Monday, January 30, 2006

Free banker to be on Federal Reserve Board?

Larry White reports on President Bush's nomination of Randy Kroszner for the U.S. Federal Reserve Board. I'm so used to Bush doing such destructive things to our institutions that I'm doubly amazed and delighted by this choice.

If Alan Greenspan, who once strongly favored the gold standard, didn't turn the dollar into a gold currency as head of the Federal Reserve (at least, it didn't stay that way in recent years), I suppose we can't expect a partial fan of free banking to return the U.S. to private competition in money just by being on the Board. But it would be nice to know that somebody who shares Greenspan's knowledge that fiat legal tender is not the only useful kind of money is going to be on the Board. Perhaps Kroszner can unconfuse federal law enforcers about private currencies.

Thursday, January 26, 2006

E-gold challenges forfeiture

The U.S. government has confiscated some e-gold related funds on the pretext of failure to obtain a license as a "money transmitter," as Ian Grigg reports. Apparently e-gold has already had to put up with "approximately 300 summonses, subpoenas, and other requests for information." Unless they are counting routine stuff, that sounds rather like harassment. The feds are arguing that the U.S. portion of e-gold, G&SR, is a "money transmitter" even though the U.S. Treasury has refused to recognize e-gold as a "currency."

Thanks to the out-of-control Washington D.C. bureaucracy, the U.S. is becoming a poor place to do business if you have an innovative business that rubs some people in D.C. the wrong way. For example, if you claim that you have a new form of money that competes with inflating U.S. dollars.

Another thing that may rub feds the wrong way is the embarrassing fact that e-gold has appreciated by over 100% compared to the U.S. dollar since 1999. In other words, if you held $1,000 worth of e-gold since 1999, it would be worth over $2,000 now. It's closer to the truth to say that the dollar is worth about half what it was in 1999 than to say that e-gold is worth twice as much. Which currency is the funny money?

Interestingly, Yahoo Finance considers gold (although not e-gold in particular) to be a "currency" for the purposes of their currency converter.

History, property, and security -- update

In response to comments, for example those on Brad DeLong's blog, and otherwise due to further thinking and research, I've updated by paper on History and the Security of Property.

Monday, January 23, 2006

BlackBerry appeal denied

The U.S. Supreme Court has declined to hear RIM's appeal in RIM v. NTP. On the other hand, the U.S. Patent Office is re-examining NTP's patent and has preliminarily rejected some of its claims.

Saturday, January 21, 2006

Estimating the value of favors

Ian Grigg's post on Bill Monk reminded me that I had written the following (excerpts from Measuring Value, with a few edits):

The value measurement problem is very broad. It comes into play in any system of exchange -- reciprocation of favors, barter, money, credit, employment, or purchase in a market. It is important in extortion, taxation, tribute, and the setting of judicial penalties. It is even important in reciprocal altruism in animals. Consider monkeys exchanging favors -- say pieces of fruit for back scratches. Mutual grooming can remove ticks and fleas that an individual can't see or reach. But just how much grooming versus how many pieces of fruit constitutes a reciprocation that both sides will consider to be "fair," or in other words not a defection? Is twenty minutes of back-scratching worth one piece of fruit or two? And how big a piece? And just how long is twenty minutes anyway? In some cases this is relatively easy to solve, as with the delayed barter of blood for blood in vampire bats. These bats can come home from a hunting mission either overstuffed or starving. Overstuffed bats can regurgitate blood to feed hungry ones. The grateful recipient can remember the favor an return it in a future hunting trip when the tables might be turned. And indeed, some degree of reciprocal trade takes place between vampire bats, even among non-kin.

Even this simple case of trading blood for blood, is, however, far more complicated then it seems. Just how do the bats estimate the value of blood they have received? Do they estimate the value of a favor by weight, by bulk, by taste, by its ability to satiate hunger, or other variables? Just the same, measurement complications arise even in the simple monkey exchange of "you scratch my back and I'll scratch yours".

For the vast majority of potential exchanges, the measurement problem is intractable for animals. Even more than the easier problem of remembering faces and matching them to favors, the ability of both parties to agree with sufficient accuracy on an estimate of the value of a favor in the first place is probably the main barrier to reciprocal altruism among animals.

It is also likely the most important barrier to exchange among humans. Many kinds of exchange, probably many more than most economists perceive, are rendered infeasible by the inability of one or both parties to the exchange to estimate its value. For most of human history, most kinds of markets that are possible today were not then feasible, in large part due to the inability of potential market participants to measure value: to estimate the value of the transaction to themselves and then use these estimates to discover and agree on a common objective measurement. Measurement of value was and is also important to the development of many economic institutions related to markets. Accounting was crucial to the development of large companies and modern systems of taxation.

The process of determining the value of a product from observations is necessarily incomplete and costly. For example, a shopper can see that an apple is shiny red. This has some correlation to its tastiness (the quality a typical shopper actually wants from an apple), but it's hardly perfect. The apple's appearance is not a complete indicator -- an apple sometimes has a rotten spot down inside even if the surface is perfectly shiny and red. Yoram Barzel calls an indirect measure of value -- for example the shininess, redness, or weight of the apple -- a proxy measure. In fact, all measures of value, besides prices in an ideal market, are proxy measures -- real value is subjective and largely tacit.

