulatoryregimesinthefaceoftechnologicalchange,theclassicalliberal

positionisnotsoobstinate.Whenitcomestotheintrusive,industry-specific,

regulatoryoversightoftheadministrativestatethathascometodominateinthe

contemporaryera,theclassicalliberalpositionisinvariablyskeptical,and

technologicalchangeisoneofthemostimportantreasonsforclassicalliberal

effortstounwind(orprevent)suchregimesinthefirstplace:Fortheclassical

liberal,mostsuchregimesareill-advisedfromthestart.

Butthingsaremorecomplicatedwhenitcomestorulesofgeneral

applicability.Itismoredifficulttocountenanceabruptshiftsinoverarching

regimesgoverningthingslikecompetition,intellectualproperty,privacy,and

consumerprotection(amongothers).Notthateventheseregimesarelikely

optimalexante,ofcourse.Buttheinherenttensionbetweenlibertyand

autonomyinterestsissomewhatmorecomplicatedtoresolvewhen

technologicaladvancedisruptsthem.

Thisisparticularlytruewheresuchregulatoryregimeswereadoptedto

addressperceivedlacunasinthebasicrealmsofoperationofthecommonlaw,

oftenbroughtaboutbyprevioustechnologicalchange.Inthemain,itis

importanttonote,classicalliberalsfavorcustomaryandcommonlaw.39These

39SeegenerallyFRIEDRICHA.HAYEK,THECONSTITUTIONOFLIBERTY(1960);

FRIEDRICHA.HAYEK,LAW,LEGISLATIONANDLIBERTY:ANEWSTATEMENTOFTHELIBERALPRINCIPLESOFJUSTICEANDPOLITICALECONOMY(1973).

47

evolutionarysystemsadapttotechnological(andother)changesovertime,

maintainingrelativeconstancy,minimizingthefrustrationofexpectations,and

eschewingpreemptiveconstraintsthatmayturnouttobeinefficientor

otherwiseundesirable.Butstatutoryrulesofgeneralapplicabilityalsoevolve

throughiteratedjudicialenforcement(inpartinresponsetotechnological

changes),andalsoeffectanallocationofpropertyrightsandsetexpectations.40

Whiletheslow,deliberateevolutionofthecommonlawiscertainlypreferable,

wheretheyexist,therelativeconstancyoftheselongstandingstatutoryschemes

issimilarlyimportantinmaintainingthebackgroundrulesagainstwhich

transactionstakeplace.

Thecentraltensionhereisthatclassicalliberalismpositstheneedfor

legalinstitutionstopromoteprivateordering,buttheseinstitutionsthemselves

areoftenestablished,maintained,enforced,andupdatedthroughaprocessof

publicordering.Indeed,eveninstitutionsthatevolvethroughprivateordering

quicklytakeonapubliccharacterinanysocietybeyondatriviallevelof

complexity.41Andsuchrulescaneasilyfallvictimtotheperilsofpublicchoice,

erringonthesideofexcessiveconstraintduetolimitedknowledge,anexcessof

caution(theso-calledprecautionaryprinciple),andthelureofrentextraction.

40TheoperativelanguageofSection1oftheShermanAct,forexample,comprisesthefollowing:“Everycontract,combinationintheformoftrustorotherwise,orconspiracy,inrestraintoftradeorcommerceamongtheseveralStates,orwithforeignnations,isdeclaredtobeillegal.”15U.S.C.§1.Thecourtshave,forthe125orsoyearsofthelaw’sexistence,beenresponsibleforinterpretingthelawandgivingititsrealcontent(subject,ofcourse,tothestronginfluenceofenforcementagencies’exerciseoftheirprosecutorialdiscretion).

41SeegenerallyELINOROSTROM,GOVERNINGTHECOMMONS:THEEVOLUTIONOFINSTITUTIONSFORCOLLECTIVEACTION(1990);ROBERTELLICKSON,ORDERWITHOUTLAW:HOWNEIGHBORSSETTLEDISPUTES(1991).

48

Theveryrulesthatclassicalliberalismdependsuponinordertoensureprivate

orderingandautonomycanbecapturedthroughpublicmeanstolimitprivate

orderingandundermineautonomy.Theextremelibertarianpositionhasthe

undeniablevirtuethatitisapurelyprivatemechanism,onethatcandisrupt

legalinstitutionsthathavelosttheirway–evenifthatdisruptionhasgreatcosts.

