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associated with characteristics of publicness (non-rivalrous consumption or nonexcludability of non-payers). Such mechanisms as the definition of property rights,24 bundling ‘private’ with ‘public’ goods,25 fencing (exclusion devices),26 and conditional contracts (also known as precontract excludability)27 offer examples of how people actually voluntarily provide goods which, orthodox economists tell them, they cannot provide.

FINITUDE AND ECONOMIC POLICY: SOME

PARTICULARS

Advertising

Advertising, as intimated earlier, should be rehabilitated in terms of voluntary persuasive behaviour. It is inappropriate to consider advertising as a wasteful expenditure of resources merely added on top of those expenditures necessary to produce the product. As Kirzner has pointed out:

It is not sufficient…to make the product available; consumers must be aware of its availability. If the opportunity to buy is not perceived by the consumer, it is as if the opportunity to produce had not been perceived by the entrepreneur. It is not enough to grow food consumers do not know how to obtain; consumers must know that the food has in fact been grown!

(Kirzner 1979, p. 10)

Those who ascribe coercive power to advertising typically underestimate the ratiocinative powers of the ‘masses’ and overestimate their own. Ultimately, the act of consumption—undertaken by the consumer alone—is the test of the quality of the product. As Coase points out: ‘Any advertisement that induces people to consume a product conveys information, since the act of consumption gives more information about the properties of a product or service than could be communicated by the advertisement itself’ (Coase 1977, p. 8).

More is at stake, however, than merely making the availability of a product known to its potential consumers. They must also be persuaded that they will find it useful, enjoyable, pleasurable, enlightening, elevating, and so on. In many cases, this will entail convincing the consumer that something previously unwanted should be wanted.29

The persuasive aspect of advertising is made more understandable when the ‘openness’ of processes of human interaction is considered. Market demand is not a ‘given’, something independent of the choices of flesh-andblood human beings. The writer of a recent history of the video-cassette recorder writes of ‘the idea of “educating the market” to the virtues of a product born of intuition rather than market research’. Writes James Lardner of Sony chairman Akio Morita: ‘Over the years Morita would often be asked, “Where is your market research?” He would point to his forehead and proclaim, “Here!”’ (Lardner 1987, p. 51).

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To explain adequately the phenomena of the market and of exchange and cooperation, the science of economics must address itself to the rhetorical or persuasive aspects of advertising, and therefore to the dynamic selfcreation involved in actual choice.

Property rights

Presupposed in all discussions of the market process is the notion of property— more specifically, of property rights. Given the ineluctability of both scarcity of resources and the law of the excluded middle, it is inevitable that there will be some system for deciding which, among the indefinite array of possible employments of a good, will in fact be actualized. That a variety of such systems is possible has long been known. What of the system of property rights underlying the market system? It should be obvious that not simply any assignment of property rights constitutes a market (e.g. assigning all rights to a dictator). Which system does define a market?

As there already exists a large (and expanding) literature on the economics of property rights, I will confine my remarks on this score to just a few observations. First, a market is a self-regulating system, one that does not require any participant to have access to a God-like perspective (the basic objection to the socialist conception of state planning in the service of human needs). That means that property assignments must emerge spontaneously from the voluntary interaction of market participants themselves; they cannot simply be imposed exogenously.30

The system of ‘mine and thine’ which we call property has not been with the human species since the ‘beginning of time’. It emerged from the attempts of our ancestors to live together in community, to co-operate and co-ordinate their actions in pursuit of life.31 The emergence of institutions, such as property law, is not a case of rational maximization (or maximizing choice among finite and known alternatives) but the product of our finitude. ‘Rule-following behavior is the product…not of knowledge or omniscience but of ignorance’ (O’Driscoll and Rizzo 1985, p. 119).32

At stake in this conception of property and law is a different conception of just what welfare economics, or the use of economic science to evaluate various possible economic arrangements, is to be. Gadamer has given us good reasons to eschew the ‘infinite’ perspective offered, for example, by Hegel. But that Godlike perspective is typically the very perch chosen by many economists, who then propose schemes to rearrange the results of voluntary human interaction in accordance with principles of welfare maximization of their own concoction. Robert Sugden (1986, p. 7) characterizes this view as the ‘US Cavalry model’ of government and economic policy-making.

An alternative view, more in line with the finitude revealed by philosophical hermeneutics, would be to examine the spontaneous emergence of norms such as

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property and law out of the localized interactions of finite human beings. As Sugden has shown, utilizing a game-theoretic approach:

some of our ideas of rights, entitlements and justice may be rooted in conventions that have never been consciously designed by anyone. They have merely evolved. A society that conducts its affairs in accordance with such standards of justice may not maximize its welfare in any sense that would be recognized by an impartial observer. To put this the other way round, a benevolent government may find that it cannot maximize social welfare, evaluated from some impartial viewpoint, without violating conventions that its citizens regard as principles of justice.

(Sugden 1986, p. 8)

Our understanding of the role and development of individual rights, including the right to property, can be enriched by use of the notion of ‘prominence’ shown to be so important by Schelling (1960) in his work on co-ordination games.33 In the kinds of games analysed by Sugden, the prominence of one’s own self (i.e. my ‘possession’ of my self) offers a firm point for the playing of asymmetrical games, within which stable conventions can emerge. This lends strong support to the understanding of property rights offered in John Locke’s Second Treatise on Civil Goverment, in which the right to alienable goods is rooted in a person’s selfevident right to ‘self-ownership’. (In Gadamerian terms, such rights can function much as prejudices do in human conversation, providing points of reference and possibilities for understanding and mutually beneficial interaction.) These rights are necessary for the conversation definitive of civil intercourse for the ‘internalization of externalities’ often cited as the central beneficial characteristic of property rights is but the emergence of a public place where interacting parties can voluntarily reach mutually satisfactory agreements.34

‘Externalities’, or third-party effects, are the effects of the actions of one or more persons on others, whether negative or positive. For example, sending out a music broadcast might generate positive externalities for those who enjoy the music; sending out a rival broadcast on the same wavelength, thus interfering with the first broadcast, would create negative externalities for the original broadcaster and her listeners. As Demsetz writes:

What converts a harmful or beneficial effect into an externality is that the cost of bringing the effect to bear on the decisions of one or more of the interacting parties is too high to make it worthwhile…. ‘Internalizing’ such effects refers to a process, usually a change in property rights, that enables these effects to bear (in greater degree) on all interacting persons.

(Demsetz 1974, p. 32)

Thus, the existence of property rights makes possible voluntary processes of interaction that would be impossible without them. ‘Internalization’ in this