Power and Market
Chapter 1 Defense Services on the Free Market
Economists have referred innumerable times to the free market,
the social array of voluntary exchanges of goods and services.
But despite this abundance of treatment,
their analysis has slighted the deeper implications of free exchange.
Exchange.
Thus, there has been general neglect of the fact that free exchange means exchange of
titles of ownership to property, and that therefore the economist is obliged to inquire
into the conditions and the nature of the property ownership that would obtain in the
free society.
If a free society means a world in which no one aggresses against the person or property
of Others, then this implies a society in which every man has the absolute right of
property in his own self, and in the previously unowned natural resources that he finds, transforms
by his own labor, and then gives to or exchanges with others.
A firm property right in one's own self, and in the resources that one finds, transforms,
gives or exchanges leads to the property structure that is found in free market capitalism.
Thus, an economist cannot fully analyze the exchange structure of the free market without
setting forth the theory of property rights, of justice in property that would have to
obtain in a free market society.
In our analysis of the free market in man economy and state, we assumed that no invasion
of Property takes place there, either because everyone voluntarily refrains from such aggression,
or because whatever method of forcible defense exists on the free market is sufficient to
prevent any such aggression.
But economists have almost invariably and paradoxically assumed that the market must be kept free
Free by the use of invasive and unfree actions, in short, by governmental institutions outside
the market nexus.
A supply of defense services on the free market would mean maintaining the axiom of the free
society, namely that there be no use of physical force except in defense against those using
force to invade person or property.
This would imply the complete absence of a state apparatus or government.
For the state, unlike all other persons and institutions in society, acquires its revenue
not by exchanges freely contracted, but by a system of unilateral coercion called taxation.
Defense in the free society, including such defense services to person and property as
as Police Protection and Judicial Findings would therefore have to be supplied by people or firms who
a. gained their revenue voluntarily rather than by coercion, and
b. did not, as the state does, arrogate to themselves a compulsory monopoly of police or judicial protection.
Only such libertarian provision of defense service would be consonant with a free market
and a free society. Thus, defense firms would have to be as freely competitive and as invaders
as are all other suppliers of goods and services on the free market. Defense services,
like all other services, would be marketable and marketable only.
Those economists and others who espouse the philosophy of laissez-faire believe that the freedom of the market should be upheld, and that property rights must not be invaded.
Nevertheless, they strongly believe that defense service cannot be supplied by the market,
and that defense against invasion of property must therefore be supplied outside the free
market by the coercive force of the government.
In arguing thus, they are caught in an insoluble contradiction, for they sanction and advocate
massive invasion of property by the very agency, government, that is supposed to defend people
against invasion.
For a laissez-faire, government would necessarily have to seize its revenues by the invasion
of property called taxation, and would arrogate to itself a compulsory monopoly of defense
services over some arbitrarily designated territorial area.
The laissez-faire theorists, who are here joined by almost all other writers, attempt
to redeem their position from this glaring contradiction by asserting that a purely free-market
defense service could not exist, and that therefore those who value highly forcible
defense against violence would have to fall back on the state, despite its black historical
The Federal Record as the great engine of invasive violence as a necessary evil for the protection of person and property.
The laissez-faireists offer several objections to the idea of free market defense.
One objection holds that since a free market of exchanges presupposes a system of property rights,
of Property Rights, Therefore the State is needed to define and allocate the structure
of such rights.
But we have seen that the principles of a free society do imply a very definite theory
of property rights, namely self-ownership and the ownership of natural resources found
and transformed by one's labor.
Therefore, no state or similar agency, contrary to the market, is needed to define or allocate
property rights.
This can and will be done by the use of reason and through market processes themselves.
Any other allocation or definition would be completely arbitrary and contrary to the principles
of the free society.
A similar doctrine holds that defense must be supplied by the state because of the unique
status of defense as a necessary precondition of market activity, as a function without
which a market economy could not exist.
Yet this argument is a non sequitur that proves far too much.
It was the fallacy of the classical economists to consider goods and services in terms of
of Large Classes Instead, modern economics demonstrates that
services must be considered in terms of marginal units, for all actions on the market are marginal.
If we begin to treat whole classes instead of marginal units, we can discover a great
myriad of necessary indispensable goods and services, all of which might be considered
as pre-conditions of market activity is not land room vital or food for each participant
or clothing or shelter?
Can a market long exist without them?
And what of paper, which has become a basic requisite of market activity in the complex
modern economy?
Must all these goods and services therefore be supplied by the state and the state only?
The laissez-fairest also assumes that there must be a single compulsory monopoly of coercion
and decision-making in society, that there must, for example, be one supreme court to
hand down final and unquestioned decisions.
But he fails to recognize that the world has lived quite well throughout its existence
without a single ultimate decision-maker over its whole inhabited surface.
