Chapter 17: Defense

Table of Contents

The previous chapter provided rationales against government intervention in economic activity and critically examined the rationales for it, finding an absurd mishmash of conflicting rationales and transparently motivated reasoning. Initiation of aggression is a crime that seeks justification, something state-sponsored economists toil very hard to provide and popularize among the population. The closer one examines these rationales, the more obvious it becomes that they are incompatible with the fundamental basis of a capitalist market economy—respect for property rights and a civilized society—rejecting the initiation of violence.

Whereas classical economists of the nineteenth and twentieth centuries went to great lengths in rejecting the initiation of aggression in the economic sphere, they did not extend their analysis to the existence of the state or the legitimacy of its provision of security, defense, and law and order. But the works of Murray Rothbard, Hans-Hermann Hoppe, and many other anarcho-capitalist scholars in the Austrian tradition extend the analysis of human action and non-aggression to the establishment of the state itself, the legitimacy of its monopoly on violence, and the feasibility of its provision of security, defense, and law through monopoly financed by expropriation.

The Market for Defense

It is a common misconception among state-employed economists to consider defense and violence as being outside the scope of economic analysis. But as I discussed in Chapter 1, defense from aggression has all the characteristics of an economic good. It has utility, as humans prefer to avoid death and physical harm and to actualize their own will rather than being subject to another’s will. Defense from aggression is also scarce. It is not available in unlimited quantities, since aggression is an infinite series of potential threats that can arise any time, while defense consumes resources and is therefore finite and must be economized. The combination of utility and scarcity makes defense valuable. Humans can work to produce it or obtain it from others. People desire it, so they are willing to pay for it. Those who provide it can benefit from providing it to willing customers. It is a market good that people can buy, in the same way they can buy any other market good.

An important distinction needs to be made here between violence and the initiation of violence. Defense as a good may or may not involve violence, but it does not involve the initiation of violence. Defense involves preventative measures that make violence less likely and retributive measures that respond to the initiation of violence and punish the initiator or seek restitution for the victim. The initiation of violence is a coercive act whose performance cannot be freely accepted by one party in the transaction so it cannot be considered a market good. But defense from the initiation of aggression and retribution against it are regular market goods that can be bought and sold without initiating aggression in a voluntary market. While defense may involve violence, it is violence committed against someone who had already committed violence. This ethical distinction between different types of violence has been recognized since man first began pounding iron into swords and shields, and the same principle applies to missiles and F-35s.

The market for defense is highly developed, diverse, and sophisticated, offering a wide range of goods and services to meet people’s needs for security and freedom from aggression. It includes products such as safety locks, safety alarm systems, surveillance cameras and drones, fences, personal guns, armored vehicles, security guards, and private investigators. Researchers in The Business Research Company estimate the size of the private security industry to be around $303.58 billion as of 2021.

Most people are under the impression that security is the purview of the state, but this is incorrect. The startling reality is that even in today’s world, with governments afforded the exorbitant privilege of using their own credit as money, and thus the ability to acquire services limitlessly for as long as their currency works, the majority of security personnel worldwide are employed privately, not by government. In 2011, China had 5 million private security workers compared to 2.69 million police officers, while India had 7 million private security workers and 1.4 million police officers. In the United States in 2016, there were one million private security officers and 800,000 police officers. In fact, this was the case for Brazil, Russia, Japan, Germany, the United Kingdom, and a total of 46 out of 81 nations for which data was available in this study. The countries of this study alone had a population of 4.9 billion, and 4.15 of them lived in countries where the majority of security guards were private. In the entire sample, there were an estimated 20 million private security workers and 10.5 million police officers. A commanding majority of humanity lives in places where there are twice as many private security workers as police officers. This disparity has likely been amplified in the intervening years, given growing problems with police financing and recruitment, along with increases in security incidents.

Far from being an unrealistic techno-utopian dream, the existence of a market in  defense and security is the reality most of the world is already living. The majority of companies with valuable inventories rely on hiring private security to secure their businesses. This arrangement suits both private contractors and the local government police, whose limited resources cannot be stretched to provide every citizen and business with all the protection they might want. The calculation problem discussed in Chapter 12 also applies to security, and its only solution is entrepreneurial calculation within the framework of clearly defined property rights. Indeed, it would be no exaggeration to observe that government security forces in many places in the world are mainly preoccupied with securing the government and not the people, who must purchase their own security on the market by arming themselves or hiring armed guards. While enemies of market’s ideas often pose the question “Who will pay for the police?” as if it is some profound rebuttal, the reality is that private individuals and corporations are already finding non-governmental sources of law, order, and security in the free market for defense.