Such observations also come at a cost. It may take some time to sort through apples to find the shiniest and reddest ones, and meanwhile the shopper bruises the other apples. It costs the vendor to put on a fake shiny gloss of wax, and it costs the shopper because he may be fooled by the wax, and because he has to eat wax with his apple. Sometimes these measurement costs comes about just from the imperfection of honest communication. In other cases, such as waxing the apple, the cost occurs because rationally self-interested parties play games with the observable.

Measures are critical components of institutions-- such as auctions, contracts, accounting systems, legal damage rules, tax rules, etc. -- that align incentives between parties who, prior to participating in the institution, have incompatible incentives. We can divide the measurement problem into two components -- the first, choosing the phenomena and units that will be measured, and second, measuring those attributes in a way that minimizes spoofing of the measure between parties whose incentives with respect to the value are misaligned.

Cost can usually be measured far more objectively than value. As a result, the most common proxy measures are various kinds of costs. Examples include:

(a) paying for employment in terms of time worked, rather than by quantity produced (piece rates) or other possible measures. Time measures sacrifice, i.e. the cost of opportunities foregone by the employee.

(b) most numbers recorded and reported by accountants for assets are costs rather than market prices expected to be recovered by the sale of assets.

(c) non-fiat money and collectibles obtain their value primarily from their scarcity, i.e. their cost of replacement.

Long distance trade in pre-Roman northern Europe

Bog men dating from between 390 and 175 BC in Ireland used hair gel made out of pine resins imported from Spain or southwest France.

From contracts to money

In the middle of the Darby century came the important decision of Miller v. Race. Surprisingly, no copy of this case is to be found online save in the syllabus of Professor Gregory Maggs. So with his permission I've appended his edited version of the case (with some additional very minor edits of my own) below.

Negotiable instruments – checks, bank notes, and so on – are promises to pay or orders with an implied promise to pay, and are thus contracts. But they differ from contracts in two important ways. First is the idea of “merger.” Normally, a contract right is an abstraction that is located nowhere in particular but belongs to a party to the contract or to a person to whom that party has assigned that right. Possessing a copy of a normal contract has nothing to do with who has rights under that contract. But in a negotiable instrument, the contract right is “merged” into the document. Assignment of that right takes place simply by transferring the document (in the case of a bearer instrument) or by indorsing (signing) and transferring it.

The second big way negotiable instruments differ from contracts is the “good faith purchaser” or “holder in due course” rule which is illustrated by Miller v. Race. In a normal sale of goods under common law, the new owner’s title to the goods is at risk to the contractual defenses of a prior owner. For example: Alice is Dr. Barb’s patient and is feeling ill. Barb says to Alice, “sell me your Mercedes for $100 and you’ll feel a lot better.” Alice complies, but then later realizes she was snookered. Meanwhile, Barb sells the car to Chuck, who knows nothing of how Barb acquired it, for $50,000. Under contract law, Chuck can get no greater title to the car than Barb had. But the contract is void for undue influence, so Barb doesn’t have legal title to the car. Ergo, Chuck does not, either. Alice can sue Chuck to get her car back. Chuck must then sue Barb for his $50,000, an expensive and often-futile thing to do.

Contract defenses are invoked so commonly that any downstream owner of a good is at significant title risk under common law. This risk could make things very bad for paper money, which to work efficiently should change hands dozens of times or more. Thus, Miller v. Race has long been celebrated as an advance that made bank notes under the common law a more efficient form of money. Miller helped create for promissory notes under common law (including, crucially, bank notes) what is now known as the “good faith purchaser” or “holder in due course” rule. Summarized, this rule says that a holder in due course who obtained the instrument for value, in good faith, and without notice of any upstream claims or defenses, is entitled to enforce the promise to pay in that instrument regardless of most kinds of such claims or defenses.

The good faith purchaser rule can cause its own problems. For example, when you sign a promissory note to get a mortgage, these days the bank usually sells that note to an aggregator, who bundle up these mortgage notes in packages and sell them to investors. In most states if you make your mortgage payments to Bank A, who has meanwhile sold the mortgage to Bank B (and perhaps not told you), Bank B can bill you for that same payment and foreclose on your house if you don't pay. You have to pay Bank B and then beg, plead, or sue Bank A to get your money back.

Today, the differences between negotiable instrument law and contract law are sufficient that negotiable instruments and sale of goods are in different and largely distinct sections of the U.S. Uniform Commercial Code.

Mr. Race was a clerk at the Bank of England who refused to pay on demand when Miller presented the Bank’s note. Miller was an innkeeper who had unknowingly taken the note as payment from a lodger who had stolen the note from the mails. Forthwith, Miller v. Race:

Miller v. Race
Court of King’s Bench
1 Burr. 452, 97 Eng. Rep. 398 (K.B. 1758)

It was an action of trover against the defendant, upon a bank note, for the payment of twenty-one pounds ten shillings to one William Finney or bearer, on demand.

The cause came on to be tried before Lord Mansfield at the sittings in Trinity term last at Guildhall, London and upon the trial it appeared that William Finney, being possessed of this bank note on the 11th of December 1756, sent it by the general post, under cover, directed to one Bernard Odenharty, at Chipping Norton in Oxfordshire; that on the same night the mail was robbed, and the bank note in question (amongst other notes) taken and carried away by the robber; that this bank note, on the 12th of the same December, came into the hands and possession of the plaintiff, for a full and valuable consideration, and in the usual course and way of his business, and without any notice or knowledge of this bank note being taken out of the mail.

