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For centuries, law and political economy held sacred the notion that a sovereign must hold monopolistic power over the masses. This notion, to the extent it is philosophical, has Hobbesian roots. Hobbes argues that a state of nature is a dangerous and wild place, where life is “nasty, brutish, and short.” The argument continues: Therefore, to install peace among the disparate peoples, they should submit their will and freedoms to a single sovereign, who, as a neutral, third party, will impartially administer justice and thwart crime for the commonwealth. The implication is that the people, without such a centralized institution, would spend too little on their own defense, making for a situation of near perpetual conflict. For this reason, many contend that security must be provided unilaterally by the State, and that its cost should be imposed on everyone irrespective of any individual’s willingness or unwillingness to pay. This notion must be challenged. Contrary to Hobbes’ arguments, defense and security are goods that can be sufficiently produced privately and exchanged on markets to willing buyers. Gustave de Molinari, in the 19th century, made the economic case for competitive governments:
If there is one well-established truth in political economy, it is this: That in all cases, for all commodities that serve to provide for the tangible or intangible needs of the consumer, it is in the consumer’s best interest that labor and trade remain free, because the freedom of labor and of trade have as their necessary and permanent result the maximum reduction of price.
And this: That the interests of the consumer of any commodity whatsoever should always prevail over the interests of the producer.
Now in pursuing these principles, one arrives at this rigorous conclusion: That the production of security should, in the interests of the consumers of this intangible commodity, remain subject to the law of free competition.
Whence it follows: That no government should have the right to prevent another government from going into competition with it, or to require consumers of security to come exclusively to it for this commodity.
It is important not to confuse the term “government” with the State. The State is a type of government; however, it is a coercive or aggressive variant. Free markets also wield governing forces, however, such forces are not artificially imposed by decree. They include the laws of supply and demand, consumer sovereignty, reputation, competition, the prospect of profits/losses, etc. As Molinari insinuates, security, just as any other service, is most efficiently produced in free markets.
The State Problem
The Immediate Contradiction
The State claims its role is to defend persons and their property. Prior to the provision of such service, however, it must first steal from people, via taxation, the very property it claims to protect. The State essentially says “We are going to take your property under the threat of violent reprimand, so that we may protect your property and your person.” Hoppe summarizes this ridiculous and self-refuting notion by referring to States as expropriating property protectors. The State must first violate property rights before being able to defend them.
The “Necessary Evil” Argument
A monopoly on the legal right to initiate force does not decrease the danger peaceful people face from aggressive people; in fact, an institution such as this serves to attract those who desire power and coercive control over others to its own positions of authority. This has only exacerbated the very premise for which State advocacy is based: that we require a State to protect the innocent from the criminal. Even the phrase “necessary evil” itself is self-refuting. Evil, by its very nature, is destructive and thus completely unnecessary to achieving the ends of life, liberty, and prosperity. Moreover, something that is truly necessary cannot be given the title of evil.
The State as a Monopoly Enterprise
Monopoly here is defined as an exclusive legal privilege to provide a given good or service enforced at the threat or application of violence. Fitting within the scope of this definition is the State’s role as security provider. The State assumes and enforces the exclusive right to provide general security against aggressors both domestic and foreign. Despite the intentions of its agents, however, the State’s provision of security must perpetually increase in cost and decrease in quality. Moreover, the State may modify the price and scope of this service on a whim. However, in order for the State to raise the price of this or any other services, some degree of public support is needed. Thus, the State will tend to provoke or allow crime or the threat of foreign aggression to increase, so that it may cite these security threats when expanding its own budget for defense. Take, for example, the destruction of the twin World Trade Center towers. Subsequent to the terror attacks on 9/11, the Department of Defense budget was massively increased, federal agents took over the role of providing airport security, and the Department of Homeland Security was born.
The Economic Calculation Problem
The State has no access to an accurate pricing mechanism with which to evaluate the profitability of its operations, so waste will necessarily abound. This is because its revenue is derived from taxes as opposed to voluntary contributions. Consequently, this perverts the feedback mechanism used to convey to producers how best to fulfill the desires of the consumer. The State does not operate in a profit or loss system, so it has neither the proper incentive nor the capacity to be economically efficient. However, the State is not lacking of incentives altogether. The prospect for re-election and, thus, campaign funding from various special interest groups and lobbyists will have a profound influence on the policy decisions of any given representative. Perhaps more funding is provided to county A as a political favor while county B enjoys little to no public works investments at all. Likewise, it is not difficult to imagine the prospects of military conflict increasing due to political favor garnered from elements in the military industrial complex.