Arguably, the market for defense is much broader than the aforementioned goods and police services, and includes the world’s weapons industry as well. Granted—a large fraction of weapons are used for aggression and the initiation of violence, and a much larger fraction of weapons are purchased by governments, using money acquired involuntarily, through taxation or inflation. Thus, the market for weapons is highly distorted. Nonetheless, the fact remains that weapons manufacturers are predominantly voluntary private entities, deploying accumulated capital from savers, hiring freely contracting individuals as labor, buying raw materials from global markets, and often selling their output freely on the market to the highest bidder. Of the 100 largest weapons manufacturers in the world, 68 are privately owned, 24 are government-owned, and 6 are owned jointly by private entities and government. Even the government-owned firms only exist in the context of  a global free-market order for all their input and most of their output goods, where they benefit from performing economic calculation using market prices for their inputs and outputs. All the raw materials that go into manufacturing weapons are sourced from global markets with an extensive division of labor and freely accumulated, privately owned capital. Without a capitalist market, the profit motive, capital accumulation, and the division of labor, nobody would produce weapons much more sophisticated than rocks, spears, bows and arrows, and primitive traps.

This conclusion is inescapable once one understands the nature of violent conflict, the impossibility of economic calculation, and an extensive impersonal division of labor without property rights. War, after all, consists of the delivery of large amounts of kinetic energy to inflict maximum damage against the enemy. Power in the military sense is power in the very literal engineering and economic sense, as discussed in Chapter 8: Delivering large quantities of energy over short bursts of time, at the margin, to meet specific objectives. Modern weaponry advances and wins wars by increasing its ability to deliver kinetic energy effectively and under the control of its wielder over short periods of time, so as to bring about physical changes to reality through the murder of enemy combatants or civilians. Capital accumulation, private property, and the division of labor have proven to be the most effective system for channeling the largest quantities of power to meet human needs. And it is only natural that this would also be the most effective system for channeling power to military conflict.

Military power is also entirely reliant on a capitalist free-market economy, which produces the raw materials and economic surplus that can be channeled for producing weapons. Without a productive modern capitalist economy financing it, even the world’s strongest army would degenerate into slave labor camps, unable to defeat enemies or feed its own soldiers. The raw materials that go into weapons manufacturing are produced through extensive global supply chains and sophisticated machinery that is developed, designed, and distributed in a global manner. It is the market economy that has produced all the most amazing innovations in weapon making, which public sector and private sector criminals use daily for violent aggression. The extent of the development of weapons systems is a function of the development of a market economy. The world’s sophisticated weapons systems could never be developed without the extreme degree of specialization, division of labor, capital accumulation, and technological advancement that is only possible in a free-market economic system. The Soviet Union dedicated a very large percentage of its economic output to the production of weaponry, a percentage that was much higher than that of the United States. But by the end of the 1980s, this spending translated into enormously expensive piles of dysfunctional rust. Meanwhile, with a smaller percentage of economic output being spent on weapons, the United States’ private weapons industry had produced enormous advances in its weaponry.

Soviet industrialization benefited from existing within a global capitalist system with which it traded and from which it could calculate prices. Within a few years of attempting socialism, Soviets came to grasp the enormity of the calculation problem. They realized they needed to rely on taking prices for commodities from the international market to attempt to economically calculate the allocation of resources. This was arguably a major reason their bureaucratic government survived for as long as it did. But even that was not enough. Domestic resources were all owned by the government, there was no market in them, they had no prices, and so they could not be the subject of rational economic calculation. The arms industry was no exception. By the 1980s, it became clear to Soviet leadership that continuing to operate such an enormous arsenal with a dysfunctional economic system was completely unworkable.

There is perhaps no more flattering compliment to free exchange than the fact that the vast majority of violent aggression worldwide, carried out by governments and private individuals alike, relies predominantly on the weaponry manufactured by the market order. This, in turn, relies on the deferral of consumption by private individuals to provide capital to entrepreneurs, who perform economic calculations to determine how to peacefully hire workers and try to sell their goods to the highest bidder at a price that exceeds inputs. The uncivilized and violent may take pride in their aggression and rejection of peace and cooperation, but their choice of weaponry in aggression speaks louder than their puerile words. They do not choose to live in isolation from civilized society, produce their own weapons, and use them to aggress against civilization. They choose to acquire the most advanced products of the division of labor to increase the productivity of their violence. They may not have the mental capacity to understand how peaceful division of labor is so valuable to them, but their actions do.

The Market for Law and Order

The market for security and protection from aggression arguably extends beyond the markets for weapons and police. It also includes arbitration, which serves to protect people by allowing them an avenue for restitution of stolen property, and punishment for those who aggress against them. While most of the world today has monopoly legal systems intertwined with the political system, it does not follow that arbitration and judicial review are goods that can only be provided by the state. The common law of Britain developed over centuries primarily from private courts, which were not under the command of government. Private courts offered their services to any citizens who would hire them, and they had every incentive to be as fair and impartial as possible to continue to secure the business of more clients. These courts did not have monopolies over territorial jurisdictions, and their areas of operation overlapped. So, citizens could choose to go to the court they trusted rather than remain confined to their local jurisdiction. Judges in these courts were incentivized to look at precedent cases to assess their own cases, and from the centuries of precedents and rulings, the common law as a body emerged. It did not emerge from the top-down design of a central planner. The law merchant and admiralty law were similarly developed in private courts. This independent and freely competitive judiciary was arguably quite instrumental in the development of free markets and enterprise in Britain. It was also very conducive to the emergence of the Industrial Revolution, which transformed the entire world’s economy.