It was admitted and agreed, that, in the common and known course of trade, bank notes are paid by and received of the holder or possessor of them, as cash; and that in the usual way of negotiating bank notes, they pass from one person to another as cash, by delivery only and without any further inquiry or evidence of title, than what arises from the possession. It appeared that Mr. Finney, having notice of this robbery, on the 13th December, applied to the Bank of England, “to stop the payment of this note:” which was ordered accordingly, upon Mr. Finney’s entering into proper security “to indemnify the bank.”

Some little time after this, the plaintiff applied to the bank for the payment of this note; and for that purpose delivered the note to the defendant, who is a clerk in the bank: but the defendant refused either to pay the note, or to re-deliver it to the plaintiff. Upon which this action was brought against the defendant.

The jury found a verdict for the plaintiff, and the sum of 21l. 10s. damages, subject nevertheless to the opinion of this Court upon this question—“Whether under the circumstances of this case, the plaintiff had a sufficient property in this bank note, to entitle him to recover in the present action?”
* * *

Sir Richard Lloyd, for the defendant.
The present action is brought, not for the money due upon the note; but for the note itself, the paper, the evidence of the debt. So that the right to the money is not the present question: the note is only an evidence of the money’s being due to him as bearer.

The note must either come to the plaintiff by assignment; or must be considered as if the bank gave a fresh, separate, and distinct note to each bearer. Now the plaintiff can have no right by the assignment of a robber. And the bank cannot be considered as giving a new note to each bearer: though each bearer may be considered as having obtained from the bank a new promise.

I do not say whether the bank can, or cannot stop payment; that is another question. But the note is only an instrument of recovery. Now this note, or these goods (as I may call it,) was the property of Mr. Finney, who paid in the money: he is the real owner. It is like a medal which might entitle a man to payment of money, or to any other advantage. And it is by Mr. Finney’s authority and request that Mr. Race detained it.

It may be objected, that this note is to be considered as cash “in the usual course of trade.” But still, the course of trade is not at all affected by the present question, about the right to the note. A different species of action must be brought for the note, from what must be brought against the bank for the money. And this man has elected to bring trover for the note itself, as owner of the note; and not to bring his action against the bank for the money. In which action of trover, property can not be proved in the plaintiff: for a special proprietor can have no right against the true owner.
* * *

Mr. Williams contra for the plaintiff.
The holder of this bank note, upon a valuable consideration has a right to it, even against the true owner.

1st, the circulation of these notes vests a property in the holder, who comes to the possession of it, upon a valuable consideration.

2dly, this is of vast consequence to trade and commerce; and they would be greatly incommoded if it were otherwise.

3dly, this falls within the reason of a sale in market-overt; and ought to be determined upon the same principle.
* * *

Lord Mansfield now delivered the resolution of the Court.

After stating the case at large, he declared that at the trial, he had no sort of doubt, but this action was well brought, and would lie against the defendant in the present case; upon the general course of business, and from the consequences to trade and commerce: which would be much incommoded by a contrary determination.

It has been very ingeniously argued by Sir Richard Lloyd for the defendant. But the whole fallacy of the argument turns upon comparing bank notes to what they do not resemble, and what they ought not to be compared to, viz. to goods, or to securities, or documents for debts.

Now they are not goods, not securities, nor documents for debts, nor are so esteemed: but are treated as money, as cash, in the ordinary course and transaction of business, by the general consent of mankind; which gives them the credit and currency of money, to all intents and purposes. They are as much money, as guineas themselves are; or any other current coin, that is used in common payments, as money or cash.
* * *

Here, an inn-keeper took it, bonĂ¢ fide, in his business from a person who made an appearance of a gentleman. Here is no pretence or suspicion of collusion with the robber: for this matter was strictly inquired and examined into at the trial; and is so stated in the case, “that he took it for a full and valuable consideration, in the usual course of business.” Indeed if there had been any collusion, or any circumstances of unfair dealing; the case had been much otherwise. If it had been a note for 1000l. it might have been suspicious: but this was a small note for 21l. 10s. only: and money given in exchange for it.
* * *

A bank-note is constantly and universally, both at home and abroad, treated as money, as cash; and paid and received, as cash; and it is necessary, for the purposes of commerce, that their currency should be established and secured.
* * *

Lord Mansfield declared that the Court were all of the same opinion, for the plaintiff; and that Mr. Just. Wilmot concurred.

Friday, January 20, 2006

Google challenges sweeping subpoena for search engine records

Not two days after I observed that the United States gives litigants intrusive discovery and subpoena powers, the Justice Department provides a good example. In pursuit of its case defending the Child Online Protection Act (COPA) in ACLU v. Gonzales that Department has commanded, via a subpoena for production of evidence, various search engines that are not parties to the suit (Google, Yahoo, etc.) to hand over very large samples of URLs available to be searched and search queries from you and me. For example, it commanded Google to hand over all "URL's" available to be searched "as of July 31, 2005" and and all queries performed on their search engines between June 1 and July 31st of 2005.

Fortunately, the subpoenas have not asked for information that might identify the querier (besides the query itself, which identifies all us "ego surfers" who like to keep track of what people are saying about us). Thus, it has not asked for your Internet protocol addresss that search engines could and probably routinely do record, or cookies which also can be used to tie together different searches that you have made.

