Liability and Restitution — Free Market Wins

When someone physically invades your property, the remedy isn’t a regulation. It’s a claim against the person who did it: he pays to restore what he damaged. That’s restitution, and the rule that decides who owes it is liability.

The Principle

Aggression creates a debt. If Friday smashes Crusoe’s hut, Friday owes Crusoe a hut. The victim is made whole by the aggressor, at the aggressor’s cost — not by taxpayers, and not by a fine paid to a third party who suffered nothing.

Three features make this work:

It’s specific. A named defendant, a named victim, a particular invasion. Nobody else is restrained.
It’s after the fact. Nobody is punished for what he might do. He’s held to account for what he did.
It’s strict. If your smoke crossed my boundary, you owe me — whether or not you meant it, and whether or not a permit said you could. The question is whether the invasion happened, not whether you were careful.

Nuisance

Not every invasion is a rock. Noise, smoke, vibration, chemicals and runoff all cross boundaries invisibly — and the common law had a name for that: nuisance. If your operation sends something physical onto my land that interferes with my use of it, I can sue for damages or an injunction to stop it.

Two refinements keep this honest:

First come, first served. If a factory was already making noise when you bought the house next door, the factory homesteaded an easement to make that noise (Homesteading (First-comer Ethic)). You “came to the nuisance” and bought the house at a price that reflected it. The newcomer can’t demand that the established use stop.
Proof. The plaintiff has to show the invasion and who caused it. That’s demanding, and it should be: the alternative is punishing people who can’t be shown to have done anything.

“But pollution is diffuse and untraceable” is less true than it sounds. Emissions can be measured at the boundary, sourced by their chemical signature, and traced to the stack — and the plaintiff who couldn’t prove anything against a single defendant still had the injunction against the identifiable ones.

How Regulation Took the Remedy Away

Until the early 19th century, Anglo-American courts treated pollution as trespass. A polluter who damaged a neighbour’s land owed for it, and could be enjoined.

Then the courts changed sides. Judges began weighing a polluter’s damage against “the public good” and “progress”, and increasingly let industry off on the grounds that its output mattered more than the neighbour’s property. Later still, permit regimes replaced the lawsuit altogether: a polluter operating within his permit was shielded, and the victim’s remedy became a complaint to an agency. Murray Rothbard documented the shift in “Law, Property Rights, and Air Pollution” (Cato Journal, 1982).

The result is the opposite of what regulation promises. The permit doesn’t protect the neighbour; it protects the polluter from the neighbour. A licence to emit X tonnes is a licence to invade X tonnes’ worth of other people’s property. See Regulatory Capture for who gets to set X.

Liability vs Licensing

	Liability	Licensing
Who it restrains	The person who caused harm	Everyone who wants to act
When	After a real invasion	Before anything has happened
Who bears the cost of error	The aggressor	Whoever’s denied the licence — and the regulator bears nothing
Standard	Did the invasion happen?	Did the officials approve?

Liability gives every actor Skin in the game: harm someone and you pay. Licensing removes it: once approved, the actor is shielded, and the official who approved him faces nothing if he was wrong. One aligns incentives with not harming people. The other aligns them with getting a signature.