Even today, most countries have growing and thriving private arbitration businesses, where individuals and corporations can take their disputes to impartial third-party judges to adjudicate. The private arbitration industry witnesses fast-growing demand because of its extremely efficient operation compared to state monopoly courts. The American Arbitration Association conducts around 40,000 arbitrations every month, and there are many other organizations in this fast-growing industry. As the U.S. court system continues to become slower, more expensive, and less efficient, many are choosing to take their court cases to private arbitration organizations. Because arbitration, like defense or apples or cars, is just another market good: scarce, offering utility, and thus given subjective value by many.

The growth of the industry and the history of independent judiciary clearly show that there is value for contracting parties to have recourse to an independent third party to which they can refer a dispute with their counterparty. A growing number of commercial contracts contain clauses for both parties to defer to independent arbitration in the case of disputes. In a 2008 survey of 26 corporations, researchers found that 77% have arbitration clauses in consumer contracts and 93% have them in employment contracts. Both parties to a contract have an incentive to include arbitration clauses, as they both would like to resolve any dispute cheaply and quickly. Industry experts, lawyers, judges, and legal scholars all have a financial incentive to provide arbitration services to clients—and to provide them honestly, impartially, efficiently, and quickly. Government courts, being centrally planned and directed, are usually much more expensive than arbitration, so they are impractical for many uses. They also usually lack the capacity to provide expertise on highly complex technical or commercial issues in dispute.

The growing industry of independent arbitration and the rich history of private independent courts help us see that there is nothing special about a judiciary system that makes it impossible to exist on the free market. In interactions between individuals and corporations, the possibility of dispute always exists. People would therefore prefer to have recourse to an independent third party that can be relied upon to rule justly in the case of disputes. There is no need to impose a judiciary monopoly on all contracts. Individuals and contracting parties are capable of agreeing beforehand on independent third parties to resort to in the case of disputes. In the absence of state-monopoly organizations handling law and defense, society is likely to witness a blossoming of for-profit and nonprofit organizations. These will provide law and defense to individuals with full accountability and without being able to force consumers to pay for them. In Private Governance, Edward Stringham offers a fascinating and highly edifying study of various types of voluntary arrangements for the provision of law and defense that do not require resorting to violent monopolies.

State Monopoly of Defense and Law

While Mises saw the “preservation of private ownership of the means of production and its protection against violent or fraudulent encroachments,” he had a different conception of the state than what is prevalent today. Mises stressed the importance of the right of self-determination, making government a voluntary entity. He writes:

The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars. … However, the right of self-determination of which we speak is not the right of self-determination of nations, but rather the right of self-determination of the inhabitants of every territory large enough to form an independent administrative unit. If it were in any way possible to grant this right of self-determination to every individual person, it would have to be done.

With the right of secession granted, the state cannot take for granted the allegiance and revenue from its citizens and needs to work for them. Without the right to secession, government becomes a territorial coercive monopoly. If the protection of private ownership is a desirable good, why would a coercive monopoly succeed at providing it? And if it could succeed at providing this economic good, why would it not also succeed in providing other goods? Why do the problems of calculation manifest in all markets but not in the market for defense and law? Rothbard dismantles some of the most common statist justifications for a monopoly on law and order in For a New Liberty.

Statist economists may posit that the state is needed to define property rights and that without a monopoly frame of reference for just claims on property, there is no possibility of defining property rights in a way that avoids conflict. But this is patently false. As discussed in Chapter 5, the organizing frames of reference for property are the principles of self-ownership, the ownership of natural resources found and transformed by a person’s labor, and the ownership of goods acquired through consensual exchange. Outside of socialist societies, the state itself does not determine property—it merely acts to enforce these principles in disputes over property. There is no reason this enforcement, according to these well-established principles, cannot be provided by private individuals and organizations without recourse to monopoly financing.

Another argument for a coercive monopoly on defense and law says that property is a precondition for all economic activity, and that there can be no economic activity without it. But many other goods, like food and land, are essential, and voluntary market arrangements are clearly a superior way of providing them than a coercive monopoly. Rather than an inevitability, the coercive monopoly over defense and law lies at the root of the many failures of these markets. For if defense and law are economic goods, why would not the failures of coercive monopoly provision also affect them?

If the mass of people accepts the legitimacy of coercive monopoly provision of any particular economic good, they witness a deterioration in the quality of the good they receive, shortages in supply, and increases in cost. The monopolist providers, on the other hand, usually benefit from their privileged economic position of being able to extract payment from the sellers irrespective of quality of service. This is exactly the condition of state security and defense in the majority of the world today. Individuals in positions of government benefit immensely from their monopoly privilege, while consumers suffer from a lack of defense and injustice of law. Matters are made worse by governments abusing their monopoly over money to finance extensive propaganda campaigns in schools, universities, and mass media to promote acceptance of the legitimacy of coercive monopoly over defense and law. The more time one spends examining modern state-funded schools and universities, the more one sees their entire purpose as consisting of promoting acquiescence to the state.