Perhaps the DoJ is just looking to make a statistical study to justify the law, for example that some fraction of Internet searches are for porn. They may argue that if porn is available to a search engine, then it is effectively available to minors. According to Professor Orin Kerr, the DoJ is arguing that COPA requires password protection for pornography, not just filters: "DOJ's argument is that it needs the information from Google to explain the role of search engines in locating and obtaining pornography, which is then integral to understanding why filters are not an effective alternative to COPA screens [i.e., password protection]." However, unless the data is securely protected by the procedures (archaically designed for paper documents) specified in the protective order, the DoJ could use this data for a wide variety of surveillance unrelated to porn and COPA.

Here's a declaration that includes the subpoena, Google's response, and the protective order. Whereas MSN, AOL, and Yahoo complied with the subpoena (after apparently negotiating to reduce the amount of data), Google has objected to the subpoena. Good for Google! Powers to intrude on new kinds of privately collected data should never be given to a government without challenge, except where absolutely necessary in a truly urgent emergency, which this surely is not. (In other words, if this was September 12 and DoJ was asking airline web sites to hand over search queries for trips by plane to the East Coast the morning of the 11th, I'd expect Google to be patriotic and comply. Short of that kind of very rare and very urgent extremity, I expect and am happy to see them be patriotic and resist). If the Department of Justice wants Google's records, it will now have to ask the court to compel production under Federal Rules of Civil Procedure 45(c)(2)(B).

I hope the federal court allows the ACLU to examine that kind and volume of data in its discovery of the NSA. Much more likely is that the Department of Justice is going to invoke national security to set up a very big double standard when it comes to discovery. The NSA can argue that protective orders designed for paper are woefully inadequate for protecting top secret digital data. Alas, they'd be right, even if it were just commercial trade secret data. Our law firms need and our courts should require 21st century security techniques for protection of discovered or subpoenaed digital evidence. We could, for example, use key splitting techniques and require that discovery be done on tamper-evident court computers with the evidence owner and a court official present. We might also in the future use multiparty secure computation for studies of the kind the DOJ, the ACLU, the FISA court, and so on would like to perform on sensitive digital data.

Given federal discovery rules, PATRIOT, FISA, and the unchecked and infinite power claimed by the executive branch, the sad fact as things stand now is that the feds claim the right to snoop on us almost at will. Indeed, the Justice Department is currently arguing that they have a perfect right to snoop on any aspect of our lives, whether we consider said aspect to be private or not, at will, if at their sole discretion they believe it is relevant to national security. But despite the supposed even-handedness of federal discovery rules, the federal government is going to declare that, when they get sensitive about it, we have very little right to check up on them. Since when do "public servants" get to conduct surveillance on "we the people" and not vice versa?

Thursday, January 19, 2006

What data is on your hotel card key?

ComputerWorld has a good article on what data they did and did not find on hotel card keys from various U.S. chains. They generically claim that some European and older U.S. card key systems put personal information on hotel card keys, which could leave guests vulnerable to ID theft or other privacy violations. The article's author, Robert L. Mitchell, concludes that current card keys used at major U.S. hotel and motel chains are OK, although in some cases they found data which they were unable to decode. Via Emergent Chaos.

Some recent patent news

The famous (among patent attorneys) U.S. claim construction case Phillips v. AWH may get even bigger if the Supreme Court decides to hear AWH's appeal. AWH wants the Court to address the question of whether the Federal Circuit's review of claim interpretations on appeal should be done from scratch, which is the Federal Circuit's view, or with some degree of deference to the lower court's interpretation. The Federal Circuit has been notorious for overturning over half of lower court interpretations of claims language. This seems to imply a rather large degree of randomness in the way claims are interpreted. My opinion is that this high uncertainty may be a consequence of the inherent difficulty of defining claims to chunks of technology "space". If that's the case, deferring to the lower court would not make this uncertainty go away, it would simply hide it, giving to our patent laws a false sense of integrity. Deference would at least make our arbitrary patent decisions more efficient. Here are links to the briefs in front of the Court. Harold Wegner says to expect the Court's decision on whether it will hear the case on February 21st.

Meanwhile, the Enlarged Board of Appeal of the European Patent Office has decided an issue of law similar to that in the U.S. Metabolite case which is now in front of our Supreme Court. The EPOs' decision will allow drafters of European patents to use, to some extent, the technique of gratuitous elements in order to get around the ban European Patent Convention Article 52(4) places on patents for "diagnostic methods practiced on the human or animal body[.]" European law also bans software patents, if you are foolish enough to believe the plain language of the statute.

Today the Wall Street Journal has a good article on RIM v. NTP, where the U.S. Federal Circuit decided that a network system that would infringe a U.S. patent if entirely within the United States would also infringe a patent if one (at least) of the claim elements was located outside the United States but the users and thus the locus of control (so reasoned the court) were located within the United States. However, for a similar method claim, all the steps of the procedure had to be performed within the United States in order for the procedure to infringe the method claim. The WSJ's article is available today online.

Wednesday, January 18, 2006

Professionals sue to stop illegal NSA surveillance

A group of U.S.-based professionals who often communicate overseas has sued the U.S. National Security Agency, observing that their professional communications and other free speech have been chilled by illegal NSA surveillance and that their Fourth Amendment rights to speak privately with clients, sources, and so on have been violated. Here is their complaint to the U.S. federal court. The plaintiffs say they "have a well-founded belief that their communications are being intercepted" by the NSA's illegal surveillance of domestic-overseas communications. The NSA's program is "is disrupting the ability of the plaintiffs to talk with sources, locate witnesses, conduct scholarship, and engage in advocacy," and thus the NSA is "seriously compromising the free speech and privacy rights of the plaintiffs and others" in violation of the First and Fourth Amendments and the separation of powers. I have explained why the NSA domestic-overseas surveillance program violates the Fourth Amendment and separation of powers here. I look forward to reading the plaintiffs' arguments for their free speech and association claims.

