The Paradox of Free Markets

Has anyone here read Karl Popper's Paradox of Tolerance? Here are his word, copied from wikipedia:

Less well known is the paradox of tolerance: Unlimited tolerance must lead to the disappearance of tolerance. If we extend unlimited tolerance even to those who are intolerant, if we are not prepared to defend a tolerant society against the onslaught of the intolerant, then the tolerant will be destroyed, and tolerance with them. — In this formulation, I do not imply, for instance, that we should always suppress the utterance of intolerant philosophies; as long as we can counter them by rational argument and keep them in check by public opinion, suppression would certainly be unwise. But we should claim the right to suppress them if necessary even by force; for it may easily turn out that they are not prepared to meet us on the level of rational argument, but begin by denouncing all argument; they may forbid their followers to listen to rational argument, because it is deceptive, and teach them to answer arguments by the use of their fists or pistols. We should therefore claim, in the name of tolerance, the right not to tolerate the intolerant.

In short, a tolerant society should tolerate everyone except the rabidly intolerant, because those radicals will not tolerate you to exist. So it's you or them, and thus it is intolerance, or the tolerance of all except the intolerant.

A paradox!

A Paradox of the Free Market?

There is something of the same paradox in the free market. Many in the EOS world have said, gosh, we have free markets in BPs and in dApps and in price and in devs and all, why can't we have a free market in dispute resolution? Look! Lo and behold, the market for arbitration is indeed free, we should adopt free market principles to ECAF ("EOS Core Arbitration Forum").

Why ever not? It's very centralised, we should open up that market.

Yet, the paradox of the free market operates here. To paraphrase Popper

Unlimited freedom must lead to the disappearance of freedom itself.

What then cannot be free? A market can be free in all things, except that which makes it a market. In the operation of the market two things are essential: rules and enforcement of those rules.

Consider what a market is - it is a place with rules. There have to be some rules because otherwise it's just a place that is indistinguishable from all other places, and therefore cannot be a market.

The rules, by the numbers

The zeroth rule is where the place is. The next rule is, who's in charge? Who owns this place and not the place next door?

Without these two rules, consider what will happen. There will typically be some process to establish the law. Either

• the place exists in which case it is homesteaded and/or fought over, or,
• in more modern digital virtual terms, the place is created by
  • a person. Or,
  • a group of people, as there is space here for Elinor Ostrom's Common Pool Resources.

Either way, whatever path, someone/thing ends up in charge of some place/market. As an exercise, you can examine

• the EOS Constitution
• the Bitcoin Core repository

and decide who's in charge :-) There is always a rule somewhere that says who's in charge. Where that person could be variously a regulator, a single owner, a community, a monarch, a github owner, a ruling minority, a committee, a plutocrat, a voting populace, ...

The next rule is established by that person, whoever, he or she or they or it may be. And the next and all the rest. Including how to dispute and change the rules.

You are not free to change the rules

The point here is that the rules of a given free market are fixed at any point in time and you by yourself cannot change them. The rules are therefore not free! In the market for free rules, you are free to start a new market, somewhere else, but you are not free to change the rules of an existing market, no matter how free it claims to be.

In the paraphrasing of Popper:

If we extend unlimited freedom even to those who are uncooperative, if we are not prepared to defend our free market with rules against the onslaught of rule-breakers, then our rules will be destroyed, and our market with them. — In this formulation, I do not imply, for instance, that we should always oppose the utterance of alternate rules; as long as we can counter them by rational argument and keep them in check by public opinion, suppression would certainly be unwise.

You are not free to avoid the rules

The second observation is that in a market of rules, the rules have to be enforced. To see this is true, simply find a market that hasn't any enforcement, go in and start breaking all the rules. As they are not enforced, anyone can do it. And will. Anything of value will be stolen, because, it can be.

Which leads to the dismal outcome: Rules that are not enforced aren't rules. And, if there are no rules, anything goes, and we're back to a random place that cannot be a market.

Therefore, in a free market, the rules must be enforced, and you are not free to avoid that enforcement.

These two non-freedoms - rules & enforcement - in a free market are essential to allow a market to be free - in all other things. In Popperphrasing:

But we should claim the right to impose our rules if necessary even by force; for it may easily turn out that they are not prepared to meet us on the level of rules-based change, but begin by denouncing our rules; they may forbid their followers to abide by our rules, because they are non-free, and teach them to break our rules by the use of their fists or pistols. We should therefore claim, in the name of our free market, the right not to give freedom to the rule-breaker.

Can Dispute Resolution be a Free Market?

We can now compare & contrast this view with the popular debate of free market dispute resolution on EOS. Frequently people propose to open up the market for Dispute Resolution so that forums can compete to provide dispute resolution services. People imagine that because we are building a free market, then dispute resolution should be free too, else it is not a free market.

The shame, the horror! Yet, if there is to be a free market in dispute resolution, this also implies that anyone can propose forums, rules, arbitrators into the chain. To some extent this is true because in the free market for dapps, you can write your own code and your own legal agreement.

But what you can't do is avoid the rules that everyone is bound to in the marketplace: you can no more write your own protocol to talk EOS to BPs than you can walk down a street with a billboard saying "these are my road rules, you get your own." Nor can you expect to set your own dispute resolution, because obviously, everyone would choose the forum they set up to say they are right.

We can go some way to opening up the market for dispute resolution - see my last post - but because of the paradox of free markets, there appear to be some fixed elements:

A free market is a fixed place with non-free rules and non-free enforcement.

And with that, we can build a market that allows free trade in most everything else.