Sotoodoestheclassicalliberal’scommonaffinityforthecommonlaw–an

institutioninwhichchangestothelawarepredicatedonprivatedisputes,which

servestochecktheproblematiccharacteristicsofpublicordering.42

Conclusion

Classicalliberalismisoftenconflatedwithlibertarianism,and,onissuesrelating

totechnology,libertarianismwritlargeisoftenconflatedwithparticularstrains

ofanarcho-capitalismandtechno-andcrypto-libertarianism.Thesestrains

embraceextremeviewsoftheliberty-enhancingpotentialoftechnology.But

theyarealsointensionwiththeclassicalliberalacceptanceofaminimalsetof

legalinstitutionsasnecessarytoprotectindividualautonomyandpromote

stableprivateordering.Indeed,thehallmarkofmuchofthetechno-libertarian

idealisdisruption–includingdisruptionoftheveryinstitutionsthatclassical

liberalismidentifiesasnecessaryinordertopromoteindividuallibertyand

socialwelfare.

42See,forexample,Justin(Gus)Hurwitz,DataSecurityandtheFTC’s

UnCommonLaw,101IOWALAWREVIEW955,981(2016)(discussingthat,whilecommonlawjudgesdomakelaw,“theydonotembracethisfunctionwarmly,”andthevariousobstaclesthatexisttolimitthescopeofjudicialrulemaking).

49

Thissuggeststensionsbetweentheclassicalliberalandtheascendant

libertarianimpulsesthatdrivemanyinthemoderntechnologysphere.These

tensionsarereal.Butthegreatertensionsarewithinclassicalliberalismitself.

Classicalliberalismaccepts–evenposits–theneedforlegalinstitutions,but

doesnotprovideanendogenousexplanationfortheorigins,extent,ornatureof

thoseinstitutions.Contemporarythinkersintheclassicalliberaltraditionare

likelytogroundtheseinstitutionsinwelfareandtransactioncosteconomics.But

technologicalchangescanleadtomeaningfulchangesintransactioncostsand

shiftsintheallocationofsocialwelfare(thatis,theefficientorderingofprivate

resources).Inotherwords,technologyisexogenoustotheprinciplesofclassical

liberalism,suchthatthefundamentalinstitutionsofclassicalliberalismare

themselvesdefined(atleastinpart)exogenously.Thisleadstothepeculiar

resultthat,lackinginternalprinciplestoguidetheprivateorderingofits

institutions,classicalliberalismmustrelyinpartonapublicorderingofthe

institutionsthatgoverntheprivateorderingthatitseekstofacilitate.

Themoderneraofdisruptivetechnologyhasmagnifiedthistension.

Thereislittlequestionthatmuchofmoderntechnologicaladvanceendsup

enhancinglibertyandpromotingprivateordering.Butdisruptionalmostby

definitionimplieswinnersandlosers,andthespoilsofdisruptiondonot

necessarilyfallefficiently,eithertothewinnersorthelosers.Theclassicalliberal

prefersParetoefficienttransactions,andisrelativelyaversetotransactionsthat

aremerelyKaldor-Hicksefficient.Buttechnologicaladvance–andespecially

disruptiveadvance–placesussquarelyintheuncomfortablerealmofKaldor-

Hicksefficiency:Eitherweallowdisruption,allowingharmtothosedisrupted;or

50

wedenydisruption,denyingbenefitstowould-bedisruptors.Withoutbotha

senseofthemagnitudeofharmandanefficientmeansbywhichtocompensate

forit,wearenolongeroperatingintherealmofvoluntaryprivateordering–

thatis,intherealmofclassicalliberalism.

Thesafestresponsetothisconundrumforthecommittedclassicalliberal

islikelytorecommittothebasicprincipleofsimplerulesdevelopedthroughthe

common-lawmechanism.Theseareleastlikelytobedisruptedandmostlikely

totransferrelativelyunscathedbetweentechnologicalregimes.Toooftenlegal

institutionshaveembracedcomplexity,eitherontheirownorinresponseto

specifictechnologies.Suchcomplexityrunscountertoclassicalliberalismand

compoundstheconfoundingconundrumthattechnologyposestoprinciple.

Instead,whenconfrontedwithtechnologicalchange,classicalliberalism’sfuture

morelikelyliesinitspast.Asusual,RichardEpsteingotthingsright:“Theproper

responsetomorecomplexsocietiesshouldbeevergreaterrelianceonsimple

legalrules,includingolderrulestoooftenandtooeasilydismissedascurious

relicsofsomebygonehorse-and-buggyage.”43

43RICHARDA.EPSTEIN,SIMPLERULESFORACOMPLEXWORLD21(1995).