The lead plaintiff is the American Civil Liberties Union (ACLU). Among the plaintiffs is James Bamford, author of The Puzzle Palace and Body of Secrets, perhaps the best books written about the NSA. It will be interesting to see U.S. discovery rules (among the most intrusive in the world) pitted against U.S. national security secrecy rules (among the most paranoid in the world).

The complaint has some spelling errors and typos, suggesting that it was rather quickly thrown together. Here are the plaintiffs' Causes of Action and Prayer for Relief:


192. The Program violates plaintiffs’ free speech and associational rights guaranteed by the First Amendment.

193. The Program violates plaintiffs’ privacy rights guaranteed by the Fourth Amendment.

194. The Program violates the principle of separation of powers because it was authorized by President Bush in excess of his Executive authority under Article II of the United States Constitution and is contrary to limits imposed by Congress.

195. The Program violates the Administrative Procedures Act because the NSA’s actions under the Program exceed statutory authority and limitations imposed by Congress through FISA and Title III; are not otherwise in accordance with law; are contrary to constitutional right; and are taken without observance of procedures required by law.


WHEREFORE plaintiffs respectfully requests[sic] that the Court:
1. Declare that the Program is unconstitutional under the First and Fourth Amendments;

2. Declare that the Program violates the principle of separation of powers;

2.[sic] Declare that the Program violates the Administrative Procedures Act;

3. Permanently enjoin defendants from utilizing the Program;

4. Award Plaintiff fees and costs pursuant to 28 U.S.C. § 2412;

5. Grant such other and further relief as the Court deems just and proper.

Tuesday, January 17, 2006

Trial by ordeal

Hearing and reading many legal arguments has reinforced my belief that, as great as rational argument and readily observable phenomena are, we moderns have a superstition that they can solve every kind of problem. They can't. Rationality, absent the right kinds of express knowledge, may for some applications be very inferior to intuition based on tacit knowledge or rationality based on ancient wisdom rather than readily observed phenomena as its axioms. Too often "rational argument" is just shallow and foolish rationalization and carries false authority because it seems rational.

Furthermore, our ancestors' brains as far back some hundred thousand years were just as large as ours. Why then are we so quick to believe that the thoughts in those brains were far more foolish than ours?

Thus, I've long believed that there is hidden wisdom in ancient traditions that were long followed and that evolved through little more than trial and error rather than being purposefully designed and rationally explained. On the surface to our minds these traditions may seem foolish, pointless, or superstitious, but there is often hidden wisdom to be found. If found and expressed in modern rational terms, we may find something like that wisdom applies again, rather than our current beliefs, in future changed circumstances.

Here's a possible extreme example of some hidden wisdom in ancient tradition where we moderns see only rank superstition (although it may be a silly example, too -- the jury is still out).

We now consider the ancient trial by ordeal to be a barbaric relic, and rightly so, but below I give some reasons to believe that ordeals worked to some extent, and that they were among the best methods that legal systems could have used in Europe before around the 16th century when investigators started gaining substantial ability to gather and piece together circumstantial evidence. The other widely used methods of fact finding before this period were direct eyewitnesses to the actual crime(rare), witnesses as to reputation, confession (often obtained by torture), and grand juries of close neighbors. Usually two or more of these methods were combined. In England, it was common before the 13th century to combine a grand jury of neighbors (who usually had strong local knowledge of criminal and victim as well as often being witnesses to circumstantial evidence) with an ordeal. Grand jurors had such profound personal knowledge of the defendant, a fellow villager, that they would not, as they are said to do today, indict the proverbial ham sandwich. Rather, grand juries had usually lived with the defendant and victim for their entire lives, and thus had profound knowledge of the characters and circumstances that modern juries lack. They might, however, be susceptible to bias against the defendant. The ordeal was added as an extra required step to let God, as they saw it, reverse the grand jury if the grand jury made an error or swore falsely.

Some of the most common ordeals were those where the defendant was wounded in some way. If the wound was healing well, the defendant was pardoned, and if healing poorly, guilt was confirmed. For example, a hot iron would be used to burn the hand. The hand would be bandaged up and then examined in three days.

Two theories for how the ordeal could have been effective came across my mind earlier today (in a legal history class discussing ordeals). I just searched to learn that these were previously and independently thought of by somebody posting under the nym "WolfKeeper".

The first theory is that it was an instance of the placebo effect. With the placebo effect, often people will feel less pain, be more active (e.g. walk longer on a treadmill), be less depressed, etc. on treatment they think is real, but is not (e.g. a sugar pill) than with no treatment. Whether wounds will physiologically heal faster is more controversial. However, it does seem to be thte case that more extreme treatments, such as surgery, have a greater placebo effect than convenient treatments, such as taking a small, easy to swallow pill.

Defendants probably almost always believed the religious claims about ordeals that they were truthful messages from God. Under the placebo theory, if they so believed and were innocent, their wounds would heal faster; if they so believed and were guilty, they would heal slower. The placebo effect would have been strong both because of the extremity of the ordeal and the strength of the religious belief.

