Published in the Laissez Faire Electronic Times, October 21, 2002
As I was having breakfast one morning of last week, a rabbit ran past my dining room window. I am a redneck of the North[1], living in the High Laurentians, 130 miles north of Montréal: last telephone and electric pole, no cable TV, the Internet at 24,000 bauds, but three times the speed of sound at the muzzle of my .223.
When the rabbit entered my field of vision in the clear autumn morning, I was eating cinnamon-raisin bagels with French redcurrant jelly, and reading the Financial Times. More precisely, I was buried in a special report on derivatives, those complex instruments (options, futures, interest swaps, etc.) derived from ordinary financial instruments and used, among other things, to hedge against swings in the underlying instruments. Credit derivatives are the hot phenomenon these days: the $2,000-billion market developed over the past decade and is a testimony to human ingenuity and entrepreneurship.
Picturing the rabbit on my plate, I thought of running upstairs to get my shotgun, which I had left on an IKEA chair in the library (gosh! the Canadian tyrant is not going to like this). But I was still in my dressing-gown and was not sure I'd be able to find the rabbit. And then I thought about the problems that come with killing these animals: you have to pluck them, not to mention the actual cooking. Since I was a bit short of time, I stayed put, regretting that my girlfriend was not with me at that time. Traditionally, women cook game that men bring. Division of labor. Notwithstanding that I like my girlfriend to hunt with me, this reminded me that when in doubt, one should probably follow evolved ways of doing things. We should be conservative by default – when there is something worth conserving.
Yet, as Friedrich Hayek often pointed out, we have to combine tradition and progress. It is important that individuals be free to challenge traditions and the establishment. These individuals are entrepreneurs in the broadest sense. The benefits of challenging traditions are powerfully demonstrated by financial markets, where progress comes from the creation of new instruments that change the traditional ways of doing things. Perhaps the ultimate Promethean example was given by Michael Milken who, in the 80s, single-handedly created the junk bond market.[2] Prometheus was soon prosecuted and sent to jail by a little attorney called Rudolph Giuliani who needed to build his political capital, and it is one of the worst consequences of 9/11 that this despicable Inquisitor is now seen as a hero. There are rumors that the infamous Giuliani has changed, but he should not be forgiven, except perhaps if he makes a public apology and tries to repair the damage he has done.
Only in a free society can we have our cake of tradition and eat it too. And note that financial innovation is still based on some traditional rules, like private property and freedom of contract. Reconciling innovation and tradition is only possible in a context where some institutions are not undermined.
Later that week, I decided to go for my daily hunt (and sovereignty patrol) just after breakfast, postponing my work on the financial consulting assignment that occupies me these days. The sun had just risen on the colored autumn forest. As I drew near the brook, I ordered my German shepherd, Walden, to lie down, hoping to catch some ducks. Indeed, 150 feet from the timber road where I was walking, I saw the small wake ducks make when paddling in the water. (When a hunter mentions distances, always divide by two.) So here we have a cute young duck swimming innocently through the water with not a care in the world, having no idea that a flight of No. 3 Remington Nitro Steel pellets was approaching her at the speed of sound. The duck was hit, and started splashing in the water. I took a second shot at her, and she turned white belly up. (Okay, I must have used enough "hers" to satisfy any American editor.) I had to walk along the edge of the brook until I found my canoe. I removed the fir-branch camouflage, put on the life jacket hidden under it, ordered Walden to lie down lest the dog follow me and capsize the canoe, brought the canoe to the water, and went to retrieve the dead duck. I paddled back, pulled the canoe on the bank, and camouflaged it again. After walking home, I still had to pluck the bird.
I killed the duck that laid the golden eggs. The hour (minimum) I spent on collecting and plucking it (not counting the one-hour sovereignty patrol which I do every day on my land, anyway) cost me what I would have earned if I had been working on my financial consulting, say, $125. Adding the two steel shells I used, the duck's total cost was $127. And this does not count the time I spent cooking my $127 duck.
Have you noticed that the opportunity cost of hunting ducks is higher when you earn more money? Somebody on social welfare can kill a duck for, say, $5 of his time, plus two cheap shells at $0.20 each, for a total cost of $5.40. I have to forego $127. A little exercise for the politically correct philosophy student: Where is the social justice there?
Now, a little exercise in economics: Should I take into consideration the fact that I bought my canoe especially to retrieve ducks from my brook? Purchasing the canoe cost me $200, which comes to about $12/year given reasonable assumptions about depreciation and financing costs. If I kill one duck every year, my average cost is thus $139 ($127 + $12) per duck.
But I do not take into account this measured, ex post cost when I decide whether to hunt or not. (Indeed, this accounting cost cannot even be calculated, since it depends on the number of ducks killed during the season.) Marginal, not average, cost is what governs choice. When I decide whether or not to shoot a duck, the cost envisioned is only $127 (assuming two shells are needed), plus my time, or my girlfriend's time, in the kitchen. I count my girlfriend's time because I presumably have to compensate her in other ways: free trade! But the canoe is sunk cost, and does not enter the choice calculation.
I will shoot ducks as long as the marginal pleasure it gives me is worth more than $127. When marginal benefit is equal to marginal cost, I will stop – except if I am a masochist, and don't like it. I have not yet reached this point so, tomorrow morning, I will again go duck hunting.
What, then, is the relationship between derivatives on the one hand, and rabbits and ducks on the other? And what is the point of this piece, anyway? Hunting represents the quintessence of tradition and, if only for this reason, must not be forbidden – as a whole sissy-ecologist movement is now proposing. On September 22, 400,000 persons demonstrated in London, England, against the British tyrant's intention to ban fox hunting with dogs. Modern finance (derivative instruments, electronic markets, anonymous banking…) is the epitome of innovation and change. Both hunting and finance are important, as they respond to legitimate individual demands.
Anyway, this is how an intellectual redneck thinks and lives.
[1] See my Confessions d'un coureur des bois hors la loi [Confessions of an Outlaw Wood Runner] (Montréal: Varia Press, 2001), available at http://www.amazon.com/exec/obidos/ASIN/2922245616/subversivelib-20/002-0318194-4756008 (visited October 1, 2002); and, in English, "Telling the State about Your Love Affairs," Laissez Faire City Times, June 11, 2001, at http://www.pierrelemieux.org/artlove.html; "Gun and Lovers," Laissez Faire City Times, August 20, 2001, at http://www.pierrelemieux.org/artlovers.html; and htpp://ww.pierrelemieux.org/policecanada.
[2] See my Apologie des sorcières modernes (Paris: Belles Lettres, 1991); available at http://www.amazon.fr/exec/obidos/ASIN/2251390049/pagesfrancais-21/402-2916678-0813712 (visited October 1, 2002).