Chapter 8 presented the argument that modern high-power machinery has been the driving economic force behind the abolition of slavery, as it can produce more grunt labor at a much lower cost than enslaved humans. With modern machinery and high-power energy sources, the raw labor of humans becomes increasingly cheap, as their productivity rises and intellectual work—supervising machines—becomes increasingly valuable. It is no longer profitable to enslave people in the traditional sense, but that has not erased the ancient dynamics of enslavement and domination that have existed in human societies for millennia. Statism is the outlet for the ancient base animalistic desire to dominate and enslave others rather than cooperate with them in civilization. But instead of physical enslavement, statism allows for mass psychological enslavement of societies via their conditioning to believe they have no alternative but to acquiesce to, and yield before, a violent monopoly provider of security. Slaves are thus set free from the drudgery and violence of chains and grunt labor to pursue more productive means of meeting their ends. Meanwhile, the individuals who make up the state are able to extract a large chunk of the fruits of their subjects’ labor by propagandizing and educating them into accepting—and paying for—one monopolist security and law provider.

When defense is treated as a good like any other, defense producers strive to deliver it as cheaply, efficiently, and effectively as possible. Private security providers are much more responsive to their clients’ needs precisely because their entire business relies on their efficiency and because they do not have a monopoly. But problems arise when state propaganda convinces citizens that defense is a special good—and when humans are educated and conditioned to think they have no choice but to remain subject to the rule of the protection agency they were born under. This is where nationalism and various forms of government propaganda come in handy. The modern slave is not kept in physical chains, as his physical freedom makes him too productive to restrain. He is instead kept in mental chains of statist education, accepting inferior security while having his wealth pillaged, with no real accountability or choice. As long as a majority of the population continues to believe they are bound to receive security as a gift from a hopefully benevolent monopolist, its provision is likely to be deficient, as is the case with all market monopolies.

The struggle for civilization is the struggle for humans to deal with each other based on the principle of non-aggression, where everyone agrees to respect the property rights of everyone else in their person and justly acquired property. When this principle is overturned in favor of a violent monopolist, the exception begins to seep into all other aspects of life, for the violent monopolist will seek to control all other aspects of life. And with the population conditioned to pliably accept the legitimacy of violent coercion in the sphere of defense and law, it is not very difficult to convince them to extend it to other aspects of life, beginning with money, as in modern fiat capitalist economies, and ending with the concept of property itself, as in communist societies. Social relations cannot be arranged on the basis of respect for property rights when the enforcement of this property itself is based on an organization that by its very existence violates property rights. Government, after all, is defined as the organization that does not finance itself voluntarily and so must resort to imposing taxes coercively on its subjects. This is the original sin of government, which makes it wholly incompatible with a civilized social order of voluntary cooperation. As Hoppe explains, it is in vain to expect the protection of property to be performed by an organization whose existence depends on coercively expropriating property:

Once the principle of government—judicial monopoly and the power to tax—is incorrectly admitted as just, any notion of restraining government power and safeguarding individual liberty and property is illusory. Instead, under monopolistic auspices the price of justice and protection will continually rise and the quality of justice and protection fall. A tax-funded protection agency is a contradiction in terms—an expropriating property protector—and will inevitably lead to more taxes and less protection. Even if, as some classical liberal statists have proposed, a government limited its activities exclusively to the protection of pre-existing private property rights, the further question of how much security to produce would arise. Motivated (like everyone) by self-interest and the disutility of labor but endowed with the unique power to tax, a government agent’s response will invariably be the same: To maximize expenditures on protection—and almost all of a nation’s wealth can conceivably be consumed by the cost of protection—and at the same time to minimize the production of protection. The more money one can spend and the less one must work to produce, the better off one will be.

In this way, Rothbard and Hoppe exploded the contradiction at the heart of modern classical liberal thought and offered a coherent anarcho-capitalist alternative congruent with the principles of economics as the study of human action.

Rather than peaceful cooperation under the rule of law applicable to all, society under government eventually degenerates into competitive conflict and aggression between people seeking to gain control of the power to dominate others. One common statist objection to the idea of a free market in defense is that the largest, most powerful group of thugs will take over and control society. The anarchist’s response is that this is merely the reality of what the state is. Statists present their own cognitive enslavement as an argument for itself. Understood correctly, the state is the largest gang of thugs, and the progress of human civilization depends on minimizing the damage from this gang, not on commandeering it for the impossible task of using its license for evil to do good. In societies where the majority of the population accepts the insane idea that the government needs to have a monopoly over the potato or electricity markets, society ends up with massively dysfunctional potato and electricity markets. Similarly, a society that accepts government monopoly over the market for defense and security will suffer from dysfunctional defense and security.

It is no surprise, then, that today a growing fraction—possibly a majority—of defense and protection is provided by private institutions on the market. Given the aggressive nature of state prosecution of crimes against the state compared to state prosecution of state crimes against common citizens, it is not an exaggeration to say the purpose of state security is to protect the state, not the people. Individuals must still work and pay to secure themselves through the various avenues of defense available on the market. A free market in security is not hypothetical. A coercive tax-funded monopoly in security provision that succeeds in providing security, on the other hand, is the hypothetical that state-sponsored scholarship treats as a given.