The second theory may be a physiological cause of a strong placebo effect on healing, or may be independently effective, or both. This theory is that cortisol levels would have been (and may still be) elevated higher and for longer periods for guilty defendants than for innocent defendants. The most extreme effect of extended periods of high cortisol is Cushing's Syndrome which can cause rapid weight gain, easy bruising, and slow healing of wounds. Weight gain and slow healing probably often occur to a lesser extent for less extreme elevations of cortisol. Perhaps ordeal by water and ordeals by wounds, respectively, could distinguish higher levels of cortisol typical in the guilty from lower levels of cortisol typical of the innocent. (I say "could" because much of the difference in stress, and thus levels of cortisol, could have been caused by the belief by both the guilty and the innocent that God would send a truthful signal via the ordeal. Thus the effect might not be readily replicable with typical modern defendants). The counter-argument is that an innocent person on trial might by as subject to long-term stress as a guilty person. This argument will have to be resolved by experimentation, if such a study is possible with modern defendants.

A third theory, which I at first dismissed in an instant and almost subconsciously as trivial, but which might in fact be very important, is that religious belief in the efficacy of ordeals might have convinced many guilty defendants to confess, whether or not the ordeal was otherwise effective. This theory might be tested if we can estimate the frequency of confessions from the historical record.

We might not be able to ethically test the placebo theory of ordeals. But the cortisol theory probably can be tested, for example by testing, at the same early phase of prosecution (before trial is held or charges are dropped) the cortisol levels of people and seeing whether they are later convicted by juries or whether their charges are dropped early by the prosecution (assuming we believe today's prosecutors and juries are reasonably accurate!)

The Catholic Church proscribed ordeals at the Fourth Lateran Council in 1215 and they soon fell out of favor in Europe. This proscription is probably due to the effect of recovering the ancient rational thinking of Roman law and Aristotle in Italy over the course of the 12th century. If the placebo effect theory is correct, the ordeal didn't merely become unpopular with the authorities -- it actually stopped working when people stopped believing that it worked.

On the European continent, the trial by ordeal was replaced with, in many cases, confession obtained by torture. It's not clear to me that a confession extracted by torture is any less barbaric or more effective than an ordeal. Torture and confession did, however, comport more closely to the reborn Roman law. In England, which lacked the strong hierarchical control by officialdom assumed by Roman procedural law, ordeals were replaced with trial by jury. Grand juries became pro forma and the main action moved to the "petite jury" or trial jury.

Not until around the 16th to 18th centuries did Europeans learn to use circumstantial evidence effectively. The methods the Continent developed for judges to formally weigh circumstantial evidence had quite a bit to do with the scientific revolution and the development of probability theory, but that is another story. Circumstantial evidence and science are two areas where it did pay off handsomely to express knowledge and apply rational thinking to it.

My thanks to Professor Renee Lerner and her wonderful legal history class for helping to inspire these thoughts.

Sunday, January 15, 2006

Laws for the mind police

"Cybercrime" statutes often create a very vague and broad prohibition (e.g. against "annoy[ing]" someone anonymously or pseudonymously, against "unauthorized" access to a computer, etc.) For example, a bill recently hidden in a U.S. federal budget authorization and signed by the President makes it a crime for an Internet user to send or post a message on the Internet "without disclosing his identity and with intent to annoy."

Declan McCullough wrote this good layman's analysis of the new anti-Internet-annoyance law. Declan's analysis has, however, been roundly criticized by legal scholars based in Washington D.C.

Scholars who fear the Internet or favor arbitrary government power, or who out of excess love of authority wish to justify laws enacted from such motivations, typically give three kinds of arguments to justify these despicable mind police laws:

(1) Don't worry about it, it was already the law. For example, the above anti-annoyance law already applied to "telecommunications devices." But if it's already the law, how is it any less useful to inform people that a law that already exists, but that they were probably not aware of it or at least of its implications, than to inform them of a new law? And if it's already the law, why did whoever put the language into a bill feel the need to change it? Eugene Volokh's markup of the bill's language (see below) demonstrates that, contrary to what some others have argued, the recent anti-annoyance bill has indeed changed the law for the Internet.

(2) Dont' worry, "intent to X" is far more serious than the mere act with an effect of X and doesn't reach nearly as many people. Unauthorized access is not per se culpable, but intent to gain unauthorized access is. Being annoying is not culpable but intent to annoy is. This avoids a basic question -- why should a state of mind be criminally culpable just because one of the results intended by that state of mind is a minor problem that occur quite often many people's or business's lives, such as unauthorized access or annoyance? A law that proscribes a state of mind intending to commit the act implies that the result itself is so extreme that the criminal law should reach through the wires to reach it. But Internet users are annoyed hundreds of millions of times a day. There are millions of innoccous but unauthorized accesses per day. These are nowhere close to the extremity of result required to render intending that result to be a criminal state of mind. Furthermore, the law does not say "sole intent" to annoy. This means that one can intend multiple things by an Internet message, but as long as one of those intentions, however minor, was to annoy a potential reader of the message, then under the plain meaning of the statute you are guilty of a crime. Under the plain meaning of the new law, if you intend to mildly annoy and entertain andinform readers under a pseudonym, you a guilty of a crime. If you intend to entertain and inform all readers and intend to annoy just a few potential readers (as has often occurred with politically valuable speech, for example with much pseudonymous speech in and related to The Federalist Papers), you are guilty of a crime, under the properly interpreted statute.

