What Westeros Can Tell Us About Free Markets

**Mild spoilers for this week’s episode of Game of Thrones follow.**

In case you didn’t know, I’m a giant nerd. So it’s no surprise that I’m totally obsessed with Game of Thrones, the HBO television show derived from George R.R. Martin’s book series A Song of Ice and Fire. Drawing in part from the history of dynastic struggles like the War of the Roses, Game of Thrones combines the excitement of high Medieval geopolitics with gratuitous nudity and wanton violence. Needless to say, it has broken all manner of ratings records.

In this week’s episode, we caught a few glimpses of how the struggle for control of the Iron Throne has affected daily life for the average inhabitant of the Seven Kingdoms. The short answer is, life is pretty horrific. In one scene, cannibals from north of the Wall descend on a happy farming village and commence killing and eating the inhabitants – but not before sending one terrified child off to tell the tale to the men of the Night’s Watch. This seems to indicate things are grim for the peasant class.

But the interaction that got me thinking about this blog was a similar scene with Arya and the Hound, who happen upon a farmer and his daughter while wandering across Riverrun.

The farmer extends them hospitality after Arya claims the Hound is her father and a former fighter with House Tully. Over dinner, the farmer laments the recent Red Wedding and complains about brigands. He also told the Hound that if only he had a little help fighting off the looters, things would be better – he offers him “fair wages for fair work,” a contract for work and protection. It reminded me of that episode of West Wing where Toby meets that average Joe at the hotel bar, only instead of Josh and Toby we have a vengeful preteen girl and a brutal sellsword. And instead of listening to the humble farmer’s story and rededicating himself to public service, the Hound promptly robs the man of his silver and leaves him and his daughter to starve to death in the coming winter.

The Hound explains his motivations to a disgusted Arya: the farmer is weak, and cannot protect himself. He and his daughter will be dead come winter; what use do they have for silver?

The Hound teaching Arya a lesson from the school of hard knocks.

The Hound teaching Arya a lesson from the school of hard knocks.

I think it’s fair to say that Westeros is a failed state. I also think its fair to say that the scene with Arya and the Hound affirms something rarely acknowledged in the public discourse: free markets do not exist outside of strong state controls.

If I’ve learned anything from watching Game of Thrones, it’s that being a moral man of honest dealings is a near suicidal choice absent a state monopoly on the use of force. Westeros is a huge power vacuum; two claimants to thrones have been murdered at weddings in the past year alone. The instability (and promise of more instability to come) means time horizons are short. Why should I think about the future when I could very well die today? This makes contracts – the bedrock of the free market – impossible to enforce, and absurd to honor.

The rise of the nation-state, for better or worse, made possible the rule of law, enforcement of contracts, and standardized weights and measures that make modern capitalism possible. And while we rarely note its impact, state power operates in the same ways today. Our markets could not deliver their true potential if the country was not secure and peaceful.

The upshot of this to me is that our current debate over government vs. private sector, where the two are set up as rivals, makes no sense. Thinking of markets as separate from states allows the most powerful actors in the market to act with impunity, because the separation puts them above public reproach.

A better debate would be how the institutions of our government could help create more truly competitive and vibrant market, rather than the crony capitalism that passes for free markets these days. But we can’t have that debate if we continue to think markets are creatures that exist absent state authority.

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Response from Jeremy:

Even Friedrich A. Hayek, in his famous Road to Serfdom, would agree with Sebastian’s words!

“The question whether the state should or should not ‘act’ or ‘interfere’ poses an altogether false alternative, and the term ‘laissez faire’ is a highly ambiguous and misleading description of the principles on which a liberal policy is based.  Of course, every state must act and every action of the state interferes with something or other.”

However, he goes on to say that state power, if used arbitrarily, can undermine markets just as readily as its absence:

“But that is not the point.  The important question is whether the individual can foresee the action of the state and make use of this knowledge as a datum in forming his own plans, with the result that the state cannot control the use made of its machinery and that the individual knows precisely how far he will be protected against interference from others, or whether the state is in a position to frustrate individual efforts.”

What he is talking about here is the introduction of uncertainty into the market through arbitrary state action, such as declarations from the various Tsars of the U.S. executive branch.  In a situation where the terms of economic engagement can be changed at will and without due process, it can be just as absurd to enter or honor contracts as in the anarchist situation of Game of Thrones as Sebastian laid out.

Unless you are politically connected, that is.

Let’s consider one of our previously discussed topics to make this concrete.  In the case of the Washington D.C. Taxi Commission’s plan to instate a taxi medallion system, the affected drivers faced a massive influx of uncertainty into their market.  The overall number of taxi’s allowed to operate was planned to be cut by a third, meaning many of them would lose the ability to legally operate.  Furthermore, additional compliance costs would be imposed, not the least of which would be the acquisition of the taxi medallion itself (which under a similar system in NYC, can go for over $1,000,000).

But the driver most affected by the uncertainty created by the medallion proposal was the driver who was considering entering the market.  Why start a taxi business and incur the necessary start-up costs when it could be summarily rendered illegal within months?

It would be absurd to follow such a course of action — unless, again, you have the financial or political capital to pull the right strings in your favor.

But a situation where there are strings to be pulled in such a manner is a situation without equality.

— Jeremy