State Monopoly Failure Modes

When examined through the lens of human economic action, many of the security problems of the world today can be seen as resulting from the absence of a freely competitive market in the provision of defense, security, and law, and the domination of these industries and many of their vital functions by monopoly providers. In the absence of a free market for these goods, central planners have no rational way of allocating resources to best meet the desired ends of the payers, since the payers are paying involuntarily, not freely choosing. Defense is ultimately a good that cannot be provided in infinite quantities. Economically rational decisions need to be made about where to allocate particular resources and what outputs one should seek to produce. In statist rhetoric and propaganda, where marginal analysis is not comprehended, defense is presented as an on/off switch, a complete package of clearly defined goods that is delivered in a well-known way. But with the understanding of marginal analysis, we can see that defense is provided at the margin, in the form of a myriad of goods and services that are particular to the time and place in which they are provided. There are marginal economic decisions to be made about the level of security provided to every household, as well as the allocation of every policeman and weapon. Should each neighborhood get a twenty-four-hour police patrol? Or should each street? Or each household? Should police spend more time protecting rich houses and neighborhoods because they are more likely to be the target of burglary? But why should poor taxpayers pay to protect the rich? How many policemen does a certain neighborhood need? Should some people get bodyguards? Should sporting events and concerts get extra police patrols to prevent trouble, or should the organizers of these events handle their own security? These questions are very important to the people involved, and in a free market, they would be able to calculate the best allocation of resources and property to meet these needs in the best way they can. But in a world where a central monopoly is financed by taxes, these decisions will be made blindly, without resorting to prices or rational economic calculation.

Tax-funded security providers have no economic incentive to minimize human and monetary cost, as customer satisfaction is tangential to their job. They are able to take the least economic choices available, as their operation is not constrained by an operations budget or a budget for recruitment and training of manpower. Monopoly army and police can treat their members as dispensable cannon fodder since they are not being allocated by entrepreneurs who succeed or fail in their enterprise by their prowess in allocation. The startling trigger-happy nature of modern police, notorious for wasting life and endangering police and citizens alike, cannot be understood without reference to the lack of market discipline imposed on police services.

In a free market for security, private providers have no tax revenue to subsidize them, and so must economize to survive and succeed. They would aim to minimize violent conflict and, to the greatest extent possible, seek peaceful solutions because doing so is good business. Private security guards in private establishments have nowhere near the same nasty reputation as police, precisely because they operate in a free market with accountability to the customer, and they have rational market calculation motivating their decisions, training, and operation. Private security guards everywhere illustrate that it is possible to provide security without having a monopoly and without being in charge of applying and interpreting the law that governs your behavior.

The monopoly tax financing of government security and defense providers makes them practically above the law. Ultimately, in a conflict between a state agent and a citizen, the state agent has the benefit of a giant institution with unlimited access to financing, and he is motivated to implement the law in a way that is favorable to the government. When the government has a judicial monopoly, the matter is exacerbated, as justice itself becomes monopolized and suffers from the same problems. As Hoppe explains:

Moreover, a judicial monopoly will inevitably lead to a steady deterioration in the quality of justice and protection. If no one can appeal to justice except to government, justice will be perverted in favor of the government, constitutions and supreme courts notwithstanding. Constitutions and supreme courts are state constitutions and agencies, and all limitations to state action they might contain or find are invariably decided by agents of the very institution under consideration. Predictably, the definition of property and protection will continually be altered and the range of jurisdiction expanded to the government’s advantage until, ultimately, the notion of universal and immutable human rights—and in particular property rights—will disappear and be replaced by that of law as government-made legislation and rights as government-given grants.

When government members are allowed to initiate violence legitimately in the eyes of the population, they are extremely likely to abuse that privilege to their own benefit. The policeman and politician can and have used their positions to enrich themselves, dominate other citizens, and get away with criminal activity. They face no market test for performing their jobs effectively and have no profit motive to do so. They derive a great deal of profit motive from abusing their position. Humans are obviously not angels, so it is no surprise that many abuse their positions. But when endowed with no special legal privileges, they must perform their jobs to the satisfaction of their customers. Their motive and financial well-being depend on satisfying customers by providing them security in a free market. In a society in which violence is legitimized for one class of citizens, their motive and financial well-being are largely irrelevant to their customer satisfaction and are strongly enhanced by abusing their privilege.

The same dynamic is arguably true for national militaries. Since the military’s financing is based on monopoly government edicts and not obtained from voluntarily paying customers, there is little scope for accountability to the people financing the military. The result is perhaps most starkly visible in the United States, where the world’s strongest military spends hundreds of billions of dollars of tax and inflation revenue yearly and has military bases all over the world, and yet still cannot make it safe for a child in Chicago to walk to their local grocery store. With funding secured irrespective of security, a powerful military-industrial complex has succeeded in channeling large quantities of money to itself by ensuring an endless parade of military conflicts for the U.S. to engage in, under the flimsiest of pretexts, making the U.S. less secure by fostering the enmity of billions worldwide. Without consumer choice, security is an afterthought compared to the producer’s pretext for securing more revenue. The story is not much better in smaller countries with weaker militaries, where the military establishment also succeeds in living on the defense budget secured coercively, and the military often ends up being little more than a puppet for more powerful regional or global regimes.

