Hayek coined the term "fatal conceit" to refer to the errors of economic central planners, particularly socialists. The idea is that central planning suffers from a misplaced faith in rationally designed human institutions, as opposed to evolved, decentralized orders. (A similar point is made by leftist James C. Scott in his book, Seeing Like A State: How Certain Schemes to Improve the Human Condition Have Failed; and others have previously worked the same turf, though without the historic importance of Hayek's particular application, which of course considerable predates his last book).

After a while, one starts seeing fatal conceits everywhere. Occasionally, they even crop up in libertarian circles. One example: some libertarian critiques of intellectual property lean heavily on the importance of contract as a possible substitute for copyright. Where's the problem here? Considerable faith in the institution of

contract is, after all, justified by experience. Contract is an evolved order, not a "designed" one.

But contract abstracted from all practical considerations of what makes it work in an evolved order might as well be a designed order. In the paper in question, though, the idea is that statutory schemes are inferior partly because their enforcement costs are rising. Contract can only work as a substitute, however, if the contracts can be enforced. And in many cases... an attempt to substitute contract for copyright not only runs into traditional privity problems, but new enforcement problems as well. The same or very similar enforcement problems as statutes. The exception is contract buttressed by technological measures--DRM--but that only lowers enforcement costs in the exact same way that it would lower them for statutory rights!

Furthermore there are always gaps in contracts; the attempt to foresee all possible contingencies would require as much omniscience on the part of the contracting parties as any central planner. Even with contract, there still needs to be law, for there will be gaps to fill, and then the courts will supply default rules to fill it. Indeed, on one view, that is just what copyright law is... default rules to be applied in the absence of contract.

Now, copyright law is itself a designed institution--modeled on property and contract law, but designed nonetheless. So one continues to work the bugs out. And by all means, let people contract out of it (more on this later this week). But when the problem is at bottom one of needing new low-cost enforcement mechanisms to support the ground rules underlying markets, well, I don't think we can possible solve it by stapling 200 pages of contract to everything.