The State as Ultimate Representative
Because the State acts as a unit, all the actions executed by its representatives are reflected on the people, for they must be funding these acts via taxes. Due to this financial connection, all of a given State’s citizens become potential targets of retaliation for disgruntled foreign actors. If all property in a given geographic area is seen as generating revenue for the State, then it naturally represents a potential enemy target. It is this very set up that has brought about the modern form of total warfare.
The State has a tendency to disarm the populace so that it may be able to more effectively assert its dominion. However, this act of disarmament only increases vulnerability to foreign invasion as a potential invader would otherwise have to worry about State forces and heavily armed civilians. A heavily armed civilian populace constitutes a dangerous and unpredictable wild card that serves as an effective deterrent against invasion.
The Moral Hazard
The State’s ability to externalize the costs of aggression onto taxpayers creates a moral hazard that enables it to implement more aggressive and costly policies than it otherwise could. Without centralized tax structures to bilk the people, the costs for such policies would be prohibitive, as they would have to be translated into higher premiums that drive customers away to more peaceful and affordable competitors. Lastly, if private security agencies employed aggressive measures, then they would suffer reputational damage, financial losses, and be held legally liable for property violations by competing security and arbitration agencies.
In addition to the State’s comparatively increased propensity for engaging in aggressive activities, it provides no clear standards or measurements of effectiveness for its defensive services, and thus is much less accountable for any shortcomings. This is no mere accident. A democratic State has less deference still for long term defense or foreign policy impacts, as its ruling agents are only given temporary access to positions of authority. These temporary office holders are incentivized to exploit their positions of power and the resources they command as much as possible with no regard to maintaining their capital value. This is because the costs their policies generate may be deferred to their successors, the tax payers, and future generations through debt financing and inflation. Moreover, as politicians are merely stewards of the public domain, any advantage they do not press while in office will disappear forever. They may utilize, but cannot directly sell State assets and pocket the receipts. Once their official terms expire, they are unable to tap the State’s resources in such a manner.
The Free Market Solution
Properly Aligning Incentives
Humans are rationally self-interested creatures. Due to the conflicts represented in the tragedy of the commons, public ownership of property will usually be less preferable when compared to the incentives associated with private property. When all property is privately owned, the personal interests of the individual to accrue wealth will be harmonized with the incentive to maintain the value or integrity of his property. Of course, some people will take better care of their property than others. However, on the whole, people are comparatively more inclined to take better care of their own property than they are to take care of common or public property.
Who will Provide Defense?
Various types of defense insurance agencies (DIAs) will likely take over the role of security provision, because they have a large amount of capital required to cover any claims made immediately after their provision of coverage. Hoppe explains:
[Insurance agencies] operate on a nation-wide and even international scale, and they own large property holdings dispersed over wide territories and beyond single state boundaries. Accordingly, they have a manifest self-interest in effective protection, and are big and economically powerful. Furthermore, all insurance companies are connected through a network of contractual agreements of mutual assistance and arbitration as well as a system of international reinsurance agencies, representing a combined economic power which dwarfs that of most if not all existing governments.
They have the financial incentive to prevent vandalism, violence, and intrusion by any party (whether it be a foreign nation-state or domestic criminal) for this is the outcome that yields them the greatest amount of profit. Finally, an infrastructure for reciprocity and cooperation between insurance agencies already exists.
The Mechanics of Free Market Security Provision
Defense Insurances Agencies (DIAs) will incentivize people to live in safe and easily defendable areas by offering them lower premiums. DIAs will also offer lower prices to those with long, peaceful records; conversely, they will penalize aggressive behavior or misconduct by increasing premiums, along with perhaps imposing scrutinizing monitoring requirements if coverage is to be maintained. DIAs may also offer lower premiums for those who can provide them with proof of personal defensive capabilities. In this way, DIAs are able to incentivize good behavior and self-defense whilst simultaneously discouraging misconduct. Furthermore, it is in a DIA’s financial interest to investigate, detect, and apprehend aggressors to hold them accountable for their crimes, as opposed to having to cover damages out of its own pocket. Contrast this with the agents of State-provided security who will laugh if asked to track down a stolen radio, or to compensate one for it.