(3) Don't worry, the courts won't really take the language seriously. Daniel Solove, for example, argues "I'm certain that this [identity requirement] provision will be read narrowly to apply to individuals who intend to persistently or menacingly harass a person." How can he be so certain? Solove is putting a very large degree of trust in the courts to read a statute in a way that is very different from the plain meaning of the statute and in a way that violates a basic canon of legal interpretation, namely that when Congress adds a phrase to a list it must mean something that the other members of the list did not mean. Congress must have added "annoy" because they meant to cover more states of mind than just intentions to "abuse, threaten, or harass." Nor does Solove explain why a court would be compelled by law, rather than merely biased by an inclination to justice, to read the statute narrowly if the court feels strongly that it should not. For example, the court may find the political opinions expressed in the speech beyond their pale and apply normal plain-meaning and common canon interpretation instead of Solove's method of ignoring the text. Orin Kerr cites the First Amendment as a reason a court would read the statute narrowly, but doesn't explain why a court should not more properly apply the substantial overbreadth doctrine and throw out the entire clause, or at least the entire word "annoy," as facially unconstitutional. Kerr by making this argument implies that there are many kinds of mind police prosecutions against an "intent to annoy" that fall short of an "intent to...harass" that he expects courts to find constitutional. This implies the result Eugene Volokh pointed out using a different line of reasoning, that courts would be carving out a new exception to the First Amendment for online and phone speech. Finally, neither Kerr nor Solove address the severe damage done to our legal system in terms of notice and rule of law when courts must throw plain meaning and standard canons of interpretation out the window in order to do justice.

Unless we can trust the courts to severely restrict their scope or find them unconstitutional, these statutes are open invitations for prosecutors to attack almost any variety of Internet activity they don't like and that they think they can convince a judge or jury not to like. Cybercrime statutes are generally not "laws" in the sense of "rule of law," but invitations to arbitrary bureaucratic dominion over almost any kind of Internet behavior, checked only by judges who wish to throw proper legal interpretation out the window (and, in the U.S., checked by juries).

Here's the actual language (via Eugene Volokh) of the anti-pseudonymous-annoyance clause, with snuck-in revision that makes it apply to the Internet underlined:

47 U.S.C. § 223(a)(1)(C): Whoever ... in interstate or foreign communications ... makes a telephone call or utilizes a telecommunications device, whether or not conversation or communication ensues, without disclosing his identity and with intent to annoy, abuse, threaten, or harass any person at the called number or who receives the communications....

(h)(1) The use of the term “telecommunications device” in this section --
(A) shall not impose new obligations on broadcasting station licensees and cable operators covered by obscenity and indecency provisions elsewhere in this chapter; and
(B) does not include an interactive computer service [= any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet and such systems operated or services offered by libraries or educational institutions].; and
(C) in the case of subparagraph (C) of subsection (a)(1), includes any device or software that can be used to originate telecommunications or other types of communications that are transmitted, in whole or in part, by the Internet ....

Friday, January 13, 2006

Multiparty secure computation

A few years ago I wrote this introduction to a class of cryptographic protocols often called "multiparty secure computation." Wikipedia now also has a good introduction.

The basic idea is to perform a shared yet mutually private computation over the Internet. The computation could be as simple as comparing ages or as complex as an audit or an auction. In this shared computation, the inputs are mutually private, the output shared with all participants, and the privacy of the inputs does not depend on a trusted third party. For example, Alice, Bob, and Charles can each input their ages into the protocol, and the protocol will output a result indicating who is the oldest, without any of them learning the actual age of any other. They can only learn what they can deduce from their own input and the protocol's output.

Here's a good page of links to papers on the subject. There have been some very useful breakthroughs since I wrote on the subject, including orders-of-magnitude improvements in speed and security improvements in terms of how many parties must collude to fake a result or deny a party access to the output.

Thursday, January 12, 2006

More from former NSA spy

Here's the transcript of a more in-depth radio interview with Russell Tice. I am happy to see that this former government employee is, unlike some other government employees, working hard to "preserve and protect the Constitution of the United States" instead of to create loopholes that effectively destroy it. He talks about, among other things, how he discovered an FBI agent following him, how secrecy by classification and compartmentalization encourages criminal activities at the NSA, and how the FISA court is an oblivious rubber-stamp unless the NSA is asking to do something very blatantly illegal. This strongly suggests that the NSA by avoiding the FISA court is hiding programs that are very illegal and very dangerous to our democracy.

Tice observes that, by combining the Justice Department's highly distorted view of surveillance law with its disgusting opinions on detainment and torture, "you could have potentially somebody getting the wrong phone call from a terrorist and having him [the receiver of the phone call] spirited away to some back-alley country to get the rubber hose treatment." It is already well known that completely innocent people have been detained and tortured by the CIA, and that American citizens have also been detained as "enemy combatants," with the so-called "Justice Department" arguing that all of these anti-democratic, anti-freedom, and anti-human activities are perfectly legal.