Government monopoly provision of security is also hampered by the fact that so much of society’s property is held as “public property,” which means no clear property rights and no ability to enforce private law on these lands. The term public property is in itself an oxymoron, as ownership is defined by the ability of the owner to do as he pleases with his property. But the public is not one uniform entity that can decide collectively what to do. Everyone has some right to use public property, but nobody has the right to responsibly manage it like an owner, who can perform economic calculation to determine the most productive ways of securing the property, and who has the sovereign right to punish people who abuse the property or its residents.

Government markets itself as a provider of defense, but in reality, it is aggression. Government aggresses against its citizens in order to finance its operation. It does not offer its “customers” the choice of not using its goods. It is aggression masquerading as protection. Government defending against aggression is a contradiction in terms. There is a reason, for example, that the U.S. Department of Defense was previously known until 1947 as the Department of War.

So, how can we have law and order in the absence of government? If you understand government as coercion, that question practically answers itself. Law is not a creation of the state any more than money or the market economy were created by the state. Natural law has been understood across civilizations, and states gain their legitimacy only by appealing to it. A society would have more law and order if it did not grant its government the legitimacy to violate natural law by initiating aggression. Crime and violence will likely always exist, and finding solutions for them is increasingly and overwhelmingly a market good. Civilized society constantly seeks technological and institutional solutions for the problem of individual aggression, which everyone understands to be illegitimate. And given civilization’s ability to continuously calculate and innovate, it is likely to continue to become more effective at protecting civilized people from private and governmental predation. As Rothbard puts it:

And, indeed, what is the State anyway but organized banditry? What is taxation but theft on a gigantic, unchecked, scale? What is war but mass murder on a scale impossible by private police forces? What is conscription but mass enslavement? Can anyone envision a private police force getting away with a tiny fraction of what states get away with, and do habitually, year after year, century after century?

A Free Market in Defense

As discussed in previous sections of this chapter, the market for defense, security, law, and arbitration already exists, and this market arguably is responsible for providing the people of the world far more defense, security, law, and order than governments at a much lower cost. Yet, the market is also heavily distorted, disfigured, and compromised by the extreme levels of government intervention and government monopoly in its provision, which likely exceed every other industry, with the possible exception of money and banking. One cannot help but wonder how a truly free market would handle security and defense in the absence of statist control, in a world where citizens understand defense and security as a private market good, and in which providers of these goods have no recourse to coercively acquire tax money, no special legal status, and no ability to operate above the law.

In examining the current state of the U.S. economy, we find that productive citizens are forced to pay large sums of money through taxes and inflation to finance a monopoly police force and a monopoly military that commits aggression both at home and abroad. Meanwhile, American cities are notoriously unsafe, particularly large ones. Four American cities are among the 50 most dangerous cities in the world, and large American cities are notorious worldwide for having extremely dangerous neighborhoods. It is puzzling how few Americans, particularly economists, arrive at the very obvious conclusion: Monopoly government provision of defense is extremely expensive and highly ineffective.

Imagine if American citizens were saved from all the tax and inflation expenses they (and the rest of the world, thanks to the dollar) spend on U.S. police and military and foreign policy and were instead allowed to spend their money as they see fit to keep themselves safe. Imagine if the people of Chicago had all their wealth that goes to the police and army available to them to spend on security services that were responsible to them, had no monopoly, no special legal protections under the law, no right to initiate aggression, and no ability to extract tax. Imagine how superior the protection they get would be to what they have today.

A free market in defense would contain no monopolies for any defenserelated goods and would not tolerate the initiation of aggression by any entity. It is difficult for most people to imagine that such a system could offer deterrence for crime. But deterrence is not only possible in such a world; it is arguably far more effectively and efficiently provided. There are 4 broad ways in which a free market would encourage peaceful, civilized conduct and discourage violence.

First, self-defense would be viewed as entirely acceptable in this context. An anarchist free market in defense is not a pacifist Garden of Eden. It is rather a place where property owners’ violent retaliation against aggression is perfectly valid,  socially acceptable, and even encouraged. With property owners’ hands freed from the control of the state, thieves, and murderers would be reluctant to initiate aggression. The right of self-defense extends beyond just the right of property owners to enforce their rules and exact punishment. Selfdefense includes the rights of any hired agents, which frees the hands of private security providers to deliver punishment on behalf of the owner.