The Argentinian, for example, lives in a state of anarchy, of non-government in relation
to the citizen of Uruguay or of Ceylon.
And yet, the private citizens of these and other countries live and trade together without
Without getting into insoluble legal conflicts, despite the absence of a common governmental
ruler.
The Argentinian who believes he has been aggressed upon by a Salonese, for example, takes his
grievance to an Argentinian court, and its decision is recognized by the Salonese courts,
and vice versa if the Salonese is the aggrieved party.
Although it is true that the separate nation-states have warred interminably against each other,
the private citizens of the various countries, despite widely differing legal systems, have
managed to live together in harmony without having a single government over them.
If the citizens of northern Montana and of Saskatchewan across the border can live and
and trade together in harmony without a common government, so can the citizens of northern
and of southern Montana.
In short, the present-day boundaries of nations are purely historical and arbitrary, and there
is no more need for a monopoly government over the citizens of one country than there
is for one between the citizens of two different nations.
It is all the more curious, incidentally, that while laissez-faireists should, by the
logic of their position, be ardent believers in a single, unified world government, so
that no one will live in a state of anarchy in relation to anyone else, they almost never
are.
And once one concedes that a single world government is not necessary, then where does
Why does one logically stop at the permissibility of separate states?
If Canada and the United States can be separate nations without being denounced as being in
a state of impermissible anarchy, why may not the South secede from the United States,
New York State from the Union, New York City from the State?
Why may not Manhattan secede?
Each neighborhood, each block, each house, each person.
But of course, if each person may secede from government, we have virtually arrived at the
purely free society, where defense is supplied along with all other services by the free
market and where the invasive state has ceased to exist.
The role of freely competitive judiciaries has, in fact, been far more important in the
history of the West than is often recognized.
The law merchant, admiralty law, and much of the common law began to be developed by
privately competitive judges who were sought out by litigants for their expertise in understanding
the legal areas involved.
The fairs of Champagne and the great marches of international trade in the Middle Ages enjoyed
freely competitive courts, and people could patronize those that they deemed most accurate
and efficient.
Let us then examine in a little more detail what a free market defense system might look
like.
It is, we must realize, impossible to blueprint the exact institutional conditions of any
Any Market in Advance, just as it would have been impossible 50 years ago to predict the
exact structure of the television industry today.
However, we can postulate some of the workings of a freely competitive, marketable system
of police and judicial services.
Most likely, such services would be sold on an advance subscription basis, with premiums
Payments paid regularly and services to be supplied on call.
Many competitors would undoubtedly arise, each attempting by earning a reputation for
efficiency and probity to win a consumer market for its services.
Of course it is possible that in some areas a single agency would out-compete all others.
But this does not seem likely when we realize that there is no territorial monopoly and
that efficient firms would be able to open branches in other geographical areas.
It seems likely also that supplies of police and judicial service would be provided by
insurance companies, because it would be to their direct advantage to reduce the amount
of crime as much as possible.
One common objection to the feasibility of marketable protection, its desirability is
not the problem here, runs as follows.
Suppose that Jones subscribes to defense agency X and Smith subscribes to defense agency Y.
We will assume, for convenience, that the defense agency includes a police force and
and a court or courts, although in practice these two functions might well be performed
by separate firms.
Smith alleges that he has been assaulted or robbed by Jones.
Jones denies the charge.
How then is justice to be dispensed?
Clearly, Smith will file charges against Jones and institute suit or trial proceedings in
the why court system.
Jones is invited to defend himself against the charges, although there can be no subpoena
power since any sort of force used against a man not yet convicted of a crime is itself
an invasive and criminal act that could not be consonant with the free society as we have
been postulating.
If Jones is declared innocent, or if he is declared guilty and consents to the finding,
Then there is no problem on this level, and the why courts then institute suitable measures
of punishment.
Suppose that Smith, convinced of Jones' guilt, takes the law into his own hands rather than
go through the court procedure.
What then?
In itself, this would be legitimate and not punishable as a crime, since no court or agency
may have the right in a free society to use force for defense beyond the self-same right
of each individual.
However, Smith would then have to face the consequences of a possible counter-suit and
trial by Jones, and he himself would have to face punishment as a criminal if Jones
is found to be innocent.
But what if Jones challenges the finding?
In that case, he can either take the case to his ex-court system, or take it directly
to a privately competitive appeals court of a type that will undoubtedly spring up in
abundance on the market to fill the great need for such tribunals.
Probably there will be just a few appeals court systems, far fewer than the number of
of Primary Courts, and each of the lower courts will boast to its customers about being members
of those appeals court systems noted for their efficiency and probity.
The appeals court decision can then be taken by the society as binding.
Indeed, in the basic legal code of the free society, there probably would be enshrined
some such clause as that the decision of any two courts will be considered binding, that
is, will be the point at which the court will be able to take action against the party adjudged
guilty.