As insurance revolves so much around the collecting of valuable information – namely, risk and financial assessments – it seems likely that DIAs would keep tabs on aggressors and share them with other insurance agencies, much like banks share information between themselves regarding bad credit risks. Banks, insurance agencies, law firms, and others could share this data so that they may be able to enjoy reciprocal relationships, allowing them to better determine the security risks in various environments. This “discipline of constant dealings” is what also incentivizes these various agencies to honor their agreements with one another. That is to say, many of them will realize that the long run benefits of their cooperative relations in this capacity will likely outweigh the short term benefits of reneging on a current undesired arrangement (such as an unfavorable arbitration ruling). The sharing of this information on various aggressors will have the mutually beneficial effect of allowing each of these agencies to set premiums which correspond more closely with actual risks.
The “Free Rider” Problem
Before anything, it is important to note that millions of people already act as free riders with respect to current State systems, despite the State having the legal right to demand payment. With that said, some suggestions for how to mitigate free riders and fraud:
 The DIAs may provide their clients with identifiable signs or medallions to carry on their persons to indicate coverage. DIA agents may also have, in addition to a database of covered persons, programs to provide their clients with tracking devices as a means to monitor and locate them when endangered. The client may be incentivized to carry such a device by the prospect of reduced premiums.
 They may publicly post maps of their covered and uncovered households. This will have a two-fold effect: First, it is likely that many aggressors would take into consideration the level of security around a household or person before deciding to commence his/her act of aggression. Therefore, having access to such a map may deter him/her from targeting covered homes. Second, the people who do not patronize this service may realize their lack of coverage encourages and consolidates aggressors as they begin to specifically target homes without the resources of DIAs to defend them. It is this prospect of aggression that will further incentivize their adoption of DIA coverage.
 Various businesses may decide to restrict business to individuals who can provide proof that they contribute to a DIA. This restriction may be set with the intention of gaining PR for promoting the defensive strength of these free territories. Custom and culture play strong roles in circumventing the traditional issues associated with collective action problems. Due to reputational considerations and our adopted social mores, most of us leave tips at restaurants even if we plan on never returning to them. Likewise, in such a free society, people would likely encourage others to contribute to protection agencies as doing so benefits everyone with additional security.
 Many residential or commercial areas may implement exclusionary policies prohibiting the entrance of uncovered persons. A lack of DIA coverage may indicate two things about an individual: he is either unable to afford or is ineligible for coverage owing to a history of recurring aggressive behavior. These areas would be disinclined to invite persons lacking coverage as they would be unable to verify civilized behavior.
Of Secret Armies
It would be catastrophic to realize the agency to which one delegated his security and protection was actually his greatest threat. This is, in fact, true with regard to the State today (but of this we have no choice). When individuals have the option to browse and purchase protection, they will doubtlessly take into consideration the trustworthiness of the organization in question. Just as no one invests in a safe before being assured of the integrity of the lock, so too will scrutiny be placed upon the capacity of these organizations to effectively neuter and bind their own use of force. The threat of an agency using its resources to hire mercenary soldiers against its own customers will be felt by all, and that consideration will play a serious role in one’s patronage. As this will be one of the primary concerns shared by most customers, the onus will be on the DIAs to set up their service in such a way that its prospective clients are assured that no such “secret army” bent on conquest will ever manifest, let alone turn against them. The DIA may be able to qualm these concerns by subjecting itself to random third-party arms inspections, and by obliging itself to pay X amount of money to its clients if it is found to be operating outside of contractual guidelines, and in still other ways. This money may be kept in an escrow account. In this way, the client may be assured that the DIA will not be able to renege on this agreement without serious financial recourse.