Second, in a free market for defense, people have the freedom to choose to only engage with others under mutually agreed-upon contracts and legal frameworks, deferring to the judgment of specific authorities and courts, which would entail clear consequences for potential misconduct, contract breach, or violent aggression. You will only hire people who agree to sign the employment contract from the reputable employment court, which clearly stipulates consequences for absenteeism, theft, or sabotage on the employee’s part, or non-payment on the part of the employer. You will only eat at restaurants whose owners agree to abide by specific court rulings in the case of poisoning or conflict with customers. You will only engage in business contracts with firms that agree to abide by the corporate law of reputable courts. There need be no coercive monopoly to force you to deal with any specific court; you will want to deal with the courts because they have built a reliable track record of helping people engage in mutually beneficial transactions. People will accept to enter into these arrangements that place punishment against them precisely because it will help them deal with others. With efficient private sector provision of enforcement and voluntary acceptance of the conditions, people are far more likely to behave. 

Third, a free society would still be able to use reputation, ostracism, shaming, shunning, and boycotts to deter people from behaving badly. This is particularly powerful in commercial dealings, where reputations of free-market participants are enormously important to the continued success of businesses. Without government monopoly licensing boards, free associations of merchants and professionals can impose very harsh sanctions against transgressors and would have a very strong incentive to stamp out illegitimate commercial behavior. Credit ratings, expert reviews, and customer reviews are all good examples of how reputation is valuable as an economic good today. The rise of the internet has made businesses highly conscious of their performance to appease reviewers and develop a good reputation. But the role of reputation is not confined to commercial dealings; it can also apply to petty and serious crimes. If members of a community agree to shun someone and refuse to deal with him for committing a crime, this could serve as a literal death sentence, even if delivered nonviolently. If civilized people agree that the fruits of the division of labor are only available to those who respect the sanctity of others’ ownership of their body and property, then aggression would leave its initiators unable to benefit from the extended division of labor and even in danger of starving to death trying to survive on the fruits of their own labor. While it is common for state-funded economists to construct arcane and unrealistic theoretical models where markets are derailed through information asymmetry, in reality, market information is itself a market good, and a free marketplace in information, reputation, and track records produces valuable information for participants. It is also a very effective deterrent against deceptive and abusive practices.

Fourth, the insurance industry would likely take on a proactive role in providing security and ensuring the survival and well-being of its clients. Humans value their time, and they will pay to give someone the incentive to prolong their time on Earth and keep them safe and healthy. With an open market in security provision, and a vested financial interest in the survival of its clients, insurance companies in a free society could take on many of the functions of the security monopolies of the state while also introducing market calculation and discipline to them. It is not difficult to see the synergies involved in the vertical integration of the services of security, justice, and property administration. Property owners would have a strong interest to engage protection agencies, which take a fee to produce a security and agree to make insurance payouts when their clients are aggrieved.

It is difficult to predict what a free market in security would look like. Imagine, for instance, trying twenty years ago to predict the structure of the computer or internet industries today. The shape of this industry is not designed by any one particular entity; it evolves over decades of entrepreneurial offerings and consumer selection, in what Vernon Smith terms “ecological rationality,” as opposed to constructive rationality (discussed in the previous chapter). Something similar would take place in the market for security were the statist monopoly to be liberalized. Should a society reject the legitimacy of initiating aggression and the legitimacy of a monopoly on aggression, that would be the basic abstract rule for organizing defense and protection, which would lead to the emergence of complex emergent orders of organization. 

Similarly, it is not easy to predict what laws and rules a free society would adopt. This is an extremely complex evolutionary process, which will emerge out of the actions of humans rather than their designs. Countless protection agencies will implement different forms of protection rules, and individuals will get to see the consequences of each set of rules. Individuals would be able to see the implications of having a very lenient policing approach versus a very harsh one. For instance, does lenient policing offer similar results while costing less money? Or does it result in more crime and cost more money? People can similarly freely opt in to, or out of, protection arrangements with different levels of tolerance for consumption of intoxicants. A fully liberal approach would make substance consumption completely outside the purview of the protection agency, saving protection clients from incurring the high costs of attempting to enforce their morality on other drug users. This might be the winning formula for protection agencies, but you can also see why it might not be. Users of mind-altering drugs might be more likely to commit crimes and get involved in accidents, which would be dangerous for the population and significantly raise costs for the associated protection agency and insurance company. The more secure and economical option might be to have protection agencies mandate abstention from particular drugs on their members. To ensure compliance, the agencies might perform periodic and random drug tests on users, with clear criteria for fines and punishments in case of noncompliance. Drug users would still be free to opt out of these arrangements and find protection agencies that tolerate their drugs. But these might end up costing a lot more, or they might not even exist. At this point, the drug addict is faced with the choice of continuing to use the drug, being practically excommunicated from society, as nobody would want to deal with them, or relocating. The world will likely naturally fragment geographically into areas where people have different values for what they like to consume. Perhaps a place like Las Vegas, given its multigenerational reputation for hedonism, will continue to act as a magnet for people with a liberal approach to drugs, alcohol, gambling, and prostitution. Highly conservative places like Saudi Arabia, on the other hand, might continue to be populated by conservative people who do not want to live with people who partake in these vices, and so security institutions will make it very difficult to live there and engage in these activities.

