H Spencer Banzhaf wrote:
>First, there is an even more obvious reason why 
>Sidgwick would never have thought about a 
>trading scheme for pollution.  Nobody at the 
>time could have imagined the tasks of monitoring 
>and enforcement!  To have trade, you have to 
>have the traded commodity be delivered.  In the 
>case of building height, it would have been 
>pretty easy to look up and verify whether a 
>building exceeded the height restrictions it had 
>traded away.  But how is one to know whether a 
>factory is exceeding its pollution 
>restrictions?  Much easier just to regulate its 
>smokestack height etc.  In fact, if you talk to 
>folks in the US EPA's enforcement division, they 
>will tell you that it took years of discussion 
>and work before agency people and the 
>environmentalists were convinced that cap-and-trade would work.


There may still be some convincing to do on that 
score. "Cap-and-trade" takes an externality and 
turns it into a property right, one that can be 
sold and traded. The problem is that 
externalities--and the property rights that go 
with them--can be infinitely multiplied; one gets 
a premium (a new right) with each new misery 
created. E. K. Hunt satirizes this as the 
"invisible foot." As Hunt puts it, "If we assume 
the maximizing economic man of bourgeois 
economics, and if we assume the government 
establishes property rights and markets for these 
rights whenever an external diseconomy is 
discovered [the preferred "solution" of the 
conservative and increasingly dominant trend 
within the field of public finance], then each 
man will soon discover that through contrivance 
he can impose external diseconornies on other 
men, knowing that the bargaining within the new 
market that will be established will surely make 
him better off. The more significant the social 
cost imposed upon his neighbor, the greater will 
be his reward in the bargaining process. It 
follows from the orthodox assumption of 
maximizing man that each man will create a 
maximum of social costs which he can impose on 
others. D'Arge and I have labeled this process 
"the invisible foot" of the laissez faire ... 
market place. The "invisible foot" ensures us 
that in a free-market ... economy each person 
pursuing only his own good will automatically, 
and most efficiently, do his part in maximizing the general public misery. "

He then goes on to slightly rewrite a well-known passage to describe this:

"Every individual necessarily labors to render 
the annual external costs of the society as great 
as he can. He generally, indeed, neither intends 
to promote the public misery nor knows how much 
he is promoting it. He intends only his own gain, 
and he is in this, as in many other cases, led by 
an invisible foot to promote an end which was no 
part of his intention. Nor is it any better for 
society that it was no part of it. By pursuing 
his own interest he frequently promotes social 
misery more effectually than when he really intends to promote it. "


John C. M?daille