Additionally, it would be very difficult for such an army to be assembled, as the costs of amassing such a force would necessarily cause a rise in premiums for this DIA’s customers. However, such a rise in premiums would drive them away to competitors and cause a major disruption in revenue. Finally, it will be difficult for this DIA to find suppliers willing to fulfill massive orders for materials relating to such an endeavor, as they too are concerned with their reputation, and do not wish to abet murderers, robbers, and potential tyrants.
Preventing the Manifestation of a State
A voluntary society, replete with competitive upstarts, would be a decentralized and dynamic society. Protection could take the form of martial arts, shooting practice, a gang or clique, professional security agencies, and any number of as-of-yet undiscovered means. In order for a State to (re)assert itself onto a public, it would need to defeat every competitor that could defend itself among any number of these lines. If a powerful army bent on domination did somehow manifest, most, if not all, of the remaining DIAs would be compelled to band together to counter the prospective State’s aim of conquest in the interest of their own personal and financial survival, along with the increased attention from having acted heroically. Competitors to the State may utilize any number of attack vectors to neutralize the threat posed by a State, including physical impediments, cyber-warfare, espionage, assassinations of key figures, ending/establishing commercial agreements and treaties, influencing social opinion, and other ways. However, even granting the risk that a State may manifest in a stateless society, it must continue to be fought for the same reasons many choose to fight cancer despite the possibility of recurrence.
Foreign Nations and Free Territories
The relationship between organizations of free peoples and established nation-states has been varied over the course of history. Many kings, presidents and parliaments have waged cruel war on “natives” who, lacking Eurocentric conceptions of hierarchical legal systems, have appeared to Western invaders as idiots or savages, without government, justice, law, civility, without nuance or subtlety at all. In some instances, where the similarity between peoples was great, nation-states have recognized the sovereignty of free territories. For instance, between the Revolutionary War and the ratification of the Constitution, each American colony became a sovereign, an independent political autonomy. Relations with foreign nations would depend on much, including comparative religion, trade, ethnicity, language, wealth, and the character the people demonstrate abroad.
There are a number of reasons, however, to regard the institutional structure of the defense organizations in society as a crucial matter in determining foreign relations. As in other aspects of life, the incentives matter. In an anarcho-capitalist society, there are many defenders, each armed with their own skills. Potential invaders would recognize a very different structure than they are accustomed to. Instead of a single organization acting to defend a complex society, they would see a plurality of firms offering various levels of coverage and physical protection, big and small, for the individual, family, or business. Furthermore, the goal for the invader is itself not clear. As there is no State to defeat, there is no existing tax machine to acquire. There is no easily-accessible mechanism with which to rob one’s recently-conquered subjects. The terrain of an anarchist society further implies guerrilla tactics and insurgency, counter-economies, encryption tools, large-scale gun ownership, and further barriers to State encroachment.
Indeed, beyond this, the prospective invader would have a very difficult time garnering the support for such an invasion, as there would be no grounds or justification for such an act. If a foreign State had a legitimate issue with a particular person or group of people, then the DIAs would happily offer to mediate and resolve the issue, either dissolving or covering the claim as trials determined. As individuals in such a society are not “citizens” of any State, but are free and independent people, the only potential for retaliation or calls for retribution would be against specific individuals. Without a particular State to blame, foreign aggressors would have a more difficult time dehumanizing large swaths of people in these free territories. Consequently, potential invaders would have to consider the risks of losing legitimacy at home and abroad for levying war against them. One unique consideration would be the uncertain military and civilian defensive abilities of the occupants one is invading. In such a society, there would be no universal or mandated arms regulations in distinct contrast to its State counterparts. The arsenal of some of these DIAs could include nuclear or biological weapons, which may serve to deter otherwise aggressive nations from invading. Historically, the leaders of other nations are hesitant to invade countries armed with nuclear weapons as their own personal survival will be directly threatened in pursuit of such an endeavor.