This previous example deliberately offers no concrete predictions. It serves to simply illustrate the enormous range of possibilities available for peacefully establishing defense and protection over human interactions to the satisfaction of all involved. Anything that you want your government to do for you can be provided through property rights and specialized division of labor—even the desire to live away from people who consume certain substances.

Acceptance of property rights in self and material goods are the only possible framework for establishing the extended market order described in the chapters of this book. It is the only way in which human civilization can develop peacefully and productivity. An understanding of Austrian economics, as studied in this book, would naturally incline someone toward a more libertarian outlook. To the extent that a person has any concern for the long-term sustainability and productivity of the market order on which he relies, they must favor living in a world whereas many people as possible exercise full property rights in their time and property, able to cooperate at their desired terms.

There is a naive conception of libertarianism (among critics and some adherents) as an ideology of desire indulgence and consequence denial. For this author, and I believe for the majority of economists in the Austrian tradition, libertarianism is the rejection of the initiation of violence, which does not entail any responsibility for anyone in society to accept your behavior or liberate you from its undesirable consequences. In fact, the freedom of libertarians is precisely the freedom to reap what your actions sow, whether sweet or bitter. A private law society would not seek to protect people from suffering bad consequences; it would deliver these consequences to them with a speed and efficiency that government monopolies cannot match. The thief, rapist, and murderer will be punished by his victim more effectively than under government monopoly, in the same way, the entrepreneur in the free market is rewarded more effectively when he produces goods others desire. A libertarian rejects the legitimacy of a government initiating aggression against a peaceful drug consumer, but would not reject the right of individuals to refuse to live next to, work with, or be part of the same security agency as a drug consumer.

Does it follow from this analysis that a truly free society must be stateless? It is, after all, difficult to predict how these institutions can evolve. We may well continue to have an entity similar in functions to the modern state, even in an increasingly free society. It might be that people will willingly choose to enter into associations that perform the functions of today’s government, and these organizations may have exclusive right to aggress against members who agree to these terms. The extent to which the state is compatible with a free society is the extent to which it respects the right of secession, as discussed by Mises above.

In The State in the Third Millennium, HSH Prince Hans-Adam of Liechtenstein offers an alternative vision for the role of a state in a free society, primarily based on the respect of self-determination and secession. Rather than do away entirely with the state as an organizing institution, Prince HansAdam argues for the right of communities, right down to the local village level, to decide to join whichever political entity they want to join or to secede and form their own. The state in this model can provide defense and law, among other services, but the beneficiaries will always reserve the right to leave their state if they do not like it, without having to move and uproot themselves and their communities. This model brings back consumer choice and sovereignty to the tasks of the government, because individual communities can opt out of any arrangements they do not like. But it also allows for the functions of defense and law to be provided by entities that have provided them for centuries and allows them the freedom to determine the way they operate. This vision of democracy focuses on giving people the right to choose their government, as opposed to the right to micromanage the decisions of a monopoly government they cannot escape.

The model is similar to the way market institutions operate and successfully serve their consumers. Consumers do not get to vote on company decisions or appoint leaders; they simply get to choose whether to buy the finished product or not. This is how all the wonders of the market economy have been delivered. The automobile, airplane, personal computer, and smartphone were not invented through a democratic voting process for every engineering decision along the way. Entrepreneurs built these products and presented them to consumers, whose ultimate choice to adopt or reject these inventions made them succeed or fail. In a world where the market economy continues to increase peaceful cooperation and living standards, this might be a reasonable way of organizing defense and law among increasingly civilized peoples. As economic activity becomes increasingly digitized, and workers become mobile, this form of competition between jurisdictions is already becoming more commonplace. An increasingly high number of people currently move to live in monarchies like Qatar and the United Arab Emirates, offering very few political rights, along with very low taxation. 

HSH Prince Hans Adam’s vision of the state in the third millennium may well be compelling to a growing number of people, particularly when examining the favorable track record of the world’s most successful royal ruling families. The Japanese royal family has been in power for 2,600 years and has been instrumental in the development of Japanese civilization. European, Islamic, Chinese, and countless other civilizations thrived and emerged under monarchic rule, as well. Perhaps the institution of monarchy is one of these spontaneously emergent phenomena the modern mind thinks it can easily replace with something top-down, as we saw occur with the largely tragic and bloody experiment of democratization in the twentieth century. It might be the case that the royal family, invested in its survival for the long term, is the most successful market institution for the long-term provision of defense and law.

Perhaps monarchies will be the naturally emergent outcome of this selection process if they are understood as family businesses that have provided law and order for their societies over the long term. As multigenerational businesses, monarchies can have a lower time preference than private corporations, whose ownership is likely more focused on short-term profitability. The monarch wants his descendants to rule a prosperous and rich land in the future, so he will govern with an eye for long-term outcomes. The interests of citizens as consumers are more likely to align with a multigenerational family business in charge of government than a democracy whose leaders face high levels of uncertainty. Ultimately, these leaders are exchanged every few years, incentivizing them to maximize their ability to extract wealth in the short term at the expense of the long term.

Chapter 16
Chapter 18