The law code of the purely free society would simply enshrine the libertarian axiom, prohibition
of any violence against the person or property of another, except in defense of someone's
Transformation or Property, Property to be defined as self-ownership plus the ownership
of resources that one has found, transformed or bought or received after such transformation.
The task of the code would be to spell out the implications of this axiom.
For example, the libertarian sections of the law merchant or common law would be co-opted,
While the statist accretions would be discarded, the code would then be applied to specific
cases by the free market judges who would all pledge themselves to follow it.
Every legal system needs some sort of socially agreed upon cut-off point, a point at which
judicial procedure stops and punishment against the convicted criminal begins.
But a single monopoly court of ultimate decision-making need not be imposed, and, of course, cannot
be in a free society, and a libertarian legal code might well have a two-court cut-off point,
since there are always two contesting parties, the plaintiff and the defendant.
Another common objection to the workability of free-market defense wonders, may not one
One or more of the defense agencies turn its coercive power to criminal uses.
In short, may not a private police agency use its force to aggress against others, or
may not a private court collude to make fraudulent decisions and thus aggress against its subscribers
and victims?
It is very generally assumed that those who postulate a stateless society are also naive
The Theory of Money and Credit
No government apparatus, the control of which, provides a secure monopoly for invasion of person and property.
When a state exists, there does exist such a built-in channel, namely, the coercive taxation power and the compulsory monopoly of forcible protection.
In the purely free market society, a would-be criminal, police or judiciary would find it very difficult to take power,
since there would be no organized state apparatus to seize and use as the instrumentality of command.
To create such an instrumentality de novo is very difficult, and indeed almost impossible.
Historically, it took state rulers centuries to establish a functioning state apparatus.
Furthermore, the purely free market stateless society would contain within itself a system
of built-in checks and balances that would make it almost impossible for such organized
crime to succeed.
There has been much talk about checks and balances in the American system, but these
These can scarcely be considered checks at all, since every one of these institutions
is an agency of the central government, and eventually of the ruling party of that government.
The checks and balances in the stateless society consist precisely in the free market, that
is, the existence of freely competitive police and judicial agencies that could quickly be
be mobilized to put down any outlaw agency.
It is true that there can be no absolute guarantee that a purely market society would not fall
prey, but this concept is far more workable than the truly utopian ideal of a strictly
limited government, an idea that has never worked, historically, and understandably so,
For the state's built-in monopoly of aggression and inherent absence of free-market checks
has enabled it to burst easily any bonds that well-meaning people have tried to place upon
it.
Finally, the worst that could possibly happen would be for the state to be re-established,
and since the state is what we have now, any experimentation with a stateless society would
have nothing to lose and everything to gain.
Many economists object to marketable defense on the grounds that defense is one of an alleged
category of collective goods that can be supplied only by the state.
This fallacious theory is refuted elsewhere.
And Merlin H. Hunter and Harry K. Allen, two of the very few economists who have conceded
and the possibility of a purely market defense have written,
If then individuals were willing to pay sufficiently high price, protection, general education,
recreation, the army, navy, police departments, schools and parks might be provided through
individual initiative as well as food, clothing and automobiles.
Actually, Hunter and Allen greatly underestimated the workability of private action in providing
these services.
For a compulsory monopoly, gaining its revenues out of generalized coercion rather than by
the voluntary payment of the customers is bound to be strikingly less efficient than
a freely competitive private enterprise supply of such services.
The price paid would be a great gain to society and to the consumers, rather than an imposed
extra cost.
Thus, a truly free market is totally incompatible with the existence of a state, an institution
that presumes to defend person and property by itself subsisting on the unilateral coercion
Against Private Property, known as taxation.
On the free market, defense against violence would be a service, like any other, obtainable
from freely competitive private organizations.
Whatever problems remain in this area could easily be solved in practice by the market
process, that very process which has solved countless organizational problems of far greater
intricacy.
Those laissez-faire economists and writers, past and present, who have stopped short at
the impossibly utopian ideal of a limited government, are trapped in a grave inner contradiction.
This contradiction of laissez-faire was lucidly exposed by the British political philosopher
Auberon Herbert
A is to compel B to cooperate with him, or B to compel A. But in any case, cooperation
cannot be secured, as we are told, unless, through all time, one section is compelling
another section to form a state.
Very good.
But then, what has become of our system of individualism?
A has got hold of B or B of A and has he disapproves, extracts service and payment from him which
he does not wish to render, has virtually become his master.
What is all this but socialism on a reduced scale?
Believing then that the judgment of every individual who has not aggressed against his
is supreme as regards his actions, and that this is the rock on which individualism rests.
I deny that A and B can go to C and force him to form a state, and extract from him
certain payments and services in the name of such state.
And I go on to maintain that if you act in this manner, you at once justify state socialism.