Trusting Private Actors With Nuclear Arms
Nuclear warheads and other weapons of mass destruction are designed specifically to indiscriminately annihilate groups of people. There cannot be a targeted use of a hydrogen bomb; by their nature, they are intended to spread and cause damage to any human, guilty of an injustice or not, and cause terrifying pain and death. That said, these weapons currently exist, and until the day they are abandoned and disarmed, they will be held by some parties. It would be more advantageous for DIAs to acquire nuclear weapons as opposed to the heads of State of various nations having exclusive access to them. Of course, the onus will be on the DIAs to discover the right configuration of checks and balances within its operational procedures to assure its prospective clients that such weapons will not be used without just cause. Moreover, they will have the burden of discovering a way to demonstrate that such weapons will not be used against innocent people. The obvious reason is purely financial: if such agencies incur any form of collateral damage, they would be subject to the same legal and financial liability as any other individual. Another reason is marketing, branding, and how the agency wants to be seen – as a paladin on a hill, ready to protect, not a marauding berserker, ready to plunder.
There are no reasons why a State should demonstrate an advantage over protecting and safeguarding the use of such weapons over similar attempts made by a DIA. It is individuals that handle nuclear weapons under State control just as it is individuals who would handle them under the auspices of a DIA. One chief difference, however, is the incentive structure: the survival of a DIA is predicated upon the proper handling of these dangerous weapons, whereas the State may easily fail in such a duty, and yet demand more funding for the sake of accomplishing the task more effectively in the future. In business, failure is met with losses or liquidation; in government, failure is met with larger budgets. One may see how the prospect for an increased budget may make the State a poorer candidate for handling such dangerous materials than a private defense agency.
Worst Case Realized
In the event a foreign belligerent attempts to conquer or kill groups of free people, they would first encounter the civil resistance of their own people, and then the physical resistance of their victims. Without a State to provide defense, protection of property will be ensured by mutually coordinating defense firms. Most of the defensive agencies would likely band together to ward off any foreign aggressor for the sake of retaining the capital value of their overlapping covered territories. Furthermore, these free territories may have the technological advantage over any opposing outside force since free markets tend to produce more advanced technology and attract stronger talent, all other things being equal.
In defense, guerrilla and/or asymmetric tactics would likely be implemented as they have proven to be highly effective against much stronger foes. Take, for example, Vietnam, the Soviet/Mujahedeen conflict, and today’s prolonged War on Terrorism. It would be far more expensive for the invader to take offensive actions than it would be for the defender to take defensive actions through unconventional means. The resultant financial drain and loss of lives suffered through attrition will serve to dampen the invading country’s support, which is requisite for its sustained involvement. Moreover, because there will be competing defense agencies, there will not be any system-wide vulnerabilities in which the invading force can exploit. The defense will be decentralized and have many independent sources of power, communication, and weaponry. One must also consider the inherent advantage afforded to those with previously set up defensive fortifications. Unlike in other State realms, the general populace will be much better armed due to the lack of gun prohibitions and the presence of financial incentives provided by DIAs for people to develop their own defensive capabilities. Finally, people from these free territories would likely have valuable trade relations with the citizens of foreign countries; thus any threat to these prosperous trading ties may prompt these foreigners to request their own governments to join in the defensive efforts against such an invading nation.
The incredible benefits of security offered in free markets are not confined to a more “economical” use of resources with fewer incidents of crime. In the wake of a safer environment, human cooperation is truly able to abound and flourish. This will increase the rate of technological progress by orders of magnitude. With such increases in technology and human cooperation, the time and resources previously spent towards securing basic human needs (food, shelter, clothing, etc.) would then be freed up for use towards higher pursuits and leisure. Self-actualization would take over as life’s primary objective for most, displacing mere sustenance as a focal point.
 Thomas Hobbes, Leviathan: Or the Matter, Forme, and Power of a Common-Wealth Ecclesiasticall and Civill. edit. Ian Shapiro (New Haven: Yale University Press, 2010).
 Gustave de Molinari, “Competition in Security” in The Production of Security (New York: Center for Libertarian Studies, 1977).
 Hans-Hermann Hoppe, “The Case for Private Security” in The Private Production of Defense (Auburn: Ludwig Von Mises Institute, 2009), 22.
 Rothbard, “War, Peace, and the State” in Egalitarianism, 115-32. “These weapons are ipso facto engines of indiscriminate mass destruction. (The only exception would be the extremely rare case where a mass of people who were all criminals inhabited a vast geographical area.) We must, therefore, conclude that the use of nuclear or similar weapons, or the threat thereof, is a sin and a crime against humanity for which there can be no justification.”