Tice has offered to testify to Congress on the NSA spy scandal, observing that "[t]he freedom of the American people cannot be protected when our constitutional liberties are ignored and our nation has decayed into a police state." That police state has been advanced by but did not begin with the current Administration. It has its main origin in the legal opinions of the Justice Department. That Department has often urged substituting very poor procedures internal to the executive branch for the real checks and balances between branches, for example judicial search warrants, called for by the Constitution. Tice's scenario has a frightening high "potential[]" of happening if the Justice Department does not stop writing self-serving legal briefs that mislead the President, the Congress, the Supreme Court, other government employees, and the American people.

Warrantless NSA spying illegal -- more scholars and former officials weigh in

Top constitutional scholars and former high-level U.S. government officials explain to Congress why by spying on domestic-overseas phone calls without warrants, the U.S. National Security Agency is breaking the law. They observe the Department of Justice letter "fail[ed] to to offer a plausible defense" of the NSA's organized criminal activities. This is quite a statement -- in the U.S. legal world, there is a plausible argument for almost any position. It further demonstates that as I have observed the Justice Department has in a very self-serving manner misled the President and is now misleading the American people about what the law is. Look for the Justice Department to mislead the Supreme Court on this issue in the future, as they have done with other issues of executive power in the past, even before Ashcroft and Gonzales headed that department which we are supposed to be able to trust with federal law enforcement.

NSA spy doffs his mask

On ABC News Russell Tice, a former operator in the NSA's "special access" a.k.a. "black world" programs, estimates that the number of domestic-overseas calls "sucked into that vacuum" of the NSA's illegal spy operation "could be in the millions." "That vacuum" is an array of custom designed NSA supercomputers that scan massive numbers of phone calls for politically incorrect keywords.

Monday, January 09, 2006

Cowen on currency

Tyler Cowen observes that those who have influence over the value of their local currency (usually government leaders and central bankers) and who hold most of their assets in a foreign currency have a strong incentive to take actions that depreciate the local government currency that they control. On the other hand, I'd add, if those trusted with the value of a currency hold unhedged long-term debt denominated in a that currency, this provides a good insurance policy for other holders of that currency. (Although going too far in this direction incentivizes deflation). I suggest that government leaders, central bank directors, and the like be publicly audited with this in mind, similar to the laws that require disclosure by company insiders when they buy, sell, or hedge their company's stock.

Schneier on Project Shamrock

Many of the issues raised by large-scale NSA spying on domestic communications to or from overseas are not brand new, as Bruce Schneier observes in disucssing Project Shamrock.

Saturday, January 07, 2006

"History and the Security of Property"

A draft of my paper "History and the Security of Property" is available. I'd love to get your comments.

E-gold woes

Ian Grigg has a good article on the the investigation involving e-gold(tm). Here is a letter from e-gold's Doug Jackson. Note that e-gold, like e-cash, PayPal, etc. is a trusted third party payment system, and thus very different from bit gold. Unlike most payment systems, however, e-gold is its own currency, fixed to the value of gold.

Thursday, January 05, 2006

"Imaginary" property

Game-based virtual property is something I'll have more to say about in the future. It might give us some insight on how other kinds of purely or primarily online property may develop. Of course, game-based virtual property is no more "imaginary" than any other kind of property. Its value, like that of any other property, is based directly on the various preferences people have for it, as well as well as on its supply, and only indirectly on attributes of the property on which those preferences are based. Those attributes may be tangible or intangible.

One interesting issue for game-based property is whether inter-game trade in it ruins the sport of the game. Imagine, for example, if in baseball the New York Yankees could buy not only bid for the best players, but could directly buy bases. Or even just barter bases between games. Imagine the Texas Rangers allowing the Yankees to turn a double into a home run, in exchange for two extra runs for the Rangers in a Yankees-Rangers game next year, so that the Yankees could beat the Boston Red Sox this year for the eastern division title.

A "level playing field" that is considered necessary for sports to be "sporting" seems to require various restrictions on trade. The goal of a sport or game is typically not efficiency in scoring runs or accumulating "gold pieces," but entertainment.

Many people justify trade restrictions outside the realm of sports and games, where efficiency is quite important, on the same kind of ethics. The results are often wasteful, and sometimes disastrous.

Tuesday, January 03, 2006

Defensible positions

I recently wrote about how the ability of Japan and Britain to defend their farmlands from foreign invaders, via their island positions and strong navies, were probably not unrelated to their having among the highest farm productivities between medieval and early modern times, despite unfavorable soils and climates.

A similar phenomena occurred for commerce in commodities (including agricultural commodities after being harvested). However, here the optimal scales of defense are much smaller since stores of commodities, along with the persons who produce, deal in, and consume those commodities, require far less space than farmland. Thus during many eras cities were independently defensible areas. In late medieval Europe cities became so independently defensible and had such different laws (specialized for commerce in commodities instead of agriculture) that they often became politically independent. Indeed, four of the most successful medieval empires, Venice, Genoa, the Lombard League, and the Hanseatic League, were either centered on such cities or were an alliance of such cities.

Several medieval areas especially benefitted from small defensible areas. See, for example, this nice satellite image of Venice. (There have been some small changes since the Middle Ages -- some of what is now ocean was once swamp land). From their small island base, Venice was able to withstand the various Dark Age invasions and become a Mediterranean superpower. Low Country cities such as Bruges, Ghent, and Amsterdam were surrounded and criss-crossed by canals such as this one in Bruges.

Canals and oceanside locations also extended the reach of shipment for commodities. Adam Smith estimated that water transport was about out twenty times cheaper by water than by the same distance on land.


Here are some interesting bits about shells as money etc.