My talk shall examine the foundations of libertarian theory. The purpose of this theory is in general to mark off regimes for individual choice within a system that provides for use of state power to protect those domains. The traditional approach to libertarian theory have generally started with the root notion of “individual autonomy” from which it then tries to derive its prohibition against the use of force of fraud against the person or property or another. Libertarian thought often rests on intuitive justifications for these central propositions, which leave it vulnerable on at least two counts. The first of these is that the approach loses steam for those individuals who do not share the same intuitive baseline. The second is that there are public institutions such as taxation and eminent domain that do not fit comfortably within this version of libertarian theory even though at some level they are necessary parts of all social institutions.

Any effort to save libertarian theory necessarily has to meet these two objections. On the first of these points, my project is to offer a set of foundational principles on utilitarian grounds that explain the origins and persistence of these systems. The key insight is to show that in a game among large numbers of independent actors, any other formulation of individual rights creates huge transactional problems that make it highly difficult to organize social relations in productive fashion. The ability to have gains from trade depends on a secure set of property rights that are known to all, and constant in form regardless of the number of individuals or the overall level of wealth within the community. It then goes on to show that both taxation and eminent domain are best understood as coercive solutions intended to overcome the transaction cost barriers that libertarian theory creates by permitting the use of force in those cases where it benefits the persons against whom it is directed. Pure libertarian theory thus morphs into classical liberal theory, complete with its functional justifications.